UK house sales slide after stamp duty holiday cut; FTSE 250 at new high – as it happened

That’s all for today. Here are our main stories so far:

Goodnight. GW

Danni Hewson, an AJ Bell financial analyst, has summed up the day:

It looked like the Sainsbury’s selloff might prevent the FTSE 100 from joining today’s market party, but in the end the Wall Street glow cut through aided by a slight rise in the price of gold and speculation about the next travel update due later this week. The travel sector and miners delivered some decent gains today. In the first camp, hotels group Whitbread, TUI, Easyjet and Carnival all made it on to the top risers list as investors lap up social media beach posts or indulge in their own holiday dreams. The summer has managed to deliver in a small way and expectation that more Americans might just grab a jab after yesterday’s regulator approval of the Pfizer-BioNTech vaccine will generate talk that perhaps the US-UK travel bridge might be somewhere on the horizon.

Retailers have also performed fairly well today despite more data detailing shipping issues that seem to be storing up trouble for the back end of the year. It might seem wrong to talk about Christmas before schools have even gone back but after the last 18 months of disruption and despair this holiday season will be even more important to retailers and anything that impinges on that is a worry. And while retail is on the mind, the game of supermarket sweep has seen another obstacle fall into the aisle with a warning from Morrisons’ pension regulators that both bids in contention are a cause for concern.

But all the intrigue emerging from between the shelves rather pales alongside today’s stonking performance from the Nasdaq. Despite, or perhaps because of the drip drip of Covid concerns, the index hit another record high. Will a rise in cases change the narrative at this week’s Jackson Hole symposium? There are many considering just that possibility. And then there’s all that lovely earnings data with some like Pinduoduo surprising on the upside and others like JD.com exceeding expectations. Investors are making hay while the sun shines. The question is: how long can the recovery rally really continue?

The more UK-focused FTSE 250 has hit a fresh record high today, with travel stocks giving it a boost.

The FTSE 250 index of mid-size companies jumped 0.6% today, or 145 points, to end at 23,886 points, slightly above yesterday’s intraday record. That means it’s gained more than 16% so far this year, lifted by hopes of an economic recovery and a flurry of takeover bids.

Today’s gainers included the budget airline easyJet (+5.3%), the package holiday operator TUI (+5.3%), the cruise operator Carnival (+5.2%) and the cinema operator Cineworld (5.1%) - all companies that benefit from vaccine rollouts, the reopening of economies and a return to more normal times.

Crypto assets are having a weak session, with bitcoin falling back from Monday’s three-month highs over the $50k mark:

In the City, the FTSE 100 index has shrugged off its early afternoon dip, ending the day almost 17 points higher at 7126, up 0.25%.

The hotel group Whitbread topped the risers, up 4.5%, and the engineering firm Rolls-Royce gained almost 4%. Housebuilders and mining companies also rallied.

But Sainsbury’s had a weak day, sliding almost 5% as yesterday’s enthusiasm over a potential takeover bid for the group faded.

Germany’s DAX rose, gaining 0.3% on a day in which its Q2 growth rate was revised up slightly, but France’s CAC fell, leaving the pan-European Stoxx 600 flat on the day.

The Covid-19 pandemic has driven unemployment in South Africa to the highest level recorded around the world.

The jobless rate rose to 34.4% in the second quarter of this year, from 32.6% in the three months to March, Statistics South Africa said today, after lockdowns to fight the virus forced many firms to close.

Bloomberg says this is the highest rate among 82 countries it monitors, and warns that the situation could get even worse:

The unemployment data is likely to deteriorate in the third quarter because the government tightened Covid-19 curbs in the face of a third wave of infections, hindering efforts to revive an economy that shrank 7% last year.

Rising joblessness rate could heap pressure on authorities to extend relief measures that would complicate efforts to stabilize public finances.

If you include people available for work but not looking for a job, the situation is even worse – an unemployment rate of 44.4%

US house prices have been on quite a tear in the last year or so, with record low rates, pressure for larger houses in lockdown, limited supply and enforced pandemic savings all driving the market:

The US housing market picked up a little last month, with sales rising for the first time in three months and prices hitting fresh record highs.

Sales of new single‐family houses rose 1% in July to an annual rate of 708,000, according to the US Census Bureau.

That’s an improvement on June’s 14-month low of 701,000 sales, when expensive lumber and shortages of other building materials were hurting the housing market. But it’s still around 27% lower than July 2020, when demand surged after the first Covid-19 lockdown lifted.

With new houses in short supply, prices hit new highs – the median sales price of new houses sold in July 2021 rose to $390,500. The average sales price was $446,000, with low mortgage costs also supporting prices.

The US technology-focused Nasdaq has hit a fresh record high at the start of trading in New York.

The Nasdaq Composite jumped by 57 points, or 0.4%, to hit the 15,000 point mark for the first time ever.

Chinese technology firms Pinduoduo (+16%) and JD.com (+11%) are leading the Nasdaq risers.

Pinduoduo, which connecting agricultural producers and consumers, reported a surprise second-quarter profit today while revenue nearly doubled (but missed forecasts). JD.com, the e-commerce platform, beat revenues estimates overnight.

The broader S&P 500 index also hit a new record high:

The world’s biggest shipping company is investing $1.4bn (£1bn) to speed up its switch to carbon neutral operations, ordering eight container vessels that can be fuelled by traditional bunker fuel and methanol.

The Danish shipping business Maersk said the investment in new vessels would help to ship goods from companies including H&M Group and Unilever, while saving more than 1m tonnes of carbon emissions a year by replacing older fossil fuel-driven ships.

The vessel order, placed with South Korea’s Hyundai Heavy Industries, is the single largest step taken so far to decarbonise the global shipping industry, which is responsible for almost 3% of the world’s greenhouse gas emissions.

The shipping industry has been relatively slow to react to calls to reduce fossil fuel use, in part because cleaner alternatives have been in short supply and are more expensive.

Søren Skou, the Maersk chief executive, said:

“The time to act is now, if we are to solve shipping’s climate challenge.

“This order proves that carbon neutral solutions are available today across container vessel segments and that Maersk stands committed to the growing number of our customers who look to decarbonise their supply chains.

“Further, this is a firm signal to fuel producers that sizeable market demand for the green fuels of the future is emerging at speed.”

The eight vessels, which will each have capacity for 16,000 containers, are expected to be delivered by early 2024. They will be 10-15% more expensive than bunker fuel container ships, each costing $175m.

Here’s the full story:

And here’s some reaction to the news:

The pension trustees at UK supermarket chain Morrison’s have weighed in over the takeover battle raging over its future.

The schemes’ trustees have warned that the current offers on the table from private equity groups Fortress and CD&R would both “materially weaken the existing sponsor covenant supporting the Schemes”, unless additional protection is agreed.

They say that, while the Morrison’s pension schemes are currently in surplus on an ongoing funding basis, and are backed by some property assets, they don’t have the resources to “buy out” the scheme’s benefits with an insurance company. The aim is to reach full funding on a “buy out” basis in less than 10 years.

A takeover by either CD&R (who raised their bid last week), or Fortress (who could yet bid again) could weaken the schemes, the Trustees fear, by adding additional debt secured with a priority claim on Morrisons’ assets, or by pushing up the debt service burden, or refinancing and restructuring the business.

The Trustees add that they held “a helpful Introductory meeting” with CD&R just before it raised its offer to £7bn on 19^th August, and hopes to agree an appropriate mitigation package with CD&R as soon as possible - and with Fortress if it continues its pursuit.

Steve Southern, chair of Trustees for the Morrison’s Retirement Saver Plan and the Safeway Pension Scheme, says:

“An offer for Morrisons structured along the lines of the current offers would, if successful, materially weaken the existing sponsor covenant supporting the pension schemes, unless appropriate additional support for the schemes is provided.

We hope agreement can be reached as soon as possible on an additional security package that provides protection for members’ benefits.”

Goldman Sachs have updated their predictions on when the US Federal Reserve will announce the cutting back (or tapering) of its $120bn-per-month bond-buying stimulus programme:

Reuters has the details:

Goldman Sachs economists have raised the odds that the U.S. Federal Reserve will announce the start of tapering its bonds purchases in November, predicting the central bank will likely opt to dial back purchases by $15bn at each meeting.

In a note, the investment bank said it had raised the odds that a formal taper announcement will come in November to 45% from a previous forecast of 25%, and lowered the December chance to 35% from 55%.

According to Goldman, a $15bn per meeting total pace of tapering would likely be split between $10bn of U.S. Treasuries and $5 billion of mortgage-backed securities.

“A November announcement coupled with a $15bn per meeting pace would mean that the FOMC would make the final taper at its September 2022 meeting,” the Goldman Sachs analysts said in a note, referring to the Fed’s Federal Open Markets Committee.

After an upbeat start, European stock markets have dipped into the red.

The FTSE 100 index is now down 29 points, or 0.4%, at 7079 points.

Sainsbury are the top faller, down 3.7%, after surging 15% yesterday on speculation that the group could see a private equity takeover offer [there’s been no word from either the company, or potential bidder Apollo].

Luxury goods firm Burberry (-2.2%) and medical goods maker Smith & Nephew (-2%) are also weaker, along with bank stocks.

But travel firms, hospitality firms, miners and tech stocks, are still higher,

France’s CAC index has also dropped, down 0.6%, with consumer goods and services companies leading the fallers.

Craig Erlam, senior market analyst at OANDA Europe, says the rebound has stalled ahead of the Jackson Hole economic symposium later this week.

The week got off to a strong start on Monday but momentum is already waning, with European stocks a little flat and US futures only marginally higher.

Investors were keen to buy dips at the start of the week and capitalise on last weeks sell-off, as China successfully contained the virus outbreak and the FDA gave full approval to the Pfizer-BioNTech vaccine. Chinese growth fears had weighed on risk appetite in recent weeks but it seems the draconian approach is paying off once more.

This provided some relief yesterday, particularly in commodity markets which soared on the back of the news. While a very positive development, other countries are taking a much less strict approach and cases are surging which will likely weigh on growth into the end of the year.

Vaccine efforts should ensure full lockdowns are a thing of the past for many of these countries but the recovery will no doubt slow, regardless, as some restrictions are imposed and behaviours change.

German engineering firm Bosch fears that the semiconductor supply chains in the car industry no longer work as they should.

CNBC has the details:

German technology and engineering group Bosch, which is the world’s largest car-parts supplier, believes semiconductor supply chains in the automotive industry are no longer fit for purpose as the global chip shortage rages on.

Harald Kroeger, a member of the Bosch management board, told CNBC’s Annette Weisbach in an exclusive interview Monday that supply chains have buckled in the last year as demand for chips in everything from cars to PlayStation 5s and electric toothbrushes has surged worldwide.

Coinciding with the surge in demand, several key semiconductor manufacturing sites were forced to halt production, Kroeger said.

Back in June, Bosch opened a new €1bn chip factory in Dresden, Germany, which could help address the semiconductor shortages which are hitting industry, and holding back Germany’s growth (see earlier post).

But the situation is acute, with many carmakers having warned that lack of chips is hitting production. And as Kroeger points out, manufacturing semiconductors is a complex, time-consuming process.

He said:

“As a team, we need to sit together and ask, for the future operating system is there a better way to have longer lead times.

“I think what we need is more stock on some parts [of the supply chain] because some of those semiconductors need six months to be produced. You cannot run on a system [where] every two weeks you get an order. That doesn’t work.”

Here’s the full story.

Spending to fight the pandemic has driven up Germany’s budget deficit in the first half of this year, to its second highest level since reunification three decades ago.

Figures released this morning by Destatis show that the German government ran up a budget deficit of €80.9bn in the first six months of 2021. That’s equal to 4.7% of GDP, and the highest reading since 1995.

The jump in in borrowing was driven by spending on Covid measures such as hospital services, vaccines and protective equipment. Germany’s short-time working allowance (which lets firms furlough staff) and the “child bonus” stimulus payment paid to families also pushed up the deficit.

Destatis says:

“The measures taken to contain the corona pandemic continue to place a heavy burden on government finance. They resulted in the second highest deficit in the first half of any year since German reunification in 1991”, said Stefan Hauf, Head of Division “National Income, Sector Accounts, Employment” at the Federal Statistical Office.

Hauf continued to explain that a higher deficit was only recorded in the first half of 1995 when the debt of the Treuhand agency was integrated into the general government budget.

[Treuhand was set up to privatise state-owned East German companies, but ran up huge losses]

This year’s deficit was run up after the German parliament suspended the country’s debt brake, which committed the government to running a balanced budget (a policy which sometimes grated during the eurozone crisis, as critics urged Berlin to spend more to support its struggling neighbours).

Back in the markets, Brent crude has now risen over $70 per barrel for the first time in almost a week.

That’s a rise of almost 2% today, following Monday’s 5% jump on hopes of higher demand for oil.

Very sadly, the rise comes after at least five people were killed and six injured in a fire on Sunday at an offshore oil platform owned by Mexico’s state-run company Pemex.

That accident has forced work to be temporarily halted at 125 oil wells for which the platform provides gas and electricity. That means the suspension of 421,000 barrels of crude per day, the company said, or around a quarter of Mexico’s oil production according to Reuters.

Pemex says it expects to resume the production within days, once electricity generation, affected by the fire, is restored, energy news site Argus Media reports.

Stocks at UK retailers have fallen to a new record low, as supply chain problems continue to grip the economy and drive up prices in the shops.

The CBI’s latest distributive trades survey shows that retailers and distributers’ stock levels hit the lowest level on record this month.

With stocks in short supply, average selling prices in August increased at the fastest pace since November 2017.

The survey also found that the proportion of deliveries to retailers via imports also fell sharply, at one of the fastest rates recorded by the CBI. That indicates problems getting goods into the shops from abroad.

The survey also found that retail sales strengthened in August at the sharpest pace since December 2014. Its measure of volume of sales compared with a year earlier soared to +60, the highest since December 2014, from +23 in July.

Alpesh Paleja, CBI Lead Economist, said labour shortages caused by the pandemic were hitting the sector because many younger workers aren’t yet vaccinated (meaning they still need to self-isolate if they come into contact with a Covid-19 case).

“A ramping-up in retail sales growth in the year to August shows just how much consumer demand continues to spur economic recovery. While sales growth is set to remain strong, a more definitive shift in household spending towards consumer services is anticipated later in the year – leading to greater normalisation of growth in the retail sector.

“Furthermore, there are signs of operational challenges still biting, with stock levels reaching another record low and import penetration falling. Disruption is being exacerbated by continued labour shortages, with many retailers reliant on younger employees currently awaiting their jab.

Thankfully, changes to the self-isolation rules have eased the impact of the pingdemic on firms. But ensuring continued progress on vaccine roll-out for younger cohorts is crucial. This will also boost confidence as we move onto a new stage in the pandemic, namely living with the virus.”

The survey also found that orders growth hit a survey record high, with investment plans also rising.

But employment fell for the nineteenth consecutive quarter in the year to August, reflecting the job losses across the sector as some chains have closed stores or collapsed in recent years.

Iain McKenzie, CEO of The Guild of Property Professionals, says July saw a big, but inevitable, fall in property sales after the stamp duty tax break was dialed back.

“What goes up, must come down is certainly the story being told in this data.

“Take the figures with a pinch of salt as we saw monumental growth in the volume of properties sold prior to July, in light of the rush to beat the deadline for the full stamp duty discount. It was always inevitable that July would show a dramatic downturn, although a 62.8% [seasonally adjusted] decrease in transactions is a big fall.

“Many estate agents will be looking to replenish their stock to entice people to buy in the coming months after.

“However, at the same time, buyers may be becoming more cautious and it may be a good opportunity for many to evaluate just what they are looking for in a home to make sure they aren’t just caught up in the frenzied momentum of the property market we have seen of late.

Mark Harris, chief executive of mortgage broker SPF Private Clients, points out that ultra-low borrowing costs are also supporting the market:

‘The stamp duty holiday focused the minds of many buyers who were already keen to move and improve their living conditions by acquiring more space both inside and out. Cheap mortgages have also played a significant part in the uptick in transactions and will continue to do so going forwards, even as the stamp duty holiday tapers off.

Anna Clare Harper, CEO of property consultancy SPI Capital, predicts prices will remain firm (having jumped 13% in the year to June).

‘Unlike in the stock market or cryptocurrencies, people don’t tend to sell at a lower price than they paid unless they really need to. Interest rates (and therefore mortgage repayments) remain very low, especially for homeowners, so it’s unlikely that we see a widespread sell-off any time soon.

Transactions are likely to slow down, because many homeowners won’t need to sell. This means an ongoing shortage of housing stock, which in turn means prices are expected to continue to grow.’