Closing summary
It’s been a dramatic day for travel and airline stocks, which have plunged after the UK’s sudden decision on Saturday to take Spain off the safe-country list and to impose a two-week quarantine on travellers arriving from Spain.
British Airways owner IAG is still the biggest faller on the FTSE 100, down 7.3%, while Intercontinental Hotels has lost 3.7%. Ryanair fell 4.5% after posting a £165m quarterly loss. On the FTSE 250, Tui, Europe’s biggest travel firm, suffered the biggest losses, of 11.7%, after cancelling all holidays to mainland Spain until 9 August, while easyJet is 8.9% lower and the cruise operator Carnival has fallen 7.7%.
The travel losses dragged down UK and European share indices, while the rise in Covid-19 infections around the world, coupled with mounting US-China tensions, triggered a surge in the price of gold and other precious metals.
Gold, regarded as a safe investment in times of turmoil, blasted to $1,943.93 an ounce this morning, setting a new all-time high, while silver rocketed to a seven-year high of more than $24 an ounce. Oil prices are heading lower, with Brent crude, the global benchmark, losing 1.4% to $42.72 a barrel.
- UK’s FTSE 100 down 0.25% at 6,109
- Germany’s Dax up 0.14% at 12,855
- France’s CAC down 0.2% at 4,945
- Italy’s FTSE MiB down 0.6% at 19,949
- Spain’s Ibex down 1.8% at 7,159
On Wall Street, the Dow Jones, S&P 500 and the tech-heavy Nasdaq have risen, with investors hoping for more stimulus and dovish signals from the US Federal Reserve at this week’s policy meeting.
- Dow Jones up 0.36% at 26,565
- S&P 500 up 0.35% at 3,226
- Nasdaq up 1.2% at 10,488
That’s all from us for today. Bye for now! - JK
Updated
Wall Street has had a mixed open:
- Dow Jones down 24 points, or 0.09%, at 26,445
- S&P 500 up 2.8 points, or 0.09%, at 3,218
- Nasdaq up 62 points, or 0.6%, at 10,425
While we wait for Wall Street to open, Michael Pearce, senior US economist at Capital Economics, has sent us his thoughts on the durable goods orders data.
The solid 7.3% m/m rise in headline durable goods orders in June, following the 15.1% increase in May, is another sign that the initial recovery from the pandemic has been strong. Excluding transport, core orders are now just 3.7% below pre-pandemic levels, underlining how the hit to business investment during the pandemic has been far milder than most initially feared.
Around half of the gain in headline orders reflected a 20% m/m rise in transport orders. Commercial aircraft orders fell back into negative territory reflecting cancellations at Boeing, but that was more than offset by an 85.7% rebound in motor vehicle orders, mirroring the bounce back in auto production. Orders for non-defence capital goods ex-aircraft rose by 3.3% while shipments in the same category increased by 3.4%. Over the second quarter as a whole, shipments contracted at a 20% annualised pace. That in turn suggests that the fall in business equipment investment was more modest than the 30% decline in overall GDP we anticipate (data due on Thursday).
The latest surveys suggest that durable goods orders rose further in July. But with the recovery in production largely a response to the rebound in consumption, by far the most important factor is how much the latter slows in response to the ongoing wave of new infections. While we doubt the economy is on the verge of a renewed contraction, we do expect the pace of recovery in the second half of the year to be far slower and bumpier.
Precious metals climb, stocks limp lower
Spot gold is still trading 1.7% higher at $1,933 an ounce, a $31 daily gain, after hitting a new record high of $1,943.93 earlier. Silver has joined the rally and is at a seven-year high, up 6.2% to $24.14 an ounce. And palladium, a shiny white metal which is used in catalytic converters in cars, is 5% ahead at $2,329.40 an ounce.
Despite gold’s accelerating gains, and the heavy losses in the travel sector, the European markets are fairly placid today, says Connor Campbell, financial analyst at Spreadex.
Investors don’t buy the precious metal for fun. It provides an ostensible financial safe haven away from the world’s uncertainties and stresses, of which at the moment there are numerous. This doesn’t just include the covid-19 pandemic, but the latest geopolitical flare-up between the United States and China.
It’d make sense, then, for Europe to be in a panic-stricken mood. Instead, the region’s indices aimlessly bobbed about, with the FTSE down 0.3% but the Dax actually up around 15 or so points.
The Dow Jones is set to echo this limp performance when the bell rings stateside, with the futures pointing to a 0.1% increase.
The Dow may want to enjoy the peace while it lasts. The US is facing an incredibly busy week, aside from covid-19 and US-China tensions, with the latest Federal Reserve meeting on Wednesday, the first Q2 GDP reading – which is going to be UGLY – on Thursday, and a stacked earnings calendar including appearances from the golden trio of Apple, Alphabet and Amazon.
Updated
Wall Street futures are pointing to a higher start when the US markets open in 45 minutes, while European stocks have limped lower, with the exception of Germany’s Dax, which has risen slightly.
- UK’s FTSE 100 down 0.31% at 6,104.78
- Germany’s Dax up 0.2% at 12,862
- France’s CAC down 0.2% at 4,946
- Italy’s FTSE MiB down 0.75% at 19,923
- Spain’s Ibex down 1.54% at 7,182.4
Orders for non-defence capital goods excluding aircraft – seen as a good indicator of business spending plans – also improved. they rose 3.3% last month after a 1.6% gain in May.
Updated
US durable goods orders beat forecasts
The US manufactured durable goods orders data are out and are slightly better than expected, according to the US Commerce Department.
Orders for durable goods rose 7.3% in June, while economists had expected a 7.2% gain, following May’s surge of 15.2% when the country started to emerge from lockdown.
US durable goods orders up 7.3% in Junehttps://t.co/jgzyeC71fp#Teletrader#Roboinfo0.120#Robotex group
— Robotex group (@Robotexgroup) July 27, 2020
Updated
Deutsche Bank announced this morning that it has “tightened” its fossil fuel policy, but environmental groups claim it’s “too little, too late,” our banking correspondent Kalyeena Makortoff reports.
Germany’s largest lender is pledging to no longer finance any new Arctic or oil sand projects, and to review most existing business activities linked to oil, gas and coal by the end of this year. The immediate exclusions also cover fracking projects - but only in countries with scarce water supplies.
On the coal front, Germany’s largest lender said it would end its global business activities linked to coal mining by 2023 - which covers financing, as well as issuing and selling securities like stocks and bonds for those companies - and only offer financing to firms that generate more than 50% of their energy from coal if they can present “credible diversification plans.”
Its dealings with coal-powered energy firms will be reviewed in the US and Europe by the end of the year. It will do the same in Asia, but only starting in 2022, saying the region is more dependent on coal.
Environmental groups like Germany’s Urgewald said Deutsche’s policy was a “much-welcomed step forward” but didn’t go far enough.
“From a climate perspective...this is still too little, too late. We would have needed significantly more ambition in the year 2020.”
It added that rivals like BNP Paribas had put forward far more ambitious policies on coal, noting that NatWest plans to exit coal activities entirely by 2030. Urgewald added:
“Any serious fossil fuel exit plan has to invariably result in the exclusion of climate
destructive business models, such as those of RWE, Glencore and Exxon.”
Updated
Link REIT, the largest real estate investment trust in Asia, has bought 25 Cabot Square, a 17-storey office building in London’s Canary Wharf financial district, for £380m, writes my colleague Joanna Partridge.
Link’s purchase of the building from another real estate investment trust, Hines, is being viewed as a green shoot of recovery for commercial property following the coronavirus lockdown.
It is the largest deal to have taken place in London this year, said Martin Lay, head of city investment at property firm Cushman & Wakefield, who advised Hines on the sale of the building.
“This landmark deal confirms the enduring appeal of London office assets and the UK as a key destination for overseas investment,” said Lay. Hong Kong-based Link has previously said it is looking to buy assets in the UK as part of its five-year strategy.
However, the investor pulled out of emergency fundraising talks with shopping centre owner Intu Properties, which has since collapsed into administration.
Here is the statement from IATA on the UK’s decision to reimpose a 14-day quarantine on travellers arriving from Spain.
This is a big setback for consumer confidence that is essential to drive a recovery.
A unilaterally decided blanket quarantine order for everybody returning to the UK from Spain does not accurately reflect the risk of a regional spike in one corner of the country.
The British Chambers of Commerce has called the sudden move “yet another hammer blow for the fragile travel and tourism industries, both here in the UK and overseas”.
BCC director general Adam Marshall said:
Firms will now have to manage the effects of this unexpected change as returning staff have to quarantine upon their return to the UK. Support measures should be extended to help firms and their employees manage the additional uncertainty generated by this and other government decisions.
Businesses will be asking why Spain was on the safe list on Friday, only to be taken off it on Saturday. Changes to quarantine rules must be communicated clearly by Government with as much notice as possible. Continued improvement of the test and trace programme, alongside co-ordinated checks at departure and arrival airports, could alleviate the need for many of these restrictions.
The international airlines body has responded to the UK government’s move on Spain.
International Air Transport Association says the UK government's decision to remove Spain from the safe travel list is "disproportionate" and "falls short" of required cooperation
— Sky News Breaking (@SkyNewsBreak) July 27, 2020
In Germany, which has seen an increase in new Covid-19 cases to a two-month high, travellers returning from abroad are being offered a Covid-19 test, free of charge (on a voluntary basis). German health minister Jens Spahn said on Saturday that the test may become compulsory for holiday makers returning from high-risk destinations.
Updated
The stronger-than-expected Ifo number suggests that the German economy got off to a good start in July, at the beginning of the third quarter. The Ifo institute forecasts GDP growth of 6.9% in the third quarter, following a double-digit plunge in the second quarter because of the Covid-19 lockdown.
Preliminary official figures for the second quarter are due to be released on Thursday.
Germany's Ifo business survey improves
In Germany, Europe’s biggest economy, business morale has continued to recover this month from its worst decline in decades, according to a closely-watched monthly survey from the Ifo institute.
Companies are expecting the German economy to bounce back from the Covid-19 shock – assuming that a second big wave of infections can be avoided. New daily cases have risen in Germany, France, Spain and other countries around the world.
The Ifo institute’s business climate index rose to 90.5 in July from 86.3 in June, the third increase in a row, and higher than expected. The expectations index improved to 97.0 from 91.6, marking the highest reading since late 2018.
Ifo president Clemens Fuest said:
The German economy is recovering step by step.
The German government has announced a massive stimulus package of more than €130bn, including a temporary VAT cut to get consumers and businesses spending again.
Pretty cool graphic on the Ifo and business cycles pic.twitter.com/y99twoebBG
— Steve Goldstein (@MKTWgoldstein) July 27, 2020
"German businesses are growing increasingly optimistic... Expectations at companies surveyed by the country’s Ifo institute improved to 97 in July from a revised 91.6 in June, the strongest reading since late 2018"https://t.co/1sgMfvYG6s pic.twitter.com/ECJsvugP6S
— Jonathan Ferro (@FerroTV) July 27, 2020
In other news....
Britbox, the BBC and ITV’s Netflix-style streaming service, is expanding to 25 countries, reports the Guardian’s media business correspondent Mark Sweney.
The service is being launched in more international markets following building more than 1 million subscribers in the US and Canada. The service launched in the UK in November, although ITV has not revealed how many subscribers the £5.99 a month service has attracted, and will debut in Australia later this year.
Carolyn McCall, the chief executive of ITV, said that the roll-out would establish Britbox as a “global premium brand” and give the streaming service “truly international scale”. The broadcaster’s did not specify which countries Britbox will launch.
Updated
Analysts are forecasting that gold could reach $2,000 an ounce for the first time ever, as the dollar is expected to remain under pressure before the upcoming US Federal Reserve meeting, where central bankers could decide to keep interest rates low for longer. Here is our full story on gold.
Updated
Dollar slides
On the currency markets, the US dollar continues to slide, amid mounting US-China tensions, and the expectation that the US Federal Reserve could soften its inflation stance at this week’s policy meeting, which would allow it to keep interest rates low for longer.
The weak dollar has benefited the euro and the pound, despite uncertainty over Brexit and Britain’s economic prospects. Sterling is up 0.34% at $1.2839 while the euro rose above $1.17. Against the euro, sterling was broadly flat at 91.04 pence after slipping 0.2% earlier.
Petr Krpata, currency and rates strategist at ING, says:
It should be more of the same for sterling this week. It is a very quiet week on the UK data front with the currency to remain the laggard and the underperformer in the European G10 currency space.
Another bad day for the dollar. The euro-dollar exchange rate rises above 1.1700, close to a 2-year high, and the cable above 1.2800, close to a 5-month high@JuliaKollewe
— BP PRIME UK (@bpprimeuk) July 27, 2020
Updated
Oil prices are sliding today, with Brent crude, the global benchmark, losing 0.67% to $43.05 a barrel. My colleague Jillian Ambrose writes:
In an otherwise gloomy year for oil investors, Cairn Energy’s shareholders are in for a rare treat. The Africa-focused oil explorer plans to pay out a special dividend worth $250m while many larger oil majors are scrapping their shareholder payouts for the year.
Shares in the FTSE 250 company jumped more than 5% on Monday morning to over 134p a share after Simon Thomson, the chief executive of Cairn, announced the sale of its stake in a string of oil fields off the coast of Senegal to Russia’s Lukoil for $400m.
Thomson said the decision to return cash to its shareholders reflects the company’s strict financial discipline which has allowed the company to face the coronavirus crisis with a “strong balance sheet, low breakeven production and limited capital commitments”.
The surprise shareholder windfall from Cairn is in stark contrast to many other oil companies left battered by the collapse in global oil demand triggered by the Covid-19 pandemic. Earlier this year, debt-heavy Royal Dutch Shell announced its first dividend cut since the second world war.
Updated
Back to gold, which is currently trading at $1,939 an ounce, a jump of $39 – a 2% rise. It touched a new record high of $1,943.93 an ounce earlier, as the dollar slid and investors rushed to buy safe-haven assets.
Carlo Alberto De Casa, chief analyst at the trading platform ActivTrades, says:
Gold has climbed to its highest price ever, surpassing the peak reached in summer 2011. Precious metals have started the new week with even more strength than the previous one, which was already starkly positive. Bullion climbed by 1.5% on the weakening dollar and on growing tensions between the US and China, which could slow down the recovery in the US. In this uncertain scenario, investors are filling their portfolio with gold to be protected not only from a stock correction, but also from the risk of further greenback declines. In other words, gold in this phase is seen as insurance from turbulence on currencies markets. While currencies can all be printed, the finite nature of gold and silver makes them better stores of value at these times of uncertainty.
This week has also started with a strong rally for silver, which skyrocketed to $24, confirming investors’ huge appetite. This is in part coming from growing use of silver from the so-called green sector but is also related to the strong recovery of gold and the whole precious metal sector, which is seen as insurance in case of a new storm or high volatility in stocks and currencies markets. Despite all this, we should remember how quick this rally was for both gold and silver. This could mean that, once a correction arrives, it could be significant. But for now at least, there are no signals of inversions.
Updated
Here is our story on Ryanair. My colleague Joanna Partridge writes:
Ryanair will not reduce the number of flights to and from Spain, despite the British government’s decision to impose a 14-day quarantine on visitors returning from the country, which the airline’s chief financial officer called “regrettable”.
The requirement for all travellers arriving in the UK from Spain to self-isolate for two weeks came into effect at midnight on Sunday, only hours after it was announced.
Julie Palmer, partner at business advisory firm Begbies Traynor, says:
Quarantines, falling consumer spending and anxieties about being in a confined space with others have all caused the airline sector to take a nose dive. While these heavy losses are to be expected the real issue is what’s to come. Several airlines can survive a number of months due to high cash stocks, but the mass disruption to travel caused by countries experiencing waves at different times will have this sector tied in knots for months.
With the UK government placing its own quarantine on Spain over the weekend at short notice the implication is that this could happen to travellers from and to other countries. Such unpredictability will make holidaymakers think twice before travelling.
There is a huge piece about travel safety that airlines and holiday companies will have to do before holidaymakers feel completely safe to travel again, but they will have to be quick or we could see more airlines in distress before the end of the year.
Time for a quick re-cap.
Airline and travel stocks have tumbled across Europe this morning, amid fears of further travel restrictions. The UK government’s decision to remove Spain from the list of safe countries and to impose a 14-day quarantine on travellers arriving in Britain from Spain has spelled chaos for thousands of holidaymakers.
British Airways owner IAG is the biggest faller on the FTSE 100 index in London, down 9.5%, while easyJet lost 13% and Ryanair fell 8%.
Europe’s biggest holiday firm Tui tumbled 15% on the German stock market after its UK arm said it would cancel all holidays to mainland Spain up to 9 August, but maintained flights to the Balearic and Canary Islands. German flagship carrier Lufthansa fell more than 7%.
Tui UK’s managing director Andrew Flintham told the BBC:
What we’d really like - and I think we are going to need this going forward as the world evolves - is a nuanced policy.
Ryanair has reported a €185m quarterly loss and said it was impossible to say whether it would turn a profit this year.
The Spanish stock market is getting hammered too, down 1.5%. The FTSE 100 index in London has fallen 0.4%, Germany’s Dax is flat and France’s CAC is down 0.45%.
The UK government has reiterated that other countries are under review and more quarantines could be imposed if Covid-19 infections continue to go up.
When asked whether Germany and France are next, Helen Whately, a junior health minister, told Sky News:
We have to keep the situation under review and I think that is what the public would expect us to do.
If we see rates going up in a country where at the moment there is no need to quarantine, if we see the rates going up, we would have to take action because we cannot take the risk of coronavirus being spread again across the UK.
Here is our general UK live blog:
Updated
Europe’s biggest travel firm Tui, which cancelled all holidays to Spain at the weekend, has seen its shares tumble 14.5%, easyJet has lost 13% and Germany’s Lufthansa is down 4.57%.
Updated
In the latest warning on the economic outlook, the UK’s recovery from the Covid-19 crisis could take 18 months longer than expected (until late 2024) with hopes of a V-shaped recovery fading fast, according to the EY Item Club, a leading economic forecaster.
Airline and travel stocks tumble
The FTSE 100 index in London has opened 12 points lower at 6,112, a 0.2% fall. Predictably, airline stocks are deep in the red, after the UK government warned against all but essential travel to Spain at the weekend, and imposed a two-week quarantine on travellers arriving from the country.
British Airways owner IAG is the biggest faller on the UK’s blue-chip index, down 8.1%. Ryanair shares have dropped 6.4% after the Irish budget carrier posted a quarterly loss and said it was too early to say whether it would turn a profit this year. It struck a defiant stance, saying it would not cut flights to Spain.
Other European stock indices are also mostly lower.
- Germany’s Dax up 0.1%
- France’s CAC down 0.2%
- Spain’s Ibex down 0.8%
Analysts at JPMorgan Cazenove have looked at the rise in Covid-19 infections in Europe. Richard Vosser, James Gordon, Ashik Musaddi and M.W. Kim say in a note:
The last week, July 20 – July 26, has been the second bad week in a row for the new infection count across the EU 5, with cases increasing in all countries and by 50% in aggregate to the highest level since the end of May. As well as the significant spike in Spanish infections, which have increased by further 83% (after 106% last week), there are now large spikes in France, Belgium and the Netherlands.
Although we aren’t classifying this re-acceleration in daily cases as a second wave, this is the second week in a row that cases have increased significantly across Europe and it is clear that there is the risk of further local lockdowns outside of Spain, at least in France and possibly Belgium.
Introduction: Gold and silver prices surge
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, and business.
As we start the week, there have been new Covid-19 outbreaks in Asia leading to local lockdowns, and the worldwide number of cases has passed 16.25 million, with 646,841 deaths, according to a Reuters tally.
China has posted the highest daily increase in new coronavirus cases since April; Australia has recorded a record daily rise in new cases after a flare-up in southeastern Victoria; Vietnam has locked down the city of Danang after three residents tested positive for Covid-19; and Hong Kong is set to announce further restrictions, including a ban on restaurant dining and making face masks compulsory outdoors, according to local media.
You can read more on our main Covid-19 live blog here:
To make things worse, tensions between China and the US are rising, as China said it had taken over the premises of the US consulate in the southwestern city of Chengdu. It ordered the facility to be closed in retaliation for being ousted from the Chinese consulate in Houston, Texas.
It’s no surprise that gold prices are surging, as investors rush into safe-haven assets. Spot gold jumped more than $30 to a new record high of $1,943.93 an ounce this morning, while silver prices are also rallying, up 6.2% at $24.16 an ounce.
Precious metals boom as Central Banks printing like crazy. Gold near ATH as combined balance sheets of G4 CenBank's at almost 50%. pic.twitter.com/jUNoOaTw5h
— Holger Zschaepitz (@Schuldensuehner) July 27, 2020
The dollar is sliding and fell to its lowest level in a year – because of mounting US-China tensions, fears about the US and global recovery and the expectation that the US Federal Reserve could soften its inflation stance at its meeting on Tuesday and Wednesday, which would allow interest rates to stay low for longer.
Over here, Ryanair, Europe’s biggest airline, has posted an after-tax loss of €185m in the three months to 30 June when the Covid-19 crisis reduced traffic by 99%, and the airline says it is impossible to say whether it will make a profit this year. At the end of the quarter, Ryanair moved from a skeleton service to flying 40% of its normal schedule.
Ryanair’s finance chief Neil Sorahan said the budget carrier was not planning to cut flights to Spain - despite the UK government’s “regrettable” decision to advise against all non-essential travel to the country, and the reimposition of a two-week quarantine on all travellers arriving from Spain after a surge of Covid-19 cases.
It’s a quiet day on the economic data front, but we are getting the closely watched Ifo business survey from Germany mid-morning and US durable goods orders at lunchtime.
The Agenda
- 9am BST: Germany Ifo business climate index for July (Forecast: 89.3)
- 1:30pm BST: US Durable goods orders for June (Forecast: 7.2%)
Updated
