Time for a recap

The Bank of England’s chief economist has warned that Britain’s housing market is “on fire”.

Andy Haldane said the government’s tax breaks for home buyers and increased demand from richer households with more savings following Coronavirus lockdowns were pushing prices up, and predicted they would worsen inequality.

Haldane said at virtual conference on inequality organised by the University of Glasgow.

“As things stand, the housing market in the UK is on fire,”

“There’s a significant imbalance between incipient demand and available supply of houses, and because the laws of economic gravity have not been suspended, the result is pretty punchy rises in house prices.”

The number of vacancies at US firms has hit a record, with around 9.3m positions unfilled in April. The proportion of people quitting their jobs, perhaps for a better paid opportunity elsewhere, also hit record levels.

The World Bank has hiked its forecast for global growth this year to 5.6% this year, but warned that vaccine inequality means poorer nations are falling behind.

A massive internet outage has affected websites including the Guardian, the UK government’s website gov.uk, Amazon and Reddit, leaving some sites inaccessible for more than an hour on Tuesday morning.

Shares in Fastly, the source of the problem, have surged 7% since fixing the problem, which highlighted the crucial role of its content delivery network service (when it’s working, anyway)

German factories have suffered a surprise drop in output, due to shortages of key components such as computer chips and the knock-on impact of the Suez Canal closure.

Cryptocurrencies have fallen sharply, with bitcoin dropping around the $32,000 mark.

The London Metal Exchange, the last remaining in-person trading floor in Europe, is to reopen on 6 September after its management decided not to permanently close the trading ring, which has been operating since 1877.

Experts have warned that US tech companies, including Google, Amazon and Facebook, could pay less tax in the UK and several other big economies under global reforms agreed at the weekend by the G7.

In a key stumbling block emerging days after the landmark deal, research from the TaxWatch campaign group indicates that the UK Treasury stands to lose about £230m from the taxes paid each year by four of the big US tech firms.

Here are more of today’s stories:

Goodnight. GW

It’s been a tough day for cryptoassets.

Bitcoin has fallen back to around $32,000, down around 7% today, meaning it’s lost over 10% in the last two days. That’s now 50% off its all-time high in April.

Bitcoin has been on a downward path since early May, hit by worries over its environmental impact and a clampdown on mining and trading in China.

This latest slump, though, after US officials managed to recover most of the bitcoin ransom paid to hackers that targeted America’s largest fuel pipeline, Colonial.

It’s not clear how the Fed managed this, but it may have unnerved some bitcoin advocates (and also dented bitcoin’s attraction as the currency of choice for ransomers).

Former US president Donald Trump also thumped bitcoin, telling Fox Business yesterday that:

“Bitcoin, it just seems like a scam.

I don’t like it because it’s another currency competing against the dollar.”

Other digital currencies are also under the cosh, with ether down 12% over the last 24 hours and joke-coin Dogecoin losing 11.5%.

Here’s Neil Wilson of Markets.com on bitcoin’s struggles.

I’ve expounded on this too many times to add anything new, but suffice to say it’s not a currency – no one is spending it; it’s just monstrous speculation.

Donald Trump’s fears about Bitcoin threatening the dollar are unfounded. In almost every single use case – except in the world of criminals, terrorists and non-fungible token collectors – you have to convert it back into fiat to use it (even to buy your Tesla), so I fail to see it as anything but a kind of pointless digital gold.

The global economy is set for the fastest recovery from recession for more than 80 years, but poor nations are at risk of falling further behind wealthy countries amid slow progress with the Covid-19 vaccine, the World Bank has said.

In its half-yearly outlook report, the Washington-based institution said the world economy was forecast to grow at 5.6% this year, in a sharp upgrade from previous estimates it made in January for growth of 4.1%.

It said this would mark the fastest post-recession recovery in 80 years, fuelled by growth in a few major economies where rapid progress with the Covid-19 vaccine has enabled a faster return to relative normality. However, developing nations will continue struggling with the virus and its aftermath for longer, worsening divisions between rich and poor nations.

Calling for a wider distribution of Covid-19 vaccines to low-income nations where progress has been slower, it said the world economy would remain about 2% below where it would have been without the pandemic by 2022 but that poorer countries were lagging behind.

Sounding the alarm over the uneven recovery, the bank said about 90% of rich nations were expected to regain their pre-pandemic levels of GDP a head by 2022, compared with only about one-third of low-income countries.

Back on Wall Street, shares in Fastly have actually rallied despite the cloud computing service causing today’s Internet outage.

Fastly stock is up 5%, after its content delivery network (CDN) was identified as the problem behind the problems that afflicted major web site and media outlets today.

One theory is that investors now know what a key role Fastly’s CDN operations play.

Toby Stephenson, chief technology officer at IT and cyber security firm, Neuways, explains:

“This incident highlights the reliance of many of the world’s biggest websites on content delivery networks (CDNs) such as Fastly. As there are so few of these CDN services, these outages can occur from time-to-time.

Fastly’s shares had been down in pre-market trading, but picked up as its customers (including Amazon, Reddit, gov.uk, the Financial Times and the Guardian) reappeared online.

Danni Hewson, AJ Bell financial analyst, says Fastly’s share price recovered quickly after its speedy resolution to the issue

The cloud computing service hasn’t clarified what caused the issue but there will be undoubtedly be a lot of questions flying around from clients that lost money. So many eggs in so few baskets doesn’t make for a great recipe.

In the City, the FTSE 100 has closed 18 points higher at 7095, up 0.25% today.

Thungela Resources, the South African coal business spun out of Anglo American this week, led the London risers - surging by almost 30%.

That recovers most of Monday’s slump, when investors ditched the stock on its first day of trading. That selloff came after a short-seller accused Anglo American of having “massively underestimated” the environmental liabilities of Thungela, from the clean-up cost of its mines.

Hospitality firms had a good day, with Intercontinental Hotels (+3.8%) and Premier Inns owner Whitbread (+3.4%) in the risers, along with asset manager Intermediate Capital (+5.9%) after it reported strong results this morning.

Housebuilders declined, though, with Taylor Wimpey (-1.9%) and Barratt Development (-1.3%) in the fallers, along with airline group IAG (-1.5%) (after Goldman Sachs cut its rating on the British Airways owner).

Engineering firm Melrose (-1.7%) and medical equipment manufacturer Smith & Nephew (-1.9%) also dropped.

The number of job vacancies in the US has hit a record peak, as demand for labor surges as America’s economy recovers.

The US Bureau of Labor Statistics has reported there were 9.28m job vacancies in the US in April, up from 8.2m in March, and the most since the survey began in December 2000.

The ‘quits’ rate, which tracks how many people are choosing to leave their position, rose to 2.7% - the highest in the survey’s history too.

Hospitality industries saw the largest increase in vacancies -- following the reopening of bars and restaurants as pandemic restrictions were eased this spring.

The BLS says:

Job openings increased in a number of industries with the largest increases in accommodation and food services (+349,000), other services (+115,000), and durable goods manufacturing (+78,000).

The number of job openings decreased in educational services (-23,000) and in mining and logging (-8,000). The number of job openings increased in all four regions.

Such a sharp jump in vacancies suggests the US labor market is tightening, and that firms are struggling to find staff. Last week’s Non-Farm Payroll show that recruitment slowed in April, with just 278,000 new hires (rising to 559,000 in May).

But that still left more than seven million jobs still to recover, compared to pre-pandemic levels.

Federal Reserve policymakers pay close attention to the JOLTS numbers for indications of labor market slack.

This surge in vacancies will probably lead to more calls for more states to stop paying the extra $300 per week in unemployment benefits.

But, it may also be a sign that US firms need to raise wages to attract staff. Plus, not everyone has been vaccinated -- and some workers find that childcare and other responsibilities are making it harder to return to work.

Bank of England chief economist Andy Haldane has said the UK’s housing market is “on fire”.

This is due to government incentives for buyers, more demand from households that have accumulated greater savings during the pandemic, and a shortage of homes for sale, Haldane says.

He added that the rise in house prices, which topped 10% in the 12 months to March according to official data, was likely to worsen pre-existing wealth inequalities.

Speaking at a webinar on inequality organised by the University of Glasgow, Haldane said:

As things stand, the housing market in the UK is on fire.

The Football Association has appointed the first female chair in its 157-year history, with the business executive Debbie Hewitt expected to take up the position in January.

The appointment is subject to confirmation by the FA Council next month, but if the formalities are completed Hewitt will become the permanent successor to Greg Clarke, who resigned after making racially offensive remarks in front of a parliamentary committee.

Hewitt has an extensive background in business that suggests a more polished approach to high-profile positions representing her employer. She is a former chief executive of RAC and the current nonexecutive chair at Visa Europe, the clothing brand White Stuff and the financial services group BGL, which owns price comparison site Compare The Market.

Hewitt has also spent six years on the board of The Restaurant Group plc, which owns Wagamama and Frankie and Benny’s. She will step down from that role on taking up her FA position.

“I’ve been passionate about football from a very young age and I’m excited by the opportunity to play my part in shaping the future of something that means so much to so many,” said Hewitt, who was awarded an MBE in 2011 for services to business and the public sector.

Here’s the full story:

In the US, small-business confidence has edged lower last month as inflation worries and hiring problems worry bosses.

The National Federation of Independent Business (NFIB) Optimism Index has dipped by 0.2 points to a reading of 99.6 in May, ending a three-month run of increases.

NFIB chief economist Bill Dunkelberg said in a statement that labor shortages and rising prices were worrying small business owners.

“If small business owners could hire more workers to take care of customers, sales would be higher and getting closer to pre-COVID levels”

“In addition, inflation on Main Street is rampant and small business owners are uncertain about future business conditions.”

A net 27% of businesses said they planned to create new jobs in the next three months, up 6 points from April and a record high.

More companies warned that jobs were hard to fill (vacancies have been running at record levels, with a new JOLTS report due later today).

Economist Aaron Sojourner says the solution to the hiring problems is clear -- raise wages.

Fastly, the content delivery firm at the heart of the global web outages, has tweeted that it’s disabled the ‘service configuration’ responsible for this huge disruption.

Its global network is now ‘coming back online’, Fastly adds.

In the meantime, the UK’s Attorney General advised emailing the department if you can’t get through on Gov.uk (It seems to be working now...)

A massive internet outage, affecting websites including the Guardian, the UK government’s website Gov.uk, Amazon, and Reddit has been traced to a failure in a content delivery network (CDN) run by Fastly.

The outage, which began around 11am UK time, saw visitors to a vast array of sites receive error messages including, “Error 503 service unavailable” and a terse “connection failure”.

As well as bringing down some websites entirely, the failure also broke specific sections of other services, such as the servers for Twitter that host the social network’s emojis.

Fastly, a cloud computing services provider, was believed to be the cause of the problem. The company runs an “edge cloud”, which is designed to speed up loading times for websites, protect them from denial-of-service attacks, and help them deal with bursts of traffic.

A massive internet outage has hit social media, government and news websites today -- including The Guardian (but if you’re reading this, we’re back...)

Major sites including Amazon, Reddit and Twitch were affected, along with parts of the BBC and a host of other media outlets including the New York Times, CNN and Bloomberg News

The UK government website - gov.uk - has also been hit.

The outage is being linked to a problem at US cloud service company Fastly, whose content delivery network is widely used to help websites run faster and provide security.

Our technology editor Alex Hern has been tweeting what we know:

Reuters’ has details too:

Fastly said it was investigating “the potential impact to performance with our CDN services,” according to its website.

Most of Fastly’s coverage areas were facing “Degraded Performance”, the website showed.

Separately, Amazon.com Inc’s retail website also seemed to be down. Amazon was not immediately available to comment.

Nearly 21,000 Reddit users reported issues with the social media platform, while more than 2,000 users reported problems with Amazon, according to outage monitoring website Downdetector.com.

The eurozone’s recession was much shallower than feared.

Statistics body Eurostat has revised up its estimate of GDP in the first quarter of 2021; now estimating the eurozone economy only shrank by 0.3% in January-March, not the 0.6% contraction first reported.

It’s a welcome boost to Europe’s economy as it tried to pull away from the pandemic.

Ireland (+7.8%) and Croatia (+5.8%) recorded the sharpest increases of GDP compared to the previous quarter, followed by Estonia (+4.8%) and Greece (+4.4%).

The strongest declines were observed in Portugal (-3.3%) and Slovakia (-2.0%), followed by Germany (-1.8%) and Latvia (-1.7%)

Sophie Griffiths, market analyst at OANDA, says it’s a significant upward revision:

After a better-than-expected first quarter, combined with easing pandemic restrictions, improving vaccine numbers, and an upbeat outlook for the coming months, there is a good chance that European bourses could continue pressing higher to fresh record levels.

UK banks will for the first time be forced to reveal their exposure to the climate crisis, highlighting the risks that rising temperatures and sea levels could pose for the financial system, as part of the Bank of England’s climate stress tests this year.

The stress tests will put 19 banks and insurers through three climate scenarios, according to an update released Tuesday, including one where governments fail to take further steps to curb greenhouse gas emissions, resulting in average temperature increases of 3.3C and a 3.9m rise in sea levels.

The central bank will be monitoring how those scenarios could impact potential loan losses, as customers default due to slowing growth and economic uncertainty.

However, the Bank of England will not identify individual businesses through the tests and will release only aggregate results for the banking and insurance sector, which will be published in May 2022.

The tests will look ahead 30 years. But the central bank also confirmed that the information will not be used to set capital requirements, which determine the kind of financial cushion that banks need in order to protect them from risky loans and products on their balance sheets.

Instead, the exercise is meant to improve the way banks and insurers manage risks, and prompt a strategic review of their operations in light of the climate threat.

Here’s the full story:

Positive Money senior economist David Barmes is disappointed the BoE isn’t going further, though:

“It is concerning that the Bank of England appears to be ruling out using climate stress tests to help inform changes to capital requirements. Climate capital rules that reflect the high risk of fossil fuel investments are a necessary inevitability to ensure financial stability and alignment with the government’s climate plans, and the Bank needs to be introducing such policies without delay.

“By delaying the implementation of climate capital rules, the Bank is undermining its duty to protect financial stability and support net-zero.”

Investor sentiment in Germany has fallen, but hopes of a strong economic recovery this year are still on track.

That’s according to the ZEW Economic Research institute. Its poll of investors’ economic sentiment has fallen to 79.8 points this month, from 84.4 in the previous month, and lower than expected

But.. the survey also shows that the economy is improving; ZEW’s gauge of current conditions jumped sharply to -9.1 points from -40.1 the previous month.

ZEW President Achim Wambach said in a statement.

“The economic recovery is progressing,”

“The decline in expectations is probably largely due to the considerably better assessment of the economic situation, which is now back at pre-crisis levels.”

The City of London’s last “open outcry” trading floor is to reopen, after opposition to plans to move to all-electronic trading.

The London Metal Exchange has announced that, following a consultation, the Ring will reopen for physical trading on 6th September.

The move means that metal traders can look forward to returning to their red leather benches, and setting the world’s daily benchmark prices for industrial metals such as copper, aluminium and zinc by shouting buy and sell orders at each other.

The Ring has been temporarily closed since the first wave of the pandemic. And back in January, the LME proposed going digital - closing one of the last remaining in-person trading sites at major financial centres.

That provoked a backlash from some brokers, who insisted that physical trading was the best way to organize price discovery (while sticking to a strict dress code, keeping one’s hair presentable, not chewing gum, and never leaving one’s seat!)

LME users were split on the issue, with smaller traders favouring prices being discovered in the Ring, and larger ones pushing for electronic trading.

So in a delicate compromise, this outcry trading will only set lunchtime Official Prices. Closing prices will be decided electronically (as they have been since March 2020).

Matthew Chamberlain, LME CEO, explains:

The divergent views in response to the Discussion Paper were particularly apparent between traditional participants and some smaller physical clients on the one hand, and our larger merchant trader and financial participants on the other.

However, respondents were constructive in proposing approaches to reconcile these differences, respecting the differing needs of the LME community, and preserving the unique and mutually beneficial blend of physical and financial market liquidity, which makes our market so special.

It’s another quiet day in Europe’s stock markets, as investors take a breather after some lively sessions this year.

The pan-European Stoxx 600 snuck up to a new record high this morning, up 0.2% to 454.52, suggesting confidence in the recovery remains strong.

However, Germany’s DAX is slightly lower, following this morning’s surprise drop in industrial output.

Manufacturers such as HeidelbergCement (-2.6%), materials group Covestra (-1.3%), and carmakers Volkswagen (-1.5%) and Daimler (-1.2%) as leading the fallers.

On April’s factory slowdown, Teeuwe Mevissen, senior market economist at Rabobank, says:

“I think it says more about the supply constraints. The big question is how long will these remain,”

“Markets are in a wait-and-see mode. Valuations are high, and they need new catalysts to justify further buying.”

Shares in UK insurance firm Aviva have jumped 3.6%, after activist investor Cevian took a 5% stake - and started pressing for change.

Cevian, Europe’s biggest activist investor, is pushing for Aviva to make deeper cost cuts, and return £5bn to investors following recent asset sales.

Christer Gardell, Cevian’s co-founder, says:

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions.”

Shares in Aviva have gained 14.7p to 425p this morning, their highest since January 2020, just before the pandemic.

Aviva has been selling off international assets since CEO Amanda Blanc took the helm last summer, and pledged to focus on larger businesses in the UK, Ireland and Canada.

But Cevian argues that Aviva’s share price could climb to more than £8 within three years, if it returned excess capital to shareholders through dividends or buybacks.

The FT has more details...

Aviva has promised substantial returns and cost reductions as central planks of its strategy shift under Blanc, who has told investors that her mantra is to move quickly.

However, Cevian wants a specific return of £5bn in dividends or buybacks of capital that the insurer has in excess of regulatory requirements

The activist fund also believes that the cost-cutting can go further, calling for reductions of more than £500m from Aviva’s annual cost base by 2023, compared with the management’s target of £300m. It is also pushing for a leaner management structure, according to a person familiar with the matter.

In London, stocks have opened a little higher, with the FTSE 100 up 15 points or 0.2% to 7092 points.

Asset manager Intermediate Capital Group are the top riser, surging 6.7%, after reporting record profits, and a 19% jump in third-party assets under management amid the recovery in markets over the last year.

But oil producer Royal Dutch Shell are down 1.3%, following a drop in the oil price this morning, while steelmaker Evraz is down 1.5%.

Brent crude has dipped 0.5% to $71 per barrel, after China’s crude oil imports dropped by almost 15% in May - suggesting weaker demand.

Bob Yawger, director of energy futures at Mizhuo Securities, said:

“Chinese oil imports at a five-month low ... would tend to confirm weakness in the Asia market.”

The week-long blockage of the Suez Canal by the Ever Given in March contributed to the supply chain problems hitting German firms in April, suggests Carsten Brzeski of ING.

He writes that April’s disappointing drop in industrial production suggests the rebound of the German economy in Q2 has ‘started with shaky knees’:

The disappointing start to the second quarter suggests that supply chain disruptions, like the blockage of the Suez Canal in April or the ongoing semiconductor delivery problems, have not left German industry unscathed.

However despite today’s disappointment, the industrial outlook remains bright.

Brzeski adds that capacity issues and the lack of qualified workers could soon return as the most pressing hurdles to growth, as lack of demand isn’t a problem.

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

Output at German factories has fallen unexpectedly, as supply chain bottlenecks and shortages of key parts and materials such as computer chips threaten to undermine the recovery.

German industrial production fell by 1.0% in April, the Federal Statistics Office reports this morning.

That’s shy of forecasts of a 0.5% rise, as Europe’s largest economy looked to recover from its contraction earlier this year.

Production of consumer goods slumped by 3.3% - even though some households are expected to be spending heavily this summer as lockdowns restriction are lifted.

Production of intermediate goods (items used in final products) fell 0.2%, while production of heavy duty capital goods decreased by 0.1%.

March’s growth was revised down too, from +2.5% to +2.2%.

It means production at German factories is still 5.6% below its pre-pandemic levels, despite the pick-up in the global economy this year.

Factory bosses have been warning of shortages of semiconductors, plastics, rubber and metals, with suppliers hiking prices in response.

These shortfalls are threatening to undermine the recovery from last year’s economic slump, and are also pushing prices higher as firms try to recoup their costs.

Yesterday we learned that German factory orders fell in April, indicating that the problems may last for some time.

Semiconductor shortages are a particular problem, which has already hit car production this year. Those shortages are expected to run into next year, as ramping up chip fabrication plants takes time. Tesla is reportedly considering buying its own chip plant, to guarantee supplies.

Bosch, Europe’s largest auto supplier, says car manufacturers must put “money on the table” and make a “rock solid” commitment to orders,

Bosch board member Harald Krüger told the Financial Times.

“The only way to get out of [the recent crisis] is to have a different level of commitment”

Bosch opened a €1bn semiconductor plant in Dresden yesterday, to produce chips for its power tools in July, before beginning production on automotive chips in September.

That might help to ease the chip shortage, though as Krüger says....

“Money needs to be put on the table and actually parts have to be bought.

“The commitment needs to be rock solid that those parts will be bought. It can’t be: ‘Maybe I [will] buy them, prepare for it, and maybe not.’ This doesn’t work.”

More here: Carmakers must ‘put money on table’ to avoid repeat of chip crisis

The agenda

• 8.30am BST: Bank of England to publish details of its 2021 climate change stress test
  
• 10am BST: ZEW index of German economic sentiment
• 10am BST: Eurozone Q1 GDP and employment figures (final estimate)
• 11am BST: US NFIB business optimism index
• 1.30pm BST: US trade balance for April
• 3pm BST: US JOLTS index of job openings