Industry supply chain fears deepen; UK borrowing undershoots forecasts; US jobless claims fall – as it happened

Time to wrap up.

UK factories are struggling with the worst supply chain crunch since the 1970s, as fears over shortage of raw materials, parts and staff continue to soar.

Consumers have been hit in the pocket too, with Unilever hiking prices on its stable of food, personal care and cleaning products by 4% in the last quarter.

More increase are coming, as the marmite, PG Tips and Dove producer plans to keep passing on its rising costs.

UK government borrowing has undershot forecasts so far this year, giving chancellor Rishi Sunak more ammunition ahead of next week’s budget.

But economists suspect the chancellor will keep spending tight, in the hope of building up a fiscal warchest ready for the next election.

Shares in the struggling property giant China Evergrande tumbled after plans to offload a stake in one of its units for $2.6bn collapsed.

The failure increases the pressure on the group that has just days to avoid an official default on its debt.

Worries about Evergrande weighed on the London stock market, with mining shares sliding as investors worried about the knock-on impact on China’s economy.

Over in New York, WeWork has finally gone public, after its 2019 IPO collapsed.

US jobless claims have dipped to a new pandemic low...

...but eurozone consumer confidence has taken a knock this month.

Bitcoin has dipped back from yesterday’s record highs, but is still outperforming gold as a protection against inflation this year.

Hospitality bosses have warned that pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, which have hit a three-month daily high over 50,000 this afternoon.

The Turkish lira has slumped to a record low after a shock 200-basis point rate cut, following pressure from president Recep Tayyip Erdoğan.

Turkey’s inflation rate is already near 20%, and the weak lira will push up import costs.

Adeline Van Houtte, European analyst at The Economist Intelligence Unit, explains:

The weakness of the lira will exacerbate upward pressures on the prices of imported and internationally traded goods and services.

Combined with higher global commodity prices, including energy raw materials prices, and ever-rising inflationary expectations, this may keep the annual rate of inflation at around current levels over the next few months, notwithstanding a favourable base effect in the closing months of 2021.”

Barclays has brushed off concerns over rising inflation and the supply chain crisis, after almost doubling profits in the last quarter.

Households have been warned that Britain’s gas crisis will keep driving energy bills higher until 2023, and could leave only five or six of the strongest suppliers standing.

FirstGroup has announced the sale of its Greyhound bus service in the US to become fully focused on UK transport, as its Lumo train service operated its inaugural journey from London to Scotland.

And a consultation launched on regulating UK’s buy now, pay later credit industry:

Goodnight. GW

21 Oct 202112.14 EDT

Rupert Jones

The UK’s buy now, pay later credit industry faces tighter regulation, although the government has concluded there is “relatively limited evidence” of widespread consumer harm.

The comment, in a new document from the Treasury, could indicate that legislation will be less tough than some have called for.

Leading buy now, pay later (BNPL) players, such as Klarna, Laybuy and Clearpay, were quick to welcome the long-awaited consultation on how the multibillion-pound industry should be policed.

Sushil Kuner, principal associate at the law firm, Gowling WLG, say the Treasury is taking a “proportionate approach”:

“In setting out its policy options for the regulation of BNPL, HMT has obviously reflected on the Woolard Review, which recognised that while BNPL products have significant potential benefits for consumers, for example a cost-free way to access credit easily and to ‘try before you buy’, they also posed a number of potential harms to consumers.

To that end, they have set out to design a proportionate system of regulatory controls, a key example being proposals to allow merchants to continue to offer BNPL as a payment option without being authorised by the FCA and subject to FCA regulation. At first sight, this indeed appears to be a proportionate approach and one which would guard against the risk of unintended consequences of a blanket approach to the regulation of BNPL which may drive merchants out of the BNPL market, thereby limiting consumer choice.”

In the City, the FTSE 100 index has closed down 33 points or 0.45% at 7190 points.

That’s its lowest close since last Wednesday, as the blue-chip index slips back from last Friday’s 20-month highs.

Mining shares led the fallers, with Rio Tinto down 4.8% and BHP Group off 3.7%, reflecting concerns over China’s economy.

Housebuilders, a measure of UK economic confidence, also lost ground with Barratt down 3% and Taylor Wimpey dipping by 1.9%.

Danni Hewson, AJ Bell financial analyst, sums up the day:

“Mining stocks have been unable to shake investor concerns sparked by yet another twist in the Evergrande saga and their trajectory helped kept London’s blue-chip index firmly in the doldrums today.

This week’s slate of earnings reports from both sides of the Atlantic have added their own side of discomfort with company after company warning that supply issues and price hikes aren’t going to be a flash in the pan and are going to impact earnings going forward.

For businesses like consumer goods giant Unilever those prices can and are being passed on to the consumer, to a point. Its share price enjoyed a mild bump today after decent trading results and basking in the vicarious glow, Reckitt Benckiser was one of the FTSE 100’s biggest winners today.

European markets also closed lower, with Germany’s DAX and France’s CAC losing around 0.3%.

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Office leasing company WeWork has finally gone public, two years after its IPO plans collapsed.

Shares in WeWork jumped 7.5% in early trading as it joined the stock market through a special purpose acquisition company.

The merger with BowX Acquisition Corp, first announced in March, valued WeWork at roughly $9bn. That’s far below the $47bn valuation it attracted through a private round of financing from SoftBank Group in 2019, which made it the US’s most highly valued start-up.

WeWork grew rapidly by shaking up the office rentals market, with free beer taps and foosball tables.

But its debts also swelled, and its 2019 flotation was pulled after Wall Street baulked at its high valuation and corporate governance issues.

Although co-founder and chief executive, Adam Neumann, was ousted and lost his multibillionaire status, he retained a shareholding - which the FT reports is worth just over $1bn today.

Eurozone consumer confidence has fallen this month, as the strong recovery earlier this year falters.

The latest gauge of consumer morale in the euro area dropped to -4.8 from -4.0 in September, the European Commission reports.

In the European Union as a whole, consumer sentiment fell by 0.9 points to -6.1.

It suggests people are less optimistic about the economic outlook, as supply chain problems persist and surging energy costs push inflation to a 13-year high.

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Consumer confidence surged as vaccine rollouts allowed economies to unlock, unemployment dropped, and people returned to shops, hospitality venues and leisure activities again.

It hit a three-year high this summer, but has since eased back.

Bert Colijn, senior eurozone economist at ING, says consumer confidence still looks fairly strong:

Higher savings have on average created a buffer among households and unemployment continues to decline at a decent pace.

Already increasing inflation and higher gas bills on the way do cause some discomfort, but not yet enough to derail consumer confidence too much on average.

Mind you, we do expect some crowding-out effect of other types of consumption, especially for the lower-income households, but recovery effects are likely to be strong enough to not let this derail the recovery

Sales of US homes (excluding new builds) have jumped 7%, as prices continue to climb.

Sales rose to a seasonally adjusted annualized rate of 6.29 million in September, according to the National Association of Realtors.

A brief drop in mortgage interest rates in August may have helped sales -- the average rate on a 30-year fixed deal fell below 3%.

Prices surged by over 13% year-on-year, with a shortage of properties on the market fuelling house price inflation.

Lawrence Yu, chief economist at the National Association of Realtors,

As mortgage forbearance programs end, and as homebuilders ramp up production – despite the supply-chain material issues – we are likely to see more homes on the market as soon as 2022,.

Those mortgage forbearance programmes protected homeowners in the United States, who fell behind on their repayments after the pandemic struck the economy.

Stocks have opened cautiously on Wall Street.

The Dow Jones industrial average, which hit a record high yesterday, is down 64 points or 0.2% at 35,544.

Goldman Sachs (+1%), Walgreens Boots Alliance (+0.9%) and Nike (+0.75%) are leading the risers.

IBM has sunk over 6% after missing forecasts for sales and profits last night. Revenues only crept up by 0.3%, dragged back by its legacy IT infrastructure business Kyndryl, which is being spun off.

The broader S&P 500 is flat, near a record high. But Tesla has rallied by 2%, after posting record revenue and profits in the third quarter despite the global computer chip shortage.

Manufacturers in Philadelphia are also being hit by rising costs, as the global supply chain problems rumble on.

The latest ‘Philly Fed’ survey shows that factories in the Philadelphia region continued to pay high charges for raw materials and parts, and passed those costs on.

Some 73% of firms surveyed reported an increased in input prices, while just 3% saw a reduction.

Over 58% of the firms reported increases in prices received for their own goods this month, 7 % reported decreases, and 34% reported no change.

The survey, used as a gauge for US industry more widely, also found that manufacturing activity in the region continued to expand this month, but at a slower rate, while new orders increased.

US unemployment claims have dipped as cases of the Delta variant of Covid-19 have receded, explains Daniel Zhao of Glassdoor:

Today’s data shows the US is on track to hit pre-pandemic jobless claims levels by the end of this year, says Robert Frick, corporate economist at Navy Federal Credit Union:

“Claims hit a new pandemic low of 290,000, but that number is even more impressive given seasonal adjustments were working against it due to the Monday holiday last week. All things being equal, we’re on track to return to pre-pandemic layoff levels by year’s end.”

US initial jobless claims have dipped to a new pandemic low.

Just 290,000 Americans filed new claims for unemployment insurance last week, a 6,000 fall on the previous week.

That’s the lowest level for initial claims since March 14, 2020, just before pandemic lockdowns drove jobless claims to record highs.

Stripping out seasonal adjustments, and jobless claims dropped by over 24,000 to 256,403 last week.

That’s closer to the pre-pandemic levels, when initial claims were in the low 200,000s.

It shows that US firms are still holding onto workers, with vacancies near record levels, despite the ongoing supply chain disruption, Delta outbreaks, and signs that consumer confidence has weakened.

The number of Americans receiving unemployment support for at least two weeks also dipped:

Bitcoin is proving to be a more popular hedge against inflation than the classic protection, gold.

Bitcoin hit a record high over $66,000 yesterday, and is up around 120% so far this year.

Gold, though, remains firmly out of favour - down 6% at around $1,780 per ounce, even though inflation is rising in many countries.

Bitcoin soared over April’s record high yesterday, after the launch of a bitcoin ETF (exchange-traded fund) which will give investors exposure to the crypto asset without having to buy it themselves.

That EFT could spur mainstream acceptance of crypto as an investable asset, with advocates insisting it offers protection against money-printing by central banks.

The Financial Times reports today that investors are fleeing gold for cryptocurrencies as inflation worries perk up.

More than $10bn has been pulled from the biggest gold exchange traded fund this year and funds’ physical gold hoards have also been selling down, according to Bloomberg data.

Veteran gold traders acknowledged times are changing. “There is zero interest in our strategy right now,” said John Hathaway, senior portfolio manager at Sprott Asset Management, a precious metals investment group.

He added: “The bitcoin crowd see the same things I see in terms of money printing risks of inflation.”

But... crypto does faces the threat of regulation, and could suffer if central bankers rein in their loose monetary policies.

Jeffrey Halley, senior market analyst at OANDA says:

It will be interesting to see how the digital Dutch tulip space copes with the unwinding of QE globally in 2022, as well as rate hikes, potential regulatory threats and a group of world central banks who aren’t going to sit by and let cryptos take away their monetary policy lunch.

And don’t get me started on (un) stable coins and their supposed, but surprisingly opaque to public scrutiny, dollar for every coin backing.

But in the short term, cryptos are a tradeable asset class for now, and the technical picture remains very bullish, he adds:

The price action and momentum as everyone tries to get rich quick, I mean invest in the future of money, should be respected.

Back in the markets, the Turkish lira has hit a record low after Turkey’s central bank slashed interest rates more aggressively than expected.

The Central Bank of the Republic of Turkey (CBRT) startled investors by lowering headline borrowing costs to 16% today, from 18%, twice as big a cut as expected.

President Tayyip Erdoğan had been demanding further stimulus measures, despite Turkey’s inflation rate running at almost 20%.

Erdoğan dismissed two CBRT deputy governors last week, including Ugur Namik Kucuk who had opposed an earlier shock rate cut. In March he sacked the bank’s governor, Naci Ağbal, after it raised rates against his wishes (the third governor he has ousted).

The lira has sunk to around 9.5 to the US dollar, a record low - which will push up the cost of imports further, fueling inflation.

Erdoğan has argued that higher interest rates cause inflation, because companies pass on their increased borrowing costs onto consumers through higher prices.

Orthodox economics, though, says higher interest rates deter borrowing and encourage saving, leading consumers to spend less, and lowering inflation.

21 Oct 202107.19 EDT

Hospitality trade fears going under if UK imposes new Covid ‘plan B'

Rob Davies

Pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, the head of the hospitality trade body has warned, amid concern that the industry cannot survive a second lost Christmas.

Kate Nicholls, the chief executive of UK Hospitality, which represents 730 companies operating 85,000 venues, warned businesses would be driven under by a tightening of restrictions over the key Christmas period.

“For the hospitality sector as a whole, the period between Halloween and New Year’s Eve is when you would earn 40% of your profits,” she said.

“We lost Christmas in its entirely last year, so it’s desperately important for survivability, getting you through the bleak months of January and February when people don’t come out as much.

“A lot of businesses are still fragile. Any knock at this point in time could have an impact on viability. People will just go to the wall. This idea you could shut down or have a restriction for a small period to save Christmas needs knocking on the head. There’s a danger you don’t save Christmas, you cancel it.”

Here’s the full story:

Concerns about shortages of raw materials, parts and workers in the UK have escalated, according to the latest industrial trends survey from the CBI.

Almost two-thirds of manufacturers said that a lack of material and components was likely to hit their output over the next quarter, the highest reading since January 1975.

Concerns about worker shortages also jumped. Two-in-five firms are worried about a lack of skilled labour, the highest reading since July 1974. Nearly a third are concerned about availability of other labour, a record reading.

Manufacturers also reported that costs growth continued to rise sharply over the last quarter, similar to July, which saw the fastest growth since 1980.

This led them to lift their own prices (as we’ve seen with Unilever today). Average domestic prices surged at the fastest rate since April 1980, with exports prices up at the most rapid pace since April 2011.

Looking ahead to the next three months, costs growth is set to speed up further, with both domestic and export price inflation expected to accelerate, the CBI warns.

The supply chain crisis appears to be weighing on business optimism, which was broadly unchanged in the quarter to October, after rising in the previous two quarters.

Anna Leach, CBI Deputy Chief Economist, said:

“From higher material costs to labour shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand.

Manufacturers are using key levers, such as hiring new workers and planning further investment in plant & machinery and training, to expand production. But with both orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.

Here are full details of the report: