Yahoo Finance Labour risks higher mortgage bills and worse unemployment, says HSBC
Labour proposals to introduce a ‘genuine living wage’ risk triggering a surge in unemployment and pushing up mortgage costs for households, HSBC has warned.
Economists at the bank said a flagship Sir Keir Starmer policy seeking to strengthen workers’ rights could stoke inflation and lead to job losses.
Labour has pledged to bring in a ‘New Deal for Working People’ within its first 100 days in power, if elected, including replacing the minimum wage with a so-called genuine living wage that reflects the cost of living. However, economists at HSBC warned that raising the minimum wage beyond adjusting it with inflation would result in another large jump in costs for businesses next year.
It comes after the minimum wage rose by a record amount in April, from £10.42 to £11.44, with the average wage bill for employers growing by 20pc over the past two years. Inflation is expected to average between 2pc and 3pc from now until next April, when the minimum wage is adjusted.
Elizabeth Martins and Emma Wilks of HSBC said: “A higher minimum wage could increase costs and reduce efficiency, adding to unit labour costs.
“This in turn could either push firms into reducing headcount and/or sustain lingering inflation pressures, keeping the Bank Rate higher for longer.”
At the same time, a new Labour government will cut investment by more than the entire Conservative administration from 2010 to 2024, a left-leaning think tank has warned.
Inherited spending plans from the Conservatives, which mean real terms funding cuts for many public services, will more than offset Labour’s plans to invest £4.7bn per year in green energy projects, the Institute for Public Policy Research (IPPR) said.
The Bank of England is currently laser-focused on whether inflation is proving particularly stubborn in the services sector.
Its panel of rate-setters is reluctant to start reducing interest rates from a 16-year-high of 5.25pc until they feel confident that this type of inflation is fading.
Markets are only fully pricing in one rate cut from the Bank this year after inflation and wage growth fell slower than expected in recent months.
HSBC warned that “high wage growth is fuelling inflation in the UK at the moment”, adding that services inflation is not “fully tamed”.
The Bank of England is currently laser-focused on whether inflation is proving particularly stubborn in the services sector.
Its panel of rate-setters is reluctant to start reducing interest rates from a 16-year-high of 5.25pc until they feel confident that this type of inflation is fading.
Markets are only fully pricing in one rate cut from the Bank this year after inflation and wage growth fell slower than expected in recent months.
HSBC warned that “high wage growth is fuelling inflation in the UK at the moment”, adding that services inflation is not “fully tamed”.
A decision by the Bank of England to keep interest rates higher for longer – or even increase them – would be a further headache for mortgage holders, who have been grappling with rising borrowing costs in recent years.
Ms Martins and Ms Wilks said that while minimum wage rises have so far occurred without too many negative impacts, Labour’s potential increases risked creating a tipping point.
Such rises would “at some level presumably have a detrimental impact on unemployment - we just don’t know where it is until we reach it”, they said.
Figures from the Recruitment and Employment Confederation (REC) published on Monday suggested the increase has led to a slump in hiring summer workers for industries like hospitality and leisure.
However, HSBC said the wages proposal could also bring a boost to employment. In a best-case scenario, it could help grow the workforce and enhance productivity by raising motivation and encouraging greater numbers of people to work.
This is “sorely needed”, as the UK’s employment rate is yet to recover after the pandemic, amid soaring long-term sickness. Similarly, it would likely help public finances as more people would be in work rather than claiming benefits, they argued.
However, they added this was likely an overly optimistic view.
Ms Martins and Ms Wilks said: “Some of the features of a labour market that we might normally expect from Labour have been to some degree delivered already by the Conservatives.”
Another area of concern was Labour’s silence on the big spending cuts needed to some parts of public finances unless the economy grows faster than expected, they noted.
Ms Martins and Ms Wilks added: “Realistically, it is possible that Labour might have to raise taxation.”
The IPPR said on Tuesday that anticipated real terms funding cuts by Labour to unprotected public services would be larger than the net cuts imposed in the past 14 years under Tory power.
This is because the austerity cuts in the wake of the financial crisis were later offset by spending rises under Theresa May, Boris Johnson and Rishi Sunak, they said.
According to the latest comparable data, the UK recorded the lowest level of investment of any G7 economy for the third consecutive year in 2022, the IPPR said.
The UK has lost £1.9 trillion in investment over the last 32 years, compared to if it had invested at the average rate seen across the G7 since 1990.
George Dibb, associate director for economic policy at IPPR, said: “The UK’s dire productivity performance is the single biggest driver of our dire living standards. Without resources flowing into new investment, it’s hard to see how UK economic performance can improve.”
Labour was contacted for comment.
Read the latest updates below.
06:29 PM BST
Signing off...
Thanks for joining us today. Chris Price will be back before the London markets open tomorrow morning to keep you updated on the latest financial and business news.
In the meantime, I’ll leave you with an analysis by Tim Wallace on how French extravagance made Macron the new Liz Truss:
Liz Truss has emerged as the unlikely bogeyman hanging over France’s economy.
In an attempt to deter voters from siding with Marine Le Pen’s National Rally party, rivals have invoked the former UK prime minister to sound the alarm over the consequences of low taxes and high spending.
Bruno Le Maire, France’s economy minister, went as far as to say that the country risks a debt crisis if Le Pen succeeds at the polls.
“A Liz Truss-style scenario is possible,” he said last week.
Such grave warnings have raised fears across Europe’s financial markets, fuelling a recent surge in French borrowing costs.
Historically, lenders have been happy for the French government to borrow at interest rates similar to that of other strong economies, such as Germany.
06:14 PM BST
One rate cut is right for US this year, suggests American central banker
An American central banker has said that one rate cut would be right for this year, given current forecasts.
Patrick Harker, president of the Federal Reserve Bank of Philadelphia, says that cooling consumer prices, in May data, were “very welcome”, but would need to see more economic data to be assured that inflation really is going to hit the 2pc target.
Bloomberg reported that he said: “If all of it happens to be as forecasted, I think one rate cut would be appropriate by year’s end. Indeed, I see two cuts, or none, for this year as quite possible if the data break one way or another. So, again, we will remain data dependent …
“I believe that the current policy interest rate, which has been held steady for nearly 11 months, will continue to serve us well for a bit longer, holding us in restrictive territory to bring inflation back to target and mitigate upside risks.
Mr Harker is not voting on US rates this year, as reserve banks such Philadelphia as take turns to be voting members on the rate-setting committee.
05:59 PM BST
French yogurt giant seeks growth in drinks for cancer patients and the elderly
French food giant Danone is to invest heavily in medical nutrition as it seeks to boost growth beyond products like Activia yogurts and Volvic water, Bloomberg has reported.
Danone’s dairy and plant-milk division is the company’s largest with €14bn (£11.8bn) in turnover, but its specialised and medical nutrition business, with €3bn in sales, is more profitable and could grow faster. Products include a Fortimel bottled drink taken by cancer patients who find eating traditional food uncomfortable.
Antoine de Saint-Affrique, Danone’s boss, told Bloomberg:
Populations around the world are aging, and with that come all sorts of illnesses. We are one of the biggest in medical nutrition, a leader in tube feeding and are very strong in providing nutrition for cancer patients. These categories are growing very quickly.
05:18 PM BST
Analyst warns of ongoing angst during French elections
French shares rose today with the CAC 40, the index of the top 40 listed companies, rising 0.9pc today.
Worries about the election hammered Paris’s CAC 40 index last week, pushing it down more six percent.
Ray Attrill, head of FX policy at the National Australia Bank, said:
Uncertainty over the extent to which the far right RN party will have effective control of the next French parliament after July 7 will be an ongoing source of market angst.
05:12 PM BST
Footsie flat on uncertain day in the markets
The FTSE 100 closed down a tiny 0.06pc today. The biggest riser was the insurance company Beazley, up 2.9pc, followed by discount retailer B&M, up 2.5pc. The biggest fallers were Convatec and Menrose, both down 3.8pc.
Meanwhile,. the FTSE 250 closed up 0.2pc. The top riser was gold and silver miner Hochschild, up 3.3pc, followed by fund management group Bridgepoint, up 3.2pc. Aston Martin was the biggest faller, down 3.6pc, followed by PPHE Hotel Group, down 3.4pc.
05:05 PM BST
German bond yields rise as political jitters subside
German government bond yields rose on Monday in calmer trading after a dramatic Friday when political jitters sent them tumbling and pushed up the risk premium on French and Italian debt.
Germany’s 10-year bond yield, the benchmark for the euro zone bloc, rose to 2.42pc from 2.36pc on Friday, after falling 0.26 percentage points last week.
French President Emmanuel Macron’s decision to call a parliamentary election has spooked investors who fear the move could pave the way for Marine Le Pen’s far-right Rassemblement National to come to power and ramp up spending, adding to the country’s high debt levels.
Philip Lane, the chief economist of the European Central Bank, on Monday said the ECB did not need to step into the markets, as recent market turmoil fuelled by political uncertainty was not “disorderly”. He told a Reuters event at the London Stock Exchange:
What we are seeing in the markets is a repricing, but it is not in the world of disorderly markets right now.
04:56 PM BST
American stocks drift towards new records despite quiet trading
US stocks are drifting toward more records in quiet trading Monday ahead of what could be a quiet, holiday-shortened week. America celebrates the Juneteenth National Independence Day on Wednesday, noting the end of the US Civil War and the abolition of slavery
This afternoon, the S&P 500 is 0.2pc higher and on track to close above its all-time high set on Thursday. The Dow Jones Industrial Average, which brings together 30 leading US companies, is up less than 0.1pc. The Nasdaq Composite index is up 0.2pc compard with its own record.
Autodesk, the maker of industry standard design software used by architects and engineering firms - jumped 4.5pc for one of the market’s biggest gains after after an investment firm said it will try to delay the software company’s annual meeting so that it can nominate new directors for the board.
Chip company Broadcom rose 3.4pc to add to gains from last week after it reported better profit than expected and said it would undergo a 10-for-one stock split to make its price more affordable. It followed Nvidia, the company that’s become the poster child of Wall Street’s frenzy around artificial-intelligence technology and just executed a similar split.
Broadcom was one of the strongest forces pushing the S&P 500 upward, along with a 1.8pc rise for Apple and 4.5pc jump for Tesla.
04:41 PM BST
China opens tit-for-tat anti-dumping probe into European pork
China has opened an anti-dumping investigation into imported pork and its by-products from the European Union, a step that appears mainly aimed at Spain, the Netherlands and Denmark, in response to curbs on its electric vehicle exports.
The investigation announced by China’s commerce ministry on Monday will focus on pork intended for human consumption, such as fresh, cold and frozen whole cuts, as well as pig intestines, bladders and stomachs. The probe will begin on June 17.
It was prompted by a complaint submitted by the China Animal Husbandry Association on June 6 on behalf of the domestic pork industry, the ministry said.
Following the European Commission’s June 12 announcement that it would impose anti-subsidy duties of up to 38.1pc on imported Chinese cars from July, global food companies have been on high alert for retaliatory tariffs from China.
Spain is the top supplier of pork to China and its pork producers group Interporc said they would fully cooperate with the investigation by Chinese authorities.
European pork producers should be able to keep exporting to China tariff-free while the investigation is underway, pending a decision and a tariff announcement by the Chinese side.
“It will not be the first time that a probe announced in one jurisdiction is responded to in kind, so in view of the EU electric vehicles probe, this is not a surprise,” Jens Eskelund, president of the European Union Chamber of Commerce in China, said.
04:27 PM BST
Euro rises against the pound and dollar as investors ponder Le Pen risks
The euro rose around 0.2pc against the pound and the dollar today, as the European single currency recovered from the more than one-month lows hit last week driven by political turmoil in Europe.
A pound buys €1.18,while a dollar is worth €0.93 this afternoon.
European markets have been under pressure after President Emmanuel Macron called for a snap election following a trouncing of his ruling centrist party by Marine Le Pen’s eurosceptic National Rally in the European elections.
Investors have been contemplating the risk of a budget crisis at the heart of the euro area, as far-right and leftist parties gain momentum ahead of France’s snap parliamentary election, pressuring Macron’s centrist administration
Le Pen sought to allay some of those fears over the weekend, saying she would not seek Macron’s resignation and that she is “respectful of institutions,” in an interview with Le Figaro.
Even after the French financial markets endured a brutal sell-off late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters.
Helen Given, FX trader at Monex USA in Washington, said:
As French markets have begun to stabilise a bit since last week the euro has responded with a slight touch of recovery.
04:15 PM BST
IMF predicts bigger recession in Argentina this year as Milei pushes free-market reforms
The IMF sharply downgraded its 2024 economic outlook for Argentina on Monday, as the country implements a series of wide-ranging economic reforms under its new president, Javier Milei.
Since taking office in December, Milei has embarked on a free-market programme to slash public spending and bring down inflation, which remained at an annual rate of more than 275 percent last month.
In updated economic forecasts published Monday, the International Monetary Fund said it now expects Argentina’s economy to contract by 3.5 percent this year, 0.75 percentage points more than its previous projections, due to a “deeper contraction” in non-agricultural output.
The updated forecasts were published a few days after the IMF executive board voted to approve an almost $800m (£630m) payout to Argentina under an existing loan agreement, bringing the total disbursements under the program to more than $41bn.
The IMF said it now expects Argentine inflation to ease to an average annual rate of 232.8pc this year, down more than 20 percentage points from its previous forecast in January.
The easing inflation outlook is “supported by refinements in the monetary and FX [foreign exchange] policy framework and a recovery in peso demand from historically low levels,” the IMF said.
04:09 PM BST
Challenger bank buys supercar lender
Challenger bank Shawbrook is to buy a car finance business that specialises in supercars, along with classical and luxury vehicles.
It is buying JBR Capital, which lends against cars including Lamborghinis, Aston Martins, McLarens and Bentleys.
Marcelino Castrillo, chief executive of Shawbrook, said:
JBR’s extensive knowledge of this specialist segment within the wider motor finance market is exceptional. Aligning the business to Shawbrook’s ‘best of both’ approach, combining technology with deep human expertise, this acquisition will help us to extend the JBR proposition to more customers who value a premium experience, flexibility, and certainty when securing finance for their high-end vehicles.
Terms were not disclosed in Shawbrook’s announcement. In its most recent accounts, JBR had a turnover of £18.4m and made a profit of £485,000.
03:57 PM BST
Political uncertainty mean ‘little enthusiasm’ for European stocks today, says analyst
Political uncertainly on the continent is dampening enthusiasm for British stocks, Chris Beauchamp, chief market analyst at trading platform IG, has said:
European markets have risen off the lows of last week but there’s little enthusiasm among investors for the region given the prevailing political uncertainty. Dip buyers, particularly in French stocks, may well opt to wait until after the election.
While the UK is free of such uncertainty, for now it has been lumped into the same pile, an early rally for the FTSE 100 rapidly fizzling out this morning.
03:54 PM BST
Behavioural science and diversity consultancy plunges after HR departments lose interest
A consultancy focused on behaviour science and diversity, enquiry and inclusion (DEI) has told investors that sales fell 18pc after suffering from “increased caution” from HR departments.
MindGym’s revenue fell to £44.9m in the 12 months to March 31, down from £55m a year earlier. It made a loss of £12.1m, down from a profit of £3m.
The company said that “market dynamics” included “fewer big-ticket requests for proposals”.
It was also being crowded out of budgets by “unprecedented investment in HR platforms and technology”, while also suffering from the market experiencing “a material decline in client spend on DEI”.
Christoffer Ellehuus, chief executive, said:
I believe that we have all the right foundations for future growth: strong client relationships, innovative solutions, and a very talented team. I am excited about leading MindGym forward on a path of profitable, sustainable growth, profitability making MindGym solutions easy to buy, easy to deliver, and easy to renew.
Shares plunged 22pc.
03:37 PM BST
Mining company surges after Chinese investor unveiled
A London listed mining company jumped 28pc on the Alternative Investment Market today after revealing that it had agreed to sell a majority stake in Zimbabwe’s Muchesu Coal Project.
The deals means that Contango Holdings, which had owned a major stake, will offload 51pc of Muchesu to Zimbabwe-based Chinese investor Wencai Huo. The new investor will spend at least $20m (£15.8m) at Muchesu and pay a royalty of at least $2m a year to Contango for the lifetime of the mine.
In addition, Mr Huo will buy 20pc of new shares in Contango.
Carl Esprey, chief executive Office of Contango, said:
“Mr Huo is highly experienced in mining and operating throughout southern Africa. His intention to become a major shareholder in Contango, as well as become the lead partner in the Project, is testament to the upside this agreement offers to shareholders.
By investing a further $20m at Muchesu we will be able to quickly ramp up operations and satisfy some of the larger contracts we have been reviewing or are aware of. Our intention has always been to develop our suite of coal products, as well as the manufacture of coke at site.
03:33 PM BST
Handing over
That’s all from me today but you remain in safe hands as Alex Singleton takes over the duty of sending live updates.
I will leave you with a report on New York state factory activity, which contracted in June by less than forecast in a single that the US economy remains resilient in the face of high interest rates:
Our first regional Fed manufacturing survey for June and it was negative but less so. The New York Fed reported that business activity declined at a more modes pace in New York State. The headline general business conditions index moved up 9.6 points but was below zero at -6.0. pic.twitter.com/oSyQhFlDrB
— Dr Thomas Kevin Swift (@DrTKSwift) June 17, 2024
03:17 PM BST
Pound falls ahead of interest rate decision
The pound fell slightly ahead of the Bank of England’s interest rate decision this week.
Political turmoil in France last week sent investors fleeing from the euro which fell 0.6pc against sterling last week.
However, today it was up 0.2pc against the pound at 84.6p. Sterling was down 0.1pc against the dollar at $1.267.
The pound’s fortunes could change rapidly when the next inflation figures for May are published on Wednesday.
Markets are increasingly convinced the Bank of England, which meets on Thursday, will deliver two cuts this year, with close to a 90pc chance of rates dropping to 4.75pc by December.
02:58 PM BST
Farage hails ‘radical, fresh thinking’ £141bn spending plans
Nigel Farage has said Reform’s spending plans are “radical” and “fresh thinking” after committing to pledges that will cost £141bn every year if the party is elected.
The Reform UK leader said:
It’s radical, it’s fresh thinking, it’s outside the box, it’s not what you’re going to get from the current Labour and Conservative parties who are virtually indistinguishable, frankly, from each other.
Is this radical fresh thinking on economics? Yes. Is it radical fresh thinking on constitutional change? Yes. Is it very radical change on the way our education system is currently bringing up our young children? Yes.
Britain is broken, Britain needs reform, that’s what we’re here for, that’s what we’re trying to do, and Richard has also suggested some very interesting, radical changes to pay for it.
Reform UK chairman Richard Tice acknowledged there are spending costs before adding: “But we also outline all of the savings.”
02:43 PM BST
Wall Street subdued after record rally
US stock indexes were muted at the open as investors awaited fresh economic data and comments from Federal Reserve officials.
The Dow Jones Industrial Average fell 23.98 points, or 0.1pc, at the open to 38,565.18.
The S&P 500 opened flat at 5,431.11 after hitting record highs last week, while the Nasdaq Composite gained 8.42 points, or 0.1pc, to 17,697.30 at the opening bell.
02:24 PM BST
Governments have ‘major role’ in spreading wealth from AI, says IMF
Governments have a “major role to play” in preventing a spike in wealth inequality from generative AI technology and broadening the financial gains, the IMF said.
Left unchecked, generative artificial intelligence (AI) threatens to amplify job losses among white collar professions, International Monetary Fund staff wrote in a new paper.
The technology forms the core of chatbots including Microsoft’s Copilot, Google’s Gemini, and OpenAI’s ChatGPT.
To mitigate the negative effects of generative AI, governments should consider putting in place new measures to raise additional revenue and support people who lose their jobs, the IMF said.
It wrote:
Fiscal policy has a major role to play in supporting a more equal distribution of gains and opportunities from generative-AI.
But this will require significant upgrades to social-protection and tax systems around the world.
02:03 PM BST
German industrial union to seek 7pc pay rise for millions of workers
Germany’s biggest industrial union has said it will seek a 7pc pay increase for millions of workers in negotiations starting later this year, arguing that companies are in a position to afford it.
The IG Metall union’s leadership said it was recommending a hefty raise demand for 3.9m workers in view of “a persistently high price level.”
It said that companies have well-filled order books and that, even though prices are no longer accelerating as quickly as they were, one-time payments agreed in the last settlement have been eaten up by inflation.
In the last round of pay talks, IG Metall and employers agreed in late 2022 to raises totaling 8.5pc over two years plus one-time payments totaling €3,000 (about £2,537) each, meant to cushion the effect of sky-high inflation.
The government, which wanted to address the impact of rising prices while preventing an inflationary spiral, was keen to promote such tax-free payments.
In Germany, wage deals are typically hammered out in negotiations between employers organisations and unions that cover a whole sector, and an agreement reached in one region is generally applied nationwide. IG Metall’s current agreement expires at the end of September.
01:45 PM BST
Electricity prices to drop by 20pc over next four years
Electricity prices will drop by a fifth over the next four years as Europe moves past the energy shock caused by Vladimir Putin’s invasion of Ukraine, according to industry research.
Wholesale electricity costs are projected to drop by 20pc from 2024 to 2028, according to Aurora Energy Research, primarily due to lower gas and carbon prices.
This will mainly be driven by sharp decline in gas prices, which it is predicted will average 69.7p per therm until 2027, down from about 82p today.
This is a 22pc decline on Aurora’s previous forecast in January and is mainly a result of reduced gas demand as well as high levels of gas storage across Europe.
Energy prices were sent sharply higher in 2022 after Russia’s war in Ukraine upended supply chains.
01:26 PM BST
Labour government risks pushing up mortgage costs and worsening unemployment, says HSBC
A Labour victory at the general election could lead to growth in unemployment and higher interest rates for mortgage borrowers, HSBC has warned.
The lender said that Labour’s plans for a “genuine living wage” risk driving up labour costs for employers, potentially forcing some businesses to cut jobs.
Alternatively, it could mean companies are forced to raise prices, which in turn would mean the Bank of England keeps interest rates higher to combat inflation.
Labour is proposing a minimum wage which takes into account the cost of living, which it would extend to all adults, not just over 21s, as the current one does.
HSBC warned that an adjustment from the present national living wage of £11.44 to the voluntary “real living wage” of £12 an hour would mean “another big rise” in costs for employers in April 2025.
HSBC senior economist Elizabeth Martins said:
A higher minimum wage could increase costs and reduce efficiency, adding to unit labour costs.
This in turn could either push firms into reducing headcount (i.e. higher unemployment) and/or sustain lingering inflation pressures, keeping Bank Rate higher for longer.
While this has been a risk that hasn’t really crystallised since the UK’s minimum wage was introduced, at some level it would presumably have a detrimental impact on unemployment – we just don’t know where it is until we reach it.
Labour has been contacted for comment.
01:05 PM BST
Adidas shares plunge after allegations of China corruption
Adidas shares dropped after the German sportswear brand said it was investigating allegations of corruption in China after receiving an anonymous letter.
The company’s shares fell by as much as 3.9pc in Frankfurt to less than €216 after the allegations of “possible compliance violations,” which it said it takes “very seriously”.
It added that it is “clearly committed to complying with legal and internal regulations and ethical standards in all markets where we operate”.
The company said it could not provide further information until its investigation is completed.
Jacques Roizen, managing director of China consulting at Digital Luxury Group in Shanghai, said the claims “highlight the challenges many companies face in maintaining consistent oversight and control of their digital operations in the Chinese market”.
Over the past 18 months Adidas has been working to boost sales in China, after losing significant market share to rivals since before the pandemic.
12:48 PM BST
‘Landlord to the homeless’ to sell off properties
A fund that specialises in providing housing for homeless people has announced plans to sell off swathes of properties after debt refinancing talks collapsed.
Our reporter Adam Mawardi has the details:
Home REIT is offloading homes in an attempt to raise cash after it failed to refinance £130m of debt owed to lender Scottish Widows, an insurer owned by Lloyds Banking Group.
In an update to investors, the FTSE 250 real estate fund said it could not reach an agreement despite “extensive and advanced discussions” with another potential lender.
As a result, it will now push through further property sales to pay back the money owed to Scottish Widows, which at the end of May amounted to £131.8m.
Home REIT said it expected this figure to fall by £27m based on recent property sales that have been exchanged but not yet completed.
The company’s current portfolio consists of 1,765 properties with a value of £314.1m.
Shares in Home REIT have been suspended from trading since the start of 2023 after it failed to publish its accounts amid claims its properties had been overvalued.
12:27 PM BST
Wall Street lacks direction amid doubts over stocks rally
US equity indexes were mixed in premarket trading amid concerns that their rally was being fuelled by a few larger stocks.
S&P 500 futures retreated slightly after hitting multiple record highs in the previous week, while the tech-heavy Nasdaq inched up as megacap stocks including Apple, Microsoft and Nvidia rose between 0.2pc and 0.6pc.
The blue-chip Dow was the only one of the three major indexes to post weekly declines on Friday, while the Nasdaq notched its fifth consecutive record closing high and posted gains of 3.2pc for the week.
Some investors, however, have been concerned about the sustainability of the equity rally as megacap growth and technology stocks were behind most of Wall Street’s gains this year.
Goldman Sachs still raised its 2024 year-end target for the S&P 500 Index to 5,600 from 5,200 earlier, representing about a 3.1pc upside to the index’s last close.
On the economic roster for the week are May retail sales data on Tuesday, with industrial production, housing starts and S&P flash PMI data among other key releases due later in the week.
In premarket trading, the Dow Jones Industrial Average was down 0.2pc, the S&P 500 had fallen less than 0.1pc and the Nasdaq 100 had gained 0.2pc.
11:57 AM BST
Oil prices slip as China industrial output slows
In the commodity markets, oil prices have slipped after its biggest weekly advance since early April.
A raft of data from China showed industrial production slowed last month, dampening hopes of a pickup in demand.
Brent crude oil traded was down 0.1pc above $82 a barrel after climbing 3.8pc last week for its first weekly gain in four.
US-produced West Texas Intermediate was down 0.1pc near $78.
China’s oil refining — known as crude throughput — is expected to be flat or fall this year for the first time in two decades, excluding a downturn in 2022 due to the pandemic, according to a Bloomberg survey.
Oil has trended lower since early April on signs of robust supply and concerns over demand, particularly from China.
11:42 AM BST
Steel workers ‘crying out’ for less polluting production, says Labour shadow minister
Labour’s Jonathan Ashworth said steel workers are “crying out” for a move to carbon-neutral manufacturing, as he warned the UK will be “at the back of the pack” if it does not invest in the industry.
The shadow paymaster general told LBC radio: “You’ve got to move away from the, if you like, the very polluting way of manufacturing and the way the furnaces work at those plants and invest in doing it in a way in which is more carbon-neutral.”
He added: “It’s what people who work in steel are crying out for, because if we don’t do this we will lose out internationally.
“And that’s the same for these other industries we’re talking about, whether that’s wind turbine manufacture or electric vehicle manufacture - if we don’t invest now, we’ll be at the back of the pack, and we’ll be buying from other countries.”
Asked if Labour would scrap the two-child benefit cap policy, Mr Ashworth replied: “We will not make commitments we cannot fund, we will not make commitments that are unaffordable.”
He added: “We will have a child poverty strategy in place, but also, in order to relieve hardship and really lift people out of poverty, people need good, well-paid jobs.”
11:23 AM BST
GameStop shareholder meeting in focus after memestock resurgence
GameStop’s annual meeting taking place later today is creating a growing buzz on social media among the company’s host of avid retail investor fans.
Shares of the video game retailer have gyrated wildly over the last month after Keith Gill, the stock influencer known as Roaring Kitty who helped kick off meme stock mania in 2021, reappeared and later disclosed a large position in GameStop.
The annual general meeting comes after a planned meeting this week was adjourned due to a technical glitch resulting from high demand from shareholders wanting access to the online feed, according to a spokesman for Computershare, which is hosting the online-only gathering.
It was not immediately clear to analysts and investors which issues would be discussed at the meeting or whether Mr Gill, who reiterated his bullish case for GameStop in a livestream earlier this month, would be present or online.
The company’s last shareholder meeting in June 2023 took less than 15 minutes and included a brief statement from chief executive Ryan Cohen.
GameStop confirmed the technical glitch in a press release but did not respond to requests for further comment. Mr Gill did not respond to requests for comment.
🚨🇺🇸BREAKING: GAMESTOP HERO ROARING KITTY REVEALS MASSIVE HOLDING
Keith Gill, aka Roaring Kitty, posted for the first time on Reddit since April 2021, showing a $181.4M position in GameStop stock and options.
The screenshot reveals five million shares worth $115.7M and 120,000… pic.twitter.com/QCTLUEmcpX— Mario Nawfal (@MarioNawfal) June 3, 2024
10:54 AM BST
European sell-off slows as Le Pen tries to calm markets
The sell-off in European markets has abated today after Marine Le Pen said she would be prepared to work with French president Emmanuel Macron if her party wins parliamentary elections.
The Cac 40 stock exchange has gained 0.2pc in morning trading after tumbling last week to its lowest point since January.
Meanwhile the yield on 10-year French government debt has steadied at 3.19pc.
It comes after Marine Le Pen, leader of the National Rally in France, said she would not try to push out Mr Macron if her party gains power.
Mohit Kumar, chief Europe economist at Jefferies, said Le Pen’s recent comments “do not indicate that she is in favour of France leaving the euro area”.
He added: “We would expect her comments to moderate more towards the centre if she wins power and her party forms the next government.”
10:38 AM BST
French stocks plunge is not ‘disorderly,’ says ECB rate setter
There is no reason to be too concerned about the financial turmoil in France, according to a senior official at the European Central Bank.
Philip Lane, the ECB’s chief economist and a former Governor of the Central Bank of Ireland, indicated he was unfazed by the sharp fall in French stock and bond prices last week after Emmanuel Macron called snap parliamentary elections, which the far-right are expected to win.
Mr Lane told a Reuters event in London:
What we’re seeing, I think, in the markets is a repricing.
It’s not, you know, the world of disorderly market dynamics.
10:19 AM BST
Reeves aims to hold global investment summit in first 100 days in office
Shadow chancellor Rachel Reeves has told business leaders that holding a global investment summit in the first 100 days of entering government would show Labour is “pro-business”.
Discussing the party’s commitment to holding the summit, Ms Reeves said: “That is an opportunity to show that, with Labour, we are pro-business, we are pro-investment, and we are determined to seize for the UK the investment that we know is out there.”
At a meeting this morning of an infrastructure council set up last year by Labour, Ms Reeves said the group of UK-based and international investment firms is something the party wants “to take into government”.
The shadow chancellor added: “I very much hope that the next meeting of this group will be in government.
“In the early days of a Labour government, we will want to get started, get cracking on the things that we need to do to unlock the investment.”
Discussing the election campaign, shadow business secretary Jonathan Reynolds told council members it has been “more enjoyable” than the 2019 General Election campaign.
10:02 AM BST
China and Australia step closer to easing trade tensions
China’s premier said he agreed with Australia’s prime minister to try and move past the two nations’ differences as they emerge from a hostile era.
Li Qiang said he agreed with Australia’s Anthony Albanese to leave behind its period in which minister-to-minister contacts were banned and trade barriers cost Australian exporters up to 20 billion Australian dollars (£10.4bn) a year.
Li, Albanese and senior ministers of both administrations met at Parliament House to discuss thorny issues, including lingering trade barriers, conflict between their militaries in international waters and China’s desire to invest in critical minerals.
Li, China’s most senior leader after President Xi Jinping, arrived in the South Australian state capital of Adelaide on Saturday and the national capital of Canberra late Sunday in the first visit to the country by a Chinese premier in seven years.
Li told reporters after Monday’s meeting that the bilateral relationship was “on the right track of steady improvement and development.”
09:43 AM BST
China launches anti-dumping investigation into EU pork
China has launched an anti-dumping investigation into imports of pork products from the European Union amid a looming trade war between the world’s second largest economy and the bloc.
Beijing said the probe is in response to an application submitted on behalf of domestic producers.
It comes in the face of mounting trade tensions between China and the EU, which last week announced plans to impose tariffs on electric vehicles made in the country.
China criticised the bloc’s decision last week to slap additional taxes of up to 38pc on Chinese electric car imports from next month after an anti-subsidy investigation.
The European Commission pointed to “unfair subsidisation” in China, which it said “is causing a threat of economic injury” to EU electric car makers.
China launched an anti-dumping investigation in January into brandy imported from the EU in a move seen as targeting France, which had pushed for the commission’s probe.
It also in May launched an anti-dumping investigation into imports of a key engineering chemical from the European Union, the United States, Taiwan and Japan.
Pork is China’s most popular meat and a staple of diets in the world’s second most-populous nation.
09:26 AM BST
Labour-led council has credit rating withdrawn over £2bn debts
Warrington Borough Council has seen its credit rating withdrawn as its debts have ballooned to nearly £2bn.
The Labour-led authority told bondholders today that Moody’s has withdrawn its rating due to “the inability of the council to procure that its statements of accounts are audited by external auditors”.
The Government appointed an inspector in May to investigate whether the council is complying with legal requirements after a review last year criticised its “very large and uniquely complex” set of debt-fuelled investments.
The Cheshire-based council refused last month to hand key information to its auditor, Grant Thornton, restricting its ability to review its books, according to the Financial Times.
Auditors have only recently finished reviewing Warrington’s accounts for the year ending March 31 2019, meaning it is reporting years behind legal requirements.
The council said it has been unable to complete recent audits “due to challenges which apply across the local government sector as a whole in securing auditors of sufficient capacity and capability”.
Warrington Borough Council has built up its debts amid a raft of investments in a roughly £1.5bn portfolio, which included now-collapsed energy firm Together Energy.
09:12 AM BST
BrewDog founder aims to make people influencers with new venture
BrewDog founder James Watt is launching a new venture aimed at making people social media influencers, a month after stepping down as chief executive of the craft beer giant.
Mr Watt announced plans for Social Tip, a new app platform which he said is designed to allow normal consumers to become influencers.
The business will allow Britons who post on social media about brands they like, which are signed up to Social Tip, to be rewarded with money based on the level of engagements.
Mr Watt, whose girlfriend is former Made in Chelsea star and influencer Georgia Toffolo, said the economics of using influencers have “massively changed” for businesses, suggesting that they could gain more value from rewarding ordinary people who use, and have paid for, their products. He said:
On a macro level, a lot of major influencers aren’t offering the return to businesses now that they were a few years ago,” he said.
What people engage with is changing and people are looking for something more authentic.
We don’t think there is anything more authentic than customers who actually use and cheerlead your products spreading that.
Yes, they have smaller individual followings, but there is more benefit to having hundreds of those than spending the same amount on one big name.
08:58 AM BST
Gas prices volatile as summer arrives
Natural gas prices have swung between gains and losses as warmer temperatures settle across Europe.
Dutch front-month futures, the benchmark contract on the continent, gained as much as 1.4pc but also fell as much as 1.2pc.
It is trading around €35 per megawatt hour.
Prices are up about 10pc since the start of the year as Europe remains at risk of shocks from world markets as it shifts away from Russian supplies.
Warmer temperatures are forecast across Britain, France and Germany over the next two weeks, testing demand for air conditioning for the first time this year after a mild June so far.
08:43 AM BST
FTSE rises ahead of inflation figures
UK stocks made a comeback to start a week which includes inflation figures and the next interest rate decision by the Bank of England.
The blue-chip FTSE 100 gained 0.5pc after it marked its longest weekly losing streak in more than four years last week.
The midcap FTSE 250 was up 0.6pc.
Investors held back from making big bets ahead of the consumer price index figures on Wednesday and the Bank of England’s policy meeting on Thursday.
Among individual stocks, SSP Group fell as much as 5.9pc, after Goldman Sachs downgraded the Upper Crust owner’s stock to “sell” from “neutral”.
B&Q owner Kingfisher was up as much as 0.6pc after it announced British Land’s Bhavesh Mistry will join as its next chief financial officer.
Industrial metal miners lost as much as 1.3pc after China reported weaker-than-expected output in May.
08:21 AM BST
European stocks rise after election-fuelled sell-off
Eurozone stock markets rebounded by a small amount at the start of trading following sharp losses last week.
The Paris CAC 40 index gained 0.5pc to 7,543.95 points and Frankfurt’s DAX rose 0.5pc to 18,094.77.
Eurozone equities had slumped Friday, with Paris losing 2.7pc, as investors fretted over France’s looming snap election.
08:15 AM BST
UBS to repay $900m from funds linked to Greensill collapse
UBS has sought to draw a line under one of the biggest scandals engulfing its former rival Credit Suisse following its takeover of the beleaguered bank last year.
The Swiss bank has offered to repay investors 90pc of their money wrapped up in Credit Suisse funds that were linked to the failed finance firm Greensill Capital.
The collapse of Greensill in 2021 was a contributing factor to the demise of Credit Suisse, which was acquired by UBS in a government-brokered merger last year.
UBS said it would repay investors 90pc of the value of their investments in Credit Suisse Supply Chain Finance Funds as of February 25, 2021, and has set aside around $900m (£710m) to cover the repayments.
The bank said:
The offer aims to give fund investors certainty, an accelerated exit from their positions and a high level of financial recovery.
It will allow an early exit from fund investments compared to distributions under the ongoing recovery process.
08:04 AM BST
UK stocks mixed at the open
The FTSE 100 moved higher as trading began after London overtook Paris to become the largest stock market in Europe.
The UK’s blue-chip stock index was up 0.1pc to 8,171.40 while the midcap FTSE 250 was down 0.1pc to 20,110.31.
08:01 AM BST
European stocks downgraded by City analysts amid French turmoil
European stocks have been downgraded by analysts in the City amid doubts over the impact of a potential far-right parliament in France.
Citi said it was cutting the rating of the continent’s equity markets amid concerns about political risks. It changed its rating from overweight to neurtral.
Analyst Beata Manthey said: “From an equity perspective, French equities tend to be more volatile than peers around key elections, though volatility is higher around presidential elections than parliamentary elections.”
She added: “We remain constructive over the medium term due to early-cycle macro dynamics in Europe and infecting fundamentals.”
07:50 AM BST
Pound edges down ahead of interest rate decision
The pound inched lower at the start of the week as the Bank of England prepares to announce its next interest rate decision on Thursday.
Sterling was down 0.1pc against the dollar to $1.267, and was down 0.1pc against the euro, which is worth 84.4p.
The euro remains near its lowest level against sterling since September 2022 as investors contemplate the risk of a budget crisis at the heart of the eurozone.
However, inflation pressures are considered too high for the Bank of England to begin cutting interest rates when it meets this week.
07:28 AM BST
Britain overtakes France to become Europe’s largest stock market
The UK has overtaken France as Europe’s largest stock exchange after Emmanuel Macron’s decision to call a snap election caused turmoil in markets.
Stocks in France are now collectively worth $3.13 trillion (£2.47 trillion), falling behind Britain’s markets, which are jointly worth $3.18 trillion (£2.51 trillion) according to data compiled by Bloomberg.
The Cac 40 stock index in Paris had its worst week since 2022 after the surprise parliamentary elections were called in France, erasing all its gains this year after hitting record highs just a month earlier.
Shares of banks such as BNP Paribas and Credit Agricole slumped by more than 10pc each. Both banks are holders of French bonds, which suffered a sharp sell-off last week.
It sent the French government’s borrowing costs soaring, with interest rates on 10-year debt matching that of Portugal for the first time in 20 years.
Alberto Tocchio, portfolio manager at Kairos Partners, said: “We are in a period where there are no certainties for three to four weeks and the market could unfortunately become more unstable.”
Meanwhile, the FTSE 100 in the UK has hit record highs this year as investors are attracted by what are considered relatively cheap valuations.
It has also been boosted by some new stock market listings, such as Raspberry Pi last week.
07:10 AM BST
Chinese industry slows in blow to recovery
China’s industrial output in May was below expectations, official figures show, as a slowdown in the property sector also showed no signs of easing.
China released a flurry of data overnight that was largely downbeat, underscoring a bumpy recovery for the world’s second-largest economy.
However, retail sales beat forecasts due to a holiday boost.
May industrial output grew 5.6pc from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from the 6.7pc pace in April and below expectations for a 6pc increase.
However, retail sales in May rose 3.7pc on year, accelerating from a 2.3pc rise in April and marking the quickest growth since February.
Analysts had expected a 3pc expansion due to a five-day public holiday earlier in the month.
China’s economy grew a faster-than-expected 5.3pc in the first quarter, but analysts say the government’s annual growth target of around 5pc is ambitious as the property sector remains in the doldrums.
Property investment fell 10.1pc year-on-year in January-May, deepening from a decline of 9.8pc in January-April.
Industrial Production in China increased 5.60 percent in May of 2024 over the same month in the previous year.https://t.co/FtxkGGeOC1 pic.twitter.com/p4ZWmnJTQ8
— TRADING ECONOMICS (@tEconomics) June 17, 2024
06:49 AM BST
Worklessness costing Britain’s factories £6bn
Worklessness is costing manufacturers £6bn in lost output as tens of thousands of factory jobs go unfilled.
Our senior economics reporter Eir Nolsøe has the details:
Make UK, the trade body representing the manufacturing sector, warned that a shortage of workers was becoming a critical issue for companies and their ability to maintain daily operations and fulfil contracts.
Manufacturers across the country currently have 64,000 open vacancies that they are struggling to fill, Make UK said. It estimated this was leading to £6bn in lost output.
Struggles to hire come after a jump in economic inactivity post-Covid. There are now 9.4m people of working age who are neither in a job nor looking for one - the highest number in 13 years.
Factory bosses are struggling with a lack of vocational skills amid a plunge in engineering apprenticeships equivalent to GCSEs and A levels.
James Brougham, senior economist at Make UK, said it was crucial for whichever party that wins the election to deliver a “modern, long term industrial strategy which goes beyond the 2030s and has cross Government support.”
Mr Brougham said: “This must now be a national endeavour and begin with a fundamental review of the Apprentice Levy and wider vocational training system.”
Both major political parties have suggested they will try to tackle worklessness to stem a surge in benefit payments related to ill health.
Labour has stated in its manifesto that “people who can work should work” and that those who dodge “their obligations” will face consequences.
The Conservatives have meanwhile pledged to trim the welfare bill by £12bn to help pay for tax cuts, although the Institute for Fiscal Studies has questioned how plausible this is.
Make UK said that after some tough years following the pandemic and soaring interest rates, things were now looking up for manufacturers.Confidence has risen to the joint highest level in a decade, with borrowing costs expected to fall and as inflation fades.
The sector is forecast to grow by 1.2pc this year, while the wider economy will expand by 0.9pc according to Make UK’s projections.
However, it means factory chiefs will need to hire even more people to meet returning demand, intensifying the pressure skills shortages, Make UK warned.
06:40 AM BST
Good morning
Thanks for joining me. We begin the week with a look at the manufacturing sector, where thousands of roles are being left unfilled because of Britain’s worklessness crisis.
Make UK, which represents the sector, estimated that there are 64,000 factory job vacancies in Britain, costing the sector £6bn in lost production.
It comes amid a surge in economic inactivity since the pandemic, with a record number of people neither in work or looking for a job.
5 things to start your day
1) Scotland a ‘no-go’ zone for investors under SNP rent controls | Fears grow over Labour rolling out a similar policy in England and Wales
2) Labour’s EU defence pact threatens Britain’s sovereignty, warns Shapps | Party risks ceding control of key defence decisions and sowing division within Nato
3) Scrapping two-child benefit cap would cost £3.4bn, says IFS | Nigel Farage supports abolishing policy to encourage Britons to have more children
4) British drivers paying highest diesel prices in Europe | Motorists getting ‘extremely poor deal’ as supermarkets fail to pass on savings
5) How Milei’s Argentina is riding the net zero copper boom | President capitalises on Andes treasure trove as mining giants scramble for supplies
What happened overnight
Asian share markets were in the red as mixed Chinese economic news underlined the bumpy recovery in the world’s second largest economy, while political uncertainty in Europe soured risk appetites and kept the euro on the defensive.
Chinese blue chips were off 0.2pc after retail sales topped forecasts by rising 3.7pc in May, but industrial output and fixed-asset investment both underwhelmed.
Other data showed home prices fell at the fastest pace in a decade in May, highlighting the continued strains in the property sector.
The People’s Bank of China (PBOC) kept its one-year rate unchanged, dashing some speculation of a cut following surprisingly soft bank lending data.
That made for cautious trading, and MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2pc.
Japan’s Nikkei slipped 1.9pc, with investors now facing a six-week wait to hear details of the Bank of Japan’s next tightening steps.