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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Paris Olympics boosts eurozone economic growth; UK business activity accelerates –as it happened

Evergrande PwC United States China the Financial Times US Federal Reserve
Spectators on the riverbank look down at the swimmers in the water
The women's 10km marathon swimming final at the Paris 2024 Olympics near Pont Alexandre III. Photograph: Franck Fife/AFP/Getty

And finally…. the London stock market has closed, with the FTSE 100 little changed on the day.

The Footsie gained just 4.5 points, or 0.06%, to finish the day at 8288 points.

JD Sports led the risers, up 9.2%, after reporting a rise in sales in the second quarter of its financial year.

Mining stocks were among the fallers.

The pan-European Stoxx 600 index gained 0.35%, although France’s CAC was flat despite the Paris Olympics giving the French economy a growth boost.

We’ll be back tomorrow. GW

Updated

Tributes are also being paid to Jonathan Bloomer, the chair of Morgan Stanley International, who also died in the sinking of the Bayesian yacht, with his wife Judy.

Bloomer was also the chair of insurance company Hiscox, who have just released a statement to the City to express their “profound sadness” over the tragedy.

Aki Hussain, Hiscox Group CEO, says:

“We are deeply shocked and saddened by Jonathan and Judy’s tragic deaths. Our deepest sympathies go out to their family and friends at this devastating time.

“It was a privilege to have known Jonathan and to have benefitted from his generosity and wisdom over the last year in his role as Chair of Hiscox. His deep experience across our industry and in the broader business arena, combined with his personal values, made him both an excellent Chair and a person I was proud to know and work with. His advice and support were immensely valuable to me, and he will be dearly missed.”

Tributes have been paid to British tech entrepreneur Mike Lynch, after his death was confirmed following the sinking of his yacht off the coast of Sicily during a violent storm.

Lord Browne, the chair of the Francis Crick Institute, was among the first to pay tribute to Lynch. In a post on X, he wrote:

“Mike Lynch should be remembered as the person who catalysed a breed of deep tech entrepreneurs in the UK.

“His ideas and his personal vision were a powerful contribution to science and technology in both Britain and globally. I send my condolences to those close to him. We have lost a human being of great ability.”

Lynch was a member of the Create the Change fundraising board, set up by Cancer Research UK and which helped fund the building of the institute. He was also a director of the BBC for five years.

David Tabizel, Lynch’s co-founder at Autonomy, posted on X:

“It looks like we’ve lost our dear Dr Mike Lynch. RIP. The world has lost a genius. His family have lost a giant of a man.”

Germany working on rescue deal for cruise ship builder Meyer Werft

The German government is working on a potential lifeline for struggling shipbuilder Meyer Werft, Bloomberg reports.

Meyer Werft is a privately-held company that just days ago won a follow-on contract to supply vessels for Disney Cruise Line’s fleet.

Chancellor Olaf Scholz visited the company, near the northern port city of Bremen on Thursday, and told reporters:

“It’s clear we all want to secure the continued existence of the shipyard and everything that depends on it.”

“The federal government is doing its part to solve the problem.

And if everyone else follows suit, which I expect, then we’ll get it done.”

Talks with banks are ongoing and the lower house of parliament in Berlin and the European Commission will also be involved, Scholz added.

German media reports have suggested the government could take temporary majority ownership of the company.

US existing-home sales rise for first time in five months

Sales of homes in the US, excluding new builds, have risen for the first time in five months.

Existing home sales rose 1.3% month-on-month in July to a seasonally adjusted annual rate of 3.95 million, the National Association of Realtors has reported, ending a four-month slide.

It’s a sign that the US housing market is stabilising, as mortgage rates fall.

Lawrence Yun, the NAR’s chief economist, says:

“Despite the modest gain, home sales are still sluggish.”

“But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates.

The NAR also reports that home prices increased for the 13th month running, with the national median sales price up 4.2% from a year earlier to $422,600.

Shares in US biotechnology company Biogen have dropped by over 1%, after the UK’s health regulator ruled out offering its Alzeimer’s drug on the NHS.

The National Institute for Health and Care Excellence (Nice) has ruled that the benefits of Lecanemab are too small to justify the costs of the therapy and close monitoring of patients for signs of “serious side-effects”.

Nice’s ruling came as the Medicines and Healthcare products Regulatory Agency (MHRA), the UK’s drugs regulator, gave the green light to the drug on Thursday.

MHRA’s decision means the UK has become the first country in Europe to license the drug that can treat the neurodegenerative condition rather than its symptoms.

However, the rejection of its use on the NHS by Nice means probably only a small number of patients will benefit in the UK, and will have to access the drug privately.

Biogen’s shares are down 1.3% in early trading at $203.52, a drop of $2.67.

Growth disparities widened further across the US economy last month, according to the latest poll of purchasing managers.

S&P Global’s Flash US PMI Composite Output Index has dipped to a four-month low of 54.1 for August, down from July’s 54.3. That shows the US economy is still expanding, but at a slightly slower pace than last month.

But while the service sector expanded at “a solid and increased rate”, manufacturing output declined at the fastest rate for 14 months.

Service sector companies reported a jump in new business, while orders at US factories declined…

Optimism about output in the year ahead lifted from July’s three-month low, but remained below the survey’s long-run average.

And employment fell in August, dropping for the first time in three months.

Stocks on Wall Street have opened a little higher, as traders continue to anticipate a US interest rate cut next month.

The Dow Jones industrial average has gained 0.3%, or 127 points, to 41,018 points, while the broader S&P 500 index is 0.33% higher.

A gauge of activity across the US economy has weakened – which will add to pressure for an interest rate cut next month.

The Chicago Fed National Activity Index has dipped to –0.34 in July from –0.09 in June, suggesting a decrease in economic growth.

That’s the lowest reading since January, mainly due to a decline in production-related indicators.

Fed's Collins: rate cut will soon be "appropriate"

It will soon be appropriate for the Federal Reserve to begin a rate-cutting cycle, Boston Fed president Susan Collins has said today.

In a signal that she could support a rate cut in September, Collins told Fox Business:

We’ve seen quite a lot of reduction in inflation. The reduction to me is consistent with more confidence that we are on that trajectory and with labor markets healthy overall, I do think that soon it is appropriate to begin easing.

Noting that preserving the health of the labor market is a priority, Collins added:

I think a gradual, methodical pace once we are in a different policy stance is likely to be appropriate.

Collins is currently an ‘alternate member’ on the Fed’s FOMC, meaning she would vote if a committee member was absent. On the FOMC’s revolving membership, she is due to be a voting member in 2025.

Updated

US jobless claims rise by 4,000 last week

Just in: the number of Americans filing new claims for unemployment benefit has risen.

There were 232,000 fresh ‘initial claim’s for jobless support last week, the Bureau of Labour Statistics reports.

That’s an increase of 4,000 from the previous week (which has been revised up to 227,000 to 228,000).

But… it’s still a low number of initial claims in historic terms, suggesting the US labour market is holding up pretty well.

Updated

The ECB monetary policy meeting accounts for July also show that policymakers were happy to leave interest rates on hold last month, and review the situation in September.

They say:

The information available at the Governing Council’s next monetary policy meeting in September would incorporate a wealth of fresh data and the new staff macroeconomic projections for the euro area.

Data for the second quarter would also be available – including GDP growth, compensation per employee, profit margins and productivity – alongside two more HICP releases, as well as monetary indicators and more timely soft indicators for activity and consumer confidence.

The minutes of the last meeting of the European Central Bank’s governing council, in mid-July, have just been published.

They show that ECB policymakers believe the risks to economic growth were tilted to the downside, due to geopolitical risks such as the Russia-Ukraine war, and conflict in the Middle East.

The minutes explains:

A weaker world economy or an escalation in trade tensions between major economies would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted.

Growth could also be lower if the effects of monetary policy turned out stronger than expected. Growth could be higher if inflation came down more quickly than expected and rising confidence and real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected.

The point was made that the continuous presence of macro risks, such as geopolitical fragmentation and a lack of fiscal discipline, might fuel uncertainty and hamper planning, although it appeared that, thus far, the economy had shown resilience to this type of uncertainty.

Migrant cleaners at department store Harrods are celebrating after bosses at the luxury London store scrapped a restrictive new annual leave policy.

United Voices of the World (UVW), the cleaners’ union, has called off a planned strike after Harrods dropped a new policy that restricted staff holidays to between one to two weeks depending on the time of year.

Now, the cleaners will continue to take three weeks of holiday throughout the year, allowing the migrant workers to visit their families

UVW says this is their fourth victory at Harrods, following earlier wins that secured tips and substantial pay raises for waiting and kitchen staff.

This morning’s PMI data from the eurozone is more difficult to interpret than usual as French services activity has been boosted by effects from the Olympics.

So says Bert Colijn, ING’s senior economist for the eurozone, who adds:

The upbeat services sector in France bolsters the entire bloc’s performance. Meanwhile, eurozone manufacturing continues to resemble Germany’s performance at the Olympics: a big disappointment.

The services PMI increased from 51.9 to 53.3, while manufacturing saw the output PMI index well into contraction territory at 45.7 and new orders declining again.

The underlying picture is weak enough for the European Central Bank to seriously consider another rate cut in September, Colijn adds:

When it comes to inflation expectations, the PMI did flag an increase in selling prices reported by businesses, but also a continued drop in input prices was reported. The latter means that pipeline inflation pressures are weakening, which matters for the European Central Bank as it sets policy for the medium term.

Just in: British factory orders fell again this month but at a less severe pace than in July.

That’s according to the latest poll from the CBI; its monthly net balance of new orders rose in August to -22 from -32 in July, marking two years of straight negative readings.

The pound is having a good morning.

It’s gained 0.25% so far, to a new one-year high of $1.3128, against the generally weakening US dollar (see opening post for the reasons why).

The acceleration in UK growth this month may deter the Bank of England from cutting interest rates again as soon as September.

Thomas Pugh, economist at RSM UK, says:

“The August PMIs suggest that the MPC will wait until November before cutting interest rates again. At 53.4 the composite PMI output balance is pointing to growth in line with the MPC’s Q3 forecast.

But the tick up in output prices in the composite and more importantly, in the services sector, combined with further evidence that hiring is starting to grow again means the MPC won’t be in any rush to cut rates again next month.

The money markets this morning suggest there’s a 70% chance that the Bank leaves rates on hold at 5% next month, and only a 30% chance of a cut to 4.75%.

Updated

Germany’s economy is struggling to keep up with the UK or France in the growth race.

The latest PMI survey shows that German private sector remains in contraction in August, with business activity falling for the second month running.

Manufacturing production continued falling sharply, while growth in the services sector slowed.

German companies are being hit by a fall in new orders, which means backlogs of work continue falling across both sectors this month.

Overall, the HCOB Flash Germany Composite PMI Output Index has dropped to 48.5 this month, down from July’s 49.1, which is a five-month low, and signals a contraction.

Fastest rise in UK private sector output since April

More good news! Business activity across the UK is accelerating this month.

Data firm S&P Global’s latest poll of purchasing managers at UK firms found that activity is rising this month, with “resilient demand” encouraging firms to take on more staff.

Staff hiring is growing at the fastest rate since June 2023, firms say – which is welcome as unemployment rose in the last quarter.

The Flash UK PMI Composite Output Index has risen to 53.4 this month, up from July’s 52.8, which is a four-month high – and further above the 50-point mark showing stagnation.

Firms also reported an easing in cost pressures. Input cost inflation eased to its lowest for just over three-and-a-half years.

This led to another “robust increase in average prices” charged by private sector firms in August, the PMI reports – although the latest rise was among the slowest seen since the start of 2021.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says the data suggests the UK economy is growing – although not as fast as in the first half of this year.

“August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data.

Both manufacturing and service sectors are reporting solid output growth and increased job gains as business confidence remains elevated by historical standards.

Although GDP growth looks set to weaken in the third quarter compared to the impressive gains seen in the first half of the year, the PMI is indicative of the economy expanding at a reasonably solid quarterly rate of around 0.3%.

Inflationary pressures have meanwhile moderated further in August, including notably in the service sector, which has been a key area of concern for the Bank of England. “The latest survey data therefore help lower the bar for further interest rate cuts, although the still-elevated nature of inflation in the service sector suggests that policymakers will move cautiously.

Updated

Best month of growth in French economy since March 2023

France’s economy is growing at its fastest pace since March 2023, as the Olympics Games boosts activity.

France’s services sector is charging ahead, like Léon Marchand in the swimming pool this month, with its fastest growth in 27 months.

But France’s manufacturing sector continues to contract, hit by weak demand, so this month could well be a one-off.

Norman Liebke, Economist at Hamburg Commercial Bank, says:

“Service providers will have benefited from the Olympic Games. The HCOB Flash PMI for French services activity jumped to 55.0, its highest level since the second quarter of 2022 when GDP growth reached 0.4%.

The one-off nature of this boost is evident in the worsening employment situation, weaker output expectations and declining backlogs of work.

Updated

Eurozone growth boosted by Paris Olympics

The Paris Olympics has helped business activity in the eurozone to pick up this month.

Output growth hit a three-month high in August, according to the latest poll of purchasing managers across the euro area. This was driven by a pick-up in the service sector, while manufacturing continued to lag behind.

The HCOB Flash Eurozone Composite PMI Output Index has risen to 51.2 for August, up from July’s 50.2. Any reading over 50 shows growth.

Here’s the details:

  • HCOB Flash Eurozone Services PMI Business Activity Index at 53.3 (July: 51.9). 4-month high.

  • HCOB Flash Eurozone Manufacturing PMI Output Index at 45.7 (July: 45.6). 2-month high.

  • HCOB Flash Eurozone Manufacturing PMI at 45.6 (July: 45.8). 8-month low.

A key factor behind the stronger increase in eurozone business activity in August was a renewed expansion in France, where output rose to the largest extent in almost a year-and-a-half.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:

At first glance, this looks like a pleasant surprise: activity in the Eurozone picked up in August. But a closer look at the numbers reveals that the underlying fundamentals might be shakier than they appear.

The boost largely comes from a surge in services activity in France, with the Business Activity Index jumping by almost five points, likely linked to the buzz surrounding the Olympic Games in Paris. It’s doubtful this momentum will carry over into the coming months, however. Meanwhile, the overall pace of growth in the services sector has slowed down in Germany, and the eurozone’s manufacturing sector remains in rapid decline.

It’s a tale of two worlds. The manufacturing sector remains mired in recession, while the services sector still appears to be growing at a decent clip

Updated

Sons get more help than daughters to get on housing ladder, survey finds

Britain’s Bank of Mum and Dad has been busy helping first-time buyers onto the property ladder – but some customers get more help than others.

New research from Zoopla shows that sons, on average, receive £13k more from their parents towards their first home than daughters.

The poll, of 1,013 people who purchased their first home in the past five years, found that nearly two-thirds of people received financial help from family. This increased to more than three-quarters of homeowners under the age of 30.

The average amount of financial support received was £58,129 (roughly in line with the typical UK first-time buyer deposit of £60,100); daughters received an average of £51,671 towards their first property, sons got an average of £65,004.

Canada rail union lockout could cause supply chain chaos

Over in North America, there are fears of supply chain chaos after Canadian railway unions launched a walkout.

Canadian National Rail (CN) and Canadian Pacific Kansas City (CPKC) began an unprecedented lockout of nearly 9,000 workers on Thursday morning after tense negotiations failed to produce a deal.

A pause to freight traffic will have cascading effects on Canada and the US, my colleague Leyland Cecco explains.

According to the Railway Association of Canada, affected rail carries more than C$1bn ($740,000) worth of goods each day. Nearly half the aviation fuel used at Toronto’s Pearson airport, Canada’s busiest air terminal, arrives by rail. More than 32,000 commuters in Montreal, Vancouver and Toronto rely on the rail network. A strike would also hit the mining, agriculture and retail industries.

The federal labour minister, Steven MacKinnon, said on Wednesday night that he had completed meetings with the companies and the Teamsters union. He called for urgency at the negotiating table and for a deal to be done.

Gatwick Airport has said it is “experiencing one of our busiest summers yet”, after 19.9 million passengers travelling through its two terminals in the first half of the year.

Passenger numbers were 7.7% higher than in the same period in 2023.

The West Sussex airport recorded half-year revenues of £488 million, a rise of 15.3% from a year earlier.

Underlying earnings were up 13.9% year on year to £268 million, with net profit for the period up 33.8% at £106 million.

A global slowdown in hiring has hammered profits at UK recruitment company Hays.

Pre-tax profits, before exceptional items, more than halved in the last financial year, to 30 June, falling to £94.7m from £192.1m.

Fees – paid when Hays fills a vacancy – dropped by 12%, as companies cut back on hiring permanent staff, and temporary workers.

Chief executive Dirk Hahn says:

“We saw increasingly challenging market conditions through FY24 in both Perm and Temp, with low confidence levels and longer-than-normal ‘time-to-hire’, and our profitability was significantly impacted, including our three largest markets of Germany, Australia and the UK.

Against this backdrop, we have focused on enhanced operational rigour, driving consultant productivity and strong cost management, and are determined to build a more resilient Hays.

Hays has cut its costs this year, including a 15% reduction in its headcount.

Looking ahead, it says:

Overall, near-term conditions remain challenging but in line with our expectations. September is the key trading month in our first quarter, and it is too early to assess trends.

Starbucks’ new CEO faces backlash over 1,000-mile commute by private jet

Over in the US, Starbucks’ incoming CEO, Brian Niccol, is facing environmental criticisms following the company’s offer for him to commute from his home in Newport Beach, California, to its headquarters in Seattle via a private jet instead of relocating.

Following reports of Niccol’s super commute, people were quick to point out the apparent hypocrisy in the use of private jets in the context of the company’s sustainability efforts, including its ban on plastic straws.

One user wrote on X:

“The new Starbucks CEO is ‘supercommuting’ 1,000 miles to Seattle on a private jet to work, so don’t be too harsh on that waitress who gave you a plastic straw when you didn’t want one.”

Another person wrote,

“Absolutely wild that it cost $85 million in cash/stock to pry this guy from Chipotle and then they’ll just let him thrash the environment to commute 1000 miles 3 times a week on a corporate jet instead of having him move to the PNW [Pacific north-west].

FT: PwC braced for six-month ban in China over Evergrande audit

PwC is preparing to face the music in China over its auditing of collapsed property developer Evergrande.

The Financial Times reports that PwC China has told clients it expects Chinese authorities to hit it with a six-month business ban, which could start as early as next month.

This would be the toughest ever action by Chinese regulators against a Big Four firm.

Back in March, China’s securities watchdog fined Evergrande for inflating its revenue by nearly $80bn over two years before it defaulted on its debt.

Evergrande was forced into liquidation in late January after efforts to restructure its foreign debt failed, following pressure from Beijing for property firms to rein in excessive borrowing.

A six-month ban could be very disruptive for PwC’s China arm, the FT says:

PwC China was the country’s largest accounting firm by revenue in 2022, bringing in Rmb7.9bn ($1.1bn), according to government data.

The ban would prevent PwC China from signing off on financial results and initial public offerings and from conducting other regulated activities, multiple clients told the Financial Times. The firm has assured clients that staff will keep working during the suspension and will be able to certify the audit opinions on their 2024 annual reports once the ban is lifted in March.

More here.

Updated

Introduction: Pound at one-year high against weaker dollar

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

The growing prospect of a US interest rate cut next month is buffeting the dollar, sending the pound up to its highest level in over a year.

The dollar lost more ground last night after the minutes of the Federal Reserve’s July meeting were released. They showed that the “vast majority” of policymakers felt it would probably be appropriate to cut rates in September, if economic data continued to come in as expected.

That knocked the dollar index – which tracks the greenback against major rivals including the euro, yen and sterling – to its lowest since last December.

That drove the pound up to $1.31 last night – the highest since July 2023.

Hopes of a September rate cut were further boosted yesterday by data showing that 818,000 fewer jobs had been created across America than previously thought.

Those revisions add to concerns that the economy has been slowing.

The financial markets indicate there’s a 66% chance that the Fed begins with a quarter-point cut to borrowing costs in September, and a 34% chance of a bumper half-point cut.

Traders are also pricing in a full percentage point cut in US rates by the end of the year – implying a half-point cut at one of the Fed’s three remaining meetings this year.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

Because a jumbo rate cut wouldn’t arrive unless there is a deeper economic and financial trouble, the market pricing of the moment is unsustainable for either the US dollar – which has gone too low with the expectation of a 100bp cut, or the stock markets – which have gone too high with the same expectation disregarding the fact that economic trouble is never good for profitability.

Central bankers are gathering in Jackson Hole, Wyoming, today for a closely-watched economic symposium. Federal Reserve chair Jerome Powell speaks tomorrow, and is expected to give some guidance about how the Fed may act in the months ahead.

The agenda

  • 9am BST: Eurozone flash PMI report for August

  • 9.30am BST: UK flash PMI report for August

  • 11am BST: CBI industrial trends report

  • 12.30pm BST: ECB monetary policy committee meeting minutes are published

  • 1.30pm BST: US weekly jobless report

Updated

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