That’s all for today - here’s the main stories:

Growth across the UK economy has hit a six-month low, as supply problems and staff shortages hold back the recovery.

Service sector firms and manufacturers reported that problems hiring staff or obtaining raw materials worsened in August, according to the closely watched PMI survey.

My colleague Richard Partington explains:

Britain’s economic recovery from lockdown has slowed sharply in the past month despite the removal of most remaining pandemic restrictions, as businesses suffered the worst shortages of workers and materials in decades.

The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed that growth in private sector output slowed to a six-month low in August.

Problems with hiring workers and shortages of materials were 14 times higher than usual, and the worst since the survey of business activity began in January 1998.

A separate survey from the CBI found that factory shortages are at record levels (since 1977), with plastics and electronic components in particularly short supply.

Our economics editor Larry Elliott warns that conditions could worsen:

It is a classic double whammy. On the one hand, businesses are being forced to pay higher wages to plug labour shortages. On the other, demand is starting to ease. The economy will continue to grow at a fair lick in the third quarter of 2021 but at a much less rapid pace than the 4.8% seen in the second quarter.

That double whammy could easily become a triple whammy if the economy struggles to cope with the withdrawal of government support. Rishi Sunak has no intention of scrapping his plan to wind up the furlough scheme next month and sees no reason why he should, given record job vacancies.

But it is easy enough to envisage a scenario in which consumers decide eating out or a visit to the cinema is not worth the risk, especially with firms jacking up their prices to cover higher wage costs. Britain’s bout of mini-stagflation will probably get worse before it gets better.

Desperate UK food manufacturers are pleading with the government to be able to call upon prisoners to solve the labour crisis:

Britain isn’t alone, though.

Growth at US companies has hit an eight month low, with firms blaming material shortages, difficulties hiring new staff and the spread of the Delta variant.

The news lifted the US markets, and kept the dollar weaker, as concerns that the US Federal Reserve could start tapering its stimulus programme soon eased.

The pandemic also hit growth in Asia-Pacific markets, with Australia and Japan both suffering private sector contractions as lockdowns hurt businesses, but the eurozone is enjoying a stronger month.

And the Bundesbank warned that growth could be weaker than hoped, if the Delta variant forces new restrictions this autumn.

In other news....

Sainsbury’s shares surged 15% to their highest level in more than seven years, after reports over the weekend that the supermarket chain could be the latest UK company to receive a buyout bid from a private equity firm.

A new report has found that gambling venues are concentrated in the most deprived areas of Britain, against the wishes of people who live nearby:

Pfizer is acquiring cancer drugmaker Trillium Therapeutics, which is developing treatments to help the immune system identify tumour cells.

The owner of Liberty Steel is in talks with the US lender White Oak Global Advisors over a refinancing deal that could help end months of stop-start operations at UK steel plants.

The gender pay gap on UK company boards remains far too wide, with average pay for FTSE 100 female directors stands at just £237,000 - barely a quarter of the £875,900 paid to their male counterparts:

Stephen Hester, the former boss of Royal Bank of Scotland, will become the chairman of easyJet at the end of the year, to help steer the budget airline out of the pandemic.

Shaftesbury, the central London landlord that owns parts of Chinatown, Soho and Covent Garden, has reported a pickup in visits by Londoners and domestic tourists.

PayPal is to allow users in the UK to buy, hold and sell cryptocurrencies through the payment platform for the first time.

European stock markets have closed higher, while Wall Street is hitting fresh peaks:

Goodnight. GW

In the City, the FTSE 100 index has ended the day up 0.3%, lifted by the swirling speculation of a possible takeover bid for J Sainsbury.

The Footsie has closed 21 points higher at 7109 points, with supermarket chain Sainsbury’s jumping 15% to end at 340p, a seven-year high.

Jet engine maker/servicer Rolls-Royce (+3.2%) was also in the risers, with luxury goods maker Burberry (+2.9%) close behind. Mining giant Glencore (+2.5%), and oil companies BP (+2.4%) and Royal Dutch Shell (+2.1%) were also higher, as energy and commodity prices rise.

But, the strength of the pound did weigh on some multinationals (as it makes overseas earnings less valuable in sterling terms), capping the FTSE 100’s gains.

European markets also had a good day, with the Stoxx 600 closing 0.75% higher.

The rally suggests that anxiety over an early easing of the US central bank stimulus programme is fading, as the economic picture darkens a little.

Craig Erlam, Senior Market Analyst, OANDA Europe, explains that the Fed seems less likely to make a major announcement at this week’s Jackson Hole economic symposium, given uncertainty over the pandemic.

We’re starting off the week in a corrective manner, with the moves late last week being partially reversed as calm returns to the market.

Traders became far more risk averse last week, particularly on Thursday following the release of the Fed minutes a day earlier. Perhaps too much was read into them or maybe the selling was opportunistic, a little profit taking ahead of Jackson Hole, but the dips are being bought once more so the doom and gloom has passed fairly quickly.

There’s a growing amount of uncertainty in the markets as we head into September. The delta surge we’re seeing in so many countries now is a significant growth risk for the final quarter. China successfully eradicated it once more but few are going to take such a drastic approach, regardless of its success.

The US is still seeing cases and fatalities rising which is a growing concern. There may be strong resistance to more lockdowns but the numbers will no doubt take their toll on the economic recovery one way or another. The data in recent months has been fantastic but the outlook is becoming increasingly downbeat.

Which makes the Federal Reserve decision on tapering all the more important. What was looking a fairly straight forward move now brings significant doubts. Jackson Hole looked the ideal platform for a taper warning but now, officials may be more inclined to see how the data unfolds over the weeks before the September meeting before dropping any major hints.

And here’s Ally investment strategist Callie Cox:

The International Monetary Fund’s record $650bn injection of resources came into effect today, as it tried to help countries recover from the pandemic.

The new monetary reserves, known as special drawing rights, are being distributed to member states -- with managing director Kristalina Georgieva calling the move a “significant shot in the arm” for global efforts to combat Covid-19.

Georgieva said:

“The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis.”

The funds will be distributed to all 190 fund members in proportion to their IMF quota- which means that wealthy nations will get most of it.

Georgieva is also urging wealthy states to direct some of their allocation to countries lacking the means to cope with the Covid crisis and future challenges, Bloomberg explains:

Some 70% will go to the Group of 20 largest economies, against just 3% for low-income nations

As a result, of the $650bn, about $21bn will go to low-income countries and $212 billion to other emerging market and developing countries, without counting China, according to U.S. Treasury Department calculations.

“Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis,” Georgieva said.

The Group of Seven advanced economies in June endorsed a plan to reallocate $100 billion of new SDRs to poorer countries.

Just in: Growth across America’s private sector has slowed sharply this month to its weakest rate this year, as rising cases of the Delta variant, supply shortages and capacity pressures all hit the recovery.

That’s according to the latest Flash U.S. Composite PMI from IHS Markit, which shows that growth has hit an eight-month low in August.

The survey of purchasing managers found that America’s private sector expanded at its slowest pace since last December, with service providers and manufacturers reported greater constraints on capacity.

Markit says:

Material shortages, difficulties hiring new staff and the spread of the Delta variant were all highlighted as factors driving a steep accumulation of backlogs of work during August. The strong rise in outstanding business was only slightly below July’s record high, and coincided with only a marginal upturn in employment.

Staffing numbers rose at the slowest rate since July 2020, often linked to difficulties finding staff.

The PMI report also found that new business slowed, with service firms suffering a drop in export orders.

And (predictably) severe supply chain disruptions drove up companies’ costs, with raw materials prices and wages rising. Input price inflation accelerated to the second-fastest on record (since October 2009), with both manufacturing and service sectors seeing a quicker rise in costs.

This pulled the Flash US Composite Output Index down to 55.4, from 59.9 in July, an eight-month low.

Chris Williamson, chief business economist at IHS Markit, explains:

“The expansion slowed sharply again in August as the spread of the Delta variant led to a weakening of demand growth, especially for consumer-facing services, and further frustrated firms’ efforts to meet existing sales.

Not only have supply chain delays hit a new survey record high, but the August survey saw increasing frustrations in relation to hiring. Jobs growth waned to the lowest since July of last year as companies either failed to find suitable staff or existing workers switched jobs.

In the cryptocurrency space, bitcoin has risen over the $50,000 mark for the first time since May.

This morning’s three-month high follows a strong recovery for bitcoin since mid-July, when it dipped to $30,000, more than 50% below April’s record high.

Interest in crypto assets is rising again, despite warnings from central bankers and regulators earlier this year over their volatility, and the possibility of tighter regulation.

Analyst Daniela Hathorn at dailyfx.com says:

“Bitcoin has crossed the $50,000 mark for the first time in 3 months as enthusiasm about cryptocurrencies continues to rise. The $50,000 mark is a key psychological level for the digital coin and so we may see some resistance appear before any further bullish momentum can be achieved.

A pullback towards the $48,000 area would be the first sign of trouble but the positive trend isn’t in any trouble as long as Bitcoin stays above its 200-day moving average at $45,750. Looking ahead, the key challenge for buyers will be to cement further gains towards $55,000 without losing momentum along the way.”

Online payments firm PayPal has helped move crypto a little closer to wider adoption, by allowing users in the UK to buy, hold and sell cryptocurrencies through the payment platform for the first time.

The firm said it would allow customers to choose from four types of cryptocurrency – bitcoin, ethereum, litecoin and bitcoin cash – and that the service would be available via the PayPal app and its website.

Back in Europe, Germany’s central bank has warned that the Delta variant could hit economic growth in Europe’s largest economy this autumn.

Reuters has the details:

Economic growth in Germany could miss projections this year and the resurgence of the coronavirus pandemic may put unexpected strain on the economy in the autumn, the Bundesbank said in a monthly report on Monday.

Europe’s biggest economy is expected to grow by 3.7% this year and 5.2% in 2022 but the early weeks of the rebound were more timid than projected and that will likely weigh on the full-year figure as well, the Bundesbank said.

Germany is still likely to have enjoyed robust expansion over the summer months, with services benefiting from the easing of restrictions as infection numbers declined, boosting tourism income.

While some restrictions could be reintroduced in the autumn if infections continue to rise, they are unlikely to be as strict as in the past given Germany’s progress in vaccinating its population, the Bundesbank added.

But a drop in the pace of vaccinations does pose a risk and sentiment indicators are pointing to heightened concern as Europe faces the more infectious Delta variant of COVID-19.

“The Delta variant and a decline in the dynamics of vaccination could lead to stricter protective measures again,” the Bundesbank added. “This would then put a greater strain on the economy in the autumn quarter.”

Earlier this month, Germany’s leaders set out new coronavirus regulations for the coming months, including abolishing free rapid testing, to incentivise people to get vaccinated after cases began to rise.

Pharmaceuticals news: Pfizer is acquiring cancer drugmaker Trillium Therapeutics, which is developing treatments to help the immune system identify tumour cells.

Pfizer has announced it will buy all the shares in Trillium which it doesn’t already own, having previously invested in the immuno-oncology company last year.

In a statement, Pfizer explains that Trillium is developing innovative therapies for the treatment of cancer, such as hematological malignancies -- cancers that affect the blood, bone marrow, and lymph nodes.

It says:

Trillium’s portfolio includes biologics that are designed to enhance the ability of patients’ innate immune system to detect and destroy cancer cells.

Its two lead molecules, TTI-622 and TTI-621, block the signal-regulatory protein α (SIRPα)–CD47 axis, which is emerging as a key immune checkpoint in hematological malignancies. TTI-622 and TTI-621 are novel, potentially best-in-class SIRPα-Fc fusion proteins that are currently in Phase 1b/2 development across several indications, with a focus on hematological malignancies.

The deal that values Trillium at $2.26bn, or $18.50 per share --which Pfizer says is a 118% premium to the stock’s weighted average price over the last 60 days.

Shares in Trillium have promptly almost tripled (up over 190%) in premarket trading to around $17.73, from just over $6 on Friday.

The company’s website also explains how its products mobilize both the innate and the adaptive branches of the immune system to fight cancer, by targeting CD47, a molecule that tumors frequently use to evade the immune system.

On its site, Trillium says:

CD47 is a “don’t eat me” signal that blocks the ability of macrophages to phagocytose and destroy tumor cells. By blocking this “don’t eat me” signal with decoy receptors, we aim to unmask tumor cells and make them visible to the immune system.

UK factories are suffering an unprecedented shortage of stocks, as the lack of electronics and plastic products hurts firms -- as concerns grows that growth has peaked.

The CBI’s latest Industrial Trends survey shows that stock adequacy weakened to a new survey-record low (since April 1977) for the third consecutive month running, driven by the electronic engineering and plastic products sub-sectors.

With parts and materials in short supply, firms anticipate hiking their own prices again too -- expectations for output price growth over the next three months remained high, and close to the near-30 year high seen in June.

The survey also found that manufacturing output growth in the three months to August slowed, after hitting a record in July, but was still strong by historical standards as firms recover from the pandemic.

Output increased in 13 of out 17 sectors, led by food, drink & tobacco sub-sector. But the motor vehicles sub-sector was flat -- with carmakers around the world having been caught up in the shortage of semiconductors (Volkswagen and Toyota warned of production cuts just last week).

It’s (yet) another sign of the disruption caused by supply chain problems, as CBI Lead Economist, Alpesh Paleja, explains:

Manufacturing activity remained strong this month, with total order books remaining firm and most sub-sectors reporting rising output. However, early signs from the data suggest that growth in activity may have peaked

“It is notable that stock adequacy deteriorated to a new record low for the third consecutive month. Many firms are feeling the pinch from ongoing supply chain disruption, which also partly explains the continued strength in pricing pressures

“Despite the rebound in activity, ongoing disruptions could choke off future manufacturing growth. It’s therefore vital that businesses and the government continue to work together to smooth over some of the frictions in supply chains and the wider sector, until activity settles back down to normal levels.”

Disappointingly, export order books have weakened, although total order books remained stronger.

Shaftesbury, the central London landlord that owns parts of Chinatown, Soho and Covent Garden, has reported that Londoners and domestic tourists are returning in growing numbers, bringing footfall back to about half the level before the pandemic.

The cafes, bars and restaurants in the capital’s West End are experiencing a strong recovery as visitors spend time in the area’s hospitality and leisure venues. Footfall has risen to 50-60% of pre-Covid levels.

However, central London is missing the presence of overseas tourists as well as office workers – who would usually visit the area’s shops, food outlets and other service businesses such as hairdressers during the week – and who are expected to return in larger numbers in the autumn.

The property firm said retailers renting space in its buildings had reported trade was improving, particularly at weekends, although this had been less buoyant than in hospitality businesses.

Shaftesbury, which owns 6.5 hectares (16 acres) of land in central London, was upbeat in its assessment of trade, despite the continued slump in footfall in the West End, a district that has a low number of residents and relies on office workers and international visitors.

UK food manufacturers are painfully aware of the shortage of workers in the UK.

Their labour crisis is so severe that the industry is pleading with the government to be able to call upon prisoners to help.

The Association of Independent Meat Suppliers, which represents butchers, abattoirs and processors, said it had a call set up with the Ministry of Justice on Monday that would explore how its members could recruit more current inmates and ex-offenders.

To fill vacancies companies are trying to draft in prisoners via a scheme that allows inmates to undertake paid work on day release. They are also contacting charities for ex-servicemen and women to try to drum up staff.

Tony Goodger of the meat suppliers’ association said some of its members already had inmates on the release on temporary licence programme working for them and found them to be an asset.

It had also been in contact with the Career Transition Partnership, which helps former service personnel into work, and had been able to point some of them to members with job vacancies; however, the “numbers are low”, Goodger said, adding:

“Much of the food industry is facing a recruitment crisis.”

“The advice we have received from the Home Office is that the UK’s domestic labour force should take priority. However hard we and many of the members have tried, staffing remains a challenge.”

The “chunky fall” in the UK’s composite activity PMI this month suggests that the economy struggled to gain fresh momentum in August, says Kieran Tompkins of Capital Economics.

That’s despite the apparent easing of the “pingdemic” and the final relaxation of all domestic restrictions, he points out, adding:

Overall, the large fall in the composite PMI suggests that the economic recovery might be slowing a bit faster than we had thought. That poses a downside risk to our forecast for the economy to return to its pre-pandemic level by October.

Rhys Herbert, senior economist at Lloyds Bank, says the recovery is levelling off, as the economy edges back towards its pre-pandemic state.

“Many sectors are reporting record high numbers of job vacancies, reflecting healthy demand, yet there are signs that some businesses are finding recruitment difficult. With supply chain disruptions also persisting inflationary pressures remain a concern for now despite the slowdown in CPI inflation in July.

“The economy is in good shape heading into the autumn, though with some unknowns. The expiration of the furlough scheme, the prospect of another spike in Covid-19 cases during the winter and further disruption from fresh lockdowns overseas each present potential hurdles in the months to come.”

Willem Sels, chief investment officer, Private Banking and Wealth Management, HSBC, says the spending boost from the reopening of shops, hospitality and leisure services this spring appears to be fading.

While the ‘pingdemic’ situation seems to have improved, there are some signs that the initial boost to consumer spending coming from the reopening is fading. And businesses that are facing shortages in either goods or workers often have to react by paying more, increasing cost pressures.

“The UK PMIs for both manufacturing and services had already started to drop last month, and they dipped further this month, but they remain well above the crucial 50 mark, meaning that the recovery continues. The services PMI dipped somewhat more than manufacturing, giving an early indication that some of the supply bottlenecks of semi-conductors and other goods could now be easing, while UK consumer demand and staffing in retail businesses continue to face challenges.

The worst shortages of staff and materials on record are mostly to blame for the “abnormally large slowdown in overall activity” in the UK, says Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS).

Brock explains that August’s growth slowdown suggests that the surge in growth in recent months can’t last:

August offers a stark warning to the UK economy that the accelerated levels of growth we’ve seen earlier this summer are not sustainable....

“Finding the right skills was difficult for businesses, meaning that job seekers had the pick of the bunch in terms of opportunities. The service sector was hiring at a brisker pace than any time in the past 25 years and stronger wage demands followed suit, which resulted in business costs climbing again.

Manufacturers paid more for shipping their goods, and supplier delivery times were rivalling the height of the disruption last year.

Brock adds, though, that firms remain optimistic, following the end of pandemic restrictions in recent weeks which led to a pick-up in activity.

It was also encouraging that export order growth picked up since July, as countries recovered at different speeds. However, it’s likely that cautious consumers will continue to remain an obstacle for UK businesses until full confidence returns.”

Newsflash: The UK recovery has lost momentum this month as companies across the economy struggle with staff shortages caused by the pandemic, and the ongoing supply chain problems.

Growth across the UK private sector slowed to a six-month low in August, according to data firm IHS Markit’s monthly survey of purchasing managers at UK firms.

Companies across the services and manufacturing sector reported that their business activity was hit by staff shortages and shortfalls of materials.

This pulled IHS Markit/CIPS flash composite PMI down sharply, to 55.3 from 59.2 in July.

That’s the index’s lowest since February, worse than expected, but it’s still above the 50-point mark separating expansion from contraction.

Markit says:

Weaker recoveries were seen in both the manufacturing and service sectors, with the latter recording the greatest loss of momentum since July.

Analysis of comments provided by survey respondents suggested that incidences of reduced output due to shortages of staff or materials were fourteen times higher than usual and the largest since the survey began in January 1998.

The UK relaxed its isolation rules for double vaccinated people on 16th August, after a swathe of reports that the ‘pingdemic’ was hurting businesses.

Companies have also been hit by the shortage of HGV drivers - blamed on a mix of Brexit, the Covid-19 pandemic and tax changes that have prompted some drivers to leave the trade.

On the upside....firms did report the fastest rise in employment numbers since the index began in January 1998. But even so, backlogs of work increased for the sixth month running as businesses struggled to keep up with customer demand.

Here’s the details:

• Flash UK Composite Output Index August: 55.3, 6-month low (July final: 59.2)
• Flash UK Services Business Activity Index August: 55.5, 6-month low (July final: 59.6)
• Flash UK Manufacturing Output Index August: 54.1, 6-month low (July final: 57.1)
• Flash UK Manufacturing PMI August: 60.1, 5-month low (July final: 60.4)

Chris Williamson, Chief Business Economist at IHS Markit, warned that the UK economy is losing momentum - due to rising Covid-19 cases and supply chain problems.

“Although the PMI indicates that the economy continues to expand at a pace slightly above the pre-pandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter.

Despite COVID-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.

Supplier delays have risen to a degree exceeded only once before – in the initial months of the pandemic – and the number of companies reporting that output had fallen due to staff or materials shortages has risen far above anything ever seen previously in more than 20 years of survey history. In manufacturing, sectors including automotive production and electrical goods have fallen into decline due mainly to supply constraints.

Prices have risen sharply again, albeit with the rate of inflation moving below July’s record high, as shortages once again fuelled a sellers’ market for many goods and services and wages rose further.

More positively, business expectations for the year ahead perked up in August, encouraging a record jump in employment as furloughed workers were brought back to the workplace. However, demand and supply availability need to improve further for this rise in employment to be sustained in coming months”

Eurozone business activity remained strong this month as vaccination programmes helped firm to reopen, although supply chain problems continue to hit companies.

Data firm IHS Markit reports that eurozone business activity continued to grow at one of the strongest rates seen over the past two decades in August, with job creation sticking at July’s 21-year high.

However, the rate of expansion did cool slightly this month amid widespread supply chain delays.

This pulled Markit’s Composite Purchasing Managers’ Index down to 59.5 in August from 60.2 last month [still comfortably over the 50-point mark showing stagnation].

Germany (see previous post) led the way with the fastest growth, while France cooled slightly, and growth in the rest of the eurozone as a whole was the fastest in 21 years.

But... eurozone business confidence was subdued by rising concerns over the Delta variant, while firms’ costs and the prices they charged rose at near record pace.

Service sector growth exceeded that of manufacturing for the first time since the pandemic, as service firms were boosted by the further reopening of the economy... and factory growth hit a six-month low.

Chris Williamson, chief business economist at IHS Markit said the eurozone’s economic recovery “retained impressive momentum in August”, despite the pandemic and ‘havoc’ in supply chains.

“Although the spread of the Delta variant caused widespread problems across the region, curbing demand and causing further supply issues, firms benefited from virus containment measures easing to the lowest since the pandemic began.

Supply chain delays continue to wreak havoc, however, leaving companies frequently unable to meet demand and pushing firms’ costs higher. These costs, combined with surging demand, led to another near-record increase in average selling prices for goods and services, though there are some welcome signs that these inflationary pressures may have peaked for now.

Firms are also having to pay more to attract staff, Williamson adds:

“Encouragement comes from a second month of job creation at the strongest for 21 years, which reflects efforts by firms to boost operating capacity and meet demand, which should ultimately further help bring price pressures down.

The concern is that we are seeing some upward movement on wage growth as a result of the job market gain, which could feed through to higher inflation, and supply delays from Asia in particular look likely to persist for some time to come.”

In the City, the blue-chip FTSE 100 index has risen in early trading - lifted by a surge in supermarket chain J Sainsbury’s shares.

The FTSE 100 is up 40 points, or 0.6%, at 7127 points, recovering some of last week’s losses.

Sainsbury have jumped by 9% to 322p, their highest since late August 2018, amid reports that it could be the latest UK company to face a private equity bid.

My colleague Zoe Wood explains:

The US buyout firm Apollo is taking an “exploratory” look at Sainsbury’s, according to the Sunday Times. Apollo has been scouring the industry for targets after being outbid for Asda last year, it said.

One complication is that Apollo, which was originally in the running to buy Morrisons, has said it is considering teaming up with Fortress. Any involvement in buying Morrisons would make a move on Sainsbury’s less likely, analysts said.

Shares in Sainsbury’s have already surged 30% this year on the back of bid speculation. That started in April when the Czech billionaire Daniel Křetínský raised his stake in the company to nearly 10%.

However when asked last month if the Sainsbury’s board was in talks with potential suitors its chief executive Simon Roberts said: “If we had anything to update on we would be updating on it.”

After falling into a bear market last week, Hong Kong’s Hang Seng index is having a better day.

It’s currently up around 1%, as Asia-Pacific markets post gains. Japan’s Nikkei has jumped 1.8%, while China’s CSI 300 index is up 1.4%.

Investors appear to be shaking off last week’s anxiety about the US Federal Reserve cutting back its stimulus programme soon -- perhaps calculating that concerns over the pandemic could delay the move.

Last week, Dallas Fed President Robert Kaplan indicated that he could adjust his view that the Federal Reserve should start tapering its asset-purchase program sooner rather than later, if the Delta variant persists and hurts economic growth.

Kaplan has been one of the louder voices calling for an earlier tapering, so this could signal a shift among more hawkish Fed members.

But Australia’s market is lagging, with the S&P/ASX 200 only rising 0.4% today as Covid-19 cases continue to rise.

Jim Reid of Deutsche Bank says:

On the pandemic, there have been further concerning developments from Australia and New Zealand over the weekend as they both face a major surge in cases that have raised questions about the sustainability of their zero-Covid strategies.

In New Zealand, the total number of community cases connected to the latest outbreak now stands at 107, with a further 35 cases reported this morning, and Prime Minister Ardern said that the nationwide lockdown would be extended until midnight on Friday, with Auckland’s extended until midnight on August 31.

Meanwhile in Australia, Prime Minister Scott Morrison has said it was “highly unlikely” that the country will get back to a zero-Covid situation and a further 818 new cases were reported in New South Wales over the last 24 hours.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Is the post-pandemic growth rebound running out of steam this month, as the Delta variant hits economies around the world?

New economic data from Australia and Japan this morning show that activity slowed in August, ahead of a healthcheck on companies in the UK, the eurozone and the US.

In Australia, private sector output is shrinking at a faster rate this month as the recent lockdowns introduced in parts of the country bite.

A ‘flash’ survey of purchasing managers across the country show that the service sector contracted more sharply, as the pandemic continued to dampen demand and output. Some firms were forced to cut staff, as cases hit record levels.

This pulled the IHS Markit Flash Australia Composite Output Index down to a 15-month low of 43.5 in August, from 45.2 in July [any reading below 50 shows a contraction].

This shows the “continued toll that the Delta COVID-19 wave is taking on Australia’s private sector economy”, Markit says.

Jingyi Pan, economics associate director at IHS Markit, said:

“Australia’s private sector remained stuck in decline in August, according to the latest IHS Markit Flash Australia Composite PMI data, as activity remained heavily impacted by current mobility restrictions brought about by the spread of the COVID-19 Delta variant.

Not only were demand and business activity hit, employment conditions also deteriorated, with private sector staffing levels falling for the first time since October 2020. The labour market situation had been made worse on both ends of supply and demand amid the latest COVID-19 disruptions.

But firms are a little more optimistic, Pan adds:

“The one bright spot had been an improvement in the outlook amongst Australian private sector firms in August, with hopes of an improvement in the COVID-19 situation expected to spark an eventual rebound for the Australian economy.”

It’s a similar picture in Japan, where factory activity growth slowed in August, while that of the services sector shrank at the fastest pace since May 2020.

This pulled Japan’s flash Composite Output Index down to 45.9 for August, from July’s 48.8, showing the fastest contraction in a year - as a recent wave of COVID-19 infections is taking on the economy.

• Flash Services Business Activity Index, August: 43.5 (July Final: 47.4)
• Flash Manufacturing Output Index, August: 51.0 (July Final: 51.8)

Usamah Bhatti, economist at IHS Markit, said business conditions in Japan deteriorated further in August.

The latest contraction was the quickest recorded since August 2020, while incoming business was reduced at the sharpest pace for seven months. Survey respondents commonly attributed weaker demand to ongoing COVID-19 restrictions, coupled with sustained supply chain pressures.

The decline in overall private sector activity was led by the larger services sector, where business activity fell for the nineteenth consecutive month and at the quickest pace since May 2020. While manufacturers pointed to continued output growth, the rate of expansion softened from July.

Japanese private sector businesses noted that the recent surge in COVID-19 cases related to the Delta variant had dampened prospects in the latest survey period, as firms indicated the softest degree of optimism regarding the year-ahead outlook for one year. That said, positive sentiment was solid overall as vaccination rates continued to increase markedly.”

Flash PMI surveys from the UK this morning, along with France, Germany and the wider eurozone, are expected to show a slowdown in growth in August -- although comfortably in ‘expansion’ territory.

Michael Hewson of CMC Markets has the details:

In July German manufacturing rose to 65.9, and services jumped sharply to 61.8. It would be a surprise if either of these came in anywhere close this month given the various shutdowns of production announced by businesses because of supply chain disruptions and parts shortages. Forecasts are for a slowdown to 65 and 61 respectively, both of which come across as a tad optimistic.

Likewise, in France there has been increasing evidence that business activity has been declining with both manufacturing and services both slipping back in July from their June levels, and set to do so again in August to 57.2 and 56.3 respectively.

In the UK the pingdemic has already caused a slowdown in services in July, from the May peaks of 62.9, falling back to 59.6 in July, largely because of the so-called “pingdemic” which resulted in staff shortages, and various business disruptions. It’s also important to remember that while services have seen a decent rebound in the last few months, certain sectors are still struggling as a result of consumer behaviour which is much more cautious than it would have been pre-pandemic, which suggests we could see another softer reading of 59.1.

These PMI reports will also show whether companies are still suffering from record cost inflation, in the scramble for parts and workers.

European stock markets are expected to start the new week with gains, after posting their biggest weekly decline since February. Stocks on Asia-Pacific bourses have already rallied, with oil also strengthening, after China reported zero new Covid-19 cases for the first time since July.

Investors will also have an eye on Sainsburys, amid reports that the supermarket chain is being eyed up by private equity companies.

The agenda

• 9am BST: eurozone ‘flash’ manufacturing and services PMI for August
• 9.30am BST: UK ‘flash’ manufacturing and services PMI for August
• 11am BST: Germany’s Bundesbank Monthly Report
• 2.45pm BST: US ‘flash’ manufacturing and services PMI for August