Investors are awaiting a roadmap out of coronavirus lockdowns in England that have effectively shut down cities from the UK government. Photograph: Vuk Valcic/SOPA Images/REX/Shutterstock
Investors are awaiting a roadmap out of coronavirus lockdowns in England that have effectively shut down cities from the UK government. Photograph: Vuk Valcic/SOPA Images/REX/Shutterstock
Closing summary: Stocks drop and Boeing suffers another blow
Stock markets have started the week firmly on the back foot, as signs of heating up in economies across the world raise the double-edged prospect of inflationary pressures building.
Some people might argue that a burst of inflation might be welcome - at least temporarily - in some economies that have struggled for more than a decade to accelerate. However, if pressures do build too much central banks could be tempted to remove some stimulus. That concern has held back stocks across the world.
The FTSE 100 lost 0.5% on Monday, dropping to 6,589 points. The mid-cap FTSE 250 lost 0.8%. In the US the tech-focused Nasdaq composite lost 1.2% in early trading, while the S&P 500 was down by 0.6%.
Joshua Mahony, senior market analyst at IG, an investing platform, said:
Markets are kicking off on a hesitant tone despite hopes for a positive reopening roadmap from Boris Johnson today. Rising inflation and Treasury yields are once again providing a cause for concern despite vaccination-led hopes of an economic resurgence.
European markets have kicked off the week on a somewhat unstable footing, with the fears over rising inflation and Treasury yields once again dampening sentiment on a day that had promised to be dominated by reopening hopes.
In other business news:
Boeing has had the latest in a long line of days to forget. The UK has joined other regulators in banning some 777 twin-aisle planes, after an engine came apart in mid-air. A 747 in the Netherlands also spewed debris shortly after takeoff.
Shopper numbers have continued to rise across UK retail destinations, suggesting that Britons are raring to spend more once restrictions ease.
Glaxosmithkline and Sanofi are starting phase 2 trials of their coronavirus vaccine candidate after a delay.
Rio Tinto’s former boss received a 20% pay rise despite being censured for overseeing the destruction of sacred caves in Australia.
You can continue to follow our live coverage across the world:
In the UK, a study suggests Pfizer and AstraZeneca vaccines reduce hospital admissions by 85% and 94%, ahead of Boris Johnson’s plan to reduce restrictions
Thank you as ever for joining us today in our live coverage of business, economics and financial markets. Please do join us again tomorrow morning for more. JJ
UK bans certain Boeing 777 aircraft from its airspace after grounding
The UK has banned Boeing 777 aircraft with Pratt & Whitney 4000-112 engines from entering its airspace after an incident where an engine shed debris over the weekend.
Transport minister Grant Shapps said the configuration will be banned from the UK temporarily.
After issues this weekend, Boeing B777s with Pratt & Whitney 4000-112 series engines will be temporarily banned from entering the UK airspace. I will continue to work closely with the @UK_CAA to monitor the situation.
The Civil Aviation Authorit, the UK’s airspace regulator, said no UK airlines are affected by the ban. The setup is mainly used by airlines such as United Airlines, and Japan’s Japan Airlines and All Nippon Airways (ANA).
After the Pratt & Whitney 4000-112 engine incident on a Boeing 777 aircraft, we have suspended this configuration's use in UK airspace. It is not used by any UK airlines.
It is operated by airlines in the USA, Japan and South Korea where authorities have also stopped its use. pic.twitter.com/i97yio5X2q
US stock market futures drop amid inflation concerns
Wall Street share prices are set to fall at the opening bell on Monday as investor concerns over a potential rise in inflation prompted a reassessment of recent stock market gains.
The tech-heavy Nasdaq - whose largest constituents such as Apple, Alphabet and Facebook have been among the biggest winners during the coronavirus pandemic - is set to fall by as much as 1.2%, according to futures trades.
Futures for the S&P 500, the main US stocks benchmark, were down by 0.7%, while futures for the Dow Jones industrial average also fell by 0.5%.
A quick check in on bitcoin: the cryptocurrency hit a new record high of $58,445 late last night (UK time) according to Refinitiv data, but it has since retraced some of that progress, hovering around the $53,000 mark at the time of writing.
That represents a 6% fall over the course of Monday, but $53,000 remains far more expensive than even a week ago, when it was worth about $48,000. As recently as mid-December bitcoin was worth less than $20,000.
The cryptocurrency has surged in value this year since Tesla revealed it had spent $1.5bn on it - following comments from chief executive Elon Musk strongly backing it.
Musk has taken evident delight in his ability to move cryptocurrency markets. He was back at it yesterday, tweeting about dogecoin, a joke cryptocurrency that has soared in value since he started backing it publicly.
Increases in the number of shoppers at British shopping destinations suggest there is significant pent-up demand for when non-essential shops reopen, according to data company Springboard.
Footfall in UK retail destinations rose by +6.8% last week from the week before, compared to an 8.5% in the same week last year (before the pandemic’s effects on the UK became clear).
Footfall rose by 10.5% in High Streets, 4.5% in shopping centres and 1.2% in retail parks - although overall it remains 62% lower than last year.
Nevertheless, it suggests that Britons are ready to return to shops en masse when restrictions are eased, Springboard said.
Diane Wehrle, insights director at Springboard, said:
You could be fooled into thinking that last week was a normal half term week rather than in the eighth week of a national lockdown, as footfall continued to rise for the fifth consecutive week.
With the magnitude of increase continuing, this provides further evidence of significant pent up demand amongst shoppers to visit retail destinations and indication of the significant surge back to stores when non-essential retail reopens in the coming weeks/months.
Part of the inflation surprise has come about because of rising commodity prices. Demand for commodities slumped during the first phase of the pandemic, but it has come roaring back.
Those moves have had two effects. First of all, the slump in prices a year ago means that headline measures of inflation are set to jump above targets. Secondly, the more recent price increases will raise costs for companies, even if core inflationary pressures aren’t building as fast. Both of those effects will make it uncomfortable for doves who favour keeping borrowing costs low.
The gains for commodity prices have been notable.
Oil prices are up 1% today. One barrel of Brent crude oil for April delivery costs $63.54, a price not seen since January 2020, until the last week at least. West Texas Intermediate, the North American benchmark, is also up 0.9% on Monday, having earlier broken the $60 mark.
Brent crude oil futures prices have recovered most of the pandemic-period losses. Photograph: Refinitiv
Price swings for some base metals has been even more marked. Copper futures prices have long left behind pre-pandemic levels, slipping back from a nine-year high on Monday.
Copper futures prices have soared in recent days far beyond pre-pandemic levels. Photograph: Refinitiv
Let’s dive into today’s stock market moves: after all, the FTSE 100 is down 0.6% and Europe’s Stoxx 600 index is down 0.7% despite hopes of economic recovery as vaccines work their magic. What’s going on?
“Inflation expectations” is the answer given by many analysts. Stronger growth is good for the economy, but it could also prompt prices to rise if demand outstrips supply. That in turn could cause central banks to think about reducing the huge stimulus programmes they brought in to tackle the pandemic’s economic crisis.
Bond markets are pricing in higher inflation (which eats into their returns, reducing their value). Bond yields, which move inversely to prices, have jumped during the first two months as inflation expectations have risen.
The pace of bond market moves during 2021 has taken many investors by surprise. Take the US 10-year Treasury, investors’ benchmark: the yield has risen from well below 1% on new year’s eve to just shy of 1.4% this morning.
The yield on US 10-year Treasuries has risen sharply during 2021 so far. Photograph: Refinitiv
Kit Juckes of Société Générale said the rise in yields could go one of two ways: it could make investors think a bit more carefully about pumping up riskier assets like stocks (and some stocks in particular) while not prompting major moves; or rising yields could signal that inflation is really coming, forcing the US Federal Reserve “to hurt the global economy to get it under control”.
We’re in the optimistic camp because we doubt we’ll see enough underlying/core inflation to feed the bond sell-off for very long, and we think global economic recovery is a bigger long-term story than a rise in bond yields from very low, to merely low. That said, this is going to get prettty bumpy.
There is little doubt that prices of stocks and bonds have been pumped up by central bank stimulus. If investors fear that the Fed, the European Central Bank or others like the Bank of England are going to take away the punch bowl then the party could end very quickly - even if trillions of dollars, euros and pounds of stimulus are still in place.
Stephen Innes, a strategist at Axi, a trading platform, likened the mood to the “taper tantrum” of 2013, when concerns that the Federal Reserve could start to reduce its bond purchases triggered a bond selloff. He said:
The real danger in higher Treasury yields is not the Fed or inflation – it’s the market’s perception of a threat that is likely much greater than anything that might even actualize.
An Arrival bus in testing. The company’s buses will start trials in the UK with First Group. Photograph: Arrival
In case you missed it yesterday: Electric buses built by Arrival, the UK-based manufacturer, will be tested on British roads for the first time later this year in a trial with the transport company First Group.
The tests will begin in the autumn of this year, starting with four of the first production vehicles produced at Arrival’s research and development facility in Banbury, Oxfordshire. Discussions are under way about further trials with other companies.
Arrival has burst onto the UK automotive scene, targeting urban vans and buses rather than cars. It hopes to use an unorthodox production technique to make battery electric vehicles more cheaply.
Arrival is also looking at an undisclosed number of new sites for factories within the UK, a signal of its intent to ramp up output as it prepares a reverse listing on the Nasdaq stock exchange in New York at a valuation of $5.4bn (£3.9bn). The company’s main operations will remain in the UK.
GSK and Sanofi to start phase 2 trial of coronavirus vaccine candidate
Sanofi and GlaxoSmithKline (GSK) have announced they will start phase 2 studies of their coronavirus vaccine candidate, after their efforts were delayed at the end of last year.
The French and British pharma companies previously found that the vaccine produced an “insufficient” response in over-50s, but on Monday they said in a statement that they were confident in its potential, and hoped to gain regulatory approval in the fourth quarter of 2021.
The phase 2 study will give the vaccine to 720 volunteers aged 18 and over. The companies hope to ascertain the best antigen dosage for large-scale phase 3 trials.
The trial will include equal numbers of adults 18 to 59 years and those 60 years and above.
While most of the British population will likely be vaccinated by the end of 2021, more vaccines will be required to protect most of the world’s population, hopefully giving less chance for vaccine-resistant variants to emerge.
Thomas Triomphe, head of Sanofi Pasteur, Sanofi’s vaccines division, said:
We are confident that our vaccine candidate has strong potential and we are very encouraged by the latest preclinical data. This new Phase 2 study will enable us to identify the final vaccine formulation for adults of all ages.
The GSK/Sanofi vaccine uses a chemical known as an adjuvant to boost the body’s immune response to proteins that include part of the genetic code of the Sars-CoV-2 virus.
Sterling has recovered ground since traders in London finished their breakfasts: it is now up for today at $1.4020 against the US dollar.
That represents a meagre 0.05% gain for Monday, but in the context of the last few years - during which the currency was held back by the threat of a no-deal Brexit - $1.40 is the highest for nearly three years.
Another key reason for the pound’s strong performance during 2021 so far has been its relative speed compared to other major economies in rolling out vaccines. Some economists believe that has laid the groundwork for a faster economic recovery.
There are signs that the pound may have been oversold even before the vaccine good news. David Owen, chief European economist at Jefferies, an investment bank, said that “part of the supposed underperformance of the UK economy last year was a measurement issue”. Jefferies forecasts GDP will fall by 5.6% in the first quarter of 2021, followed by a rapid recovery of 7.7% in the second quarter.
Prime Minister Boris Johnson’s approach to ending the UK’s lockdown could end up capping much further upside for the pound, said Ricardo Evangelista, an analyst at ActivTrades, a spreadbetting website.
The pound has, so far, been the top performing currency of the year, thanks to a successful vaccine rollout that generated enthusiasm amongst investors. If the UK’s roadmap to exit lockdown and reignite its economy proves to be too cautious in the eyes of market operators the pound’s recent galloping performance may start to fizzle out.
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