Fears are growing that the US recovery could be derailed by surging prices after inflation jumped to its highest level since 2008.
April’s consumer prices index surged by 0.8pc and pushed annual inflation to 4.2pc, its highest since September 2008. The figure, which was far higher than the 3.6pc expected, sparked a turbulent day on markets as traders bet on the Fed reining in its Covid-19 stimulus.
The S&P and Dow Jones each closed 2pc down, with the former clocking its biggest one-day percentage drop since February. The tech-heavy Nasdaq tumbled almost 3pc. Adding to inflationary pressures, US petrol prices rose to a seven-year high yesterday.
Motorists in the US have already been hit in the wallet after the cost of second-hand cars soared 10pc in a month, the biggest rise since 1953. Semiconductor shortages hampering vehicle production have forced car hire firms such as Avis and Hertz to hoover up second-hand cars to meet recovering demand.
President Joe Biden’s stimulus packages are largely funded by borrowing and have also fuelled inflation worries.
Economists said the inflation move was exaggerated by price falls a year earlier. But core prices, which strip out volatile food and energy, also rose at the fastest pace for almost 40 years.
The Fed last year changed its policy to allow the US economy to run hotter as it pulls away from Covid-19.
That is all from us today. As I leave you, US markets are still firmly in the red. The benchmark S&P 500 is down over 1.5pc, Dow Jones has lost 1.4pc and the tech-heavy Nasdaq has shed more than 2pc.
Here are some of our top stories from today:
Thank you for following along. Have a good evening and join again tomorrow.
Tesla self-driving rollout could take a couple of months - Musk
Elon Musk has said Tesla is tweaking its self-driving software to eliminate the phantom braking problem and may release an improved version in the coming weeks.
It comes as US federal and state regulators have been scrutinising Tesla's semi-automated driving system following accidents in Texas and other areas.
In April, Musk said he would be "surprised" if wide beta service was available later than June, calling a May launch "aspirational." Tesla rolled out a pilot program of its long-touted beta full self driving (FSD) technology to a limited number of staff and customers in October, but has delayed the wider launch.
When asked by a Twitter user whether its vision-only system would remove the "phantom braking" issue, in which a Tesla car sometimes applies a brake abruptly under an overpass or a bridge, he said, "yes."
In a separate reply, Musk said subscriptions to the software for the system would be offered within a month, without elaborating further.
Coinbase investor raises $1.8bn for growth-stage deals
US venture capital firm institutional Venture Partners (IVP), whose portfolio companies include Robinhood Markets, Coinbase and Jessica Alba's Honest, has raised $1.8bn for growth-stage deals.
The new fund tops the firm's last $1.5bn one, bringing its total committed capital to $8.7bn.
It has benefitted from a wave of tech-related listings this year (like Coinbase). Founded in 1980 it has invested in more than 400 firms, with 120 of them having gone public. Five more are expected to list by the end of the summer, it said.
A better session than Tuesday
Summing up the (much more positive than yesterday) trading session for us is CMC Markets' Michael Hewson:
"After getting body slammed yesterday, European markets have enjoyed a fairly decent rebound today, with the FTSE100 leading the way higher, moving back above 7,000, although we still have some way to go to reverse yesterday’s losses.
"Today’s resilience is all the more surprising given that this afternoons US CPI data came out much hotter than expected, at 4.2pc, sending 10-year yields higher across the board."
Among the benchmark's top risers: BP and Royal Dutch Shell, as crude oil prices head back towards $70 a barrel, on rising demand expectations.
The benchmark's top faller: Just Eat Takeaway on news it plans to launch a new service in Germany - starting in Berlin in June - only two years after withdrawing from the market.
Internet orders drop as shops reopen
Internet orders dropped last month as Britons headed back to the high street, casting doubt over the growth of ecommerce in the months ahead.
My colleague Laura Onita reports:
Online retail sales were down 12pc last month compared to the month before as hundreds of thousands of non-essential sites reopened on April 12, according to data from IMRG Capgemini.
Andy Mulcahy, a director at the firm, said that several large retailers benefited from significant pent-up demand and had record sales days.
He added: “In January, we mapped out how growth could look if things go relatively well for online, relatively badly, and somewhere in the middle.
“As people get more options for spending their money in later May and into June, that will provide a sterner test.”
Nevertheless, internet orders were up 10pc year-on-year with strong demand for clothes. Fashion sales continued their reversal in fortunes, up 60.9pc overall and as high as 98.9pc for womenswear as customers increasingly plan for social events and summer holidays.
Nightcap raises £10m to buy Adventure Bar
Bar owner Nightcap has raised £10m to help fund its acquisition of the Adventure Bar Group, more than doubling its initial fundraising target.
It raised funds through the share placing, having previously said it planned to raise around £4m. The London Cocktail Club owner last week revealed it had agreed a deal to buy Adventure Bar Group, which runs seven bars in London and two in Birmingham as well as holding a 50pc stake in a central London rooftop bar.
Nightcap chief executive and former Dragon's Den investor Sarah Willingham said the funds raised are a "great endorsement of the premium bar sector".
Virgin Active gets court approval to wipe out unpaid rent
Gym chain Virgin Active has landed a victory against landlords in the courts, getting approval to wipe out unpaid rent on the majority of its sites and paving the way for similar moves by other ailing bricks-and-mortar businesses, reports my colleague Hannah Boland.
At a High Court ruling on Wednesday, Judge Richard Snowden decided to allow Virgin Active to push ahead with its restructuring plans, which forces landlords to write off rent arrears, despite the plans being opposed by most of its creditors.
More than 2,000 jobs were reportedly at risk across Virgin Active's 40 gyms, if the restructuring had been denied.
Under new rules introduced at the start of the pandemic, companies can decide against pursuing the standard company voluntary arrangement, where plans need approval from three quarters of creditors, and instead opt for another restructuring process which requires just one class of creditors, such as banks or landlords, to approve the plans.
This is part of what is known as the "cross-class cramdown" rule. Virgin Active's case was the first where restructuring plans were contested by creditors and where this "cross-class cramdown" was sanctioned. Experts said the court ruling provided insight to how the court will rule in later cases.
Nasdaq leads losses on Wall Street
The Nasdaq was leading losses this morning in New York, down 1.86pc.
The tech-heavy index slid after stronger-than-expected inflation data fuelled fears of a rate hike.
The Fed tried to reassure markets that any price pressure would be transient.
But some investors were not convinced, retreating from stocks with towering valuations which they believe would be most affected by a rise in interest rates.
Facebook, Amazon, Apple, Google parent Alphabet and Microsoft all fell between 0.6pc and 1.2pc.
Quintessentially admits to unlawful dividends
The high-end concierge service Quintessentially, founded by Conservative party co-chairman Ben Elliot, has admitted to making £7m accounting errors and paying £1.4m of unlawful dividends to shareholders, according to its long-delayed 2019 financial report.
The FT has the full story here.
Britain’s biggest bookmaker delays £8bn float after executive exit
The $11bn (£8bn) float of the American arm of Britain’s biggest bookmaker has been delayed by the surprise resignation by a key executive, reports my colleague Oliver Gill.
Matt King, a former partner at private equity firm KKR, has decided to step down as chief executive of FanDuel.
It is understood that Mr King decided to quit after parent company Flutter elected to float a minority stake of FanDuel in the US earlier this year. He was unwilling to commit to remaining with the operator in the medium-term and signalled a willingness to return to smaller venture capital management, sources said.
FanDuel has raced into the lead as a decades-long ban on sports betting is rolled back on a state-by-state basis. The former fantasy sports website, which Flutter acquired in 2018, has 40pc of the burgeoning sports wagering market in the US.
America is expected to be the world’s biggest regulated sports gambling market with loss-making domestic operators such as DraftKing attracting multi billion-dollar valuations.
Flutter has sought to capitalise on this by exploring plans to float a minority stake in FanDuel.
“Whilst Matt's departure will affect the timing of any potential US listing, the Board will continue to keep this option under review,” the company said.
Cryptocurrency ether hits record highs
The world's second-biggest cryptocurrency, ether, has hit a record high today, with gains this year approaching 500pc.
The coin, also known as ethereum, climbed to $4,372.35 earlier before retreating slightly.
Cryptocurrency leader Bitcoin is down from record highs of above $60,000 last month and currently priced at $56,858.
Shareholders pass Cineworld pay proposals
Meanwhile in the UK, Cineworld shareholders have approved a new pay scheme for top execs - but support for higher remuneration markedly decreased after the cinema chain's terrible run in the pandemic.
A resolution to introduce a £65m bonus scheme based solely on share price targets was passed despite a shareholder rebellion back in January, and the chain suffered a similar revolt today as 25pc of votes were cast against its pay proposals - but not enough to stop it being passed. Influential shareholder advisory firms had recommended voting against higher exec pay, deeming it excessive.
Cineworld sank to its first ever loss due to Covid-19 restrictions in 2020 and came close to financial ruin.
"Following this, the board will continue its dialogue with shareholders on remuneration matters," the UK-listed company said.
Wall Street falls again after rise in US inflation
Back to markets, and Wall Street has opened lower for the third session in a row after the aforementioned report on US inflation alarmed investors (see 1.53pm).
The Nasdaq is down 1.3pc - the worst of the bunch as tech stocks continued to bleed. The S&P 500 fell 0.9pc while the Dow Jones fell 0.7pc. Inflation remains the culprit, with fears rising over the past three days appearing well-founded as a a Labor Department report showed the US consumer price index jumped 0.8pc in March, far above expectations.
"The Fed is not going to panic after one startling consumer price index (CPI) report," a note from Pantheon Macroeconomics read.
"But this report does mean that the first part of the higher inflation story - the reopening spike - is real. It's no longer a forecast, and further hefty increases are coming."
UK set for a sizzling summer comeback
Looking past the risk of inflation, today's GDP figures suggest a strong recovery is in store for the UK economy this summer.
City commentator Ben Marlow writes that Britain can expect a strong bounce back from its worst economic crash for 300 years as restrictions are relaxed this spring, before the June 21 so-called return to normal.
The scene is now set for a sizzling summer as the last of the shackles that have been holding back the economy since the start of the year are thrown off.
If foreign holidays remain out of the question and the British weather holds up, then it isn’t fanciful to imagine the economy going gangbusters by July as pubs, restaurants and shops experience a spectacular spending frenzy and Britain basks in a staycation boom.
Read the full article here.
US stocks extend losses after release of inflation data
In early trading, the Dow opened 0.4pc down, the S&P 500 slipped 0.7pc and the Nasdaq dropped 1.3pc.
Fragile nerves on financial markets
The Telegraph's economics editor, Russell Lynch, on the US price surge:
The biggest spike in US inflation since 2009 did nothing to calm the fragile nerves of financial markets on Wednesday as the spotlight on the Federal Reserve’s mammoth Covid-19 stimulus intensified.
The April jump - fuelled by a record rise in used car costs - pushes the annual rate of inflation to a decade high of 4.2pc, far higher than expected by economists.
The move was exaggerated by price falls a year earlier when the pandemic first struck but the figures also revealed core prices - which strip out volatile food and energy - rising at the fastest pace for almost 40 years.
The Fed, which is still pumping $120bn a month in stimulus, has altered its inflation target to allow it to run the US economy, but the rise comes ahead of President Biden’s plans to pump $4bn extra into the economy this year.
Daniele Antonucci, chief economist at private bank Quintet, said: “Even though the inflation pickup was expected, most forecasts didn’t foresee such a big jump. It’s fair to say that some of the key inflation indicators have tended to rise more than the consensus had envisaged recently.
“This is what appears to have impacted stock markets over the past 48 hours, with tech shares once again retreating on fears that higher inflation may prompt central banks to hike rates sooner than expected.”
April surge in US consumer prices
The debate around the trajectory of inflation is intensifying since the US consumer price index increased 0.8pc from the previous month, also registering record increase in used-car costs.
Excluding the volatile food and energy components, newly released US Labor Department data showed the so-called core CPI rose 0.9pc from March. That means the surge in the core measure was the largest since 1982.
"Seems pretty hot," said Neil Wilson, chief market analyst for Markets.com.
US futures extend losses as inflation data tops estimates
The US consumer prices that have just been released are pushing down U.S. stock futures due to concerns of faster interest rate hikes.
Just after the data was released at 1.30pm London time, Dow e-minis were down 0.57pc, S&P 500 e-minis were down 0.78pc, and Nasdaq 100 e-minis were down 1.18pc.
At the same time, the dollar advanced while Treasury yields rose.
Consumer Prices in U.S. Increase by Most Since 2009
Bloomberg has the details:
U.S. consumer prices climbed in April by the most since 2009, amid a record increase in used-car costs and signalling a build-up in inflationary pressures as burgeoning demand gives companies latitude to pass on higher costs.
The consumer price index increased 0.8pc from the prior month after a 0.6pc gain in March, according to Labor Department data Wednesday. Excluding the volatile food and energy components, the so-called core CPI rose 0.9pc from March.
The median forecasts in a Bloomberg survey of economists called for a 0.2pc in the CPI and a 0.3pc gain in the core measure.The annual CPI figure surged to 4.2pc, distorted by the comparison to the pandemic-depressed index in April 2020.
This phenomenon -- known as the base effect -- will skew the May figure as well, likely muddling the ongoing inflation debate.
While Federal Reserve officials and economists acknowledge the temporary boost, it’s unclear whether a more durable pickup in inflationary pressures is underway against a backdrop of soaring commodities costs, trillions of dollars in government economic stimulus and incipient signs of higher labour costs.
Stock market signals 'flashing red' as rally overheats
The stock market rally has overheated and triggered warning signs of a correction, with experts cautioning that investors had become complacent as shares have risen to new highs, reports my colleague Sam Benstead.
Global stock markets have been knocked this week by fears of high inflation but remain close to all-time highs. Analysts at UBS, the bank, noted that many “sentiment” indicators, which measure investor confidence, suggested a “near-term correction” in share prices was coming.
For example, it said the put-to-call ratio for European stocks, a gauge of how many investors are protecting themselves against a market crash, was at the lowest point since 2017.
Another warning came from its bull-minus-bear ratio, showing how many investors are optimistic about stocks versus those that are pessimistic, which has also reached its highest level since 2017.
Read his article in full here.
Lyst raises £60m in 'pre-IPO' financing
London-based fashion search engine Lyst has raised £60m in a pre-IPO round of financing, although did not share details about when or where it plans to float.
Investors included funds managed by Fidelity International, Novator Capital, Giano Capital and C4 Ventures.
The company says it has more than 150m shoppers using its app.
Pound hits one-month high against the euro
The pound hit a new one-month high against the euro today and held steady against the dollar, holding on to recent gains in anticipation of much anticipated U.S. inflation data.
Sterling rose above the $1.41 benchmark for the first time since February earlier this week, due to a combination of market relief over Scottish election results, lockdown easing measures, a weak dollar and the Bank of England raising its forecast for economic growth.
The pound has held onto those gains and was at $1.4142 earlier today. Versus the euro it was up 0.2pc at 85.745 pence per euro.
James Murdoch to list £200m media Spac in US
James Murdoch has unveiled plans to list a $300m (£212m) blank-cheque company in America that will hunt media and technology investments across India and South East Asia, reports my colleague Ben Woods.
The special purpose acquisition company - or Spac - will be underpinned by his investment vehicle Lupa Systems, which owns stakes in Vice Media and the Tribeca Film Festival.
The 48-year-old son of media mogul Rupert Murdoch has teamed up with an executive who helped build his father's broadcasting empire across the subcontinent.
Uday Shankar, the former boss of Star India and president of Disney's Asia-Pacific arm, has become a co-chairman of the Spac known as Seven Islands Ic.
The cash shell is poised to list on New York's Nasdaq stock exchange offering 30 million shares at $10 each.
Lupa Systems was launched by James Murdoch in 2019 after stints leading Sky, 21st Century Fox and Star while under his father's control. He resigned from the board of his father's media empire News Corp in August over "disagreements" surrounding editorial content.
His older brother Lachlan Murdoch, the co-chairman of News Corp and chief executive of Fox, is seen as the heir to his father's dynasty.
EU judges reject Amazon's €250 tax bill
Amazon has won its bid to topple a €250m (£214m) tax bill in another blow to European Union competition chief Margrethe Vestager’s crackdown on preferential fiscal deals.
Bloomberg has more details:
Regulators failed to show that the U.S. online retailer was given special treatment by Luxembourg’s tax authority in violation of state-aid rules, the EU General Court ruled on Wednesday.
Amazon's victory follows last year’s landmark court defeat for the EU commissioner against Apple Inc., which contested a record 13 billion-euro tax order.
The tech giants were both targeted as part of Vestager’s eight-year crusade against allegedly unfair treatment doled out by EU nations such as Luxembourg, Ireland and the Netherlands to attract some of the world’s leading firms.
The European Commission “did not prove to the requisite legal standard that there was an undue reduction of the tax burden of a European subsidiary of the Amazon group,” the Luxembourg-based EU judges said.
The decision can be appealed.
Building boom triggers cement shortages
A lockdown building boom risks short-term cement shortages as materials suppliers are deluged by record levels of demand, reports my colleague Russell Lynch.
Nigel Jackson, chief executive of the Material Products Association, said that “it would not be surprising if there were short term issues of supply as the economy gathers momentum”.
The biggest strain had been evident in lead times for bagged cement typically used in domestic projects, as households look to deploy an estimated £200bn in pent-up savings, he said.
The UK’s £16bn materials sector, which employs more than 80,000 people, supplies about a million tonnes of products every day and up to 12m tonnes of bagged cement a year.
Mr Jackson said: “We appear to be coming out of this period of Covid-19 lockdowns, the roadmap is on course, people's confidence and optimism is growing. A lot of people have been confined to their homes and taken the decision to invest in improving because they're not moving.
Read his full story here.
US futures slide as investors await inflation data
US stock index futures were down ahead of Wall Street's reopening, as investors anxiously wait for important inflation data that could persuade the Federal Reserve to reconsider its ultra loose monetary policy.
Futures for the S&P 500 were down 0.2pc, contracts for the Nasdaq fell 0.4pc and the Dow Jones was also down 0.2pc.
Concerns around inflation have dragged down stocks this week as some investors interpret rising commodity markets and hiring difficulties as a sign of a coming surge in consumer prices.
France to delay EU financial services deal until Britain resolves fishing access rights
Bloomberg is reporting that France aims to delay access to the European single market for UK financial firms to pressure the British government to resolve fishing rights, following tensions last week centred on the water surrounding the British island of Jersey.
All 27 EU members have to sign off on a Memorandum of Understanding that would pave the way for granting greater EU access for UK financial firms.
However French officials are planning to stall the regulatory agreement on finance, according to Bloomberg.
France's junior EU affairs minister, Clement Beaune, has already publicly threatened to limit EU access for UK financial services if fishing boats aren't treated fairly.
My colleague Simon Foy has more on this story here.
FTSE is back above 7,000
Recovering from yesterday's sell-off, the FTSE 100 has risen above the 7,000 points benchmark and is currently trading at around 7,006.
Two-Day-Old Cryptocurrency Surges to $45 Billion Market Value
Internet Computer is already one of the largest digital assets in the world, with a market value of about $45 billion, despite only being launched on Monday.
After five years in the making, Swiss company Dfinity launched the cryptocurrency as part of a wider project that aims to create a blockchain rival to Amazon Web Services.
The project's founder Dominic Williams has described the project as a single, decentralised platform for "Web 3.0", which would allow developers to install code directly to the public internet - making hosting companies, servers, cloud services redundant.
Insurers pay out over £700m in business interruption payments
Following a court ruling earlier this year, insurers have paid out over £700m in business interruption payments, the Financial Conduct Authority said today.
Read the full release below:
Here are some of the day’s top stories from the Telegraph Money team:
107,000 over-80s wrongly have no state pension: Those aged over 80 are entitled to weekly benefit regardless of National Insurance record
Charity donations soar as thousands dodge inheritance tax: Giving away 10pc of an estate to charity cuts how much you pay in death duties
Renters flood back to city centres in search of bargains: London affordability now at levels not seen in the past decade
Pub chain Marston's names next boss
Pub chain Marston's has named finance chief Andrew Andrea as its next boss, taking over from Ralph Findlay who has been at the helm for two decades, reports my colleague Hannah Boland.
Marston's, which runs around 1,400 pubs across the UK, said Mr Andrea would be taking up the post from the beginning of October when Mr Findlay steps down.
Mr Andrea was recently responsible for splitting out Marston's brewing arm last year, which saw those operations merged with Carlsberg UK in a joint venture, leaving Marston's as a focused pub operator.
Chairman William Rucker said he was well-equipped to "lead Marston’s through the next stage of its development".
Marston's said it would be hiring a new chief financial officer in due course.
UDG Healthcare shares surges after £2.6bn offer
Shares in UDG Healthcare have surged 20pc today after US private equity giant Clayton, Dubilier and Rice made a £2.6bn offer to buy the health services group.
The Dublin-based group is currently leading the FTSE 250 for gains.
Future buys Marie Claire US
The magazine publisher behind Country Life has strengthened its foothold in the American market by seizing the women's lifestyle title Marie Claire US, reports my colleague Ben Woods.
Future has snapped up the brand from joint owners Marie Claire Album and Hearst Magazines Media through a five-year licensing agreement.
The move comes after it sealed a £140m deal last year to buy TI Media, the owner of Marie Claire UK alongside titles such as Cycling Weekly and Woman's Weekly.
Future said the takeover "strengthens [its] position in the women's lifestyle vertical in North America in line with the group's strategy to achieve brand vertical leadership across English speaking markets."
Marie Claire US has an online audience of 17.5m each month, with around half of its $19.1m (£13.5m) revenues coming from digital.
Future has been hoovering up specialist magazines and websites, stripping out the costs and refashioning them as online-focused titles that guide readers towards buying products from ecommerce sites.
The company launched a £594m takeover of GoCompare owner GoCo Group in November to bolster its position in the price comparison market.
TUI banks on huge pent-up demand for recovery
The world’s biggest tour operator is banking on a travel rebound to restore cash flows after reporting revenue was down 89pc and an operating loss of €1.3bn (£1.1bn) in the six months to March 31.
German group TUI reiterated that it will offer 75pc of 2019 capacity in the peak summer months of July through September. However as of May 2, booking levels were down 69pc from the comparable period in 2019.
The company’s solvency “could also be jeopardized” if further debt-covenant compliance suspensions can't be obtained, it said. In the following year, loans from Germany’s state-owned KfW fund and revolving credit facilities will have to be refinanced.
There is risk that “an extension of the existing financing or further government support measures will therefore be necessary,” TUI said.
The company said it has taken 2.6m bookings for summer 2021 so far, describing the figure as indicative of a strong demand trend. It expects Spain's Balearic and Canary islands and Greece to be the most in demand destinations when the travel industry reopens.
The company's shares dropped sharply after its financial reports was published this morning.
FTSE creeps back towards 7,000
The FTSE 100 is recovering after yesterday's sell-off, creeping back towards the 7,000 benchmark.
At just before 9.45am, the index was trading around 6,988 points.
Softbank profits put tech investor on par with Microsoft, Google
Technology investor SoftBank has reported record annual profits of $45.9bn, the highest ever for a Japanese company, on a par with technology giants Microsoft and Google, reports my colleague Matthew Field.
The technology group, which holds stakes in Uber and Alibaba, swung from a loss in its last full financial year to huge paper gains thanks to its holdings in companies such as Doordash, which went public last year.
SoftBank has spent much of the last year reorganising its holdings with a giant $23bn share buyback, equivalent to 45pc of its stock, amid pressure from US hedge fund Elliott.
That has improved its market cap to over $175bn, with its share price roughly doubling over the past year. SoftBank chief Masayoshi Son had long complained the company's share price has traded far below the value of the assets it owns. At times it has been worth less than the portfolio of its $100bn Vision Fund.
SoftBank said it had tripled the amount it had put into its second Vision Fund to $30bn after its gains. It is in the process of selling UK chip firm Arm to US company Nvidia for $40bn.
Revenues tumble by a third at caterer Compass
Revenues have tumbled by a third at caterer Compass, as workers stay home.
In the six months ending 31 March, the company said today that revenue decreased by 32.4pc as a result of the pandemic, while operating profit decreased 78.3pc.
The group continues to lean on government support, it added, such as tax deferrals and staff furlough.
Shares however rose 1.9pc on forecasts its fiscal third-quarter margins would improve sequentially, supported by cost-cutting measures, after reporting a slight profit and revenue beat in the first half.
'A promising sign of things to come', says Sunak
"Despite a difficult start to this year, economic growth in March is a promising sign of things to come," finance minister Rishi Sunak said in response to the economic data released today.
As a result of the actions that we've taken over the past year, we've managed to protect a lot of household incomes.
I think that bodes well for the rest of the year. Our plan is working, consumers have built up savings.
And what we now know, which we didn't know a year ago, (is) that actually as things open up, people do want to get out and go back to doing the things that they used to do, and I think we will see that in the coming weeks and months.
National Express reports 'improving' performance but only running 13pc of coaches running
The coach company reported operating profit was ahead of last year, thanks to actions taken to reduce costs.
The first half of the year is expected to be in line with the second half of 2020, the company said, with a bounceback not expected until 2021's second half, once vaccinations increase and more restrictions lift.
The UK coach network is currently running at 13pc of pre-Covid mileage with 8pc of 2019's passenger numbers,
"Social distancing restrictions remain the key determinant of occupancy levels, with less than half the normal seating capacity available to sell", the company added.
Construction data: Expert reaction
Commenting on today's ONS construction figures, showing output grew by 5.8pc in March, Clive Docwra, Managing Director of property and construction consultancy McBains, said:
This is further proof of the construction sector’s continuing resurgence, with order books steadily being filled as confidence returns and the industry recovers from the downturn over the previous year.
March represents the largest monthly growth since July 2020 when output grew by 17.8pc. Private new housing has been a key driver, and a landmark has been reached with output now above pre-pandemic levels.
One slight reservation is that while new contracts continue to come in, construction firms are being squeezed by soaring prices of imported materials, notably concrete, steel and timber.
With margins already tight, the rising cost of raw materials threaten to negate any profit gains, so many construction firms remain on a knife-edge.
These increasing costs also serve as a warning sign of global inflationary pressures, which could derail any sustained longer term growth.
Diageo to return billions to shareholders
Drinks giant Diageo is up after a surprise announcement where the company pledged to return billions to shareholders after profit growth was expected to be above 14pc this year.
The company behind Johnnie Walker and Smirnoff brands said it would recommence its return of capital programme, with investors to get £1bn in the next two years and £4.5bn by 2024.
Chief executive, Ivan Menezes, said:
The Board's decision to resume our return of capital programme at this time reflects Diageo's improved performance in the first half of fiscal 21, the continued strong recovery of our business, and our expectation that we will be back within the top end of our target leverage ratio of 2.5-3.0x at 30 June 2022, post completion of the second phase of the return of capital programme.
We are confident that Diageo will continue to execute effectively in this challenging environment and will emerge stronger.
FTSE opens up, after strong recovery data
The FTSE opened up 0.23pc, after closing at 6,947.99 yesterday.
Leading the gains were: Mining company Glencore (up 1.92pc), drinks giant Diageo (up 1.87pc) and foodservice company Compass Group (up 1.70pc).
GDP: More expert reaction
With eight separate macros indicators released this morning, Charles Hepworth, Investment Director, GAM Investments, said today was a "a big day for getting a sense of direction of the fortunes for the UK economy":
First quarter GDP saw a decline as expected of 1.5pc given the lockdown extensions and curtailment of consumer activity. On the flip side, the economy grew faster than expected in March at 2.1pc and this is setting the scene for a potentially very strong bounce in Q2 of close to 5pc growth, according to some forecasts.
Manufacturing production showed a strong increase of 2.1pc over the month of March, almost double estimates and Industrial Production followed with a similar forecast beating 1.8pc advance over the month.
This shows the more important rate of change at the back end of the first quarter which is giving direction to where the UK economy might be now – powering back into a strong recovery and getting the justified reward for fast vaccine distribution.
A faster recovery changes the dynamic of central bank rate decisions and gilt yields are seeing a drift higher this morning as the prospect of negative rates is further removed from their outlook.
GDP: expert reaction
Here’s some reaction to today’s better-than-expected growth figures.
Yael Selfin from KPMG said the data “underscores the resilience of the UK economy”, adding:
While the UK economy contracted by 1.5pc in the first quarter of 2021, the fall was paltry in comparison with the contraction during the first lockdown last year, highlighting the speed by which the economy has managed to adapt to social distancing restrictions.
Capital Economics’ Ruth Gregory called the 2.1pc March expansion “impressive”, saying it could mean the recovery is even quicker than hoped:
The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought and suggests that the risks to our forecast for the economy to return to its February 2020 level by the end of 2021 are to the upside…We expect second and third quarter GDP growth to be between 3.0-3.5pc q/q and for the economy to return to its February level before the end of the year. If anything, these figures suggest that the economy could regain its pre-crisis level even sooner.
Rory Macqueen, principal economist at NIESR, said the stage is now set for a stronger rebound during the second quarter (April to June):
A contraction of 1.5 per cent is in line with our forecast for the first quarter of the year, underlining the extent to which the economy has adapted to deal with the latest national lockdown. This has provided a better start to 2021 than anticipated at the beginning of the year and we expect it to contribute to a strong rebound in the second quarter, as the economy opens up, consistent with our year-on-year growth forecast of 5.7 per cent in 2021.
As expected with many children returning to school, the education sector provided the largest contribution to growth in March. There were also significant contributions from the retail sector and from testing and vaccination programmes in the health and social care sector.
Trade figures: more detail
Here’s an interactive breakdown of those trade figures, showing a pretty strong recovery in exports, but an altogether less convincing shift in imports from the bloc:
Interestingly, those divergent recoveries defy the situation on the ground, which is that UK exporters are facing new barriers (read more here), while the UK doesn’t plan to enforce new rules until October 1st.
The reasons for that remain the subject of speculation at the moment, but here are a few possible explanation:
EU companies are nervous about exporting to the UK at present, so may have paused such operations
UK companies are still burning through pre-Brexit stockpiles
UK companies have already chosen to pivot more towards domestic sourcing
UK remains among hardest-hit by pandemic
An international comparison shows the UK remains alongside Spain as one of the worst-hit global economies from the the pandemic. In both cases, that’s because of the prominence of the consumer-facing service sector.
In nominal terms (not adjusted for inflation), the reading is rather different, however, and the subtleties of the UK’s GDP measurement approach means that an especially sharp fall may be followed by an especially quick recovery. If you want the fully wonkery, read this from the ONS.
Education drives service output rise in March
The reopening of schools in March provided a big boost to output growth in the services sector, making up over a quarter of a 1.9pc rise during the month. Conversely, if you take a quarter-level view, education was the biggest factor in the service decline – as ever, it can be those areas that witness the sharpest contractions that make the quickest recoveries.
The ONS notes output across the services sector – by far the UK’s most important economic sector – is still 7.2pc below pre-pandemic levels.
Meanwhile, manufacturing output rose by 2.1pc in March, the fastest pace since July 2020.
Global imports top EU for first time
An interesting nugget from the ONS’s trade release (which you can read here):
Quarter 1 2021 is the first quarter since records began in January 1997 that imports of goods from non-EU countries are higher than from EU countries. However, with only one quarter of data available, and the ongoing pandemic and recession, it is too early to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments. We will continue to assess this over the coming months.
EU trade recovery continues
UK goods trade with the EU continued to recover towards pre-Brexit levels during March, but imports in particular remain markedly lower than 2020 levels.
Cars were key to the increases, the ONS says:
Exports and imports of goods with the EU, excluding precious metals, increased by £1.0bn (8.6pc) and £0.8bn (4.5pc) respectively in March 2021; both driven by cars.
Here’s how the figures have shifted:
Construction grows as other sectors struggle
Data for the whole quarterly shows a mild dip in production output, while services suffered the most heavily. In comparison, construction was able to continue its output expansion.
Picking up pace?
After extremely tepid growth during February of just 0.4pc, that 2.1pc expansion for March is an encouraging sign. Those wishing for a quick and full recovery (who isn’t?) will be hoping that the pace increases further when April’s data comes in, reflecting continued loosening of restrictions and the return of non-essential retail.
How GDP has shifted
Looking at GDP as an index, you can see just how mild the drop during the first quarter was – but output still has a long way to go to recover the plunge seen last year. Output remains 5.9pc below the levels seen in February 2020.
Growth stronger than expected
The UK economy grew by 2.1pc during March, according to the ONS, leaving output only 1.5pc smaller over the quarter – better than expected on both counts.
GDP: What experts expect today
Consensus among economists suggests the economy shrank 1.6pc during the first three months of the year, mainly reflecting a decline in services activity as tight new restrictions took effect. Compared to the plunge seen during the first lockdown last spring, however, it’s a negligible drop.
GDP is expected to have risen 1.4pc during March. Capital Economics think momentum could continue to build during April:
Now that the COVID-19 restrictions are being removed, it looks as though the rebound in activity may be even faster than we expected. We estimate that the reopening in schools drove a 1.5pc m/m rise in GDP in March and that the reopening of non-essential retailers/hospitality in April and May might lead to bigger gains.
Pantheon Macroeconomics’ Samuel Tombs is a bit more cautious about April’s data, after looking at card spending data from the Bank of England:
The BoE’s daily CHAPS payments data indicate that retail sales fell back towards the end of April, suggesting that pent-up demand has quickly washed through. For now, then, we are still not seeing signs that households are about to embark on a multi- month spending spree with their accumulated savings that would cause the economy to overheat.
From a markets perspective, there’s likely to be less interest in these start-of-year figures than those towards the end of the year, when predictions that the UK will undergo a period of strong growth will be put to the test.
The Bank of England reckons output could be back to pre-pandemic levels by the end of 2021, but analysts at the National Institute of Economic and Social Research are more sceptical. Here’s more from my colleague Tim Wallace:
Weaker worldwide growth will hold back the UK's open and trade-dependent economy, the analysts predict, with sustained travel restrictions proving particularly painful.
At the same time families will be more cautious about spending their lockdown savings or returning to their old financial habits, the economists warn, and will hold back more cash than they used to, also limiting the economic rebound.
Agenda: First quarter should be stronger than feared
Good morning. We’ll get data for UK growth during March at 7am, which will complete the Office for National Statistics’ estimates for the first quarter of the year.
The consensus is for a 1.7pc quarter-on-quarter fall, showing the UK economy re-entered a contraction amid widespread restrictions. Still, the drop will be far smaller than initially feared.
Alongside growth, we’ll also get trade data, which is expected to show a continued recovery in UK exports during March.
Later on, however, is the big event: US inflation data, which will confirm whether the world’s biggest economy is heating up at a fast enough rate to cause concern.
5 things to start your day
1) Inflation threat sparks global stock market sell-off: FTSE 100 falls 175 points as investors await crucial price data from the US today amid fears world's biggest economy is overheating.
2) New concern over HS2 leg to Leeds: Campaigners have urged the PM not to abandon a high-speed rail link leg to Leeds after the Queen’s Speech stoked fresh fears it could be axed.
3) Activists sue Government over North Sea oil and gas drilling: Climate campaigners have launched a High Court battle against the Government over its support for North Sea oil and gas drilling.
4) Goldman banker 'quits after making millions from Dogecoin': Aziz McMahon resigned after benefiting from the joke digital currency’s meteoric growth this year surpassing that of any other cryptocurrency.
5) How Hitachi's plan to replace UK's train fleet went off the rails: The cracks discovered on the Japanese company’s Azuma trains are the latest in a litany of problems.
What happened overnight
Asian shares fell for a second straight session on Wednesday to one-month lows as investors speculated surging commodity prices and growing inflationary pressure in the US could lead to earlier rate hikes and higher bond yields globally.
MSCI’s broadest index of Asia-Pacific shares outside Japan faltered 0.5pc, after tumbling 1.6pc on Tuesday for its biggest daily percentage drop since March 24.
At 682 points, the regional index is not too far from a record high of 745.89 touched in February and is still up 3pc this year so far, on top of a 19pc jump in 2020 and a near 16pc rise in 2019.
Shares in China opened in the red, with the blue-chip index off 0.2pc.
Australian stocks slipped 0.6pc while South Korea's KOSPI index skidded 0.7pc. Japan's Nikkei reversed early gains to be down 0.4pc.
Analysts, however, doubted the sell-off would extend much further in a world of easy accommodative policy and fiscal largesse.
Coming up today
Corporate: Investec (Full year); Compass Group, Tui, Airtel Africa (Interim results); Coca-Cola HBC, National Express, Marshalls, TI Fluid Systems, Spirax- Sarco (Trading update)
Economics: Trade balance, industrial, manufacturing and construction output, GDP (UK), consumer price index (Ger), industrial production (EU)