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A quick look at the oil markets, where Brent crude futures prices have lost 1.2% today.
One barrel of Brent, the North Sea benchmark, will set you back about $74.60. West Texas Intermediate, the North American benchmark, is down by 1.3%, to $72.90.
Edward Moya, senior analyst at Oanda, a foreign exchange broker, ascribed some of the move to the slowdown in Chinese factory growth. He said:
China has been leading economic recovery in Asia and if the pullback deepens, concerns will grow that the global outlook will see a significant decline.
The recovery in the oil price has been built on hopes of an economic rebound, as factories and power stations burn more oil. That has mostly come to pass – hence prices have surpassed their pre-pandemic levels – but jitters around the demand picture are still a key factor for traders.
Ferrari made a net profit of €206m in the second quarter of 2021 as the supercar maker bounced back from the pandemic it barely broke even.
It shipped 2,685 units between April and June, almost double what it managed in the pandemic-hit second quarter of 2020, and up 0.5% versus 2019.
That helped revenues to nearly double year-on-year to €1bn, up 5% compared to 2019.
In the second quarter of 2020 – when production was deeply affected in Italy and across Europe – Ferrari managed to eke out a profit of only €9m. (For the record, that means profits rose by 2,000% year-on-year.)
Yet prospects have improved, and the Italian carmaker today said it would generate €100m more cash this year than it previously forecast: €450m compared to €350m previously expected.
Many mass-market carmakers are struggling to sustain production amid shortages of computer chips. However, Ferrari’s slower pace of production as it tries to retain an air of exclusivity around its products means it tends to be less affected.
John Elkann, its chairman and acting chief executive, said it was an “excellent second quarter” ahead of the company’s 75th anniversary next year.
A gigantic glowing orb, as wide as the London Eye and almost as tall as Big Ben, is planned to descend on Stratford, bulging on to the skyline like a great artificial sun, dazzling the East End with the power of 36m LEDs, writes Oliver Wainwright, the Guardian’s architecture and design critic.
This is the MSG Sphere, the latest live entertainment concept from New York’s Madison Square Garden company, purveyors of high-octane razzmatazz since 1879.
It is set to glow 24 hours a day, covered with animated adverts for half the time, flickering right outside people’s bedroom windows.
You can read the full report – featuring action groups funded by rival companies, Blade Runner mockups and, er, planning authorities – here:
It has been a good morning for most investors on the London Stock Exchange, with the FTSE 100 and the FTSE 250 both up by more than 1% as traders have their elevenses, if that’s still a thing.
The mid-cap FTSE 250 has, in fact, set its latest record high above 23,300 points. It is hovering slightly below that now, up 1.4% for the day.
The biggest riser is Meggitt thanks to the takeover deal it has reached with US company Parker Hannifin. Parker was clearly going for a knockout blow with its offer: a premium of 71% to Friday’s close will make it very difficult for independent-minded investors to counterpunch.
Meggit shares duly performed the kind of leap that makes charting software creak (you can see the new share price in the top right of this graph).
However, it is interesting to note that Parker’s 800p-per-share offer is a premium of only about 15% from Meggitt’s pre-pandemic peak. Suddenly it does not sound quite as generous, although Parker would, no doubt, argue that everything has changed for aerospace businesses in the 18 months since.
Shortages of labour and materials are hampering the ability of Britain’s manufacturers to take advantage of a post-lockdown boost to demand, the latest snapshot of industry has shown, writes the Guardian’s economics editor, Larry Elliott.
Despite posting another strong performance in July, the monthly survey from IHS Markit/Cips found output and order book growth slowed to its weakest in four months.
The report found that expansion would have been faster last month had it not been for stretched supply chains and problems recruiting staff. Firms also reported continued difficulties adjusting to post-Brexit trading arrangements.
You can read the full report here:
It should be emphasised that manufacturing companies would probably have taken this situation a year ago when the pandemic struck, but there are definite signs of struggle.
The supply chain pressures are “stifling” some businesses, according to Rob Dobson, a director at IHS Markit. He said:
On one hand, manufacturers are benefiting from re-opening economies.
On the other, the recent surge in global manufacturing growth has led to another month of near-record supply chain delays, exacerbated by factories and their customers building up safety stocks. Some firms also noted that post-Brexit issues were still a constraint on efforts to rebuild sales and manage supply and distribution channels to the EU.
Demand outstripping supply is also driving up prices. Input costs again rose at a near survey-record pace, leading to a near-record increase in manufacturers’ selling prices. Amid growing indications that many supply chain disruptions and raw material shortages are unlikely to be fully resolved until 2022, the outlook remains one of constrained growth combined with high inflation for the foreseeable future.
Alastair Wilson, a partner at accountancy network MHA, said things are still looking fairly solid, but also raised the spectre of workers being asked to self-isolate after their NHS Covid-19 apps detected a close contact with someone who tested positive for the virus.
Many manufacturers are in a relatively robust financial position having remained open through large parts of previous lockdowns and having continued to see steady demand, which is now soaring.
While benefitting from increased demand, manufacturers are now facing the challenge of substantially increased shipping costs, in addition to disruption from staff having to isolate due to the ‘pingdemic’. Staffing costs are also rising as demand for workers intensifies, leading to labour shortages in certain areas, such as in particular in the food manufacturing and automotive sectors, and greater powers for workers to demand pay increases. This is leading to higher production costs at the factory gate and price rises becoming more commonplace. However we would expect the buoyant results of recent PMI to continue over the next few months.
A key question for economists (particularly those at the Bank of England) is whether all of these pressures on factories result in some durable inflation.
Input prices rose at a near-record pace in July, with 72% of manufacturers seeing an increase, IHS Markit said:
A vast array of items increased in cost, including chemicals, commodities, cardboard, electronics, food stuffs, metals, packaging and timber products. The pass-through of higher input costs led to a further substantial rise in output charges, which rose at a near-identical pace to June’s series-record.
The Bank’s preferred gauge, consumer price index inflation, was already at 2.5% in June, above its 2% target.
An inflexible reading of the Bank’s mandate might suggest that it should act to rein in inflation by raising borrowing costs. In the short term that mean cutting back the speed of bond purchases under its quantitative easing programme when its monetary policy committee meets this week. In practice, however, observers expect the Bank to hang on for fear of upending the economic recovery.
It has been a few months of historic boom time for British factories thanks to the bounceback from the coronavirus recession.
July’s reading would have represented the strongest month seen since the financial crisis – had it not been for the even stronger growth in the previous few months.
Yet it’s striking how much of IHS Markit’s PMI release this morning focuses on the difficulties they face. Supply chain pressures look like they will be a constraining factor on factory output.
Shortages of raw materials, staff and transport have all hit companies. Delays at ports have been caused by extra Brexit bureaucracy as well as the pandemic and plain old traffic as companies try to import everything they need as soon as possible.
The FTSE 100 had pulled back marginally before the PMI data to a 0.8% gain, but now it’s back at 1% for the day.
UK factory output grew at among the fastest rates in history in July, but supply chains are showing signs of being overstretched as companies race to keep up with demand, according to its latest purchasing managers’ index (PMI).
The final reading of the IHS Markit/CIPS PMI dropped to 60.4 in July, down further from May’s record high of 65.6, but a continuation of the 14-month expansion since the pandemic’s effects on the UK economy became clear.
There were increased new orders and rising client confidence in July as the UK economy reopened. Restrictions on movement and gatherings were completely dropped on 19 July in England.
Yet companies are still facing problems (albeit problems they probably like to have) as they try to meet demand. IHS Markit said:
Scarcities, shortages and price rises remained prominent challenges faced by UK manufacturers during July.
Raw material, staff and skill shortages were all major factors stymieing output growth and contributing to a further marked increase in input purchasing.
There are inflationary pressures everywhere, according to survey compilers IHS Markit.
Chris Williamson, chief business economist at IHS Markit said:
The fact that growth of eurozone manufacturing cooled slightly in July after a record-breaking expansion during the second quarter should not itself be a major cause for concern. But the July survey also brought further signs that manufacturers and their suppliers are struggling to raise production fast enough to meet demand, driving prices ever higher.
Although growth of demand has come off the boil slightly as the initial boost from the reopening of the economy fades, the July survey showed inflows of new orders outstripping production to an extent unprecedented in the survey’s 24-year history.
Capacity constraint indicators continue to flash red. Input shortages worsened again in July at a near record rate and July saw another near-record rise in backlogs of work.
European factory output was just short of the record high it enjoyed in June, according to the latest purchasing managers’ index (PMI) for the sector.
The coronavirus pandemic has caused ructions around the world, but it appears that European factories are in the midst of a record-breaking bounceback – even as their counterparts in Asia appear to be at a very different part of the cycle.
The Eurozone manufacturing PMI reading for July came in at 62.8 in July, just below the 63.4 mark it hit in June, according to data company IHS Markit. The survey suggests that the sector has now recorded successive months of expansion since July 2020 – a pretty extraordinary outcome if you consider how bad the outlook seemed then.
It was helped by a three-month high in Germany, the Eurozone’s exporting powerhouse. It was the third-highest German factory reading on record, behind March and April this year.
A possible fly in the ointment might be inflation (although there are some economists who might argue that the Eurozone is due some price rises anyway). IHS Markit said:
Widespread shortages of materials and poor transport availability pushed up manufacturing input prices in July at a survey-record rate. Indeed, national level data showed rates of cost inflation accelerating to fresh highs across a slew of countries including Austria, Germany and the Netherlands.
Australian Stock Exchange-listed buy-now-pay-later company Afterpay will be bought out by Square, the payments company started by Twitter boss Jack Dorsey, for $39bn (£28bn).
Square, which provides online payments plus physical point-of-sale devices, said on Monday it had agreed to purchase the company in an all-stock deal worth $29bn – which would be the biggest ever buyout of an Australian company.
It’s a reflection of the boom in buy-now-pay-later companies, who charge retailers a fee to offer customers interest-free borrowing. Lenders like Afterpay and Klarna have attracted ever-higher valuations as the pandemic has boosted online shopping.
However, the sector has raised concerns from regulators, including in the UK, who fear it could encourage people to fall into debt that previously would have been limited to credit card companies.
The Square offer is around a 30% premium to Afterpay’s last close, and Australian shareholders would own about 18.5% of the combined company. Afterpay’s board unanimously recommended the deal.
You can read the full report here:
The board of Meggitt, the FTSE 250 engineering company, has unanimously recommended that shareholders accept the 800p-per-share takeover offer from Parker Hannifin.
The offer is at a 71% premium to Meggitt’s closing share price on Friday. Meggitt’s share price surged 60% to 750p at the start of trading on Monday as investors reacted to the news.
As part of the deal Parker has made a number of legally binding contractual commitments to the government to protect Meggitt’s operations.
These include keeping Meggitt’s headquarters in the UK, maintaining headcount in its research and development, product engineering and manufacturing operations, ensuring most of the company’s board are UK nationals, and increasing R&D expenditure by a fifth over the next five years.
You can read the full story here:
British aerospace manufacturer Meggitt is set to be the latest big UK company snapped up by an overseas buyer, after it agreed a £6.3bn deal with US engineering group Parker Hannifin.
Meggitt, which makes parts like wheels, brakes and sensors for Airbus and Boeing planes, had been the target of rumours of interest from another US engineering company – Woodward – at the end of last week.
However, it appears that Parker Hannifin, a constituent of the S&P 500 benchmark index, is the preferred suitor. The company already makes aerospace parts that control planes’ fuel systems and hydraulics.
It has been a profits parade for British banks so far this summer, with the major UK lenders reporting an economic recovery that has meant previous predictions of loan losses were unfounded.
It is HSBC’s turn today. It reinstated dividend payments (after a ban was lifted) and released $700m (£503m) that had been set aside to cover bad debts after profits easily beat analyst estimates.
The Guardian’s banking correspondent, Kalyeena Makortoff, writes:
HSBC has hiked banker bonuses by 50% after profits grew by more than fourfold thanks to an economic rebound in the key markets including the UK.
The London-headquartered bank said it had put aside $900m to compensate its star bankers in the first half of the year, up from $600m during the same period in 2020 when the bank’s profits suffered from the onset of the Covid crisis. Its top bankers will have another six months to grow the bonus pool, before it is paid out next spring.
HSBC said the jump in reflected the bank’s performance, as pre-tax profits swelled to $5bn in the three months to 30 June, up from $1.1bn a year earlier when it put aside billions of pounds to cover potential defaults linked to the pandemic.
It’s looking like a positive start to the week on European bourses in spite of the cautious outlook from Asia. London’s FTSE 100 has gained 1% in the opening minutes.
The index has been helped by strong results from HSBC, while the aerospace sector has been a takeover approach for Meggit (more on both shortly).
Europe’s broad-based Stoxx 600 index gained 0.7% in early trades. France’s Cac 40 has gained 0.8%, Germany’s Dax index is up 0.6%, and Spain’s Ibex is up 0.9%.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s manufacturing PMI day – but the monthly check-up of factory activity from purchasing managers’ index surveys around the world has got off to a fairly tepid start with the news of the slowest growth in output from China’s manufacturing sector since April 2020.
China’s Caixin PMI came in at 50.3 for July – still above the 50 growth mark but lower than the 51 forecast by economists. It was the lowest reading since the contraction of April 2020 as the virus hit the global economy.
China and other Asian economies were hit by rising costs, and new waves of the Delta variant of the coronavirus have cast a shadow over demand. Factory output rose in both Japan and South Korea, the other large east Asian economies, but supply chain shortages and raw material shortages bit.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said:
We remain worried about a period of weakness in manufacturing, with exports and production well above pre-pandemic trends. The sharper drop in the Caixin PMI—more aligned to smaller and exporting firms—to 50.3, from 51.3 in June, underlines the precariousness of foreign trade. New export orders were a serious drag in the official index too.
Analsysts at Deutsche Bank led by Jim Reid highlight that the manufacturing struggle is not limited to the very largest Asian economies:
Other economies in the region also posted weak manufacturing readings as they grappled with a surge in infections. Indonesia (at 40.1 vs. 53.5 last month) posted its worst reading in 13 months while Thailand’s reading slipped to 48.7 from 49.5 and Philippines manufacturing PMI dipped to 50.4 from 50.8. Vietnam’s manufacturing PMI continued to remain in contractionary territory with a reading of 45.1
What does this mean for the UK manufacturing sector, due its own PMI number at 9:30am BST? The short-term read-across is probably limited, with economists expecting signs of a continuing boom in output. A poll of 13 economists by Reuters suggests nobody expects the index to fall below 60, far above the 50 mark which signals an expansion. However, any slowdown in the Chinese economy would likely feed through to the UK eventually, even if the vaccine programme does mean there is no return to lockdowns.
- 9am BST: Eurozone manufacturing purchasing managers’ index (PMI) (July)
- 9:30am BST: UK manufacturing PMI (July)
- 3pm BST: USA manufacturing PMI (July)