Time for a recap.

Stock markets have fallen sharply on a jittery day in the City, Wall Street and beyond.

Technology shares led the selloff, with the Nasdaq Composite index currently down 2.5%, on track for its worst day since March.

Mega-cap tech companies are among the fallers, with Apple now down 4%, Amazon shedding 3.1%, Alphabet/Google losing 2.6%, Microsoft dropping 2.2% and Facebook down 2.6%.

Germany’s DAX index suffered its worst fall of 2021, dropping 2.5%, after chipmaker Infineon warned that about 2.5 million cars won’t be produced in the first half of 2021 due to ongoing supply chain shortages.

The FTSE 100 had started the day brightly, with travel companies rallying on hopes that holiday restrictions will be eased this summer. But after jumping over 7,000 points near to a one-year high, it ended down 46 points at 6923.

The selloff accelerated after Treasury secretary Janet Yellen suggested there could be ‘very modest’ interest rate rises to counter the inflationary impact of US stimulus spending.

As our economics editor Larry Elliott explains:

Fears of rising interest rates to dampen inflationary pressure as the global economy bounces back from Covid-19 has sent shares tumbling on both sides of the Atlantic.

Comments from America’s treasury secretary Janet Yellen that a modest increase in borrowing costs might be needed to rein in demand was enough to send tremors through financial markets already jittery as a result of shortages of computer chips.

Traders has already been spooked by a curious drop in shares earlier today, dubbed a ‘micro flash-crash’ that suggested some anxiety building in the markets.

The latest economic data had highlighted that inflationary pressures are building, as economies recover from the pandemic.

In the UK, factories reported the strongest growth since the mid-1990s -- and a painful supply chain squeeze that was driving up input costs.

Separately, the Bank of England reported a record jump in mortgage lending, and another drop in consumer credit as people paid off their bills.

Advertising magnate Sir Martin Sorrell also sounded upbeat, with his S4 Capital hiking its sales and profit forecasts:

“We are extremely optimistic about our prospects for this year and next, given the huge global fiscal and monetary stimulus introduced to counter the impact of the pandemic and the subsequent increase in consumer savings ratios and stagnation of corporate capital investment.

“The chickens may well come home to roost in 2023, given the debt burden that most countries will have and the tax increases that will have to be implemented. But, digital marketing expenditure remains robust, even in a recession, as our results last year demonstrate, given its secular growth trend.”

On the corporate front... Pfizer lifted its sales and earnings forecasts, predicting it would rake in $26bn in sales of its Covid-19 vaccine this year.

Jewellery maker Pandora announced it would no longer sell mined diamonds - saying it was more ethical, and cheaper, to use lab-made ones instead.

Here are more of today’s stories:

US and European stock markets are that familiar cliché, a sea of red.

The pan-European Stoxx 600 dropped 1.5% today, led by losses in Frankfurt and Milan.

In New York the Dow is currently down 0.5%, while the tech-focused Nasdaq has plunged 2.6% as investors ditch pricy ‘growth’ stocks.

Danni Hewson, AJ Bell financial analyst, sums up the day:

“London markets might have started the day with an injection of post-bank holiday energy but by the afternoon the hangover had well and truly set in. Not enough chips the central issue today, not the kind that soaks up the alcohol but the kind that keeps supply chains moving. Today’s warning came from German chip maker Infineon which is ramping up supply but estimates the current situation will results in 2.5 million less cars being produced in the first half of 2021 than had been intended.

“US markets were dragged down by falling stocks in car makers and big tech – the red splodge covering the Nasdaq heat map prompted calls on social media to close the index. And if that had unsettled investors enough for a dreary Tuesday, Treasury Secretary Janet Yellen’s comments that an interest rate rise would have to happen to stop the US economy from overheating and the selloff intensified.

Reuters have now published Janet Yellen’s comments about the need for US interest rates to rise modestly - which added fuel to today’s stock market falls.

Yellen also defended Joe Biden’s stimulus plans, insisting they will help reduce US inequality.

Here’s Reuters’ story:

U.S. interest rates may need to rise to prevent the economy from overheating as more of U.S. President Joe Biden’s economic investment programs come on line, U.S. Treasury Secretary Janet Yellen suggested in remarks released Tuesday.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in taped remarks to a virtual event put on by The Atlantic.

“It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive (and) I think that our economy will grow faster because of them.”

Overall the programs, which include stepped-up spending on infrastructure, childcare and education, will make a “big difference” to inequality, Yellen said.

Reuters: Treasury’s Yellen: Biden programs to make ‘big difference’ to inequality

Wall Street is still in the red, with the Nasdaq index down 2.5% today (at 13,552 points, down 342 points).

Germany’s DAX stock index has suffered its biggest fall this year.

The DAX ended the day down 2.5% at 14,852 points, a fall of 384 points today. That’s its biggest one-day tumble since late December 2020.

Every stock on the DAX lost ground, led by chipmaker Infineon after its warning that semiconductor shortages were hitting car production (see earlier post).

Carmaker Volkswagen fell 4.7% and engineering giant Siemens lost 3.4%, while software group SAP fell 3.3% amid the wider tech selloff.

Connor Campbell of SpreadEx explains:

Chip shortages have caused car production lines around the world to shudder to a halt, with the industry at the back of the queue behind tech firms and games console manufacturers after reducing orders at the start of the pandemic.

The issue has been put under renewed scrutiny in the last 24 hours, first by Intel chief Pat Gelsinger stating the shortages would persist for ‘a couple of years’, and then by German firm Infineon stating that production would lag by 1 million units in Q2.

The auto-heavy DAX bore the brunt of the dismay.

The curious ‘micro-flash crash’ which hit stock markets after midday UK time also soured the mood, Campbell adds.

Britain’s FTSE 100 index has closed down 0.67%, as its early rally well and truly fizzled out.

After a late selloff, triggered by Wall Street’s slide and then those comments from Janet Yellen, the Footsie shed 46 points to end at 6923 points, the blue-chip index’s lowest close in over a week.

Most sectors fell, led by financials, consumer cyclicals, industrials, healthcare and technology - although energy and real estate gained ground.

Asset manager Intermediate Capital was the top faller, down 5%, followed by Ocado (-4.4%), education publisher Pearson (-4.4%), and investment group 3i (-4.3%).

Germany’s DAX is falling deeper into the red too, now down over 2% today, as worries over semiconductor shortages grow.

Nearly every stock on the DAX is down, with chipmaker Infineon (-5.6%) now the top faller.

Infineon reported a 36% jump in revenues in the last quarter today, and slightly increased its guidance.

However, it also warned that the ongoing chip shortages, and other supply chain problems, are hitting car production.

Bloomberg explains:

German semiconductor manufacturer Infineon Technologies AG said about 2.5 million cars won’t be produced in the first half of 2021 due to ongoing supply chain shortages.

Infineon is a major supplier to automakers, who have been struggling to obtain chips after cutting back orders due to the pandemic. Now, with demand for both consumer-electronics companies and cars roaring back, companies like Infineon are ramping up supply.

“There are roughly 1.5 million cars not being built in the first quarter, and 1 million vehicles not being built in the second,” Chief Marketing Officer Helmut Gassel said in a call with analysts on Tuesday. “That’s, we think, the best estimate that currently exists.”

Auto firm Volkwagen are down 4%, having rallied strongly earlier this year thanks to its electric car ambitions.

In New York, stocks have opened lower - with tech companies leading the fallers as the Nasdaq slides 2%.

Most stocks on the Dow Jones industrial average are down, led by Apple which has dropped 3%, followed by chipmaker Intel (-2.4%) and enterprise software firm Salesforce.com (-2.4%).

Aircraft maker Boeing (-2.3%), investment bank Goldman Sachs (-1.6%), retailer Walgreens Boots (-1.5%), entertainment group Disney (-1.4%), and sportswear firm Nike (-1.4%) are all in the Dow fallers.

• Dow Jones industrial average: down 233 points or 0.7% at 33,879 points
• S&P 500: down 43 points or 1.1% at 4,149 points
• Nasdaq Composite: down 277 points or 2% at 13,617 points

Other big tech stocks are also in the red, including Amazon (-1.6%), Facebook (-2.2%), Alphabet/Google (-2.1%) and Microsoft (-1.1%), even though they all (plus Apple) beat forecasts by posting glittering results last week.

Marios Hadjikyriacos, investment analyst at XM, says investors are rotating away from some ‘growth stories’ with bloated valuations.

What’s striking is that several of these growth names have taken a sharp hit even after reporting promising results, which highlights just how inflated the market’s expectations were going into this earnings season.

European stock markets took a sudden lurch downwards this lunchtime -- triggering talk that there may have been a ‘micro flash-crash’.

This chart shows how the Stoxx 600 index of European shares suddenly slid into the red, around 12.40pm UK time.

It wasn’t a big fall - only around 0.5%. But the sudden jolt, without an obvious cause, has confused traders, especially as there was a similar drop on Wall Street futures around the same time.

Markets have slipped lower since, with the Stoxx 600 now down around 0.8% today.

Reuters has the details:

U.S. and European stock markets saw a sudden 0.5% drop in hefty volumes around 1130 GMT on Tuesday, leaving traders scratching their heads and one calling it a “micro flash-crash”.

Nasdaq stock futures fell 0.5% in four minutes while the S&P 500 e-mini futures fell 0.4%. They later added more losses to trade 0.9% and 0.6% lower respectively.

Europe’s benchmark STOXX 600 index also turned negative during the quick-fire selloff and was last trading 0.8% lower.

“Not a great deal of movement in other assets but equity futures hit an air pocket,” said an equity sales trader based in London. “Looking at the price action and volume, a sense the machines took over for a second and resulted in a micro flash-crash.”

The volatility appeared to boost demand for safe-haven bonds, with the 10-year U.S. Treasury yield dropping almost 2 basis points to 1.591% before creeping back above 1.6%.

Some traders initially blamed the sharp moves on a report that a Chinese military aircraft had entered Taiwan’s air defence zone, but they later discounted that as a factor as similar occurrences have been quite common recently.

The US trade deficit with the rest of the world has widened to a new record, as America’s economy strengthens thanks to vaccine rollouts and stimulus spending.

The US goods and services deficit surged to $74.4bn in March, up $3.9bn from the $70.5bn recorded in February,.

Both imports and exports jumped during the month, new figures from the U.S. Bureau of Economic Analysis show.

In total, US exports rose to $200bn in March, $12.4 billion more than February.

That included a $5.2bn increase in industrial supplies and materials (including $3.4bn of nonmonetary gold); a $2.9bn jump in capital goods such as semiconductors and electric apparatus; and a $2bn increase in consumer goods, including artwork and gem diamonds.

But imports rose by $16.4bn to $274.5bn, including $4.5bn of consumer goods such as household goods, clothes, furniture, toys and games; $3.7bn of industrial supplies and materials such as oil; and $3.3bn of capital goods.

More details here.

Here’s some early reaction:

Back in the markets... the FTSE 100 has dropped back below the 7,000 point mark, as European stocks take a dip.

The FTSE is still up around 0.2%, lifted by energy stocks and holiday companies, thanks to the higher oil price and hopes that travel restrictions will be eased soon.

But the pan-European Stoxx 600 index is now down 0.4%, with technology companies, utilities and healthcare the worst-performing sectors.

Germany’s DAX is down 1%, led by pharmaceuticals firm Merck (-4%, having missed sales and earnings forecasts last week), and chipmaker Infineon (-3.8%)

Jewellery maker Pandora is bucking the trend, though. It’s leading the Stoxx 600 risers, up 6%, after announcing its lab-based diamond range this morning.

But on Wall Street, futures are pointing lower - especially for tech stocks, with Nasdaq futures down around 0.7%.

Mortgage borrowing in the UK has reached its highest level since modern records began as buyers rushed to beat the now-extended stamp duty holiday deadline, my colleague Larry Elliott writes.

Bank of England figures showed that Rishi Sunak’s decision in the budget to extend the tax break until June did not stop a burst of activity in the housing market in March.

Although the number of new mortgage approvals dropped from 87,000 to 83,000 in March, they remained higher than the 73,000 recorded in February 2020, the last month before the UK went into its first pandemic-induced lockdown.

The completion of deals took net mortgage lending to £11.3bn in March – higher than in any month since the series began in 1993. With lockdown measures affecting bars, restaurants, shops and other leisure activities, consumers continued to repay credit card debts, with the Bank reporting net repayments of £500m in March.

Separately, an update on the state of manufacturing showed that despite grappling with supply shortages, industry put in its strongest performance since the mid-1990s in April. The final purchasing managers’ index (PMI) from Markit/CIPS stood at 60.9 last month, slightly up on the initial, flash estimate of 60.7, and well above the 50 dividing line between expansion and contraction.

The report showed manufacturing production increasing for the 11th successive month, with output growth boosted by an easing of lockdown restrictions, improved demand and rising backlogs of work.

Here’s the full story:

Pfizer has raised its annual sales forecast for its COVID-19 vaccine, as the vaccination programme accelerates.

The U.S. drugmaker now expects sales of $26 billion in 2021 from the vaccine, which it co-developed with Germany’s BioNTech. That’s sharply up from its prior forecast of about $15 billion.

That is based on Pfizer delivering 1.6bn doses this year, under the contracts it has signed as of mid-April 2021, it says.

Pfizer has also reported $3.5bn of revenues from the Covid-19 vaccine in the first quarter of the year.

Overall, revenues and net income both jumped by 45% in the quarter, compared with a year ago, beating forecasts.

If you exclude the vaccine, Pfizer’s operational revenues grew by 8%.

Pfizer has also raised its revenues and earnings forecasts for 2021. It now expects sales of $70.5bn to $72.5 billion this year (up from $59.4 to $61.4 billion):

It says this reflects the contribution from its Covid-19 vaccine, called BNT162b2, and also “the continued strong performance of the business excluding BNT162b2”.

Dr. Albert Bourla, chairman and chief executive officer, says:

“I am extremely proud of the way we have begun 2021, delivering strong financial results in the first quarter. Even excluding the growth provided from BNT162b2, our revenues grew 8% operationally, which aligns with our stated goal of delivering at least a 6% compound annual growth rate through 2025.

In addition, we have achieved important clinical, regulatory and commercial milestones across our pipeline and portfolio while also continuing to increase our capacity to supply urgently-needed doses of BNT162b2 to the world. Each of these accomplishments further demonstrates our commitment to Pfizer’s purpose: Breakthroughs that change patients’ lives.”

Shopper numbers in the UK fell by 2% last week, as April showers and blustery wind deterred some people from visiting the high street.

That’s according to research group Springboard, which reports that high street footfall fell by 6.1% in the week to Saturday 1st May. Footfall rose by +2.8% in shopping centres and +1.6% in retail parks (where it’s easier to keep dry).

That’s a blow to high street retailers, where non-essential shops only reopened last month.

Footfall rose significantly on both Saturday and Sunday in regional cities outside London (+20.9% on Saturday and +31.1% on Sunday), but in tourist destinations such coastal and historic towns footfall only rose on Sunday (+10% in coastal towns and +12% in historic towns) whilst declining on Saturday.

On Monday footfall rose marginally from the previous week (by +0.7%) but it was clear that the wind and rain had an impact as footfall in high streets declined by -4.1% whilst rising by +7.4% in the enclosed environments of shopping centres.

Jewellery giant Pandora has made a significant move today, by announcing it will no longer use mined diamonds.

Instead, Pandora is shifting to man-made diamonds -- sparklers grown in a lab, not dug out of the earth.

The Denmark based firm says these new range of lab-created diamonds will be more affordable and more sustainable. Called Pandora Brilliance, they launch in the UK this week, with a global launch in other key markets expected in 2022.

Pandora’s chief executive, Alexander Lacik, has told the BBC that it’s part of a broader sustainability drive, and will also mean cheaper diamonds.

We can essentially create the same outcome as nature has created, but at a very, very different price.”

Worries over the environmental damage caused by diamond mining has been rising in the climate emergency, on top of deep concerns about the human rights abuses caused by the search for diamonds in some countries.

Lab-grown diamonds have the same chemical and physical properties as mined diamonds. The Guardian did a feature on lab diamonds last year, in which one supporter compared mining diamonds to hunting whales.

Alexander Weindling, who left his family diamond business to found lab-grown diamond vendor Clean Origin, told us:

“We talked a good game, but we didn’t deliver on it. I want to end my life with clean hands. I was so conflicted in so many ways and I’d like to do something constructive for the world.”

Weindling also reckons younger shoppers are more open to lab-grown diamonds:

Chris Hunt, head of retail at law firm Gowling WLG, agrees that demand for ethical jewellery is rising:

“Ethical concerns could not be more of a priority for consumers as we move out of lockdown, making this a shrewd move for a company that had already committed to manufacturing all of its materials from recycled gold and silver by 2025.

It will be interesting to see how the company matches this commitment to efficient supply chain processes that ensure demand is met as we move into the next phase of ethically driven jewellery.”

The oil price has jumped, amid expectations of strong demand as Western economies reopen.

Brent crude, the international benchmark, is up almost 2% at $68.90 per barrel, a rise of $1.3 per barrel today. That lifts it towards March’s highs (when oil was the highest since January 2020).

US crude is up 1.75% too, at $65.62 per barrel.

Traders are anticipating a pick-up in fuel and energy usage in the US and Europe, it seems, despite the terrible scenes in India where the pandemic is raging, or the surge in cases in Japan and also in Brazil and neighbouring countries.

Tamas Varga, analyst at PVM Oil Associates, said (via Reuters):

“The current strength is led by U.S. gasoline where demand is seen healthy as more motorists take on the roads,”

“Yesterday’s stock market strength is being followed through this morning in the oil market...the market focuses on the successful roll-out of vaccine programmes in the U.S. and in other developed countries and not on the devastation in India and Brazil.”

Rishi Sunak’s extension to the stamp duty holiday early in March boosted mortgage demand to record levels, agrees Nitesh Patel, strategic economist at Yorkshire Building Society.

The announcement early in the month that the current Stamp Duty was to be extended from March to the end of June is likely to have fuelled demand, with buyers and sellers rushing to complete sales before the deadline.

“Despite rising prices and uncertainty, housing demand remains strong, though there is some unevenness in the market, with larger, detached residences boasting outside space proving more popular than flats as people reassess their needs following a year of lockdowns. The housing market has also benefitted from the fact that home purchasers are typically from higher income groups but jobs losses have mostly been concentrated in the lower-paid occupations such as in the hospitality sector, which has been hit with a cruel blow by Covid-19.

Ruth Gregory of Capital Economics points out that some people were already rushing to get mortgages approved before the tax break was extended.

She also predicts a spending spree once the economy reopens, as people continued to pay off credit in March.

Overall, these figures provide another reason to think that consumer spending was starting to gather some momentum in March. And with consumers in position to power the recovery, this should mark the start of a rapid recovery that will push GDP back to its pre-crisis level in early 2022.

Gareth Lewis, commercial director of property lender MT Finance, also predicts a jump in consumer spending:

‘While net borrowing was at the highest level since the series began, it is interesting to see that approvals for house purchase were lower. This may be down to the extension of the stamp duty holiday, which removed the immediate pressure in terms of getting deals done.

‘The high level of credit repayments show that borrowers are wisely using their money during lockdown and putting it to good use in repaying debt.

It is always a concern that people carry on spending or sit on their cash but repaying debt puts them in a stronger position going forward. Over coming months, the landscape will change as people start spending money again – the busyness of Oxford Street over the weekend suggests that consumers have that desire to spend money still, which is essential for the economy.’

In the housing sector...UK mortgage lending has jumped at the fastest on record, going back to the early 1990s.

New data from the Bank of England shows that net mortgage borrowing was £11.8 billion in March, the strongest monthly rise since its data series began in April 1993.

The BoE says the rush to take part in the UK’s stamp duty holiday (which was extended in March’s budget) drove borrowing.

Mortgage borrowing was very strong in March with individuals borrowing an additional £11.8 billion secured on their homes.

This was the strongest net borrowing on record since the series began in April 1993, with the previous peak in October 2006 (£10.4 billion). The strength in net lending reflected gross lending also reaching a new series high in March (£35.6 billion).

The strong borrowing was driven by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to the end of June.

In total, there were 82,700 mortgage approvals for house purchase in March, lower than the recent peak of 103,100 in November 2020.

That’s still above pre-pandemic levels (73,000 mortgages were approved in February 2020).

This surge in borrowing is another sign that the UK housing market remains hot.

Last Friday, Nationwide reported that house prices jumped in April at their fastest pace since 2004 -- sparking predictions of a “housing super-boom”.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says ongoing trade disruption following the UK-EU free trade deal, and the blockage in the Suez Canal in late March, both caused problems in UK supply chains last month.

That’s on top of the impact of the pandemic.

Brock explains how demand picked up strongly last month:

“The manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind.

“As businesses raced to meet the need for increased capacity, the lost jobs of 2020 returned in greater numbers and employment creation continued in earnest at similar levels to last month and at a pace rarely surpassed in the survey history.

“However, the still significant delays in the delivery of goods due to the pandemic, Brexit and the Suez blockage in some sectors hampered further progress on two counts.

The slow delivery of goods motivated supply chain managers to increase their order numbers and try to build up recently unravelled stocks leading to further hold-ups, and the injection of more inflationary pressures into the economy.

This is likely to hit consumers, Brock warns, as manufacturers won’t absorb all these costs themselves:

Price rises were amongst the highest in the last three decades and shortages in some essential materials intensified. This in turn lead to customers paying more and at a rate not seen since records began in late-1999.

This is likely to filter down to consumers before too long.”

British factories face a growing battle to get hold of raw materials and parts, as activity rebounds from the shock of the pandemic.

That’s according to data firm Markit’s latest UK manufacturing PMI, just released, which has jumped to 60.9 in April. That’s up from March’s 58.9, showing that activity accelerated last month.

It’s the highest monthly reading since 1994 (any reading over 50 shows growth), and nearly a record high.

But this is partly due to longer delivery times and rising input costs, as well as a rebound in production and new orders.

Here’s the report: Manufacturing PMI at near-record high in April but sector still beset by supply-chain disruptions

Purchasing managers from across UK industry reported that growth in output and new orders were both among the best seen over the past seven years, leading to a solid increase in employment.

Markit explains that stronger client confidence, the re-opening of parts of the economy and improving global market conditions boosted sales growth.

Manufacturing production increased for the eleventh successive month in April.

Output growth was attributed to a loosening of lockdown restrictions, improved demand and rising backlogs of work. Solid and accelerated expansions of output were seen across the consumer, intermediate and investment goods industries, with the consumer goods category the strongest performer overall.

But supply chain delays grew, as did the cost of commodities and parts -- forcing companies to put up their own prices at a record pace.

Markit says:

The sector remained beset by supply-chain delays and input shortages, however, which contributed to increased purchasing costs and record selling price inflation.

Advertising magnate Sir Martin Sorrell is also upbeat about growth prospects.

His digitally-focused S4 Capital hiked its revenue and profit forecasts this morning, calculating that demand will be driven by the economic recovery and stimulus spending.

With strong GDP growth expected this year, and in 2022 (after a terrible plunge in 2020), Sorrell predicts digital marketing will be in demand.... although 2023 could be tougher.

“We are extremely optimistic about our prospects for this year and next, given the huge global fiscal and monetary stimulus introduced to counter the impact of the pandemic and the subsequent increase in consumer savings ratios and stagnation of corporate capital investment”.

“The chickens may well come home to roost in 2023, given the debt burden that most countries will have and the tax increases that will have to be implemented. But, digital marketing expenditure remains robust, even in a recession, as our results last year demonstrate, given its secular growth trend.”

In its first-quarter results today, S4 now expects revenue and profit growth of 30 % for the full year, up from 25% previously, after a strong start to the year.

Last week, it emerged that Sorrell had called in the lawyers after his former employer WPP refused pay out hundreds of thousands of pounds in share awards, alleging he had leaked client information:

Jobs news: India’s software giant Infosys says it is hiring 1,000 staff in the UK to meet a digital growth surge.

Infosys says many will be new graduates, from “leading colleges and universities in the UK”. That could be welcome news for some of the students whose education has been disrupted by the pandemic.

They’ll be working on various IT services, such as cloud computing, data and analytics, artificial intelligence, open source technologies and enterprise software.

Salil Parekh, Infosys CEO, says the pandemic has driven demand for these services.

“While the talent gap has been looming, the events of the past year have exacerbated the need for vital digital skills as businesses have rapidly accelerated their digital transformation.

Bridging the digital divide and making quality digital education accessible to every citizen are vital to the establishment of a robust future workforce, and the UK’s economic recovery.

Infosys, incidentally, is founded by billionaire businessman NR Narayana Murthy, whose daughter Akshata (one of the UK’s richest women) is married to chancellor Rishi Sunak.

The news comes as the UK and India hold virtual trade talks - they’ve agreed an enhanced trade partnership, which could lay the way to a full free trade deal.

My colleagues Jessica Elgot and Richard Partington explain:

The agreement between Johnson and Modi includes an enhanced trade partnership, which is not as deep and comprehensive as free trade deals with some other countries such as the EU and Japan. It will lower non-tariff barriers on fruit and medical devices, with the expectation that this will allow British businesses to export more of their products to India.

The deal includes lifting restrictions to enable fruit producers across the UK to export British apples, pears and quince to India for the first time – although fruit exports are a relatively minor part of the UK economy, at just £1.3bn in 2020 to the whole world, out of total of £310.1bn.

Sports Direct owner Frasers Group is also in the risers, up almost 2%, after announcing a new £60m share buyback programme.

The purpose of the programme, which starts today is to “reduce the share capital of the Company”, it says.

The company is also in talks with tax authorities in the European Union that could lead to settlements related to a controversial deal between billionaire founder Mike Ashley (who owns 63.5% of its shares) and his brother.

My colleague Rob Davies explained yesterday:

Documents filed at the high court reveal that Sports Direct, since renamed Frasers Group, came under scrutiny in Ireland, France and Finland, over an arrangement that involved it paying VAT in the UK on all of its sales to customers overseas over a seven-year period.

The plan involved setting up a separate company called Barlin Delivery, which had no drivers or trucks and was run by Ashley’s computer scientist brother John, to deliver orders abroad.

The arrangement has already been the subject of a bruising investor revolt, after shareholders balked at Sports Direct’s plan to pay John Ashley £11m for his services.

But court papers suggest it also prompted scrutiny from European tax authorities, amid concern that the arrangement may have led to them missing out on VAT payment.

In the City, the blue-chip FTSE 100 index has jumped around 0.85% in early trading, with travel companies among the risers.

The FTSE 100 gained around 60 points at the open to reach 7030 points, as traders returned to their desks after the Bank Holiday weekend. That’s close to the pandemic highs hit last month.

Optimism about economic reopening plans seem to be lifting the market.

Airline group IAG, which owns British Airways, is the top riser, up 3.8%, while holiday firm TUI has jumped 5.4% (to the top of the smaller FTSE 250 index). Budget airline easyJet has gained 3.5%.

Whitbread, which hotels in the UK (Premier Inn) and in Germany has gained 2.4%.

Yesterday, the EU said it would reopen to holidaymakers from countries with low Covid infection rates, such as the UK, and to anyone who has been fully vaccinated, by the start of June - in a bid to restart its tourism industry.

However, it’s understood the UK could give the green light to travel to fewer than 10 countries (without needing to quarantine on your return).

Commercial property firms British Land (+3.5%) and Land Securities (+3%) are also in the risers, which also suggesting optimism about the economic reopening.

But online grocer Ocado (-1%), takeaway group Just Eat (-1.4%), and software developer Aveva (-1.3%) are among the fallers, with tech stocks out of favour this morning.

Richard Hunter, head of markets at interactive investor, explains:

“With most major economies in the midst of a slow grind towards normality, markets continue to search for beneficiaries of the recovery.

In the US, there is further evidence of the “reopening” trade, with investors anticipating stocks and sectors likely to benefit from the return to some kind of normality. This in turn has applied some pressure on tech stocks, despite their largely upbeat earnings numbers, where valuations are coming under increasing scrutiny as the scale of their recent pandemic success comes into question as lockdowns subside.

German carmakers are also being hit by supply problems - particularly for semiconductors.

The IFO institute reports that conditions improved across Germany’s Automotive Industry, sending its gauge of business conditions to a two-year high.

Klaus Wohlrabe, Head of Surveys at ifo, declared that:

“Carmakers have now overcome the slump they suffered due to the coronavirus”

But while under 14% carmakers said lack of demand was a problem, more than half said the struggle to get hold of parts was leading to production restrictions.

IFO explains:

At the moment, the main issue is problems with intermediate products, which were reported by 60.4 percent of the companies.

That figure compares to only 5.8 percent in July 2020; back in April 2020, it was as high as 42.0 percent. Several automotive plants have now announced they will introduce short-time work due to the shortage in silicon chips.

UK car factories have the same problem, of course, with both Jaguar Land Rover and Mini having to pause production last month.

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

In normal times, too much demand is a nice challenge to deal with. But right now, supply chain bottlenecks are causing increasing problems for factories as the world economy recovers from the economic shock of the pandemic.

Shortages of everything from lumber to semiconductors is hitting manufacturers, and the situation seems to be getting worse amid rising demand.
Yesterday, the latest PMI survey from the US Institute for Supply Management (ISM) showed that these shortages were hitting growth, with factory activity rising at a slower pace in April. The ISM’s index of national factory activity fell to 60.7, from a 37-year high of 64.7 in March. That still showed decent growth, but weaker than expected.

The slowdown came because manufacturers are finding it hard to meet orders, as fiscal stimulus and vaccine rollouts in the US spur demand.

As Timothy Fiore, chair of the ISM’s manufacturing business survey committee, explained:

[Purchasing managers] “reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus impacts limiting availability of parts and material.”

Michael Pearce of Capital Economics says this squeeze is affecting almost every sector:

“What really stands out in the April report is just how broad the squeeze in supply of key commodities and intermediate inputs has become, with respondents’ comments suggesting supply shortages are affecting almost every industry.

That is reflected in the supplier deliveries time balance which, though it fell to 75.0 last month from 76.6, remains unusually elevated.”

This surge of demand has driven the Baltic Dry Index - which tracks the cost of moving raw materials - to its highest in over a decade last week.

The latest PMI survey of UK manufacturers, due this morning, will highlight how supply chains here are coping -- as will new US factory order figures this afternoon.

Plus, the latest Bank of England mortgage data will probably show how the housing market remained strong in March.

The agenda

• 9.30am BST: UK manufacturing PMI for April
  
• 9.30am BST: Bank of England consumer credit figures for March.
• 9.30am BST: UK mortgage approvals and lending for March
• 1.30pm BST: US balance of trade for March
• 3pm BST: US factory orders for March