Australia’s prudential regulator tightens lending rules in effort to tame property boom

Australia’s prudential regulator tightened lending rules, signalling its intention to take some heat out of the country’s housing market.

Citing concerns around household indebtedness in the current low-interest rate environment, the Australian Prudential Regulation Authority on Wednesday raised the interest rate buffer banks should use when assessing new home loan applications.

Apra said it now expected banks and lenders to assess a new borrower’s ability to meet their loan repayments at an interest rate that is at least 3 percentage points above the loan product rate. The buffer was previously set at 2.5 percentage points.

In response to the Covid-19 pandemic, the Reserve Bank of Australia last year cut interest rates to a record low and commenced a government bond-buying programme. Policymakers’ efforts to shore up the economy fuelled a housing boom in the process.

“While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building,” Wayne Byres, Apra chair, said in a statement.

Apra said it had been wary of taking action sooner because large parts of the country were in pandemic lockdowns, putting several sectors under economic stress. With those measures set to soon be lifted, and expectations the economy will bounce back, the regulator considered that the “balance of risks has shifted”, warranting action.

Jump in oil prices pushes bond yields, stocks higher

Surging energy prices intensified inflationary pressures on Tuesday, sending the yield on the 10-year Treasury note higher, while US equities rebounded after a global downturn at the start of the week.

US oil prices hit a seven-year high on Tuesday after Opec stuck to its crude production plans, snubbing calls from the White House to increase output to help tackle a growing global energy crunch.

Brent crude hit a three-year high while US natural gas futures surged, settling at their highest level since 2008.

The rise in energy prices helped to push one measure of inflation expectations in the US to the highest level since June.

The 10-year break-even inflation rate rose to 2.46 per cent, pulling the 10-year Treasury yield up with it. The yield on the 10-year note (which moves inversely to its price) rose 0.05 percentage points to 1.53 per cent, just below a three-month high hit last week.

As bond prices fell, stock markets staged a comeback.

The S&P 500 stock index closed 1.1 per cent higher on Tuesday, reversing losses tallied on Monday when the benchmark closed at its lowest level since late July. The technology-heavy Nasdaq Composite, which fell on Monday as higher government bond yields and a temporary outage across Facebook’s platforms knocked richly valued growth stocks, advanced 1.3 per cent.

Read more here

White House says Biden has ‘confidence’ in Fed chair Powell

Joe Biden, the US president, has “confidence” in Jay Powell as chair of the Federal Reserve, the White House said on Tuesday, even as the US central bank struggles to contain the fallout from trading activities by some of its top officials.

The unusual statement of support came from Karine Jean-Pierre, principal deputy press secretary, in remarks to reporters on Air Force One as the president travelled to Michigan. “Yes, he does have confidence in Powell at this time,” Jean-Pierre said.

Earlier in the day, in a speech on the Senate floor, Elizabeth Warren, the Democratic senator from Massachusetts, had criticised Powell for having “failed as a leader” in connection with the trading scandal and not taking “steps to prevent these activities”.

“The responsibility to safeguard the integrity of the Federal Reserve rests squarely with him,” she said.

The trading scandal has hardened opposition among progressives opposed to Powell’s possible renomination to a second term as Fed chair when his current term expires in February 2022. Biden has not yet made a decision on whether to keep or replace Powell, US Treasury secretary Janet Yellen said in an interview on CNBC on Tuesday.

US stocks rise as surging natural gas prices lift UK gilt yield

US equities rose on Tuesday after a global downturn the previous day, while surging European gas prices added to inflationary pressures, lifting the yield on the UK’s 10-year government bond.

The S&P 500 share index climbed 1.3 per cent in early afternoon New York trading after dropping 1.3 per cent on Monday to its lowest level since late July. The tech-heavy Nasdaq Composite, which declined 2.1 per cent on Monday as higher government bond yields and a temporary outage across Facebook’s platforms knocked richly valued growth stocks, advanced 1.5 per cent.

The moves on Tuesday came as it emerged that the US services sector improved slightly last month. The Institute for Supply Management’s index tracking economic activity in the services sector gave a reading of 61.9 for September, up from 61.7 in August.

In government debt markets, the yield on the 10-year UK gilt — which moves inversely to its price — climbed to 1.09 per cent as the price of natural gas for November delivery in Europe rose 23 per cent to €117 per megawatt hour, up from €15 six months ago, compounding inflationary concerns.

The yield on the US 10-year Treasury note, which informs the so-called risk premium that investors pay for stocks, added 0.05 percentage points to 1.53 per cent. It has climbed from about 1.3 per cent in late September.

Read more here

Allbirds walks back ‘sustainable IPO’ claims ahead of market debut

Allbirds, the self-styled ethical shoemaker that recently announced plans to launch the first “sustainable initial public offering”, has walked back some of the ESG commitments it made ahead of its planned market debut.

The San Francisco-based start-up said in its IPO prospectus in August that it would adhere to a “sustainability principles and objectives framework”, which was developed with a consultancy group advised by academics, rating agencies and charities.

However, in an update to the prospectus, filed with the Securities and Exchange Commission late on Monday, the company removed several key references to the framework. The number of references to the “SPO framework” in the document roughly halved, from 65 to 33.

In the latest version of the document, Allbirds removed the claim that it is “conducting this offering while following the SPO framework”, and also deleted a warning that doing so could increase the cost of the IPO.

Allbirds, which makes wool and eucalyptus-based shoes that have proven especially popular with Silicon Valley tech workers, was the first company to use the ‘SPO’ concept in an IPO.

Read more here

US services growth picks up despite labour challenges

The US services sector edged up last month, overcoming labour shortages and supply challenges.

The Institute for Supply Management’s index tracking non-manufacturing activity rose to 61.9 in September from 61.7 the month before, according to a survey published on Tuesday. Economists had anticipated slower growth, predicting a September reading of 60.

The rollout of Covid-19 vaccinations and elimination of most coronavirus restrictions have paved the way for service-sector businesses hit hard by the pandemic, such as restaurants and entertainment venues, to mount a recovery this year.

However, businesses have grappled with supplier delays and difficulties finding enough workers to meet customer demand.

“Solid demand and less Covid wariness will keep services growing, but the expansion will be capped by the supply side’s limited ability to meet demand,” analysts at Oxford Economics said.

Anthony Nieves, chair of the ISM services business survey committee, said the September survey was the latest in a period of strong growth for the services sector, but “ongoing challenges with labour resources, logistics, and materials are affecting the continuity of supply.”

The survey indicated that new orders and backlogs grew faster during the month, while prices rose at a quicker pace. The employment index fell, a sign that hiring improved but at a slower rate than it did in August.

IMF dials back global growth forecasts as pandemic weighs on recovery

Global growth this year will be more moderate than earlier projections had suggested, the IMF has said, coming in below the 6 per cent forecast it made in July.

“We now expect growth to moderate slightly this year,” IMF chief Kristalina Georgieva said in a speech ahead of the launch of the updated World Economic Outlook next week, when it will give a new forecast.

“We face a global recovery that remains ‘hobbled’ by the pandemic and its impact.”

Unequal access to vaccinations against Covid-19 is the most pressing problem, she said. While economic output in advanced economies is expected to return to pre-pandemic levels by 2022, most emerging and developing economies will take much longer to recover.

“The most immediate obstacle is the ‘Great Vaccination Divide’ — too many countries with too little access to vaccines, leaving too many people unprotected from Covid,” she added.

Inflation is also weighing on growth. The IMF expects much of the price pressure to subside in 2022, although in some developing economies it could be more persistent. Rising food and energy costs will place the greatest burden on the poorest, she said.

“Inflation prospects remain highly uncertain. A more sustained increase in inflation expectations could cause a rapid rise in interest rates, and a sharp tightening of financial conditions,” she added.

Facebook has covered up research on vulnerable users, whistleblower to tell Congress

Facebook has hidden vital information about the way it works from the public and governments around the world in an attempt to avoid being regulated more strictly, a whistleblower will tell Congress on Tuesday.

Frances Haugen, a former Facebook employee, will accuse the company of covering up its own research into how its products affect vulnerable users and society more widely, according to remarks released ahead of a Senate hearing.

Haugen, who worked in Facebook’s Civic Integrity unit and left the company this year, is the source for a series of revelations about how the company works, including how it has failed to tackle hate speech and continued to allow disinformation to spread on its platforms.

Haugen has also made eight complaints to the US Securities and Exchange Commission, accusing the company Facebook of concealing a years-long decline in younger users in the US.

In her remarks to the Senate commerce committee, Haugen will say: “During my time at Facebook, I came to realise a devastating truth: almost no one outside of Facebook knows what happens inside Facebook. The company intentionally hides vital information from the public, from the US government, and from governments around the world.”

She will add: “The documents I have provided to Congress prove that Facebook has repeatedly misled the public about what its own research reveals about the safety of children, the efficacy of its artificial intelligence systems, and its role in spreading divisive and extreme messages.”

Facebook has previously described Haugen’s range of allegations against it as “misleading”.

Natural gas prices rise 23% to hit record highs in Europe

Europe’s escalating supply crunch sent natural gas prices to fresh record highs on Tuesday, as fears grow over securing enough of the key heating and electricity generating fuel ahead of the winter.

Gas for November delivery in Europe rose by 23 per cent on Tuesday to €117 per megawatt hour, up from just €15 six months ago. The latest spike in prices means natural gas is now trading at the equivalent of more than $200 a barrel of oil.

Day ahead gas prices in the UK also soared, jumping to £2.52 a therm.

Surging demand as economies recover from the pandemic has come as European gas stockpiles are lower than normal heading into the winter, when demand peaks.

Russia, the continent’s biggest natural gas provider, has limited top-up supplies, while domestic production in Europe has fallen sharply this year. Growing demand in Asia has also diverted a large volume of liquefied natural gas (LNG) from the UK and continental Europe this summer.

Prices have rocketed in recent days as big buyers in Europe and China race to secure supplies ahead of the winter, with Beijing ordering energy companies to snap up the necessary coal and LNG almost regardless of cost.

US equities steady to open higher after global downturn

Wall Street stock markets steadied one day after a global downturn that was driven by surging energy prices, a technology share rout and fears about inflation.

New York’s S&P 500 share index opened 0.4 per cent higher, picking up from a 1.3 per cent drop in Monday’s session to its lowest level since late July.

The technology-heavy Nasdaq Composite advanced 0.6 per cent on Tuesday. It had declined 2.1 per cent on Monday as higher government bond yields and a temporary outage across Facebook’s platforms knocked richly valued growth stocks.

Global equity markets have been rocked in recent weeks by bets of reduced stimulus spending by the US Federal Reserve. Meanwhile, inflation, which in the US has topped 5 per cent on a headline basis for three months, has threatened to erode investment returns and push central banks towards interest rate rises.

Europe’s Stoxx 600 added 0.6 per cent, led by banking stocks that benefit from the prospect of interest rate rises boosting lenders’ margins. London’s FTSE 100 gained 0.6 per cent as energy stocks outperformed.

The yield on the US benchmark 10-year Treasury note, which moves inversely to its price and informs the so-called risk premium that investors pay for stocks, added 0.02 percentage points to 1.505 per cent. It has climbed from about 1.3 per cent in late September.

The dollar index, which measures the US currency against six others, rose 0.2 per cent.

US trade deficit hits record $73.3bn in August

The US trade deficit widened more than expected in August to a record $73.3bn as businesses boosted inventories of consumer and industrial goods.

The trade deficit in goods and services widened from $70.3bn in July, a 4.2 per cent increase, the commerce department said on Tuesday. That was larger than economists’ expectations for $70.5bn.

The deficit had narrowed for the first time in three months in July. It is also $31.7bn larger than it was at the onset of the pandemic.

Exports rose by $1bn from the previous month to $213.7bn, with increases in exports of natural gas as well as gold sold by private dealers that were partially offset by declines in exports of autos and parts as well as civilian aircraft.

Meanwhile imports climbed by $400m to $287bn, driven by consumer goods like toys and games as well as pharmaceutical goods, while imports of cars and parts declined.

The US deficit with China and Canada — two of its biggest trading partners — increased. The gap with China rose by $3.1bn to $28.1bn and with Canada it rose by $1.4bn to $5.1bn.

Economists expect domestic demand to moderate in coming months, while foreign demand is expected to fuel exports. “However, with global growth being constrained by persistent supply disruptions and uneven vaccine diffusion, we expect the trade deficit will widen slightly further by year-end,” said Mahir Rasheed, economist at Oxford Economics.

UK and Taliban officials in talks in Afghanistan as part of efforts to stabilise region

UK government officials met senior Taliban officials in Afghanistan on Tuesday, the Foreign Office said, as part of wider efforts to stabilise the region following the fall of the Afghan government in August.

Sir Simon Gass, the prime minister’s high representative for Afghan transition alongside Martin Longden, chargé d’affaires of the UK mission to Afghanistan in Doha, were involved in the talks which touched upon the importance of preventing the country from becoming “an incubator for terrorism”.

The Foreign Office said senior members of the Taliban were involved in talks including Mawlawi Abdul-Salam Hanafi.

Discussions also touched upon the ways in which the UK could assist Afghanistan in tackling the humanitarian crisis alongside the “need for continued safe passage for those who want to leave the country”. The Taliban’s treatment of minorities, women and girls was discussed, the FCDO said.

“The government continues to do all it can to ensure safe passage for those who wish to leave, and is committed to supporting the people of Afghanistan,” a government spokesperson said.

J&J seeks US approval for booster to single-shot Covid jab

© AFP via Getty Images

Johnson & Johnson has asked US regulators to authorise a booster shot for its single use Covid-19 vaccine amid concerns of waning protection among the elderly and people with compromised immune systems.

The US drugs company said on Tuesday it had submitted data to the US Food and Drug Administration that found a second shot of its vaccine given 56 days after the primary dose provided 94 per cent protection against moderate to severe or critical Covid-19. A jab provided 100 per cent protection against severe/critical Covid-19 at least 14 days after vaccination, said J&J.

J&J’s vaccine provided 71 per cent effectiveness against Covid-19 hospitalisation in adults, a report by the Centers for Disease Control and Prevention published last month found, compared with 93 per cent for Moderna and 88 per cent for BioNTech/Pfizer.

J&J said its vaccine was generally well tolerated when given as either a booster or a primary dose. It has applied for authorisation to provide a second jab to people aged 18 years and older.

J&J is the last of the three Covid-19 vaccine providers in the US to apply for authorisation to roll out a supplemental vaccine shot amid a chaotic start to the nation’s booster programme.

Last month the FDA authorised older people and those groups vulnerable to Covid-19 infection who received the BioNTech/Pfizer vaccine to get a booster. The FDA will meet this month to consider the request by Moderna and J&J to offer booster shots.

PepsiCo boosts outlook as soda demand recovers

PepsiCo boosted its full-year forecasts for the second time in three months, as resurgent demand at restaurants and arenas powered quarterly sales.

Net revenue at the US-based food and beverage company rose 11.6 per cent year on year to $20.2bn in the three months to the beginning of September, eclipsing analysts’ expectations of $19.4bn. Organic sales were up 9 per cent.

The company said it expected both the snacks and beverage businesses in North America to remain resilient through the remainder of the year, while its international markets should perform well despite uneven economic recoveries.

PepsiCo predicted that organic sales would grow 8 per cent year on year in 2021, up from a prior estimate of 6 per cent. Adjusted earnings per share, excluding one time charges, were on track to climb “at least” 12 per cent, PepsiCo said. It previously forecast exactly 12 per cent growth.

During the pandemic, homebound consumers stocked up on grocery items from salty snacks to pancake mix, but closures and limited capacity at restaurants, cinemas and sporting events dragged on demand for PepsiCo’s fizzy drinks.

But the rollout of Covid-19 vaccinations and the removal of most coronavirus-related restrictions have underpinned a recovery in sales at public venues this year.

The company’s North America beverage sales in the food-service sector grew by double digits compared with the third quarter last year. Its Frito-Lay snack business in North America also posted strong net revenue growth in food services and at convenience stores.

Ramon Laguarta, chief executive, said the third-quarter results were strong despite a “dynamic and volatile supply chain and cost environment”.

PepsiCo earned $1.79 per share on an adjusted basis in the quarter. Analysts were looking for a smaller per-share profit of $1.73.

What to watch in the US today

Facebook hearing: Facebook whistleblower Frances Haugen will testify before a Senate subcommittee at 10am Eastern time on Tuesday in a hearing entitled “Protecting Kids Online”. Haugen has said that Facebook placed “profit over safety” and exaggerated its progress on tackling hate, violence, and misinformation on its platform. Facebook, Instagram and WhatsApp all experienced long outages on Monday.

Gensler testimony: Securities and Exchange Commission chair Gary Gensler testifies before the House Financial Services Committee at noon. The hearing, entitled “Oversight of the SEC: Putting Investors and Market Integrity First”, will be closely watched for comments on cryptocurrencies. Last month Gensler told the FT that crypto trading and lending platforms that promise returns to investors cannot avoid regulation.

Economic indicators: Economists expect the Commerce Department to report at 8:30am that the US trade deficit — the trade gap in goods and services — narrowed slightly to $70.5bn in August. The Institute for Supply Management’s non-manufacturing index, a gauge of the services sector, is expected to have dipped to 60 in September, from 61.7 in August.

Fed speakers: On the monetary policy front, Richmond Federal Reserve president Thomas Barkin and Randal Quarles, the Fed’s vice chair for supervision, are due to speak at 10:30am and 1:15pm respectively.

Trio win Nobel physics prize for research that led to climate change predictions

The $1.1m award is shared by Syukuro Manabe of the US, Germany’s Klaus Hasselmann and Italy’s Giorgio Parisi © AFP via Getty Images

The Nobel Prize in physics has been awarded jointly to three scientists “for groundbreaking contributions to our understanding of complex physical systems” including Earth’s atmosphere, leading to predictions of climate change.

Half of the SKr10m ($1.1m) prize is shared by Syukuro Manabe of Princeton University in the US and Klaus Hasselmann of the Max Planck Institute for Meteorology in Hamburg, Germany — both born in 1931 — “for the physical modelling of Earth’s climate and reliably predicting global warming”.

The other half goes to Giorgio Parisi of Sapienza University of Rome, Italy — born in 1948 — who extended the understanding from climate to many different complex systems in other areas in mathematics, biology, neuroscience and machine learning.

Like many previous Nobel Prizes, the awards recognise research carried out several decades ago — this time between the 1960s and 1980s — whose significance is now becoming clear.

“The discoveries being recognised this year demonstrate that our knowledge about the climate rests on a solid scientific foundation, based on a rigorous analysis of observations,” said Thors Hans Hansson, chair of the Nobel Committee for Physics.

Parisi told the Nobel announcement press conference in Stockholm that he had a message for world leaders ahead of the COP26 climate conference in Glasgow next month.

“It’s clear for future generations that we have to act now,” he said. “It’s very urgent that we take very strong decisions and move at a very strong pace” to tackle climate change.

The physics award is the second of this year’s six Nobels to be announced. On Monday two US scientists won the medicine prize for discoveries about our sense of touch. Chemistry, literature, peace and economics will be announced over the coming week.

New car sales in UK fall to lowest level in more than two decades

Sales of new cars in the UK have fallen to their lowest level in more than two decades, as global semiconductor shortages bite, the latest figures from the industry’s trade body have revealed.

Registrations fell almost 35 per cent last month, the data released on Tuesday by the Society of Motor Manufacturers and Traders showed. September is typically the second busiest month of the year for the industry due to the second annual number plate change.

Dealers reported 215,312 new vehicles registrations last month, 34 per cent down on September last year — when sales were also hit hard by the coronavirus lockdown — and an almost 45 per drop on the pre-pandemic 10-year average. The sales figure is the lowest since the “two-plate” system was introduced in 1999.

The auto industry, facing with uncertainty around Brexit and hit hard by pandemic shutdowns and uncertainty, has struggled to meet pent-up demand as the economy reopened due to a global shortage of computer chips.

European stocks steady after Wall Street downturn

A global stock market downturn driven by surging energy prices and fears about inflation and US monetary policy tightening paused in Europe on Tuesday, as banking and oil stocks advanced.

The Stoxx Europe 600 share index added 0.7 per cent on Tuesday, pushed higher by bank shares which respond well to prospects of interest rate rises boosting lending margins as well as a technology sector bounceback. London’s FTSE 100 index rose 0.6 per cent, led by bank and oil stocks.

The regional benchmark had closed on Monday at its lowest level since July 20, as speculation about central banks moving closer to their first pandemic-era interest rate increases hit highly valued technology stocks.

Brent crude oil hovered around a three-year high at $81.41 a barrel after producer group Opec+ resisted calls to increase output, despite an energy shortage in Europe and Asia that has propelled natural gas and coal prices to record highs.

Futures markets signalled that Wall Street’s S&P 500, which on Monday fell 1.3 per cent to its lowest closing price since late July, would gain 0.4 per cent in early New York dealings. Contracts on the Nasdaq 100, which dropped 2.2 per cent on Monday, indicated that the tech-heavy US share index would gain 0.5 per cent.

Read more here.

Boris Johnson denies UK faces 1970s-style inflation crisis

Boris Johnson has denied that the UK faces a 1970s-style inflation crisis, as shortages of workers and supply chain disruptions hit the economy.

“What you’re seeing with the UK economy and the global economy is very largely in supply chains the stresses and strains that you’d expect from a giant waking up,” the prime minister told BBC Radio 4’s Today programme on Tuesday.

“Don’t be in any doubt that this country has formidably good logistics and supply chains people,” he said. “We are world leaders in logistics, they will start to fix it,” he added.

Shortages of lorry drivers have disrupted deliveries in recent weeks, leaving supermarket shelves bare and petrol stations dry as worried consumers filled up their tanks. Worker shortages and rising wages coupled with rocketing energy prices have raised worries about inflation.

However, the prime minister has been reticent to loosen post-Brexit restrictions on immigration to fill gaps in the labour market, despite calls from business leaders to allow industries greater freedom to bring in the workers they need.

AstraZeneca seeks emergency US authorisation for Covid antibody treatment

AstraZeneca has requested emergency approval from the US Food and Drug Administration for its long-acting antibody combination treatment to prevent Covid-19.

The UK drugmaker’s trials showed a 77 per cent reduction in the risk of developing Covid-19 after use of the treatment, AstraZeneca said in a statement on Tuesday. If approved, the treatment would be the first to obtain emergency authorisation for the prevention of coronavirus.

“Vulnerable populations such as the immunocompromised often aren’t able to mount a protective response following vaccination and continue to be at risk of developing Covid-19,” said executive vice-president Mene Pangalos.

“With this first global regulatory filing, we are one step closer to providing an additional option to help protect against Covid-19 alongside vaccines,” he added.

European markets update: equities steady after Wall Street downturn spreads to Asia

A global stock market downturn — driven by surging oil prices and fears over inflation and US monetary policy tightening — paused in Europe, as investors awaited important economic data.

The Stoxx Europe 600, which on Monday closed at its lowest level since July 20 as speculation about potential interest rate rises hit highly valued technology stocks, opened 0.2 per cent higher. London’s FTSE 100 index rose 0.3 per cent.

Futures markets signalled Wall Street’s S&P 500, which on Monday fell 1.3 per cent to its lowest closing price since late July, would be flat in early New York dealings.

Contracts on the Nasdaq 100, which dropped 2.2 per cent on Monday, indicated that the tech-heavy US share index would gain 0.2 per cent.

Later on Tuesday, investors will scrutinise the Institute for Supply Management’s purchasing managers index for the services sector for fresh clues on whether supply chain pressures and worker shortages related to the coronavirus pandemic are abating.

Revenues surge by a fifth at Hotel Chocolat as subscriptions grow

UK-based retailer Hotel Chocolat said its revenues increased by a fifth in the year to June, as the spread of Covid-19 led to growth in the chocolatier’s online sales.

Lockdowns created growing demand for the company’s subscription service, which gives customers regular chocolate deliveries.

Revenue increased by 21 per cent to £164.6m in the year to June 27 Hotel Chocolat said in a statement on Tuesday.

“These results show we have now evolved from a UK store-led brand to a globally ambitious digital-led brand,” said chief executive Angus Thirlwell. “Our digital and subscription-continuity models surged ahead and our global aspirations racked up more strong growth and progress.”

The chocolatier said 70 per cent of its revenue came from digital retail and it had pivoted from a store-led to a digital-led strategy in the US.

Hotel Chocolat has also launched its Gentle Farming Charter, which aims to ensure that every farmer that supplies the brand earns a living income by “increasing the price paid for cacao to better reflect local costs of living”. 

“In return farmers must commit to sustainable farming practices, zero deforestation and zero illegal child labour,” the chocolatier said.

Shares in the company rose more than 7 per cent in early trading on Tuesday, the biggest percentage jump since May. That has boosted the price for the year, showing a gain of nearly 3 per cent.

Column chart of Moves over past 5 months showing Hotel Chocolat shares show biggest percentage rise since May

UK economy among ‘worst investment climates’ for productivity, says CBI

The CBI employers’ organisation says the UK has one of the worst investment climates among advanced economies, hampering productivity growth as wage rises stoke inflation fears.

The UK is facing a number of interlocking crises, including labour shortages, high gas prices and supply chain disruptions that have left supermarket shelves bare and fuel pumps dry.

“If wages go up that’s a good thing and it forces businesses to think about capital and investment,” Tony Danker, CBI director-general, told BBC Radio 4’s Today programme on Tuesday.

“We’ve got the worst investment climate of countries in the OECD,” Danker said. “I hope what the chancellor is going to do is figure out how we can get investment and productivity growth in Britain, which we’ve not had for a decade.”

He was speaking as the ruling Conservative party meets for its annual party conference in Manchester.

The Bank of England has predicted that inflation will peak at over 4 per cent this winter, although it has held back from announcing rate rises from the historic lows maintained during the pandemic to stimulate the economy. However, soaring energy costs and shortages of workers, including truck drivers, have raised concerns that it could spiral further.

“The chancellor and prime minister have got a very compelling vision for the economy we are transitioning to,” Danker said. “They are saying: let’s have high wages, high skills, high investment, high productivity. The challenge we have is only the first one is rising, and that’s why people are worried about inflation,” Danker said.

Automotive supply chain problems hit industrial group Melrose

Industrial group Melrose has warned that supply chain problems are hurting its automotive and powder metallurgy businesses, with customers increasingly cancelling orders as they deal with the disruption caused by semiconductor shortages.

“The timing and duration of these constraints is uncertain, but recently the consensus view is that they have lengthened. There are a number of scenarios possible, but it is likely these are below previous expectations,” the company said in a statement on Tuesday.

“These industry supply issues are very difficult to plan for, or predict, and both businesses are working with their customers to best manage this challenging situation,” the company added.

However, Melrose said that margins in the two businesses would be in line with targets once the supply chain issues were resolved. It also said that trading was improving at its aerospace business.

Chief executive Simon Peckham said that the company was “pleased with the internal progress being made”.

“Tightened supply of semiconductors to the automotive industry are frustrating and difficult to plan for, but whilst they affect current trading, they don’t impact long-term value,” he added.

Greggs upgrades full-year outlook after surpassing 2019 sales

© Bloomberg

Greggs boosted its full-year forecast and said it planned to speed up new shop openings after it outperformed its 2019 sales figures over the summer.

The food-to-go chain said on Tuesday that in the three months to the end of September sales were up 3.5 per cent in its company-managed stores compared with the same period in 2019.

Growth was strongest during August thanks to a “staycation effect” but had remained at 3 per cent above 2019 levels in the four weeks to October 2.

Greggs joined other food businesses that have warned in recent weeks about increasing inflationary pressures towards the end of the year but said that it still expected its “full year outcome to be ahead of our previous expectations”.

Shares in the bakery chain, which have risen about 60 per cent this year, gained more than 4 per cent in early London trading on Tuesday.

The company, which has become known for its launch of vegan snacks, said it had increased its vegan menu and expanded its delivery service so that 943 of its 2,146 stores now offered delivery.

It said it had pushed ahead with its plan for new stores, opening a net total of 100 this year including its first in London’s Canary Wharf.

Line chart of moves in London trading since October 2020 showing Greggs share price soars over the past 12 months

What to watch in Europe today

  • UK politics: Highlights from the ruling Conservative party conference in Manchester will be speeches from deputy prime minister Dominic Raab, home secretary Priti Patel, and health secretary Sajid Javid. Tuesday is the penultimate day.

  • European services and industry: Eurozone figures for monthly industrial production as well as services and manufacturing PMIs will be released on Tuesday, while Italy, France, Germany and the UK will also publish PMIs.

  • ECB head: Christine Lagarde, president of the European Central Bank, will make a speech to a large gathering of German businesses and industrialists. Eurozone inflation has hit decade highs but Lagarde has resisted taking a more hawkish policy turn.

China property sector woes deepen as midsize developer defaults

The debt problems afflicting China’s real estate market deepened on Tuesday after a developer defaulted on its bonds while the world’s most heavily indebted property group Evergrande extended a suspension of its shares into a second day without explanation.

Fantasia Holdings, a midsized developer that just weeks ago assured investors it had “no liquidity issue”, said in a stock exchange filing that it “did not make the payment” on Monday of a $206m bond maturing that day, triggering a formal default.

The default adds to fears that a crisis at Evergrande will spread to include more of China’s property developers, which face pressure from Beijing to reduce leverage after decades of debt-driven expansion that helped fuel the country’s rapid economic growth.

Evergrande missed an interest payment on an offshore bond on September 23, triggering a 30-day grace period before a formal default, and has yet to provide any announcement on the matter.

Fantasia also suspended trading in its shares before markets opened on Tuesday in Hong Kong, joining Evergrande, which halted trading of its holding company and its property services unit on Monday morning.

Read more here.

Chinese media attack Biden for resuming Trump’s trade policy ahead of talks

Prominent Chinese state media attacked Joe Biden for failing to change course from Donald Trump’s “America First” policy as tensions between Washington and Beijing simmered on the eve of further trade talks between the world’s two biggest economies.

“There has been no real change from unilateralism to multilateralism — just an ill-starred effort by Washington to get other countries to join its elite clique,” said an opinion piece carried by state broadcaster CGTN on Tuesday.

The comments came hours after Katherine Tai, US trade representative, criticised China for not living up to the trade deal it signed with the US last year.

Liu He, China’s vice premier and a top economic adviser to Chinese leader Xi Jinping, is expected to meet Tai for a fresh round of trade negotiations in the coming days.

US trade representative Katherine Tai
US trade representative Katherine Tai said on Monday that Washington would engage with Beijing over its commitments to trade deals © Bloomberg

US officials have signalled the Biden administration’s intentions to enforce the 2020 deal — in which Beijing promised to boost purchases of US goods and services by $200bn over several years — as well as to exempt some China-made goods from tariffs.

“The Biden administration desires an ‘à la carte’ approach to tariffs, picking and choosing which deals to favour and which deals to impede,” the CGTN opinion added.

The Global Times, a nationalist tabloid, struck a more sanguine tone, however, seeing the prospect of talks as a “positive signal” that trade frictions might be managed in a “more pragmatic manner”.

Asian markets: Stocks follow Wall Street lower as tech sell-off gathers pace

Asian markets opened down again today as a global tech sell-off spread and uncertainty persisted over the fate of indebted property developer Evergrande, which halted trading in its shares on Monday.

In the US, the S&P fell 1.3 per cent to its lowest close since late July. Facebook led losses for Big Tech companies that dragged the index lower, with a 4.9 per cent drop as its main services suffered outages.

Markets in mainland China remained closed for the national week holiday. They reopen on Friday.

  • Hong Kong’s benchmark Hang Seng index dropped as much 1.5 per cent in early trading, adding to losses sustained last week. The Hang Seng Tech index fell as much as 2.5 per cent on yesterday’s close before recovering slightly to trade down 1.7 per cent.

  • Japan’s Topix was down 2 per cent in morning trading, while the Nikkei 225 shed 3.2 per cent.

  • South Korea’s Kospi fell 2.4 per cent in morning trading.

  • Australia’s S&P/ASX 200 edged down as much as 1 per cent, after having bucked an Asia-Pacific trend of regional losses in the previous two trading sessions.

Line chart of The Hang Seng Tech index has been dropping showing The month in Chinese tech

Joe Biden holds call with new Japanese PM Fumio Kishida

President Joe Biden held his first phone call with newly-appointed Japanese prime minister Fumio Kishida on Monday, highlighting the two countries’ “common vision” for security in the Indo-Pacific region.

Biden congratulated the Japanese PM on his election and “affirmed the strength of the US-Japan alliance”, according to a White House summary of the call.

The summary added that Biden looked forward to strengthening the relationship between the US and Japan and noted that they had a “common vision of a free and open Indo-Pacific region” and highlighted their membership of the Quad security alliance with India and Australia.

The call came less than 24 hours after Kishida was officially appointed prime minister.

Access problems continue for Facebook after extended outage

Problems at Facebook and its products resumed on Monday, just an hour after the company sounded the all clear on one of the longest outages in its recent history, according to Downdetector, which tracks such disruptions.

Downdetector said that users of WhatsApp, Instagram, Facebook and Facebook Messenger began reporting issues again at 4.48pm Pacific time. Earlier, at 3.30pm, it had said that the outage appeared to be over and that reports of access problems had declined.

The original outage, which saw more than 10.6m reports of service disruptions to Facebook products, was already one of the longest and most widespread in the company’s history.

“To the huge community of people and businesses around the world who depend on us: we’re sorry,” Facebook said in a statement shortly after the initial outage was reported to have been fixed. “We’ve been working hard to restore access to our apps and services and are happy to report they are coming back online now.”

Users of Facebook and its products Messenger, WhatsApp and Instagram all reported problems with the services from Monday evening in the US, cutting access around the world.

It was unclear what had caused the outages or whether the company had been the target of a deliberate attack, though security experts said one potential cause would be a technical error in how the services had been configured. Mike Schroepfer, Facebook’s chief technology officer, wrote on Twitter that the company was “experiencing networking issues”.

The problems came the day before Frances Haugen, a whistleblower who left the company earlier this year, was due to testify at a Senate hearing.

Warren calls on SEC to probe trading by Federal Reserve officials

Elizabeth Warren, the Democratic senator from Massachusetts, has urged the Securities and Exchange Commission to investigate a series of “ethically questionable” transactions made by Federal Reserve officials last year and whether they “violated insider trading rules”.

In a letter on Monday to Gary Gensler, chair of the SEC, Warren called on the agency to probe trades conducted last year by Richard Clarida, vice-chair, and then regional presidents Eric Rosengren and Robert Kaplan. The officials’ disclosures for 2020 revealed they traded during a year when the Fed aggressively moved to support financial markets at the onset of the coronavirus pandemic.

She also asked for the SEC to examine if these trades were guided by non-public information and in turn violated provisions that prohibit such purchases or sales.

“The reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a disregard for the public trust,” Warren wrote in the letter. “They also reflect atrocious judgment by these officials, and an attitude that personal profiteering is more important than the American people’s confidence in the Fed.”

Read more here.

Hollywood shutdown a step closer after production workers authorise strike

One of Hollywood’s most powerful unions representing crew workers has voted to authorise a strike if they are unable to reach an agreement with producers on a new contract.

The International Alliance of Theatrical Stage Employees (Iatse) said that 90 per cent of its eligible voters — 60,000 workers from across the country whose contracts are being negotiated by studios — cast a ballot and 98 per cent voted in favour of a strike.

“The members have spoken loud and clear,” Iatse president Matthew Loeb said in a statement. “This vote is about the quality of life as well as the health and safety of those who work in the film and television industry.”

The first nationwide strike in the union’s 128-year history gives it more leverage as it returns to the negotiating table with the Alliance of Motion Picture and Television Producers (Amptp), which represents studio and production companies, seeking better working hours, improved pay, meal breaks and other demands.

Iatse also wants to improve wages for crews on streaming platforms that “get paid less” even on productions with budgets that rival blockbusters.

Amptp said it was “committed to reaching an agreement that will keep the industry working” but said “it will require both parties working together in good faith”.

Negotiations between Iatse and Amptp stalled in September. If there were a strike, it would be larger than the previous one in 2007-08, when 12,000 film and television screenwriters picketed for 14 weeks.

Facebook, Instagram and WhatsApp down in widespread outage

Facebook’s main apps experienced widespread problems on Monday, cutting off access for people around the world to some of the internet’s most widely used services.

There were numerous reports of users unable to view or post on the main Facebook and Instagram apps, send messages through the Messenger and WhatsApp services, or reach the website of virtual reality service Oculus.

Hours after signs of an extensive outage first appeared online, Facebook had revealed little about the extent of the problem or when its service would be restored. It said only that it was “aware that some people are having trouble accessing our apps and products”. 

Users turned to rival social media service Twitter for what sparse information there was. In a tweet posted by its various apps, the company said it was “working to get things back to normal as quickly as possible”.

Read more here.

Tech stock slide drags Wall Street lower

Shares of big tech companies slid on Monday, with those of Apple, Microsoft, Facebook and Amazon dragging stocks across Wall Street to their lowest close since late July.

The benchmark S&P 500 fell 1.3 per cent, taking the index more than halfway to an official correction — when stocks drop 10 per cent from their recent high. Falling share prices of some of the index’s tech behemoths propelled the decline.

Facebook was among the five worst-performing stocks on the S&P 500, declining 4.9 per cent as its Instagram, WhatsApp and namesake Facebook services suffered outages.

Pessimism about the company — and the broader tech industry — has been mounting in US financial markets in recent weeks, with the tech-heavy Nasdaq Composite down 7.5 per cent from a record high hit last month. It fell 2.1 per cent on Monday.

Tech companies had served as a haven for investors throughout the coronavirus pandemic but have been battered as policymakers at the Federal Reserve get ready to begin removing crisis stimulus measures. That has sent yields on government bonds sharply higher in recent days.

Read more here.

What to watch in Asia today

Australia central bank meeting The Reserve Bank of Australia will meet for its monthly gathering of policymakers today. No change in policy is expected but record-low interest rates are driving soaring home prices — adding pressure on policymakers.

Winner of the 2021 Nobel Prize for physics The prize for physics will be announced today, a day after the Nobel Prize in medicine was awarded jointly to scientists David Julius and Ardem Patapoutian, “for their discoveries of receptors for temperature and touch”.

Unveiling of Microsoft’s Windows 11 The release today will be a significant moment for Microsoft, which hopes its new software will lift sales of a new range of laptops that go on sale the same day.