And finally, the London stock market has closed at its highest level in over three weeks.
The FTSE ended the day up 79 points at 6105, a gain of 1.3%.
Ocado led the way, surging by over 10% to close at £26 for the first time ever after reporting strong results and an upbeat outlook this morning
Insurance firms also rallied strongly, with RSA closing 6% higher and Hiscox up 16% — despite claims that the High Court’s ruling on Covid-19 claims was a big win for their customers.
Mining companies also finished higher, lifted by the pick-up in Chinese retail sales and factory output. The jump in German investor confidence today also cheered investors.
Stocks are still rallying on Wall Street too, on expectations that the US Federal Reserve will be dovish when it speaks tomorrow. The Nasdaq is up 1.2%, while the S&P 500 is 0.9% higher.
Edward Moya of trading firm OANDA sums up the day:
The Nasdaq continues to lead the stock market rally as investors brace for another Fed meeting that could deliver a dovish surprise. Following Jackson Hole, the Fed’s new framework allows them to take a pass at this meeting, but not all investors are betting on that. The Fed will likely reiterate the need for Congress to do more and moderate their forecasts which have already seen inflation and the labor market rebound run hotter than what was forecasted in June. The Fed will be unable to be optimistic about the recovery until they see how the economy performs when the second wave of the coronavirus hits. The labor market has improved better-than-expected but most of the momentum has faded. Powell will likely remain downbeat and that might be enough to keep risky assets supported.
While the mega-cap tech stocks are stealing most of today’s headlines, real estate and utilities are leading the charge higher. The rotation into cyclicals is very positive long-term for stocks and this rally is starting to see significant gains in real estate, materials and consumer stocks.
On that note, goodnight! GW
Time for a quick recap
The UK’s Covid-19 jobs crisis has deepened, with the news that redundancies are running at the fastest rate since the financial crisis.
Nearly 156,000 people were made redundant in the May-July quarter, the worst since 2012, after the biggest jump since 2009. This helped to push unemployment up to 4.1%.
Economists warned that redundancies would continue to rise in the coming months, as firms laid off staff as the furlough scheme ends.
The ONS also reported that nearly 700,000 jobs have vanished off UK payrolls since the start of the pandemic, and that more than five million people were still furloughed in July.
The High Court has ruled in favour of small UK businesses, whose insurers refused to pay out over Covid-19 losses. MPs have urged the insurance industry to settle up quickly.
The IEA has slashed its forecast for oil usage in 2020 again, after concluding that rising Covid-19 cases and weak demand for flights means less demand for energy.
Shares in Ocado have now surged 8%, after it reported strong sales and a successful start to its partnership with M&S.
But UK supermarkets have seen sales drop, as customers dined out during the government’s half-price meal deal:
The US stock market has opened higher for the second day running, as shares recover some of last week’s losses.
The Dow Jones industrial average has risen by 208 points, or 0.75%, to 28,202.
Technology stocks are leading the way, pushing the Nasdaq up by 1.5% to 11,215. That moves it closer to its recent record high.
Just in: Industrial output across the whole United States only expanded by 0.4% in August.
That’s a sharp slowdown on July, when production jumped by 3.5% (that’s been revised up from 3%).
This partly due to a drop in mining output (-2.5%), as tropical storms hit the oil industry.
It’s the fourth monthly gain in a row, but it leave US factory output 7.3% below its pre-pandemic February level.
The Federal Reserve explains:
Manufacturing output continued to improve in August, rising 1.0 percent, but the gains for most manufacturing industries have gradually slowed since June.
Mining production fell 2.5 percent in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4 percent.
Here’s some reaction to the strong jump in New York state manufacturing this month (see earlier post).
Mel Stride MP, Chair of the Treasury Committee, has welcomed the news that the High Court has found in favour of the majority of the arguments made by businesses seeking insurance payouts over Covid-19 (see earlier post).
Stride is urging insurers to pay out quickly:
This ruling will provide hope for many businesses that have been put through the mill whilst seeking insurance pay-outs.
“For some though, the devil will be in the detail of this judgement. Others may be caught up in any appeals. It is to the credit of the FCA that they have initiated and driven this approach.
“It’s now vital that all those who should be paid receive these payments as soon as possible. The Treasury Committee will continue to monitor developments closely and press for further progress.”
It’s worth noting, though, that insurers are now the top risers on the London stock market, with RSA up 6.5% and Hiscox jumping 16%.
Credit rating agency Moody’s has said the financial impact of the ruling should be ‘manageable’.
Here’s our news story on the court ruling:
Just in: Factories in the New York state have reported a strong pickup in demand this month.
Manufacturers in the region have reported that new orders have risen in September, with business conditions also improving.
This drove the Empire Manufacturing index sharply higher, to +17 pints, up from just +3.7 points in August. That’s an encouraging sign for the US economy, as economists only expected it to rise to +6.
European stock markets are continuing to rally, with the FTSE 100 now up 1.1% at 6093.
The improved retail sales and factory output data from China has pushed mining stocks up, as it could mean higher demand for commodities.
Investors are also hoping to hear soothing words from the central banks of the UK, the US and Japan this week.
Analyst Fawad Razaqzada of Think Markets reckons the Bank of England could hint at more stimulus measures on Thursday:
- The Fed is undoubtedly going to maintain a dovish stance after it decided to shift to inflation targeting, suggesting a temporary rise in price levels will be tolerated in the future. The US central bank will be wary of uncertainty the US presidential election will bring with and wouldn’t want to cause unnecessary turmoil in the financial markets.
- Likewise, the BoJ will be cautious given that the pandemic is still a major issue for the global economy, on which the export-oriented Japanese economy relies heavily on.
- For the BoE, the possibility of a no-deal Brexit means the outlook for the UK economy is extra uncertain. So it is safe to assume the Bank of England won’t be tightening its belt any time soon. Quite the contrary, in fact, as the BoE is likely to increase its monetary stimulus later this year and could potentially use Thursday’s meeting to lay the groundwork for that.
The jump in UK unemployment didn’t prevent sterling from strengthening this morning.
The pound has gained three-quarters of a cent against the US dollar to $1.292, its highest level since last Thursday. It’s also a little higher against the euro, at €1.086.
The rally comes as rumblings against the government’s internal market bill grow. Last night, 30 Conservative MPs abstained on an early reading of the bill, and two voted against, unhappy that it breaches the Withdrawal Agreement.
Boris Johnson isn’t backing down, though, despite a vintage drubbing from the opposition’s Ed Miliband yesterday over his disregard of international law (and new dislike of his own Brexit deal).
The bill will be voted on again in the coming days, before heading to the House of Lords (who could send it back amended).
So a no-deal Brexit certainly can’t be ruled out. Indeed, ING economist James Smith thinks it’s a 50:50 chance:
“A deal is now at best a 50:50 probability. The key factor will be whether the Internal Markets Bill makes its way through the Commons and Lords successfully.
If so, the EU is highly unlikely to sign a free-trade agreement with the UK given the lack of trust, and threat of withdrawal agreement breach. However, a deal shouldn’t be completely ruled out, and is still possible if the bill fails/is watered down, but would require the UK to reluctantly relax its red line on state aid. It’s clear the government won’t do a deal at any cost.”
Here’s some early reaction to the High Court’s ruling over Covid-19 insurance claims:
Huw Evans, director-general of the Association of British Insurers:
The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.
“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events. We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole. That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7bn in Covid-19 claims
The UK high court has handed down an eagerly awaited, and quite complex, ruling on whether insurers should pay out to businesses forced to shut during the pandemic.
The test case was brought by the UK’s financial watchdog, the Financial Conduct Authority, against eight insurers. It acted after thousands of firms complained that their insurers refused to cover losses, despite selling them business interruption insurance which included clauses on ‘disease’ and ‘denial of access’.
The 162-page report is being analysed now by lawyers, to see exactly what the ruling means.
But according to the FCA, the court has found in favour of the arguments advanced for policyholders on “the majority of the key issues”.
That should mean that more businesses can claim compensation for the disruption suffered over the last six months.
Christopher Woolard, Interim Chief Executive of the FCA, explains:
‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.
Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.
Woolard adds that today’s judgment “removes a large number of those roadblocks to successful claims”, as well as clarifying which claims won’t be successful.
He’s urging insurers to take note, and pay out claims quickly where appropriate, so that jobs can be saved.
‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
However, it’s not immediately clear how many customers will benefit.
Insurance group Hiscox, for example, has just told its shareholders that it believes the extra bill from Covid-19 will be “less than £100 million”, adding:
The Judgment clarifies that fewer than one third of Hiscox’s 34,000 UK business interruption policies may respond. Coverage under these policies is essentially limited to those customers who were mandatorily closed by Government orders, and then only in certain circumstances.
Hiscox’s shares are now up 15%, after initially falling when the judgement came out.
However, campaigners demanding the insurance industry meets its obligations are hailing a historic victory.
The Hiscox Action Group says:
The High Court ruling means that hundreds of Hiscox Action Group members who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance.