And finally, the UK stock market has just posted its best week since May.
The FTSE 100 has climbed by 1.75% this week, or 143 points, to close at 8,311 points.
Today, thogh, it lost almost 36 points. Online property porfolio Rightmove (-2.8%) and housebuilder Berkeley (-2.6%) were the top fallers.
And that’s all for the week. Have a lovely weekend, see you on Monday. GW
The rebound in US consumer confidence this month has been driven by political change, says Olivia Cross, North America economist at Capital Economics.
Cross explains:
The small rebound in the University of Michigan consumer sentiment index in August was entirely driven by recent political developments, and still leaves it below its level for most of this year. At face value, sentiment would point to softer consumer spending, but we would hesitate to take too much signal from that given the recent strength of retail sales.
The 1.4-point rebound in the headline index to 67.8 in August, from 66.4, was entirely driven by the expectations index, which jumped to its highest since April. Expectations appear to have been influenced by political developments, with sentiment among Democrats and Independents rising, with Vice President Kamala Harris replacing President Joe Biden as the nominee. Consumers appear to have shrugged off the turmoil in financial markets in early August, probably because the S&P 500 has quickly recouped most of its losses.
US consumer sentiment rises in August
US consumer confidence has edged up this month, which may further calm those recession worries.
The University of Michigan’s consumer sentiment index has risen to 67.8 this month, compared to a final reading of 66.4 in July.
The University of Michigan consumer sentiment index is up 1.4 points to 67.8 in the preliminary report for August after 66.4 in July. pic.twitter.com/IJU5FLVZsY
— Econoday, Inc. (@Econoday) August 16, 2024
The poll found that Democrat supporters become more confidence this month, while Republicans became gloomier.
Surveys of Consumers director Joanne Hsu says:
“Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months, consistent with the fact that election developments can influence future expectations but are unlikely to alter current assessments.”
More UK strike action ahead: Hundreds of border force staff at Heathrow are to strike from 31 August to 3 September, the PCS union says
Further industrial action, including a refusal to work overtime, will last until 22 September.
Wall Street has opened a little lower, as sentiment is – as feared – dented by the weak US housing data.
The Nasdaq composite tech index is down 0.25% at 17,552, having risen for the previous six days.
The S&P 500 share index is down 0.2%.
Reuters reports the S&P 500 and the Nasdaq were headed for their best weeks since October, while the Dow was on pace for its best weekly showing since December.
Updated
US housing starts fall
News of a slowdown in the US housing sector may dampen the mood in the markets, though.
The number of new house construction projects fell by 6.8% month-on-month in July, to an annual rate of 1.238, That’s 16% lower than a year ago:
US housing starts down 16% y/y and are now the lowest since the depths of covid. pic.twitter.com/yWaY0sbUBp
— Erik Fertsman 🧐 (@ErikFertsman) August 16, 2024
Applications to build a new home also fell. There were 1.396m new building permits authorised in July – down 4% compared with June, and 7% lower than a year ago.
Nasty July Housing Data today:
— Amy Nixon (@texasrunnerDFW) August 16, 2024
Housing Starts ⬇️
Building Permits ⬇️
June Housing Starts Revised ⬇️
New home construction is the lowest it’s been since MAY 2020.
You know, when the entire country was locked indoors NOT WORKING pic.twitter.com/jO30VHUCK8
World stock markets head for best week of 2024
Global stock markets are on track to post their best week of the year, as fears of a US recession ease.
MSCI’s main index of world stocks is up around 3.5% so far this week, which would be its biggest weekly gain since last November.
Markets have been recovering from their slump earlier this month, which was blamed on fears that the US economy was deteriorating, and a shock interest rate rise in Japan.
This week, hopes of a ‘soft landing’ in the US economy have risen, after inflation dropped to a three-year low of 2.9% and retail sales jumped 1% in July.
Daniela Sabin Hathorn, senior market analyst at Capital.com, says:
Bullish appetite continues to drive the recovery in global stock indices. Improved sentiment stemming from lesser concerns of a global recession has driven investors back into the stock market after last week’s meltdown. This has led to markets shifting their expectations of the September rate cut from 50 basis points to 25, currently at 80%.
Stronger-than -expected US July retail sales reinforced the bullish sentiment and drove global stocks higher on Thursday. A bigger drawdown in oil inventories also helped improve appetite as it alludes to stronger consumption from US consumers.
Japan’s Nikkei has gained almost 8% over the last five days, bouncing back from its worst day since 1987 on 5 August.
The pan-European Stoxx 600 index is up 2.3% this week, the best weekly gain since May.
The UK FTSE 100 has risen 1.55% this week, having lost 52 points or 0.6% today, as a rising pound weighs on stock prices.
Bob Savage, head of markets strategy and insights at BNY, says:
The week has been quietly one way with bonds mostly sold, stocks mostly bought, and the USD mostly bid. The one-way nature of the bounce has been in low volume and with low conviction.
Reuters reports that Alan Taylor has researched the economic history of Argentina, credit booms, foreign exchange markets, and the “trilemma” that a country can’t have fixed exchange rates, open capital markets and independent monetary policy at the same time.
In research published by the Federal Reserve Bank of San Francisco in September 2023, Taylor and his co-authors concluded that tight monetary policy could weigh on a country’s economic potential for at least 12 years.
The paper said:
“These long-run effects develop primarily through investment decisions that ultimately result in lower productivity and lower capital stock.”
Updated
Some early reaction to Alan Taylor’s appointment, from trade economist Douglas Irwin:
Alan Taylor now on the MPC, terrific appointment https://t.co/eXJEAZSgUb
— Douglas Irwin (@D_A_Irwin) August 16, 2024
Economics prof Alan Taylor to join Bank of England's MPC
Newsflash: economics professor Alan Taylor has been appointed to the Bank of England’s interest rate-setting committee.
Taylor will join the Monetary Policy Committee on 2 September for a 3-year term, replacing current external member Professor Jonathan Haskel when his term expires.
Taylor is currently Professor of International and Public Affairs at Columbia University, New York, and has previously worked for investment bank Morgan Stanley and bond-trading giant PIMCO.
The Chancellor of the Exchequer, Rachel Reeves said:
“Professor Alan Taylor’s substantial experience in both the financial sector and academia will bring valuable expertise to the Monetary Policy Committee.
“I would also like to thank Professor Jonathan Haskel for all his work since he joined the Monetary Policy Committee.”
Taylor was born in Wakefield, and graduated from King’s College, Cambridge, and has a PhD in Economics from Harvard University.
He will be place at the Bank ready for the next scheduled MPC meeting in mid-September, when the markets say there’s a near-40% chance of a rate cut.
Updated
UK petrol prices at lowest level since February
The LNER train drivers’ strike may lead to more people driving instead of taking the railway.
And the good news for motorists is that petrol prices have fallen to their lowest level in six months.
Analysis from the AA shows that the average price of a litre of the fuel was 143.0p this week, the lowest since mid-February.
Diesel prices have fallen to an average of 147.9p per litre, a level not seen since late January.
But, the AA also points out the highest average price for petrol before the coronavirus pandemic was 142.5p per litre in April 2012.
AA spokesman on road fuel costs Luke Bosdet says:
“Pump prices this summer have given UK drivers little cause for celebration. They may be way below the 191.53p record for petrol in July 2022 but they are currently locked at a permanently and historically high level that drains consumers’ finances.
“For low-paid workers who welcomed a Living Wage increase of nearly £2 an hour during the cost of living crisis, having to pay an extra 6p a litre for road fuel is going to feel like a substantial pay cut.”
LNER train drivers to strike on Saturdays and Sundays
Newsflash: Train drivers at LNER will take fresh strike action over the next three months that will disrupt weekend travel.
Drivers at LNER, which runs the passenger service on the East Coast main line between London and Edinburgh, will strike on every Saturday between 31 August and 9 November, and every Sunday from 1 September to 10 November.
The Aslef union say the action follows a breakdown in industrial relations, accusing LNER of bullying by management, and persistently breaking agreements.
Mick Whelan, general secretary of Aslef, said:
‘The continued failure of the company to resolve long-standing industrial relations issues has forced us into this position.
We would much rather not be here. But the company has brutally, and repeatedly, broken diagramming and roster agreements, failed to adhere to the agreed bargaining machinery, and totally acted in bad faith. When we make an agreement, we stick to it. This company doesn’t. And we are not prepared to put up with their boorish behaviour and bullying tactics.’
The issue is separate to the long-running dispute over pay, which could soon be resolved after Aslef and the UK government agree a pay offer in principle, which will be put to its members.
Economist Frances Coppola say’s it’s good to see auditors being held to account, following PwC’s fine.
The FCA has fined auditors PWC £15m for failing to alert it to suspected fraud at LCF. Good to see auditors being held to account.
— Frances 'Cassandra' Coppola (@Frances_Coppola) August 16, 2024
We've fined PwC for failing to report their belief that London Capital & Finance (LCF) might be involved in fraudulent activity.#FinancialRegulation #FinancialServiceshttps://t.co/w8HZE4BkSm
— Financial Conduct Authority (@TheFCA) August 16, 2024
A PwC spokesperson has said:
“We have reached a settlement with the FCA to resolve an unintentional reporting breach.”
PwC fined £15m by FCA over LCF scandal
Newsflash: PwC has become the first audit firm to be fined by the UK’s Financial Conduct Authority (FCA).
The FCA has imposed a £15m fine on PwC, for failing to tell the regulator it suspected fraudulent activity at London Capital & Finance plc.
London Capital & Finance collapsed in 2019, wiping out the investments of thousands of savers.
It had sold “mini-bonds” had promised returns of up to 8% a year; more than 11,000 investors poured £236m into the bonds. But little of the money went into safe interest-bearing investments. Much went into highly speculative property developments, commissions by the bond marketeers, oil exploration off the Faroe Islands, and a helicopter bought for a company controlled by LC&F.
LC&F fell into administration in January 2019 after the FCA ordered the firm to withdraw misleading promotional material for the sale of mini-bonds.
The FCA says today that PwC encountered significant issues when it audited LCF in 2016.
The regulator explains:
A senior individual at LCF acted aggressively towards auditors, and the firm provided PwC with inaccurate and misleading information. PwC found the audit very complex, and it took considerably longer to complete than anticipated.
LCF’s actions, and PwC’s own work on the audit, led PwC to suspect that LCF might be involved in fraudulent activity. PwC was duty bound to report those suspicions to the FCA as soon as possible, but they failed to do so.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, says PwC should have acted ‘immediately’ when it suspected fraudulent activity was taking place:
“Auditors have a central role to play in keeping our markets clean. They have privileged access to information and they are required by law to report suspicions of fraud to the FCA.
“There were a number of red flags that led PwC to suspect fraud. They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.”
Back in May, PwC and fellow “Big four” accountancy firm EY were fined a combined £9.3m by the Financial Reporting Council (FRC) for failing to audit LCF properly.
In 2021 the UK government announced a £120m compensation scheme for victims of the investment scandal.
The FCA adds today that the Serious Fraud Office has an open criminal investigation into the failure of LCF.
Updated
The cost of living crisis remains one of the top issues facing Britain, the latest poll from the Office for National Statistics shows.
When asked about the important issues facing the UK today, the most commonly reported issues were the NHS (89%), the cost of living (88%), the economy (68%), housing (60%), crime (59%) and climate change and the environment (58%).
The ONS adds:
Just over half (54%) of adults reported their cost of living had stayed the same in the past month with less than half (45%) reporting that their cost of living had increased.
Around a quarter (25%) of adults believed they would be unable to pay an unexpected but necessary expense of £850.
We’ve published the latest insights from our Opinions and Lifestyle Survey (5 to 28 July 2024). When asked about the important issues facing the UK today, the most reported issues were:
— Office for National Statistics (ONS) (@ONS) August 16, 2024
🚑 NHS (89%)
📈 #CostOfLiving (88%)
💷 Economy (68%)
Read more ➡️ https://t.co/HrCKQYfAe1 pic.twitter.com/6iHQXjerbB
Revolut valued at $45bn after employee share sale
Fintech firm Revolut has announced it is now valued at $45bn (£35bn) after agreeing a secondary share sale for its staff.
The sale will “provides liquidity for employees”, Revolut says, allowing them to sell their stakes in Revolut to new investors.
Revolut, which finally secured a UK banking licence last month, says the sale price cements its position as the most valuable private technology company in Europe.
For comparison, NatWest bank’s market capitalisation is £29bn, while Barclays is worth £33.5bn.
Shares in biotech group Bavarian Nordic have jumped 11% this morning after it said it will seek approval for its mpox vaccine to be used on adolescents.
Paul Chaplin, CEO of the Danish company,
“Children and adolescents are disproportionally affected by mpox in the ongoing outbreak in Africa, highlighting the importance and urgency to broaden the access to vaccines and therapies for this vulnerable population,”
Bavarian Nordic’s stock has been rallying hard this week, up 40%, as concerns over mpox have intensified.
On Wednesday the World Health Organization declared mpox a public health emergency, as an outbreak of the virus spread in the Democratic Republic of the Congo.
CMA decides against in-depth study of baby formula market
The market for baby and toddler formula milk in Britain is not working, the competition regulator believes.
Six months after launching an investigation into the infant milk market, the Competition and Markets Authority has decided not to escalate this probe.
While it believes the current regulatory framework and the behaviour of manufacturers and suppliers are leading to poor market outcomes, the CMA wants to press on and devise workable solutions for governments to consider, as soon as possible. Beginning a full-scale market investigation would slow that down.
It’s expected to publish its interim report in October 2024, including provisional recommendations for action.
In February, the CMA warned that the cost of infant milk remained at “historically high” levels despite some price falls in recent months.
Doctors have warned that the health of babies from low income families is being put at risk by high prices.
In November, the CMA found there was only one UK retailer, Aldi, that sold own-label formula, and that competition was hampered because parents were reluctant to switch brands, either because they were recommended by friends and family or because their baby would only drink one type.
With retail sales volumes increasing across most categories last month, many retailers will be cautiously optimistic, says Tom Youldon, partner at McKinsey & Company.
Fragile consumer confidence may be lifted as inflation continues to hover close to the 2% mark and the first cut to interest rates since 2020 starts to feed through to household budgets.
While milestone events like the return of Taylor Swift’s Eras Tour and the final bank holiday could also give retailers an opportunity to deliver value, drive engagement and increase conversion with carefully planned promotion strategies.”
Pound hits three-week high
Sterling has risen to its highest level in almost three weeks.
The pound has gained 0.2% to $1.2875, the highest level since 29 July.
Today’s retail sales report also shows the impact of inflation.
Compared with 2019, shoppers are spending 18.5% more, but taking home 2% less stuff.
Here’s a chart showing how department stores led the way last month, with a 4% rise in sales volumes:
Retail sales “bounced back strongly in July as expected”, says Neil Birrell, chief investment officer at Premier Miton Investor.
There is little doubt that the UK economy is moving along nicely with virtually all indicators pointing in the right direction, with sales volumes now virtually back to pre-COVID pandemic levels.
The stability of the economy must be making the UK look like an attractive place for international investors.”
Introduction: UK retail sales return to growth
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A busy week for UK economic data ends today, with the news that retail sales across Great Britain have returned to growth.
Retail sales volumes rose by 0.5% in July, the Office for National Statistics reports this morning. That follows a fall of 0.9% in June when households cut back amid poor weather, and election uncertainty.
Department stores and sports equipment stores reported a boost in sales “following summer discounts and sporting events” last month, the ONS says.
Sales volumes were 1.4% higher compared with July 2023, when bad weather hit the high streets.
But, volumes are still 0.8% lower than pre-pandemic levels.
Retail sales rose 0.5% in July 2024, following a revised fall of 0.9% in June
— Office for National Statistics (ONS) (@ONS) August 16, 2024
Department stores and sports equipment stores reported a boost following summer discounts and sporting events.
Read more ➡️ https://t.co/wqQfLrF1aq pic.twitter.com/SRe079pei7
The pattern of spending was mixed, though.
Sales volumes at “non-food stores” rose by 1.4% in July – driven by higher takings at department stores - after a 1.9% drop in June.
Retailers suggested that summer discounting and sporting events, such as the European football championship in which England and Scotland competed, boosted sales.
But, automotive fuel sales volumes fell by 1.9% in the month.
ONS director of economic statistics Liz McKeown says:
“Retail sales grew in July led by increases in department stores and sports equipment shops with both the Euros and discounting across many stores boosting sales.
“These increases were offset by a poor month for clothing and furniture shops, and falling fuel sales, despite prices at the pump falling.”
We learned yesterday that the UK economy grew by 0.6% in April-June, and was the strongest growth in the G7 group of advanced economies over the past six months.
This morning’s retail sales data suggests the UK economy continued to grow last month; Michael Brown, senior research strategist at brokerage Pepperstone, says:
This morning’s UK retail sales figures showed that consumers started the third quarter of the year on a relatively solid footing, with sales having risen by 0.5% MoM, and by 0.7% MoM when fuel is excluded from the data, implying that the solid economic momentum seen in the first half of 2024 has continued at the start of the third quarter.
The agenda
7am: UK retail sales report for July
10am BST: Eurozone trade balance 10am
1.30pm BST: US building permits/housing starts 1.30pm
3pm BST: University of Michigan’s US consumer confidence 3pm
