T he FTSE 100 has dropped sharply after data showed a surprise surge in US inflation to a fresh 40-year high, sparking a sell-off across global markets.
The blue-chip index tumbled more than 2pc, putting it on track for its worst week of losses since the early days of the Ukraine war in March.
Meanwhile, Wall Street’s benchmark S&P 500 also dropped more than 2pc, while the pan-European Stoxx 600 plunged 2.4pc.
It came after the US consumer price index rose to 8.6pc in May from 8.3pc the month before, defying hopes that inflation would start to cool.
The figures fuelled worries about aggressive interest rate rises by the Federal Reserve, with traders betting on three consecutive 50 basis-point increases.
The Bank of England is also expected to lift rates at a meeting next week.
C ommercial drones are on the brink of being launched into Britain’s skies after Ofcom unveiled plans to prevent them crashing into planes and other aerial vehicles.
My colleague Gareth Corfield reports:
The regulator will ring-fence radio frequencies to be used solely by drone operators to reduce the chance of interference which can make them fly erratically.
Under current rules drone operators must use radio frequencies reserved for home Wi-Fi and toy radio-controlled aeroplanes, creating risks for heavier or longer-distance drone flights.
Royal Mail has already carried out trials of postal deliveries using drones with PPE, Covid testing kits and other mail sent to the Isles of Scilly from the mainland in May last year.
T he latest inflation figures – as well as the UoM's inflation expectations – will be carefully digested by the Federal Reserve.
Markets are now almost fully pricing in three consecutive 50 basis-point interest rate rises at the next three meetings. There's not much speculation of a more severe 75 basis point rise, though.
However, the numbers will also be painful for President Joe Biden, whose approval ratings have sunk to new lows ahead of midterm elections later this year.
While the job market remains a bright spot, the highest inflation more than four decades is crippling confidence among the American people and largely outpacing wage gains.
T he hits just keep coming.
Now it's consumer sentiment that's taking a beating, with the latest gauge recording its lowest on record as surging inflation takes a toll on household finances.
The University of Michigan's preliminary June sentiment index fell to 50.2 from 58.4 in May. That's weaker than all estimates and the lowest on record.
Inflation expectations, which the Fed watches closely, also moved higher this month.
Joanne Hsu, director of the survey, said:
Throughout the survey, consumers signalled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon.
While consumer spending has remained robust so far, the board deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth.
Yikes. The expectations component absolutely collapsed with 46.8 vs 54.5 expected (55.2 prev). Inflation expectations component ticks higher to 5.4% from 5.3% last month. https://t.co/lH9AYQPLfC
I t's also a grim picture for sterling, which has extended its slump in the wake of US inflation data.
The pound slid more than 1pc against a strengthening dollar to $1.2368.
Markets are now pricing in three consecutive 50 basis-point interest rate rises by the Federal Reserve. The Bank of England is also expected to raise rates next week, but by a more dovish 25 basis points.
Shaun Osborne, chief FX strategist at Scotiabank, said a quarter-point increase "should not greatly impact the pound".
He added: "Where the main risks lie for the pound is that the Bank tees up a pause in its hiking cycle in coming months that would clearly oppose the view of markets that see a 50bps hike at the August or September decisions."
S hortly after Wall Street opened, the FTSE 100 has extended its losses.
The blue-chip index is now down 2pc, putting it on track for its biggest weekly decline since March 4.
W all Street's main indices have slumped at the opening bell after shock data showed US inflation surged to a new 40-year high last month.
The benchmark S&P 500 dropped 1.5pc as markets opened, while the tech-heavy Nasdaq was down 1.9pc. The Dow Jones shed 1.6pc.
A wave of rail strikes set to hit Britain later this month could cost the economy almost £100m – with London taking the biggest hit.
That's according to analysis by the Centre for Economics and Business Research, which estimates around 250,000 people will be unable to work on June 21, the first day of strike action.
CEBR said: "Accounting for the monetary cost of staff absences, this equates to a total estimated output loss of £91m across three days of strikes.
"Just short of half this cost, equating to £45.1m, is set to be felt on the first strike day."
London accounts for almost 60pc of the economic hit, with an estimated £52m loss of output forecast to reduce gross value added to the capital by 1pc. The southeast and East of England also face significant losses.
More than 50,000 workers from National Rail and 13 other operators will walk out on June 21, coinciding with a Tube strike in London, while another 40,000 union members will strike on June 23 and June 25.
The strikes, organised by the RMT, are set to wipe out rail services for almost the entire week. It's the biggest walkout on the public transport network since 1989.
T here's a more sanguine response from Joseph Little at HSBC, who reckons price rises have reached their upper limit.
We think US inflation has now peaked, but the data is inevitably going to be a bit noisy over the next few months.
The big question for investors now revolves around how quickly inflation will return to more normal-looking levels.
That cooling-off period is likely to take some time; by the end of the year, we think headline inflation in the US will still be above 6pc. And we are likely to have to wait until the second quarter of 2023 to get readings below 4pc.
That scenario puts the Fed in a bind and commits them, we think, to taking the funds rate to 2.5pc by the end of the year. The good news is that markets are already well-priced for this event.
And it means that, if labour markets can remain robust, a soft-ish landing for the economy is still a reasonable base case.
R ichard Carter at Quilter Cheviot warns the global surge in inflation isn't going anywhere any time soon.
This is also likely to be a very protracted peak with inflation to remain high for some time to come.
Energy prices have the potential to keep rising further as the Ukraine war drags on and once China switches back on following their Covid shutdowns. This is very much a global problem and not going anywhere anytime soon.
The Federal Reserve is feeling the pressure and as such it appears nailed on to raise rates by 50bps next week. However, with fears of economic slowdown growing louder and global growth stagnating, it faces an awfully difficult task of ensuring the economy has a soft landing.
The volatility that has been ever present since the start of the year is likely to become more entrenched over the coming months and until we see inflation under control and thus investors need to be patient when identifying potential opportunities.
T here's no doubt this is bad news for the Fed, as well as for the White House and US consumers.
The consumer price index had been expected to hold steady at 8.3pc, with some economists even predicting an ease in price rises.
Instead, we've seen an even bigger month-on-month increase in inflation – one that's second only to March, when the war broke out.
On a month-to-month basis, the jump in prices in May wasn't as severe as in March, when the war in Ukraine sent gas prices soaring. But other than that, it was the biggest one-month jump during this period. pic.twitter.com/obu3nq0Rj9
R ichard Flynnat Charles Schwab says the latest inflation figures will fuel concerns that price rises are spiralling out of control.
In a bid to control price rises, the Federal Reserve has begun to aggressively tighten interest rates. Yet this fix creates its own risks and, even if inflation peaks soon, it’s unlikely to decelerate quickly. High prices may put pressure on consumer spending into the medium term.
Add ongoing supply-chain problems and the economic impact of Russia’s invasion of Ukraine to the threat of inflation, and it’s easy to see why fears of a downturn have risen swiftly.
For investors, US stocks, bonds, and cash are all in a bear market or teetering on the edge of one. There’s no perfect signal of when bear or near bear markets will end. For now, rallies are likely to be countertrend.
T raders have ramped up their bets on aggressive monetary policy tightening by the Federal Reserve in the wake of the red-hot inflation figures.
Markets are now almost fully pricing in three consecutive rises of 50 basis points at the next three meetings.
G lobal stocks are extending their losses after the latest consumer price index from the US outstripped expectations.
The FTSE 100 is now trading down 1.7pc, with almost all sectors languishing in the red. The pan-European Stoxx 600 index has also dropped 1.8pc.
Meanwhile, futures tracking Wall Street's main indices have turned sour. The S&P 500 has extended losses to 1.3pc, while the tech-heavy Nasdaq is down 1.8pc.
F ood and energy are once again the main driving force behind the latest inflation figures.
Core inflation – which strips out volatile components – is slowing on an annual basis, falling from 6.2pc to 6pc. Still, that's not a quick as markets were expecting.
Breaking! US headline inflation equaled 8.6% in May, beating expectations. Core inflation fell to 6.0% from 6.2%, but also higher than expected. pic.twitter.com/j1mDwJzUOA
U S inflation has hit a new 40-year high in a worrying sign that price rises have further to run.
The consumer price index rose to 8.3pc last month, well ahead of forecasts of 8.3pc.
The figures will make for dire reading for the Federal Reserve, which meets next week to decide on interest rates. Markets are likely to baulk at the numbers, too.
L enders to Matalan are said to be preparing for crunch talks over the chain's future financing as the economic outlook darkens.
Senior bondholders are lining up Perella Weinberg Partners to advise them on their options with a £350m repayment due to take place early next year, Sky News reports.
More junior lenders to the budget retailer, who are said to be owed about £80m, are close to appointing Houlihan Lokey to advise them.
Talks about a refinancing of Matalan's balance sheet are set to progress over the coming weeks, while founder John Hargreaves is likely to need to inject tens of millions of pounds of additional funding in order to retain outright control of the company, according to the report.
I CYMI – A Swedish sex toy designer has scrapped plans to float on the London Stock Exchange.
Helen Cahill has the story:
Stockholm-based Lelo has now started looking for a buyer instead after market volatility scuppered plans for a public offering.
Lelo has attracted takeover interest from both corporate buyers and private equity funds, Bloomberg reported.
The company, which is owned by Chinese buyout firm Trustar Capital, was launched in 2003 and now also has offices in California, Australia and China.
Lelo was seeking a valuation of more than £1bn in its London IPO. Its bid for a buyer comes after rival British retailer Lovehoney agreed to merge with German rival WOW Tech Group to create a combined group worth around £880m.
Reckitt Benckiser, one of the leading manufacturers in the industry, said its annual revenues had benefited from the lift in sales from its Durex condoms, KY lubricants and Veet hair removal products.
Read Helen's full story here
U S futures are mixed ahead of inflation data that could help decide the Federal Reserve's plans for raising interest rates.
Investors will have a close eye on the consumer price index, due this afternoon. Inflation is expected to stay level at 8.3pc, so any increase in prices could be a nasty shock for both the Fed and markets.
Futures tracking the S&P 500 dipped 0.2pc after the benchmark fell 2.4pc yesterday. The Dow Jones was down 0.3pc, while the tech-heavy Nasdaq was little changed.
W hile UK interest rates are only going one way, it's a very different story in Russia.
The Bank of Russia has just slashed rates to levels last seen before the invasion of Ukraine, as the economy reels from the impact of sanctions and the rouble remains under pressure.
Following a large cut at an emergency meeting two weeks ago, policy makers used today's scheduled session to reduce the benchmark again from 11pc to 9.5pc.
The central bank said it would "consider the necessity of reducing the key rate at its upcoming meetings".
The fourth straight decrease comes as Russian inflation begins to slow after a searing rally in the rouble. The focus is now on providing relief to consumers as a recession looms.
W hile markets are pricing in a 25 basis point rise in interest rates next week, some economists have a more hawkish view.
Capital Economics reckon the Bank of England could join other central banks in lifting rates by 50 basis points to 1.5pc.
Why? They point the finger at Boris Johnson, who this week unveiled new policies to help Brits onto the housing ladder and is pushing through a bill to override parts of the Northern Ireland protocol.
This, the analysts say, is adding to the current inflationary pressure by lending some support to demand and contributing to a weaker pound.
Paul Dales, chief UK economist at Capital Economics, says:
By deploying economic policies and Brexit battles in the fight for his political life, Boris Johnson is inadvertently asking the Bank of England to work harder to quash inflation.
As it happens, we think the Bank of England may join other central banks in hiking interest rates by 50 basis points, from 1pc to 1.5pc, at next Thursday’s meeting.
In contrast, the markets are pricing in only a 25pc chance of a 50 basis point hike and no other analysts are forecasting 50 basis points.
I t looks like there's a political row brewing over claims Rishi Sunak squandered £11bn of taxpayers’ money by paying too much money to service the Government’s debt...
Research by NIESR, reported by the Financial Times, found the losses came from the Chancellor’s failure to insure against higher interest rates a year ago on the £895bn created through quantitative easing.
But John Glen, Economic Secretary to the Treasury, has hit back at the "inaccurate" calculations and argued the "proposed measures come with huge economic risks and could undermine the Bank of England’s independence".
The Treasury has inaccurately been accused of wasting billions of pounds. This is not true and the proposed measures come with huge economic risks and could undermine the Bank of England’s independence. A short thread:
A nother day, another grim milestone: The average price of diesel has jumped past £2 a litre for the first time ever at motorway service stations.
The figure is about 6pc higher than the national average, while petrol on the motorway is also nearing £2 at 197.18p, according to the RAC.
It's the latest blow for motorists after the cost of filling up a family car surged past £100 earlier this week, prompting calls for the Government to step in with further fuel duty cuts or a VAT reduction to cushion the blow.
Simon Williams, RAC fuel spokesman, said: “It’s becoming clearer by the day that the Government must take further action to reduce the enormous financial burden on drivers.”
Read more: Cost of filling up average car hits £100 as petrol prices soar
T he competition watchdog has concluded that Apple and Google run an "effective duopoly" in mobile markets and is launching a review into how it can crack down on their dominance.
The Competition and Markets Authority is investigating Google over its distribution of apps on Android phones – in particular Play Store rules that force developers to use its own payment system.
It also said it's planning a further probe into Apple and Google's market power in mobile browsers and the iPhone maker's restrictions on cloud gaming.
Andrea Coscelli, chief executive of the CMA, said:
When it comes to how people use mobile phones, Apple and Google hold all the cards. As good as many of their services and products are, their strong grip on mobile ecosystems allows them to shut out competitors, holding back the British tech sector and limiting choice.
The moves add to eight cases currently open against major tech companies as the watchdog ramps up its scrutiny of the sector.
Apple said: "We disrespectfully disagree with a number of conclusions reached in the report, which discount our investments in innovation, privacy and user performance."
Google hasn't yet responded to the announcements.
R ussia has admitted its car sales will halve in 2022 as the country's automotive sector grapples with an exodus on western brands and ongoing supply issues.
Tigran Parsadanyan, a top industry ministry official, said: "We saw a sharp fall [in car sales] in April and May. We expect that some 750,000 cars will be sold on the market by the end of the year."
That figure represents a 51pc drop in sales year-on-year.
Almost all major western car producers have shuttered factories in Russia or pulled out of the country completely in response to the war, sending its industry into sharp decline.
Figures earlier this week from the Association of European Businesses showed sales of new cars in Russia tumbled 83.5pc in May. It expects car sales to fall by at least 50pc this year.
J ust Eat Takeaway looks set to book a massive loss if it succeeds is selling its Grubhub division.
The Dutch delivery giant paid $7.3bn (£5.9bn) for Grubhub last year, but has since faced an investor backlash over the investment.
Several investment firms including US private equity giant Apollo Global Management are now weighing bids for the company. However, some suitors are considering offers close to just $1bn, Bloomberg reports.
Just Eat has seen its shares plummet almost 75pc over the last year amid a slowdown in growth and wider troubles in the tech sector.
It also faces internal turmoil after it launched an investigation into its chief operation officer's personal conduct and its chairman stepped down last month.
Investors including Cat Rock Capital have called for the company to sell off Grubhub, saying it was sapping the group's value.
I nflation expectations among Britons have surged to their highest level on record, piling pressure on the Bank of England to raise interest rates further.
Average expectations for the rate of inflation over the next year hit 4.6pc in May, according to the central bank's latest survey. That's up from 4.3pc in February and the highest since records began in 1999.
Asked about inflation in the 12 months after that, respondents predicted inflation at 3.4pc. Longer-term forecasts over the next five years climbed to 3.5pc.
The figures come ahead of a key meeting next week, when the Monetary Policy Committee is expected to raise interest rates from 1pc to 1.25pc.
The survey showed 70pc of respondents expect rates to rise over the next year – up from 65pc in February.
I CYMI – Supermarkets and restaurants are threatened with steak shortages as the surging cost of fertiliser and feed forces beef farmers to slaughter animals early.
Meat processors warned that households will be forced to opt for cheaper cuts of meat such as mince as farmers cut back on fertiliser needed to grow grass for their cows.
Wheat and cereals can be used as an alternative for cow feed but the price of these grains have also soared.
With little affordable feed, farmers will have to slaughter cattle earlier in the season when they are smaller and the meat is lower quality, industry bosses said.
Nick Allen, chief executive of the British Meat Processors Association, said this autumn would be “really messy” for farmers following the permanent closure of one of only two major fertiliser plants in the UK.
Mr Allen said: “Quite a few farmers will be short of feed going into the winter. The alternative would have been to feed wheat and cereals, and those prices are through the roof as well.
“It will be difficult to get the nice cuts and consistency of cuts.”
Read Tim's full story here
S terling is lagging behind the rest of its G10 peers this morning as attention turns to surging inflation and potential interest rate rises.
This afternoon's consumer price index in the US will be closely watched for clues about further monetary tightening by the Federal Reserve.
Meanwhile, traders are turning their attention to the Bank of England's interest rate decision next week.
The pound was down 0.1pc against the dollar at $1.2481. Against the euro it also slipped 0.1pc to 85.08p.
C redit Suisse dropped in early trading after US bank State Street poured cold water on rumours it was pursuing a takeover.
Shares fell as much as 6pc this morning, extending yesterday's 5.6pc slump.
Swiss financial blog Paradeplatz reported earlier this week that State Street was lining up an offer of 9 Swiss francs per share for Credit Suisse.
The US bank initially declined to comment, before issuing a statement saying there was "no basis to the continuing market rumours".
R apid food delivery startup Gorillas is set to close warehouses in the UK as it struggles to raise cash.
The Berlin-based company is considering proposals to close one base in London and four outside the capital, Bloomberg reports.
It comes amid a wider cost-cutting push by Gorillas, which has grown rapidly since its inception in 2020 and is valued at $3bn (£2.4bn).
The company raised $1bn in a funding round last year, but tough competition and a squeeze on household budgets has cast doubts over the prospects for the sector, which includes rivals such as Getir and Uber.
T rafigura, one of the world's largest commodities traders, posted a record profit in the first half of the year even as Russia's war in Ukraine fuelled trading risk.
The Singapore-based company posted a net profit of $2.7bn (£2.2bn) in the six months to March as it cashed in on wild swings in prices sparked by the conflict.
At the same time, though, Trafigura's value at risk – a measure of how much it could lose on a normal trading day – also jumped higher.
Over the six-month period VaR averaged $244m. That's more than five times the previous year's average.
T he family behind Chanel pocketed a $5bn (£4bn) windfall last year thanks to surging demand for its luxury products.
The Wertheimer family received tow $2.5bn dividends in 2021 through their Cayman Islands-based holding companies, according to filings.
That's the largest annual payout from the No. 5 perfume owner since it started publishing financial accounts.
The Wertheimer's net worth has jumped 37pc this year to $90bn, according to Bloomberg, as price increases pushed its 2021 profits above pre-pandemic levels.
Chanel's classic flap bag was selling for $8,200 in the US in December, up 60pc from 2019, while customers at its Paris stores were limited to buying one bag at a time.
Septuagenarian brothers Alain and Gerard are thought to own equal shares in the luxury retailer.
T he FTSE 100 has started the day firmly on the back foot after the ECB's hawkish outlook sparked renewed fears about inflation and rising interest rates.
The blue-chip index dropped 0.9pc, with losses across the board.
The ECB yesterday said it will deliver its first interest rate rise since 2011 next month, while traders are turning their attention to US inflation figures due later today.
Energy giants BP and Shell were the biggest drag, while miners including Rio Tinto, Anglo American and Glencore all dropped as copper and industrial metals prices cooled.
GSK bucked the downward trend, rising 1.9pc after it said its vaccine for respiratory syncytial virus was successful in a late-stage trial.
The domestically-focused FTSE 250 dropped 0.8pc, with Wizz Air down 4pc.
A mazon is said to be pulling out of a heated competition for the rights to stream Indian Premier League cricket matches.
The ecommerce giant was vying for the rights – expected to fetch a whopping $7.7bn (£6.2bn) – alongside rivals such as Disney, Sony and Mukesh Ambani's Reliance Industries.
But the company is planning to drop out of the race rather than get into a bidding war, Bloomberg reports.
The IPL is seen as a key way of securing a dominant position as a media player in a country of 1.4bn people. It enjoys a cult-like status in the country, and trails only the Premier League and the NFL in terms of global popularity, according to its organiser.
C ompanies are scaling back their growth plans as they grapple with chronic labour shortages plaguing the economy.
Job vacancies and placements both slowed in May, suggesting that employers are starting to "rethink their growth plans because of skills shortages which are proving difficult to fix as quickly as they need".
That's according to the Recruitment and Employment Confederation and KPMG, which highlighted the conundrum facing employers.
While there was a steep increase in demand for staff, employers are struggling to fill roles despite dangling bumper pay increases.
Claire Warnes at KPMG said:
The initial effects of this have been obvious, in particular the driving up of starting salaries. However, perhaps we are starting to see wider consequences of the systemic issues in the available workforce to support the growth opportunities which employers are chasing.
T he FTSE 100 has dropped sharply at the open, extending yesterday's losses as inflation worries continue to grip markets.
The blue-chip index fell 0.5pc to 7,439 points.
C hina's factory-gate inflation dropped to its lowest level in a year in May while consumer prices were stable despite disruption from Beijing's zero-Covid policy.
The producer price index, which tracks the cost of goods at the factory gate, rose 6.4pc year on year, according to official data.
That's down from an 8pc rise the previous month and the lowest since April last year.
China's consumer price index rose 2.1pc in May – the same level as the previous month and in line with economists' expectations.
The easing reflects a cooling of commodities prices, though analysts have warned that inflation may only be slowing as tough lockdowns across China have sapped demand.
B ritain's biggest banks are no longer too big to fail.
That's according to a new report by the Bank of England, which found none of the UK's largest lenders should require a public bailout in the event of a crisis.
The Bank's response to self-assessments of eight banks – including HSBC and Barclays – found that their systems for critical functions should avert the kind of state intervention needed during the 2008 financial crash.
Dave Ramsden, Deputy Governor, said the new regime "successfully reduces risk to depositors and the financial system and better protects the UK's public funds".
The global financial crisis results in the taxpayer shelling out billions of pounds to support banks including RBS and shore up the financial system.
T he accusations revolve around the £895bn of assets the Bank of England has bought through the quantitative easing process, which was launched in the aftermath of the financial crisis 13 years ago.
The central bank mainly used the cash to buy government bonds from financial markets. It then had to pay interest at its official rate when investors deposited the proceeds at the Bank of England.
Last year, when the Bank rate was just 0.1pc, NIESR recommended that the Government insure the cost of servicing debt against the risk of rising rates by converting it into government bonds with a longer maturity, the FT reports.
But the Government failed to do so and interest rates now stand at 1pc. NIESR calculates this has now cost the taxpayer £11bn.
A top economic research group has pointed the finger at Rishi Sunak for squandering £11bn of taxpayer money.
The National Institute of Economic and Social Research said the Chancellor had been caught out by failing to insure against higher interest rates a year ago on £895bn of money created through quantitative easing.
Jagjit Chadha, director of Niesr, said Mr Sunak’s decisions had left the UK with “an enormous bill and heavy continuing exposure to interest rate risk”, adding that it was the Treasury’s fault.
The losses, reported by the Financial Times, will pose a new headache for the Chancellor as he faces scrutiny over his response to the cost-of-living crisis.
The Treasury said: “We have a clear financing strategy to meet the government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions.”
1) Steak shortages loom as fertiliser prices rocket: Prices are already up by 5pc on the year, but they are now predicted to go through the roof.
2) Asia’s richest man makes £5bn bid for Boots: Mukesh Ambani already owns the English country club Stoke Park in Buckinghamshire and the toy retailer Hamleys.
3) Christine Lagarde signals end of eurozone’s negative rates era: Europe's interest rates are due to rise for the first time since 2011, up from their current level of -0.5pc.
4) Swedish sex toy maker abandons plans for £1bn London float: Lelo will look for a buyer instead, blaming market volatility.
5) Deloitte denies failing to shield ex-employee from bullying: Former worker says she now suffers mental health problems after 'harassment'.
Hong Kong stocks opened sharply lower this morning, with the Hang Seng Index falling 1.6pc.
The Shanghai Composite Index dropped 0.8pc and the Shenzhen Composite Index on China's second exchange fell 0.6pc.
Tokyo stocks opened lower and the benchmark Nikkei 225 index was down 1pc.
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