Graeme Wearden 

European markets’ best run in two years; UK jobless rate falls; US retail sales disappoint – as it happened

Rolling coverage of the latest economic and financial news
  
  

People shop at Macy’s department store inside Roosevelt Field shopping mall in Garden City, New York.
People shop at Macy’s department store inside Roosevelt Field shopping mall in Garden City, New York. Photograph: Shannon Stapleton/Reuters

Closing summary

Time to wrap up

European stock markets have racked up their longest winning streak since April 2019, as optimism over the economic recovery continues to lift shares.

London’s market also saw gains, with the FTSE 100 finishing at its highest close in almost 16 months. But shares in mining companies, and property companies dipped.

The pound nudged a one-month low, after the ending of lockdown restrictions was postponed by a month.

Oil also pushed higher, with Brent crude hitting $74 per barrel tonight, the first time in over two years.

But investor Michael Burry gave the markets something to ponder - tweeting that we’re in the biggest speculative bubble ever.

The day began with the UK’s jobless rate dropping to its lowest since last summer, at 4.7%. The number of people joining company payrolls surged by almost 200,000, as firms took on more staff to handle rising demand following the easing of lockdown rules this spring.

Vacancies jumped to their highest since the pandemic, while redundancies also returned to more normal levels. But experts warned that long-term unemployment was rising, including among younger people.

A volley of US economic data painted a mixed picture, with retail sales falling faster than expected in May. Economist cited supply chain problems, rising prices, and the move towards spending money on services rather than ‘stuff’ as lockdowns eased.

Confidence among homebuilders fell, as rising prices made new homes less affordable, while producer prices surged as manufacturers and service sector providers hiked prices.

On the upside, US industrial production rose -- lifted by a jump in car production.

And the UK and Australia agreed the broad sweep of a new trade deal....but its impact on households will be meagre.

As my colleague Richard Partington explains:

Tariffs will be cut on Australian products such as Jacob’s Creek and Hardys wines, as well as on beef, lamb, swimwear and confectionary. However, by the government’s own admission, the savings add up to £34m a year – little more than a pound each per household.

Scotch whisky, biscuits and ceramics will be cheaper to sell into Australia, aiming to help UK industries that employ 3.5 million people. Still, the government admits that its deal will only boost UK GDP by up to 0.02% after 15 years, barely a rounding error for a £2tn economy.

Farmers, though, fear a surge of Australian meat that will undermine their businesses.

Bank of England Governor Andrew Bailey has warned fintech firms to expect some ‘tough love’, reiterating the need for stablecoins to be fully backed by assets.

The UK’s competition watchdog announced a review of Apple and Google’s mobile ecosystems, over concerns that their dominance is hurting consumers.

The EU has excluded 10 of the heaviest-hitting banks in the debt market from running lucrative bond sales as part of its €800bn recovery fund, due to historic anti-trust breaches.

Stocks are slightly lower on Wall Street, ahead of tomorrow’s Federal Reserve meeting. The Dow and the S&P 500 are down around 0.15%, with the Nasdaq Composite off 0.65%.

Here are more of today’s stories:

Goodnight. GW

Updated

Burry: It's the greatest speculative bubble of all time...

Investor Michael Burry -- most famous for his role in The Big Short -- has warned that the markets are currently in the greatest speculative bubble ever.

Burry returned to Twitter this week for the first time since February, and tweeted a new warning about rampant speculation, saying:

“People always ask me what is going on in the markets.

It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360.”

Business Insider explains what the ‘flying pigs’ reference means....

The hashtag was likely a reference to a famous saying in investing: “Bulls make money, bears make money, but pigs get slaughtered.” Burry has repeatedly told investors that they’re being too greedy, speculating wildly, shouldering too much risk, and chasing unrealistic returns.

The Scion Asset Management chief deleted his Twitter profile in early April after sounding the alarm on Tesla stock - which he’s short - as well as GameStop, bitcoin, dogecoin, Robinhood, SPACs, inflation, and the broader stock market. He resumed tweeting on Monday.

European stock markets post longest winning streak in two years

Europe’s stock markets have racked up their longest run of gains since April 2019 - by a whisker.

The Stoxx 600 index of European shares has closed half a point higher at 458.81 points, up just 0.11%.

That’s its eighth daily gain in a row, the best run since mid-April 2019, and a record closing high.

The Stoxx 600 has surged by 15% so far this year, extending its recovery from last spring’s crash, as the vaccine rollout has boosted confidence that Europe’s economy will recover.

The European Central Bank’s PEPP bond-buying programme, and massive fiscal spending from the US, has also supported the markets, with investors confident that stimulus won’t end soon.

FTSE 100 closes at near 16-month high

Back in the City, the FTSE 100 has ended the day at its highest close since the pandemic hit Europe in late February 2020.

The blue-chip index finished today’s session nearly 26 points higher at 7172 points.

That’s its highest close since 21 February 2020, just before parts of Lombardy went into lockdown, triggering turmoil in global markets.

The FTSE 100 earlier hit a new near-16 month intraday high of 7189 points, the highest since markets started to tumble in the last week of February 2020.

As this chart shows, the FTSE 100 hasn’t recovered all its pandemic losses - unlike the US stock market, or Germany’s DAX - but it’s getting closer:

AB Foods (+3.3%), which owns discount clothing chain Primark, was the top riser, followed by telecoms group BT (+2.9%).

Royal Dutch Shell (+2.3%) added to yesterday’s gains, as oil continued to climb.

Multinationals benefitted from the weaker pound, with engineering firm Spirax-Sarco (+2%), chemicals group Johnson Matthey (+2%) and tobacco firm BAT (+1.8%) in the risers.

But... the more UK-focused FTSE 250 index fell by 0.5%. Fallers included commercial property firm Hammerson (-6.5%), whose shopping centre tenants will be hurt by the delay to ending lockdown, and holiday operator TUI (-3.4%), as hopes of a holiday getaway this summer faded for some families.

Oil prices pushed higher today as traders anticipated stronger demand as the global economy recovers, and the prospect of an imminent increase in supply from Iran faded.

Brent crude traded as high at $73.90 per barrel, the highest since April 2019. US crude hit its highest since October 2018, touching $72 per barrel.

UBS analyst Giovanni Staunovo said demand for oil was likely to outstrip supply in the short term:

“With supply growth lagging demand growth in the near term, faster falling oil inventories are supporting oil prices,”

Ricardo Evangelista, senior analyst at ActivTrades, said traders were watching the ongoing negotiations between Washington and Tehran:

The markets have been looking with interest at the ongoing negotiations between the US and Iran, with the objective of reviving the nuclear agreement between the two countries, which could also mean the end of restrictions on Iranian oil sales.

However, early losses in the price of crude were swiftly reversed following indirect negotiations between the two countries that have so far failed to bear any fruits, with observers considering that an agreement is far from imminent.

Ryanair boss: airlines must fly over rogue states despite Belarus ‘hijacking’

Airlines must remain free to fly over rogue states despite the “state-sponsored hijacking” of a plane by Belarus, according to the boss of Ryanair, as he told MPs of the “hostile and threatening” actions towards the flight crew in Minsk.

The captain and five crew of Ryanair flight FR4978 from Athens to Vilnius were put under armed guard in Minsk after diverting the plane for a fake bomb threat – apparently staged to allow the Belarus government to capture an opposition journalist among the 126 passengers. Roman Protasevich and his girlfriend Sofia Sapega were arrested on landing.

The Ryanair chief executive, Michael O’Leary, said the crew were pressured to provide filmed statements saying that they had diverted voluntarily, although Minsk air traffic control had told the captain that a bomb would be detonated if the plane continued to its original destination in Lithuania.

The ATC also falsely claimed to have tried to contact Ryanair’s operations base, leaving the captain with no option but to heed their advice, O’Leary said.

O’Leary told the Commons transport select committee on Tuesday that the captain was:

“repeatedly seeking an open line of communication to Ryanair’s operations control centre in Warsaw, various excuses came back from Minsk on why they couldn’t reach us, Ryanair weren’t answering the phone, all of which was completely untrue”.

He said the pilot’s only means of communications was through Minsk, which “confirmed it was a red alert”.

Upon landing, unidentified persons boarded the aircraft carrying video cameras, O’Leary said, to “repeatedly attempt to get the crew to confirm on video that they had voluntarily diverted.

“The crew were put under significant pressure, taken under armed guard and held for a number of hours. The captain was accompanied by an armed guard … It was a very hostile and threatening environment.”

Here’s the full story:

In something of a financial morality tale, the EU has excluded 10 of the heaviest-hitting banks in the debt market from running lucrative bond sales as part of its €800bn recovery fund.

Why? Because historic breaches of antitrust rules - such as manipulating currency markets or taking part in a bond trading cartel - mean they have blotted their copybook with the Commission.

So while these issues took place some time ago, and have been settled, these banks will miss out on some juicy fees if they’re not seen as ‘fit’ to handle the work.

The FT has the story:

Brussels’ biggest ever borrowing spree kicks off on Tuesday with the sale of a new 10-year bond to fund the NextGenerationEU programme under a so-called syndication, where a group of banks is paid to drum up demand from investors.

But 10, including big players such as JPMorgan, Citigroup, Bank of America and Barclays, have been told they cannot take part in these deals due to previous involvement in market-rigging scandals, according to people familiar with the matter.

Banks found to have breached EU competition rules “will not be invited to tender for individual syndicated transactions”, said a spokesman for the European Commission, which handles debt issuance on behalf of the EU.

“The Commission implements a strict approach to ensuring that the entities with whom it works are fit to be a counterparty of the EU.”

Banks found guilty of antitrust breaches will be required to show they have taken “remedial measures” to prevent them happening again before they will be allowed to bid for syndications, the spokesman added.

US homebuilder confidence knocked by rising costs

More US data on the wires.. and this time, confidence among American homebuilders has fallen to a 10-month low.

Sentiment was knocked by rising costs and supply shortages, which may show the US housing market is cooling after a surge in prices in the last year.

Here’s the details, via CNBC.

  • Homebuilder sentiment dropped 2 points to 81 on the NAHB’s monthly index, down from a recent record peak of 90 last November.
  • “Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” said NAHB Chairman Chuck Fowke.
  • Builder sentiment rose in the West but fell in all other regions, most sharply in the Northeast, but overall sentiment remains high in historical terms.

NAHB chairman Chuck Fowke, a homebuilder from Tampa, Florida, said rising costs were making houses less affordable:

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,”

“These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building.”

Lumber prices, incidentally, have been falling steadily in the futures market since soaring dramatically earlier this year.

With prices so steep, some people have been putting off new projects, while the temporary surge in demand that pushed prices up is fading.....

Wall Street opens cautiously ahead of the Fed

After that flurry of economic data, the New York stock exchange has opened cautiously ahead of tomorrow’s Federal Reserve decision.

Energy stocks are rallying, as crude oil prices hit their highest levels in over two years.

But other stocks are more subdued, with retailers, and some banks and tech firms dipping. So after opening at a record high, the S&P 500 index has slipped a little.

  • Dow Jones industrial average: Down 121 points or 0.35% at 34,272 points
  • S&P 500: down 6 points or 0.15% at 4,248 points
  • Nasdaq Composite: down 27 points or 0.2% at 14,146 points

Chevron are leading the Dow risers, up 1.6%, followed by American Express (+0.6%), while JP Morgan (-1.5%) and DIY chain Home Depot (-1.1%) are leading the fallers.

US factory production has picked up, led by a recovery in car manufacturing.

Total industrial production increased 0.8% in May, new data from the Federal Reserve shows, following a downwardly revised 0.1% in April.

Manufacturing production advanced 0.9 percent, led by a 6.7% gain in production of motor vehicles and parts -- after the computer chip shortage hammered output earlier this year.

The Fed says:

Overall vehicle assemblies jumped about 1 million units to 9.9 million units (annual rate); even so, they remained more than 1 million units below their average level in the second half of 2020, as production continued to be hampered by shortages of semiconductors

US producer price inflation jumps to 6.6%

US producers kept hiking their prices in May, in another sign that inflationary pressures are building.

Producer prices rose by 6.6% per year in May, the largest increase since the Bureau of Labor Statistics began calculating 12-month data in November 2010.

Core PPI inflation (stripping out food, energy and trade services) climbed 5.3% - the highest since data began in August 2014.

On a monthly basis, the producer price index rose 0.8%.

Goods inflation drove prices higher, up 1.5% in May while services prices rose 0.6%.

Prices of goods such as non-ferrous metals, meat, fuel, and motor vehicles increased in May.

On the services side, the cost of automobile retailing, freight transport, clothing and footwear retailing, portfolio management and building materials supplies retailing all rose.

Firms are raising their prices following a jump in costs -- such as raw materials, transport and wages -- and in response to higher demand.

Neil Birrell, Premier Miton Chief Investment Officer, says this may put pressure on the Federal Reserve as it starts its two-day meeting today:

“US producer prices jumped much more than expected to 6.6% in May; this could put a bit of pressure on the Fed tomorrow in how they word their comments on inflation and the outlook for rates.

Meanwhile, retail sales missed expectations, showing a big drop over April, suggesting that the consumer recovery may not be as strong as thought, but this is only one data point in a strong recovery.”

US clothing sales rose 3% during May, and were 200% higher than a year ago, as people spruced up their wardrobes for the return to the office, or to hospitality venues again.

More reaction:

US retail sales fell in May

US retail sales fell sharply in May, amid supply chain disruption and a return to normality as the pandemic eased.

Retail sales dropped by 1.3% in May, more than the 0.8% fall expected.

It was led by a fall in spending at building materials stores, motor vehicles and parts suppliers, electronics and appliance shops, and furniture vendors.

They all benefitted from a surge in spending during lockdown, as people looked to improve their homes, buy new technology for home working, or spend stimulus checks on new items.

So with the economy reopening, spending may be rotating to services - such as entertainment and air travel, or eating out (spending at bars and restaurants rose 1.8%, the report shows).

April’s retail sales data was revised high, to show a 0.9% gain - rather than being unchanged, as first reported.

Stretched supply chains may also have hit retail spending in May, as the global shortage of semiconductors has already affected car production.

Consumer prices have been rising too, with the CPI index hitting 5% in May - a 13-year high.

With the boost from stimulus checks now ebbing, some Americans may be reining in their spending too.

But the outlook still looks robust, as the WSJ reports:

“This spending celebration has a number of months to run,” said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings.

Households “have a lot of money to spend,” she said, referencing the mounds of savings that some consumers accumulated during lockdowns and multiple rounds of government stimulus.

Updated

  • Bank of England Governor Andrew Bailey has warned fintech firms to expect some ‘tough love’.
    Bailey told a conference hosted by finance body TheCityUK that the BoE wants to ensure that financial innovation, especially in the field of cryptocurrencies, did not undermine broader goals such as financial stability (Reuters reports).

  • “There will inevitably be elements of tough love in such a process, and some disappointed ambitions, but I am confident that out of it will come a robust form of innovation.”

    • Bailey also spoke about the role that ‘stablecoins’ can play [crypto assets pegged to another asset], saying they need to be fully interchangeable with existing forms of money.

    So unless they’re operating as a bank, their assets need to cover their outstanding coin issuance at all times....

    [Stablecoin Tether, pegged 1:1 with the US dollar, recently reported that 76% of its reserves are “cash & cash equivalents & other short-term deposits & commercial paper”, but just 2.9% was actual cash].

    The weaker pound has helped the FTSE 100 index nudge a new pandemic high.

    The index of blue-chip shares has touched 7189.63 points, slightly over yesterday’s 15-month high.

    That puts it on track for its highest close since late February 2020 as well.

    Holiday bookings for summer 2022 are “significantly” ahead of normal, according to online travel agent On The Beach, as the prospect of a break in the sun this year recedes.

    The Manchester-based company reported a 79% fall in revenues to £4.4m in the six months to 31 March, as it felt the effect of travel restrictions. Its adjusted pretax loss shrank to £21.6m from £34.1m, reflecting lower marketing spending.

    Simon Cooper, the chief executive, said customers do not normally book holidays a year in advance but growing numbers are doing so now in the hope that the coronavirus pandemic will have been brought under control by then. Spain, the Canary islands, Greece and Turkey are popular destinations next year.

    “Booking volumes for summer 2022 remain low, but are significantly ahead of normal trading patterns, partially due to the early release of flights for next year by most major airlines.”.

    Pound hits one-month low against the dollar

    Sterling has dropped to a one-month low against the US dollar, as traders digest yesterday’s delay to the end of lockdown.

    After initially taking the news in its stride, the pound has now dropped by around 0.5% to $1.404, its lowest point since 14th May.

    Sterling hit a three-year high at the start of the month, touching $1.425, but has weakened in recent sessions as cases of the Delta variant have risen.

    Against the euro, the pound is down 0.4% at €1.1595 (the lowest since last Thursday).

    Glenn Uniacke, managing director for UK International Payments Dealing at moneycorp, says:

    “In the run up to yesterday’s announcement, we’ve seen political pressure mounting over withheld international travel, rising Covid-19 cases, and evolving variants.

    In this climate, the success of the UK’s vaccine rollout has become increasingly pivotal to currency movements in the Pound.

    The importance of focusing on getting more people vaccinated with two jabs has risen, consequently the waiting time from the first to the second injection has dropped from 12 weeks to eight.

    Cabinet Office minister Michael Gove said this morning that ministers are “pretty confident” that the final lifting of Covid restrictions in England, delayed until 19 July, will not be pushed back again:

    CMA to scrutinise Apple and Google's mobile dominance

    The UK’s competition watchdog is putting Apple and Google’s mobile ecosystems under the microscope.

    The Competition and Markets Authority is carrying out a market study into both tech giant’s mobile ecosystems, over concerns that they hold market power which is harming users and other businesses.

    The CMA says it will examine whether the firms’ “effective duopoly” over the supply of operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome), is hurting competition.

    It could mean less innovation, or consumers paying higher prices for apps and mobile devices, or for other goods and services (due to higher advertising prices).

    The study will look for potential sources of harm to consumers within 4 broad themes:

    • Theme 1: competition in the supply of mobile devices and operating systems.
    • Theme 2: competition in the distribution of mobile apps.
    • Theme 3: competition in the supply of mobile browsers and browser engines.
    • Theme 4: the role of Apple and Google in competition between app developers.

    Andrea Coscelli, Chief Executive of the CMA said:

    “Apple and Google control the major gateways through which people download apps or browse the web on their mobiles – whether they want to shop, play games, stream music or watch TV. We’re looking into whether this could be creating problems for consumers and the businesses that want to reach people through their phones.

    “Our ongoing work into big tech has already uncovered some worrying trends and we know consumers and businesses could be harmed if they go unchecked. That’s why we’re pressing on with launching this study now, while we are setting up the new Digital Markets Unit, so we can hit the ground running by using the results of this work to shape future plans.”

    Updated

    Ikea France fined €1m over spying campaign

    A French court has ordered home furnishings giant Ikea to pay a 1 million euros fine (£861,000) over a campaign to spy on union representatives, employees and some unhappy customers in France.

    In a remarkable case, the French branch of the world’s biggest furniture retailer was found guilty of improperly gathering and storing data on its employees.

    Ikea France had been accused of snooping on workers for years, breaching their privacy by reviewing records of their bank accounts, using fake employees to write up reports on staff, and even obtaining police files.

    Associated Press have the details:

    Two former Ikea France executives were convicted and fined over the scheme and given suspended prison sentences. Among the other 13 defendants in the high-profile trial, some were acquitted and others given suspended sentences.

    Abel Amara, a former Ikea employee who helped expose the wrongdoing, called the ruling “a big step in defense of the citizen....It makes me glad that there is justice in France.”

    The panel of judges at the Versailles court found that Ikea’s French subsidiary used espionage to sift out trouble-makers in the ranks and profile squabbling customers between 2009 and 2012.

    Trade unions accused Ikea France of collecting personal data by fraudulent means, notably via illegally obtained police files, and illicitly disclosing personal information. Lawyers for Ikea France denied that the company had any strategy of “generalized espionage.”

    A lawyer for the unions, Solene Debarre, expressed hope that the verdict would “make some companies tremble.”

    “One million euros isn’t much for Ikea, but it’s a symbol,” Debarre said.

    The company, which said it cooperated in the investigation, had faced a potential financial penalty of up to 3.75 million euros ($4.5 million). Prosecutor Pamela Tabardel asked the court to hand “an exemplary sentence and a strong message to all companies.”

    The executive who was in charge of risk management at the time of the spying, Jean-François Paris, acknowledged to French judges that 530,000 to 630,000 euros a year were earmarked for such investigations.

    Paris — the only official to have admitted to the alleged illegal sleuthing — said his department was responsible for handling the operation on orders from former Ikea France CEO Jean-Louis Baillot.

    Paris was fined 10,000 euros ($12,125) and given an 18-month suspended sentence.

    Baillot, who denied ordering up a spy operation, was fined 50,000 euros ($60,626) and given a two-year suspended sentence.

    Another former CEO of Ikea France was acquitted for lack of evidence.

    Ikea France’s lawyer, Emmanuel Daoud, said the company hadn’t decided whether to appeal. He said the case was marked by a lack of hard evidence and holes, and noted that the fines were well below the maximum possible.

    “The court took into account the action plan that Ikea put in place after the revelation of the facts, in 2012. That’s very satisfying,” Daoud said.

    The company fired four executives and changed internal policy after French prosecutors opened a criminal probe in 2012.

    Trade unions alleged that Ikea France paid to gain access to police files that had information about targeted individuals, particularly union activists and customers who were in disputes with Ikea.

    In one situation, Ikea France was accused of using unauthorized information to try to catch an employee who had claimed unemployment benefits but drove a Porsche. In another alleged instance of illegal prying, the subsidiary reportedly investigated an employee’s criminal record to determine how the employee was able to own a BMW on a low income.

    The company also faces potential damages from separate civil lawsuits filed by unions and 74 employees.

    Ikea’s France subsidiary employs more than 10,000 people in 34 stores, an e-commerce site and a customer support center.

    Ireland's goods imports from Britain drop 20% in April

    Ireland’s goods imports from Britain fell 20% year-on-year in April, while exports to Britain rose over 40% compared with a year earlier, new trade data shows.

    Ireland’s Central Statistics Office reports that goods imports from Great Britain decreased by €229 million (-20%) to €920m in April, compared with April 2020, saying:

    The largest decreases were in the imports of Food and live animals and Chemicals and related products.

    But Irish exports to Great Britain in April 2021 rose to €1,031m, an increase of €306m (+42%) compared with April 2020.

    The CSO explains:

    The largest increases were in the exports of Chemicals and related products and Machinery and transport equipment.

    Overall, Ireland’s goods exports rose by 10% year-on-year in April, while imports were 45% higher than the year before (when the first wave of Covid-19 had hit Europe).

    Here’s Reuters take:

    Ireland’s goods imports from Britain fell 20% year-on-year in April, data showed on Tuesday, the least severe monthly decline since new post-Brexit trade barriers came into force that meant imports were down 39% for the first four months of 2021.

    Irish goods exports to Britain rose by 42% year-on-year in April, and are now up 7% so far this year compared to the same period in 2020. Britain has delayed the introduction of a range of post-Brexit import checks on EU goods until later this year.

    Total Irish goods imports rose by 45% year-on-year in April on a similarly unadjusted basis. Goods exports were up 10%.

    In other trade news...EU goods imports from the United Kingdom have fallen by over 27% in the first four months of 2021, compared to January-April 2020, according to the latest data from Eurostat.

    That’s a much steeper fall than for other major trading partners, as the table below shows.

    Eurostat also reports that EU goods exports to the UK fell by a more modest 3.3% year-on-year in January-April, meaning Europe’s trade surplus with the UK has swelled.

    But this is an improvement on last month. In January-March, UK goods shipments to the EU were down over 35% year-on-year, with EU goods shipments to Britain down 14.3%.

    This pick-up in trade may reflect the recent easing of the pandemic, compared to April 2020 when European countries locked down, as well as firms getting to grip with Brexit trade friction.

    Europe imposed import controls on British goods at the start of the year, as soon as the Brexit trade deal began. But London waived those checks while it built border post infrastructure, worried that there would be shortages in the shops otherwise.

    UK exporters have warned that those controls, checks and extra documentation have led to delays and disruption (back in January, one meat exporter revealed he had five containers of port stuck, going off, at Rotterdam port).

    Green Party MP Caroline Lucas is also concerned about the environmental consequences, and the impact to farmers.

    Joe Spencer, partner at accountancy firm MHA MacIntyre Hudson, is concerned that UK farmers will be hurt by the “gradual end to tariffs” on Australian food imports such as beef.

    “Unfavourable trade deals” will only add more pressure on farms as they struggle to adjust to Brexit, he warns (as the cap on tariff-free imports to protect British farmers announced today lasts for 15 years).

    Spencer says:

    “UK farmers are increasingly being asked to offer protection for the environment, while the government is withdrawing support to them at the same time. Unfavourable trade deals – such as this latest one in negotiation with Australia - will only add more pressure to the sector which is working hard to move in one direction while, one might suggest, having the rug pulled out from under it at the same time.

    “Farmers are right to be wary. Trade deals of the sort the government has negotiated with Australia offer few advantages to the sector and maybe only small benefits to consumers (in terms of lower prices). The sector (and the general public) will be paying close attention to the way these trade deals ensure food safety and livestock welfare standards.

    But overall, Spencer suggests the deal with Australia will probably only have “minimal impact” (as Australian farmers have potential customers rather closer to home...)

    Australia’s export markets are in Asia, and with the growth of the middle class in China an avalanche of cheaper imports is unlikely to find it ways to the UK. The bad news is that the deal probably won’t benefit UK producers much through increased access to the Australian market.

    “However, even if the Australian deal considered in isolation will not be a huge problem it is part and parcel of a series of pressures farmers are now facing, many caused by government policy. We know the changes to direct financial support following Brexit and the transition to the UK Agricultural Policy will impact the bottom line for many producers, so further pressure on prices from trade deals (as the government hopes for more) will not offer farmers the opportunity to grow and reinvest.”

    Here’s trade expert David Henig of the European Centre For International Political Economy on the limits of the UK-Australia trade agreement:

    UK and Australia agree free trade deal

    As rumoured overnight, the UK and Australia have agreed the broad terms of a free trade deal.

    It’s the first agreement negotiated from scratch after Brexit. And according to Boris Johnson, it marks a “new dawn in the UK’s relationship with Australia, underpinned by our shared history and common values”.

    The UK says the tariff-free deal will see British cars, Scotch whisky and confectionery become cheaper to sell to Australian consumers.

    Sky News explain:

    In a statement setting out the benefits of the agreement, the government said it will eliminate tariffs on Australian favourites like Jacob’s Creek and Hardys wines, swimwear and confectionery, as well as increasing choice for British consumers and saving households up to £34m annually.

    Downing Street added the deal will help distillers by scrapping tariffs of up to 5% on Scotch whisky, while car manufacturers in the Midlands and the North of England will see tariffs of up to 5% cut.

    Downing Street also say British farmers will be protected by a cap on tariff-free imports for 15 years, along with other “safeguards” to protect them (UK farmers are deeply worried that they’ll be forced out of business once tariffs on lamb and beef imports are eliminated).

    Elsewhere in the agreement, Downing Street said Britons under the age of 35 will be able to travel and work in Australia more freely. That could mean changes to the requirement for British backpackers to do farm work when renewing their visas (which Australian farmers fear would exacerbate labour shortages).

    Johnson added:

    “Our new free-trade agreement opens fantastic opportunities for British businesses and consumers, as well as young people wanting the chance to work and live on the other side of the world.

    “This is global Britain at its best - looking outwards and striking deals that deepen our alliances and help ensure every part of the country builds back better from the pandemic.”

    Although, as Reuters points out, the deal may not add much to UK output:

    Though details have yet to emerge, some official estimates say the agreement could add £500m ($705.7 million) to British economic output over the long term - a small fraction for an economy worth around 2 trillion pounds.

    Labour MP Darren Jones isn’t impressed:

    My colleague Lisa O’Carroll has tweeted the key points:

    Full story: UK unemployment rate drops again as firms hire more staff

    UK unemployment fell for the fourth month in a row in April as businesses took on more staff in response to the relaxation of Covid-19 restrictions.

    The Office for National Statistics said the jobs market showed further signs of recovery as non-essential shops and hospitality venues were allowed to open outdoors across the UK.

    The unemployment rate fell to 4.7% in the three months to April, representing about 1.6 million people, in a modest improvement from 4.8% in the three months to March.

    Businesses hired staff to cope with a rush of pent-up demand from lockdown-weary consumers, and the number of staff on company payrolls rose for a sixth consecutive month according to figures for May from HMRC, increasing by 197,000 to 28.5 million.

    However, this remains 553,000 below levels recorded before the Covid-19 pandemic struck. Young adults, workers in hospitality and those living in London have borne the brunt of job losses in the past year.

    The number of job vacancies in the three months to May jumped to 758,000, only 27,000 below its pre-pandemic level
    Standfirst ...
    Levels, thousands
    300
    400
    500
    600
    700
    800
    900 thousand
    2005
    2010
    2015
    2020
    Guardian graphic | Source: ONS Labour Force Survey

    The Treasury is understood to be resistant to a furlough extension as employers report issues with labour shortages after the easing of lockdown earlier this spring.

    According to the latest snapshot from the ONS, the number of job vacancies in the three months to May jumped to 758,000, only 27,000 below its pre-pandemic level, with the biggest rise in the accommodation and food services sector.

    The rate of redundancies reported in the three months to April also decreased by a record 7.1 per 1,000 employees to 4.0 per 1,000 employees, back in-line with pre-pandemic levels.

    More here: UK unemployment rate drops again as firms hire more staff

    Boohoo reports strong sales as it relaunches Debenhams website

    Boohoo has reported further strong sales growth on the back of the online shopping boom seen during the pandemic, as it launched a new Debenhams “digital department store”.

    The online fashion retailer said its revenues grew 32% in the three months to May compared with the same period in 2020, even as Covid lockdowns eased and other retailers reopened their shops.

    UK revenues were strongest, up 50%, followed by the US with a 43% increase while sales in the rest of Europe and the rest of the world fell by 14% and 15% respectively. Overall revenues are up 91% over the past two years, with sales in the UK and US doubling.

    Boohoo relaunched the Debenhams website in April, selling fashion, beauty and homeware, with new ranges added. It bought the Debenhams brand and website out of administration for £55m in January, after the 243-year-old department store chain collapsed last year.

    The Debenhams name has disappeared from the high street, with all stores around the country closed, leading to the loss of about 12,000 jobs.

    Here’s the full story:

    European stock markets are on track for their best run in two years.

    The pan-European Stoxx 600 index is up 1.4 points at 459.7 (+0.3%) this morning, setting it up for its eighth daily rise in a row - which hasn’t happened since April 2019.

    Shares are up in Frankfurt (+0.6%) and Paris (+0.4%) as well as London (+0.2%), although Milan (-0.25%) and Madrid (-0.35%) have dipped.

    Here’s Reuters’ take:

    European shares rose for an eighth straight session as optimism around a speedy economic recovery across the region lifted industrial stocks, while technology shares tracked an overnight jump in their U.S. peers.

    The pan-European STOXX 600 was up 0.3% by 0715 GMT in its longest winning streak in more than two years as investors also bet on global central banks keeping the stimulus taps open.

    FTSE 100 higher despite lockdown easing delay

    The London stock market seems to be shrugging off the delay to the final easing of lockdown in England.

    The FTSE 100 index is currently up 16 points or 0.2% at 7162 points, after ending Monday’s session at a pandemic closing high.

    Clothing chain Primark’s owner AB Food (+3.4%), airline operator IAG (+2%), DIY chain Kingfisher (+1.8%) and jet engine maker/servicer Rolls-Royce (+1.6%) are among the risers.

    Restaurant Group (+2.4%) and budget airline easyJet (+1.8%) are also recovering yesterday’s losses, lifting the mid-cap FTSE 250 index up by 0.2%

    With Wall Street hitting record highs last night, investors seem to be confident in the recovery, and relaxed about the risks of inflation.

    Ipek Ozkardeskaya, senior analyst at Swissquote, explains:

    The week kicked off with major US indices renewing record on the back of an increased interest in technology stocks on broad conviction that the low interest rates and the cheap liquidity is here to stay despite improved recovery prospects, encouraging jobs data and overshooting inflation.

    Investors trust Jay Powell more than they trust their own father in that he won’t remove the liquidity rug from under their feet.

    Youth employment at 'critical moment'

    Chris Goulden, Director, Impact & Evidence at Youth Futures Foundation, has spotted a very concerning rise in long-term unemployment among the under-25s:

    Younger workers were hit particularly badly by the pandemic, with under-25s making up almost two thirds of the jobs lost (figures released in March showed).

    Steve Haines, Director of Public Affairs at youth charity Impetus, says youth employment is at a ‘critical moment’ - with younger workers at risk of suffering from an uneven recovery.

    “A deeper problem is being masked - hundreds of thousands of young people who are still on furlough face yet more time out of the labour market, many more will be leaving education and looking for work and those young people furthest from the labour market risk getting stuck out of education and employment in the long term.

    “As we approach the one year anniversary of the Prime Minister promising an ‘Opportunity Guarantee’ for young people, we need to see targeted support to address those young people worst affected by the crisis.”

    Tony Wilson, Institute Director at IES, is concerned that the number of long-term unemployed is rising, despite the rise in vacancies and the struggle to hire staff in some sectors.

    “Today’s figures confirm that the jobs market is making a strong recovery.

    Payrolled employment added nearly 200 thousand in the month of May alone, its fastest rise on record, while May saw nearly 900 thousand vacancies in the economy, one of its highest figures ever. However despite this, and continued recruitment problems in a number of industries, there are still more than twice as many unemployed people still chasing every vacancy and long-term unemployment has reached a five year high of over half a million.

    So we need to do much better at helping those people who want jobs to find and take up the jobs that want people.”

    UK redundancies fall to pre-pandemic levels

    UK redundancies have dropped back to pre-Covid-19 levels, in another sign that the jobs market is improving.

    The ONS reports that redundancies dropped to 4 per thousands employees in the February-April quarter, a record fall of 7.1 per thousand (after surging to record highs last year).

    Jonathan Boys, labour market economist at the CIPD, says it confirms that demand for labour is strong.

    “In many ways, these figures confirm what we already know - recovery appears to be in full swing and confidence is returning.

    Seeing redundancies return to pre-Covid levels suggests that for the bulk of the economy most of the pain has passed. Unemployment continues to fall, buoyed by strong demand for labour, and most industries are showing vacancies above pre-pandemic levels.

    The 265.5% quarterly growth in hospitality vacancies hints at the strength of the bounce back in some sectors. The struggle to find staff is a boon to some workers and a headache for some employers.

    Boys also argues that firms need to aim to create ‘better jobs’, with improved terms including wages, training opportunities and benefits such as flexible working (given the move towards home-working in the last year).

    Employers thinking longer-term might recognise that now there is a golden opportunity to invest in skills - especially apprenticeships for young people - to offset the rising threat of labour and skill shortages.

    Government has a role here and must reform the apprenticeship levy to make it fit for purpose ensuring it does what it set out to do – namely increase the volume of training taking place.

    Today’s data shows that the UK’s market is improving, says Suren Thiru, head of economics at the British Chambers of Commerce:

    Stephen Evans, chief executive of Learning and Work Institute, warns that the jobs crisis isn’t over:

    Stuart McIntyre, head of research at The Fraser of Allander Institute, points out that payrolls are ‘well down’ on pre-pandemic levels across Scotland.

    Minister for Employment Mims Davies MP says:

    There are real signs of recovery in the labour market with tens of thousands of Work Coaches working hard to support people across our growing network of Jobcentres to help build their skills, get interview ready, and find their next roles - with over three quarters of a million vacancies out there.

    “Our Plan for Jobs is working - creating new opportunities and boosting job prospects right across the country - as jab by jab we lay the foundations to build back better.”

    Labour: Hospitality, tourism and music need more help

    Rachel Reeves MP, Labour’s Shadow Chancellor, says the jobs recovery can be fragile, with company payrolls still half a million below pre-Covid levels despite surging in May.

    She urges the government to provide more support to the industries which will be hardest hit by a four-week delay to reopening (and which face a tapering in business rates relief and the end of a moratorium on rent arrears).

    Reeves says:

    “Today’s figures, laid alongside the Government’s mistakes and delays, show us just how fragile our jobs recovery can be.

    “The lack of clarity in the Government’s announcement yesterday on how they will support workers and businesses given the delay in their own roadmap - a result of their incompetence protecting our borders from new variants - is as unsurprising as it is disappointing.

    “For sectors like hospitality, tourism, and our music industry that continue to be affected by restrictions, a month is a long time. Many businesses have financial pinch points coming up but are still struggling to turn a profit.

    “If businesses have to stay closed or operate at massively reduced capacity they’re not going to be able to pay staff, rents and loans back. Government support must recognise that.

    “The short-termism of this government is exhausting businesses and workers, and they must be clear how they will support firms hit by the Government’s delay in the roadmap.”

    Sunak: Plan for Jobs is working

    Chancellor of the Exchequer Rishi Sunak says:

    “Our Plan for Jobs is working - the latest forecasts for unemployment are around half of what was previously feared and the number of employees on payroll is at its highest level since April last year.

    “We understand the value of work and the distress caused by unemployment – that is why we are continuing to support people and jobs.

    “The furlough scheme is running all the way through until September and we are creating new routes into work through apprenticeships, Kickstart placements for young people as well as targeted support for the long term unemployed.”

    UK vacancies "surpassed pre-pandemic levels" in May

    Job vacancies have also risen as the UK economy reopened this spring, the ONS reports - passing pre-pandemic levels in May.

    It says:

    The number of job vacancies in March to May 2021 was 758,000, only 27,000 below the level before the coronavirus (COVID-19) pandemic in January to March 2020; most industries have recovered to show vacancies above pre-pandemic levels.

    The strongest quarterly increase was in accommodation and food services. In May 2021, the experimental monthly vacancies data, and the experimental Adzuna online vacancies data both surpassed pre-pandemic levels.

    Accommodation and food services saw the biggest surge in vacancies, up over 260% on the quarter as pubs and restaurants reopened (under restrictions).

    The ONS says there is “some evidence to suggest that vacancies have been created by workers not returning to their previous jobs as this sector reopened”.

    Introduction: UK unemployment rate drops as payrolls rise

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

    The UK’s unemployment rate has fallen again as more people returned to work as pandemic restrictions were eased.

    New figures released by the Office for National Statistics this morning show that 197,000 people joined company payrolls in May, the sixth monthly increase in a row.

    That follows the reopening of non-essential shops, leisure and hospitality venues in April, and the resumption of indoor services in pubs and restaurants in May.

    The latest figures “suggest that the jobs market is showing signs of recovery”, the ONS says -- although there are still more than half a million fewer people on payrolls than before the pandemic.

    It says:

    The number of payrolled employees has increased for the sixth consecutive month, up by 197,000 in May 2021 to 28.5 million.

    It is however 553,000 below levels seen before the coronavirus (COVID-19) pandemic. Since February 2020, the largest falls in payrolled employment have been in the accommodation and food services sector, people aged under 25 years, and people living in London.

    Today’s jobs report also shows that the unemployment rate dropped to 4.7% in the three months to April, down from 4.8% a month ago.

    The ONS also reports that pay growth continued to rise, with total pay (including bonuses) and regular pay (excluding bonuses) rising by 5.6% per year in the three months February to April 2021.

    But it cautions that this is driven by “compositional effects” - due to a fall in the number and proportion of lower-paid employee jobs, and also because the latest month is now compared with April 2020 when earnings were first affected by the pandemic.

    But the delay to the final easing of Covid-19 restrictions in England was announced yesterday could lead to job losses, businesses fear, unless the government provides more support.

    The UK’s largest trade bodies joined hospitality businesses and trade unions in urging the government to change its mind and come up with new support measures, warning that businesses will be driven to the wall otherwise.

    Tony Danker, the director general of Britain’s most powerful business lobby group, the CBI, said the government “must urgently revisit the support available”, including the tapering of business rates relief and a moratorium on landlords’ right to collect commercial rent.

    Both are due to end on 1 July, signalling looming extra costs for debt-laden hospitality venues that will still be subject to restrictions on how many people they can serve.

    Also coming up today

    It could be a busy day for trade news, with ‘broad terms’ of a trade deal between the UK and Australia to be announced this morning.

    My colleague Harry Taylor reports:

    A Department for International Trade spokesperson confirmed that the broad terms had been struck on Monday night, after Boris Johnson and the Australian prime minister, Scott Morrison, had dinner at Downing Street.

    Farmers have previously raised concerns about the potential of a zero-tariff and zero-quota trade deal with Australia which could undercut them by cheap imports, affecting the viability of their business.

    Other fears include that any agreement could introduce cheaper meat with lower welfare standards into the UK market, hitting British farmers who have operated along higher standards.

    There are also reports that the EU and US are on the brink of resolving their 17-year dispute over aircraft subsidies.

    A breakthrough in the long-running Airbus-Boeing row could lift the threat of billions of dollars in punitive tariffs,

    The FT says:

    Diplomats and officials confirmed on Monday night that two days of intensive negotiations in Brussels had left the EU and the Biden administration on the cusp of confirming a deal on subsidy rules for Airbus and Boeing.

    The breakthrough is set to be finalised on Tuesday at US president Joe Biden’s first EU-US summit meeting in Brussels. People close to the talks said that the governments of Airbus’s three home countries in the EU — Germany, France, and Spain — were being consulted on an agreement that could be confirmed on Tuesday morning if there were no last-minute obstacles.

    The FTSE 100 is set to open higher, despite the delay to ending the lockdown in England. Yesterday it closed at its highest level since late February 2020, early in the pandemic.

    The agenda

    • 7am BST: UK unemployment report
    • 10am BST: Eurozone trade balance for April
    • 1.15pm BST: Bank of England governor Andrew Bailey speaks at The CityUK Annual Conference, on the future growth of UK-based financial and related professional services
    • 1.30pm BST: US retail sales and producer prices index for May
    • 2.15pm BST: US industrial production for May
    • 3pm BST: US NAHB Housing Market Index for June

    Updated

     

    Leave a Comment

    Required fields are marked *

    *

    CAPTCHA

    *