And finally... Europe’s stock markets have recorded a strong bounceback from their losses yesterday.

The FTSE 100 index has posted its biggest one-day rise in two months, after its worst fall in three weeks.

It closed 91 points higher at 7121, up 1.3%, with mining companies leading the way. Banks also rallied, after both sectors were hit yesterday amid worries about growth and Covid-19.

France’s CAC jumped 2%, while Germany’s DAX gained 1.7%, with Volkswagen up almost 6% after reporting those strong sales and profits for the first half of this year.

The recovery seems to be supported by calmer scenes in the bond markets, where US Treasury yields have risen after a plunge yesterday.

Macro analyst Alfonso Peccatiello has a good theory about why US government bond yields tumbled so sharply on Thursday:

On that note, have a lovely weekend... and enjoy the football! GW

Today’s UK trade data showed that British goods exports to the European Union rose to their highest since October 2019 in May, after a slump at the start of the year.

But as flagged before, imports have not shown the same recovery.

Economist Julian Jessop has a couple of ideas why....

With excitement building ahead of Sunday’s Euro 2020 climax, a lot has changed since England’s men last contested an international football final.

NatWest chief economist Seb Burnside has highlighted how wages and prices have both risen over the last 55 years - with houses, and beer, notably pricier.

• Inflation: You’d need £19 today to buy what cost £1 back in 1966
• Wages: But helpfully, average earnings are now 43 times higher, showing how much living standards have risen
• Housing: Except that is when it comes to affording to buy a house, which is now 70 times more expensive!
• Beer: The price of a pint has shot up too, from 5p to £3.10, a factor of 62!
• Bucking the trend: Wembley’s capacity in 1966 was 90,000. 30,000 more than were allowed in to watch the semi-final, albeit final permissible ticket numbers for Sunday are still unknown.

One of the big stories of the week has been China’s crackdown on its tech sector, notably Didi, just days after it floated in New York.

Our China affairs correspondent Vincent Ni has looked into Beijing’s fight against tech’s ‘barbaric growth’, and reports:

Over the past two years, multiple state agencies – from the financial regulators to the new market watchdog and the cybersecurity authorities – have been drafting new rules to regulate China’s booming tech sector, long before Didi’s New York listing. Earlier this year, the People’s Bank of China proposed tightening rules for businesses that collect personal and corporate credit data, as it vowed to improve data privacy protection.

But as well as protecting consumers, this is also about control – control of what companies do and control of the massive amounts of data they collect about their users. It is an issue that has become even more urgent today as tensions between the US and China deepen.

“In Beijing’s control of data, ‘sovereignty’ is [now] prized more than ever in the context of US-China tensions,” says Duncan Clark, a Beijing-based veteran tech investor and author of a book on Alibaba, the e-commerce giant founded by Jack Ma. “And in reasserting the state’s authority over big tech, China wants to reduce – or eliminate – vulnerabilities.”

But this is also a fine line to tread for the state, Clark says. “[After all], the state and its tech firms need each other, as tech companies drive innovation, efficiency and stimulate the consumer economy.”

Over in Canada, job creation has picked up after Covid-19 restrictions were eased.

Statistics Canada reports the economy added 230,700 jobs in June, as restrictions put in place to slow the pandemic were rolled back in many parts of the country.

They say:

Compared with the May reference week, public health restrictions had been significantly eased in several jurisdictions by the end of the June reference week.

Most indoor and outdoor dining, recreation and cultural activities, retail shopping, and personal care services had resumed or continued in eight provinces, with varying degrees of capacity restrictions.

But.... the gains all came in part-time positions, which rose 263,900, while the number of full-time jobs fell 33,200. And this job creation was concentrated among young people aged 15 to 24, who have generally been hit hard by the pandemic.

Despite this pick-up, Canada is still missing 340,000 jobs, or almost two per cent, compared to pre-pandemic employment levels.

In the markets, Wall Street has opened higher, as investors recover their nerve after Thursday’s wobble.

Recovery stocks are back in demand, pushing the Dow Jones industrial average up by 310 points or 0.9% in early trading, to 34,732.

Financial stocks and industrials are in demand, with Goldman Sachs (+2.8%), chemicals firm Dow Inc (+2.2%) and construction equipment maker Caterpillar (+2.1% in the risers.

Tech stocks are lagging, though, with the Nasdaq Composite only up 0.15%.

Back on GDP.... the NIESR economic research institute have forecast that the UK economy will have grown by 0.9% in June, continuing the slowdown.

That would be slightly faster than May, but still weaker than in April and March during the initial easing of lockdown.

They also predict growth will slow in the third quarter of 2021:

• May’s month-on-month growth of 0.8% disappointed, with little sign of momentum in either April or May outside the sectors which grew due to the lifting of Covid-19 restrictions.
  
  
• With several indicators showing slowing activity after the spring momentum, we expect growth in June of 0.9 per cent, and 4.8 per cent for the second quarter of 2021 overall.
  
  
• With catch-up potential still evident in hospitality, transport, business support and the arts, we forecast growth of 1.9 per cent in the third quarter, still notably above historical trend growth rates.
  
  
• But with Covid-19 cases rising again, and consumer caution evident, the lifting of further restrictions on July 19^th risk boosting the economy in the short term at the expense of a longer lasting and more sustainable recovery. Much will depend on the roll-out and efficacy of the vaccines in the context of the Delta variant.

Although UK trade with the EU picked up in May, there could be more disruption this summer if British holidaymakers head abroad for holidays.

The head of the port of Dover has told Reuters that an increase in traffic will cause pressure, due to the extra paperwork at the border for freight at the border -- highlighting the need for more investment at the site.

Here’s the story:

A pre-Brexit trade rush led to 20-mile queues, but Doug Bannister, CEO of the Port of Dover, told Reuters the site had so far managed the switch to customs checks well, after Britain left the EU trade bloc at the end of 2020.

“That’s because we haven’t seen the demand for tourists coming from our facilities, as we would normally expect to see,” he said on a bright sunny day as a ferry departed for Calais.

“There will be longer transaction times and more processing,” Bannister said, if there was a rapid return of passenger cars to Dover, which was used by some 2.4 million trucks, 2 million tourist cars and 74,000 coaches in 2019.

European stock markets are rebounding this morning, after Thursday’s selloff.

The UK’s FTSE 100 has gained 50 points, or 0.7%, back to 7080 points -- recovering around half of yesterday’s fall when falling bond yields and rising Covid-19 worries rattled markets.

The Europe-wide Stoxx 600 is up around 1%, having lost 1.7% yesterday (its worst fall in two months).

After a week of mayhem across global markets, calmer tones are finally prevailing, says Marios Hadjikyriacos of XM:

The source of all the stress was the bond market, where yields started to break down. Such a move usually signals worries about weaker economic growth, which would ultimately translate into slower rate increases by central banks.

When the bond market says something might be wrong, other asset classes pay attention. Stock markets came under fire yesterday and commodity currencies got hammered, while safe havens like the yen and Swiss franc shined bright. It was a classic risk-off move, with concerns around the rampaging Delta variant being blamed as the catalyst.

However, that may be only half the story. The other part may be more technical in nature. Positioning in thebondmarket was stretched-short before this debacle, which means everyone was betting on higher yields by shorting the actualbonds. Fears around the Delta variant might have sparked the initial move, but it was likely amplified by a ferocious short squeeze in Treasuries.

What does it all mean? In a nutshell, this pandemonium could fade soon as the short squeeze runs its course. We are already seeing signs of that today, with Treasury yields rebounding and Wall Street stabilizing.

We had been expecting to get the latest UK trade data at 7am.....But unusually, it’s been delayed by a processing issue.

Instead, we’ll get the headline figures at noon today, with the full report expected next week.

The ONS explains:

We have uncovered an error in the UK trade data prior to the planned release on 9 July 2021 at 7am. The error has occurred as we opened up the 2020 year to take on board corrections to HMRC data for non-EU trade which has caused a processing issue for the EU data.

We will be able to correct our headline figures by 9 July 2021 at 12pm.

The release will consist of a streamlined bulletin and dataset release covering headline figures only. We expect to be able to publish full, corrected data next week.

Ending the furlough scheme and the pandemic £20-per-week uplift in universal credit at the end of September could both hurt the UK’s recovery, warns Sam Miley economist at the Centre for Economics and Business Research.

He writes:

Overall, the economic recovery is set to continue in the near term. Indeed, much of the recovery is set to be concentrated in the coming months, with Cebr forecasts pointing to quarterly growth of 4.2% in Q3. This will largely be facilitated by the proposed easing of remaining restriction measures from July 19th and, notably, will take output above its pre-pandemic level.

Beyond that, there are emerging signs of growth levelling off, with faster economic indicators pointing to slower growth in card spending and consumer footfall.

There are other potential hurdles on the horizon that could slow the recovery. The most concrete of these is the termination of the furlough scheme, which has now entered its tapering phase before its complete cut-off at the end of September. Insofar as the scheme will heighten the risk of unemployment, consumers could rein in their spending and become more cautious amidst uncertainty and greater job insecurity.

This could be further exacerbated by the proposed withdrawal of the Universal Credit uplift, which would adversely impact the livelihoods of the worst-off households, while also reducing aggregate consumption levels.

The work and pensions minister, Thérèse Coffey, confirmed this week that the £20 rise in universal credit - which kept 700,000 people out of poverty - will be removed at the end of September.

That’s despite widespread public and cross-party opposition, with six former work and pensions secretaries urging the Treasury to keep the uplift, which costs £6bn per year.

The easing of lockdown restrictions on hospitality, leisure and entertainment companies provided pretty much all the 0.8% growth in May.

The accommodation & food sector (which grew by 37%) contributed around 0.7 percentage points of growth, as people took the opportunity to eat indoors or stay in hotels again from May 17th.

Arts, entertainment and recreation (which grew by 7.3% in May) added another 0.1 percentage points to the rise in overall GDP, as visits to cinemas, museums, children’s play areas, theatres, concert halls, conference centres and sports stadia resumed.

Rory Macqueen, principal economist at NIESR, warns that further reopening could potentially backfire:

Like April, May’s GDP growth was faster than usual but almost entirely driven by the lifting of Covid-19 restrictions, with the hospitality sector accounting for 0.7 percentage points of May’s 0.8 per cent growth.

Underlying growth is moderate outside the sectors being unlocked, with supply constraints contributing to the continuing recent stagnation in manufacturing. It remains to be seen whether the lifting of further restrictions in July contributes to a continuation of strong growth in the third quarter or – if cases of Covid-19 continue to rise – increased caution among consumers and even another national lockdown.”

The slowdown in UK growth in May highlights the “residual uncertainty in the pace of recovery”, says Alastair George, chief investment strategist at Edison Group:

The weakness, relative to consensus forecasts, was broadly spread. However in manufacturing semiconductor shortages crimped output, rather than any demand shortfall.

The outlook for the remainder of the year is all about “delta” and whether vaccinations can keep COVID-19 hospitalisations at acceptable levels during the autumn. Early UK data which indicates, according to our estimates, an 80% reduction in hospitalisation versus the second wave is clearly encouraging, but this is a preliminary assessment and there remains the risk of another yet more transmissible variant.”

The muted rise in GDP in May is especially disappointing at a time when some more timely indicators suggest that the economic recovery lost a bit more verve in June, says Paul Dales of Capital Economics.

Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon.

This could be a sign that the recent rise in COVID-19 cases and the delay to the final easing in COVID-19 restrictions from 21^st June to 19^th July are hampering the recovery.

Capital Economics now estimate the UK economy is more likely to return to its February 2020 pre-pandemic peak in October, rather than in August as previously forecast.

But still, the recovery so far has been “faster than most imagined possible six or 12 months ago”, Dales points out, and the economy might yet emerge from the pandemic without much scarring.

The 0.8% rise in UK production output in May was partly due to stronger demand for energy in the unusually chilly weather, the ONS explains:

Both electric power generation, transmission and distribution and manufacture of gas; distributions of gaseous fuels through mains; steam and aircon supply, saw strong growth; growing by 3.8% and 11.7% respectively.

May 2021 was the coldest since May 1996 and saw comparatively low wind speeds, which led to substantial increases in gas demand for electricity generation.

This combined with the continued easing of restrictions led to gas demand being at a record high for May.

The slowdown in growth in May shows that the recovery is incomplete, says James Smith, research director at the Resolution Foundation.

He warns that the danger of overdoing the optimism on the economy is greater than the risk of it overheating:

“The economy continued to bounce back in May following the deep lockdown freeze at the start of the year.

“But with the economy still 3.1 per cent weaker than pre-crisis – a gap larger than at any point during the 90s recession – and more timely measures of economic activity such as footfall and spending suggesting that progress has plateaued in recent weeks, the recovery is far from complete.

UK GDP grew by 3.6% in the three months to May 2021.

That’s mainly because of strong retail sales over the three months, increased levels of attendance as schools reopened from March, and the reopening of food and beverage service activities, the ONS says.

Pubs and restaurants were responsible for much of the growth in May, says Jonathan Athow, the UK’s deputy national statistician.

That’s because they were allowed to service customer indoors from mid-May.

Arts, entertainment and recreation also boosted growth, as the relaxation of restrictions on 17th May allowed venues such as museums, cinemas, theatres, art galleries and sports stadiums to reopen (with Covid-19 restrictions)

Today’s GDP report says:

Food and beverage services activities was the main contributor to the growth in consumer-facing services, growing by 34.0% in May 2021 as restaurants and pubs could serve the public indoors for part of the month.

Strong growth means that the industry is now 9.4% below its pre-pandemic level (February 2020), but 0.3% above its August 2020 peak when the Eat Out to Help Out Scheme boosted consumer demand for bars and restaurants. Arts, entertainment and recreation also contributed positively to consumer-facing services growth, growing by 7.3%.

Here’s Chancellor of the Exchequer, Rishi Sunak, on today’s GDP figures:

“It’s great to see people back out and about thanks to the success of the vaccine rollout, and to see that reflected in today’s figures for economic growth.

“Our unprecedented package of support – including business loans, the furlough scheme and a reduced rate of VAT for the hospitality and tourism sectors - has protected millions of jobs and helped businesses survive the pandemic.

“And with the number of people on furlough halving in just 3 months as the economy reopened, it is clear our Plan for Jobs is working.

“The Government is continuing to support the recovery, with the furlough scheme in place until September and schemes like Restart helping people who have sadly lost their jobs get back into work.”

This chart shows how the UK economy has now grown for the fourth month running, but slower compared with March (2.4%) and April (2.0%).

Alvin Tan of RBC Capital Markets expects the UK economy posted robust growth in May:

May GDP may have suffered a minor setback as the proportion of pupils absent for Covid-19 reasons began to rise again that month. However, private sector activity continued to rebound in May, helped by the reopening of hospitality venues for indoor service.

According to CHAPS card spending data, spending on social activities had reached 85% of its pre-crisis level by the end of the month compared to 75% at the end of April.

All in all, we think GDP grew by a robust 1.8% m/m in May, which would leave UK GDP at just 2% below its pre-pandemic level.