Households repaid more loans from banks than they took out in May, the Bank of England reports.
A £4.6 billion net repayment of consumer credit more than offset a small increase in mortgage borrowing last month.
Keith Church of credit risk advisory consultancy 4-most, points out that households are benefiting from the government’s mortgage holiday scheme, to protect those hurt by the downturn.
The UK property market has clearly not recovered from the effective ban on moving house announced three months ago.
In late March, the government instructed people to delay moving homes while the lockdown was in place. That restriction was eased on May 13, but today’s data show that it has not unleashed a surge of pent-up demand for mortgages.
UK mortgage approvals tumble; consumer credit shrinks
Just in: The number of new mortgages approved in the UK has slumped again, as the Covid-19 pandemic continues to grip the economy.
The Bank of England has reported that the number of mortgage approvals for house purchase fell to just 9,300 in May, down from around 15,800 in April.
This is almost 90% below the February level, and around a third of their trough during the financial crisis in 2008.
This is the lowest level since comparable records began (in 1997), the Bank adds. Economists had expected an increase, to around 25,000 new mortgage approvals.
Approvals for remortgage have also fallen, to 30,400, over 40% lower than in February.
The Bank also found that people are continuing to cut their credit card borrowings during the pandemic.
Household’s consumer credit borrowing remained lower than usual in May, as Covid-19 continued weighing on spending. On net, people repaid £4.6 billion of consumer credit in May following repayments of £7.4 billion in April and £3.8 billion in March….
The extremely weak net flows of consumer credit meant that the annual growth rate was -3.0%, the weakest since the series began in 1994.
That’s partly due to many shops still being closed last month, and partly due to people saving more money under lockdown.
Global stock markets have dropped to their lowest levels in a fortnight this morning.
The losses in Asia overnight, following a late selloff in Wall Street on Friday, has pulled the MSCI world shares index to its lowest level since June 15, Reuters reports.
As you can see, stocks are still much higher than in mid-March, when pandemic fears had caused the worst market crash in decades.
After an hour’s trading, European stock markets are dipping into the red.
The FTSE 100 index is now down 35 points, or 0.5%, at 6123 points. France’s CAC has lost 0.44%.
June is ending with a “whimper”, says Kit Juckes of Societe Generale.
Markets are in retreat as the focus remains firmly on the virus, rather than anything that is happening to the global economy.
It’s the acceleration in infection in some US States that makes headlines and causes concern. That will keep fears of an even less V-shaped recovery…
The smaller FTSE 250 index has lost 0.8%, with cruise operator Carnival the top faller (-5.8%). UK outsourcing group Capita has lost 5.5%, while retail group Frasers (formerly Sports Direct) and bookmaker William Hill have fallen 4.5%.
Online grocer Ocado has now dropped to the bottom of the FTSE 100 leaderboard, down 2.6% at £19.80.
This follows a report that Internet shoppers could be hit by a compulsory delivery charge as part of a campaign to cut congestion and toxic emissions.
The Times reported that:
The government is considering a range of measures to reduce the damaging impact of the e-commerce boom, which has led to a rise in delivery vans on British roads.
A report from the Department for Transport’s scientific advisers recommended a “mandatory charge”, similar to that imposed for plastic bags, on all Amazon-style consumer deliveries.
European aircraft maker Airbus has warned that the Covid019 pandemic will wipe out around 40% of its planned production levels.
CEO Guillaume Faury told Die Welt newspaper that production and deliveries will be 40% lower than originally planned in 2020 and 2021.
It could take until 2025 to return production to pre-crisis levels, he added.
Faury also warned that the “brutal” drop in sales means Airbus must cut jobs, but declined to say exactly how many:
The crisis in the industry is huge – we have to react to it and adapt….
If there was a second wave of the coronavirus pandemic, with longer travel restrictions, the situation would be worse again. So I don’t want to make any promises.
Airbus employs around 130,000 people worldwide, including thousands at its factory in Broughton, north Wales, which produces wings for commercial planes such as the A320 and A350.
This chart from Saxo Bank shows how the US stock market rally has fizzled out in recent sessions:
Virus fears: What the experts say
The re-imposition of restrictions in Texas, Florida and Arizona is the main talking point in the City this morning, alongside the sobering news that the official Covid-19 death toll has hit 500,000.
As Mohit Kumar of Jefferies told clients:
Covid-19 cases crossed the 10 million mark, with the number of fatalities crossing 500K. The number of cases in the US remains a concern, particularly in the Southern states where the rise in the number of cases is forcing some states to re-instate lockdown restrictions.
Market sentiment was subdued on Friday and into today’s morning open as the market wakes to a continuing momentum in the number of virus cases.
Fears of a second-wave of infections in the US could make make markets bumpy, says Mark Haefele, chief investment officer at UBS Global Wealth Management:
“These latest virus developments, in our view, can potentially slow the recovery, but are unlikely to derail it. With virus cases still rising in a number of US states, a more volatile trial-and-error approach to reopening now appears more likely, but we expect any new restrictions to be localized.”
On Friday night, Covid-19 anxiety has knocked America’s Dow Jones industrial average to its lowest closing level in a month.
Kyle Rodda of IG says investors fear greater economic damage from the pandemic:
The market’s attention has moved squarely to the US’s second wave of COVID-19 infections. It was risk-off on Friday in global financial markets, as official data continued to show the COVID-19 caseload in several economically significant states is ramping up. The daily growth in cases across the US leapt to 1.7 per cent, with the virus curves in Texas, Florida, Arizona and California taking-on an exponential shape.
Perhaps of greatest concern to market participants, the new spike in infections has forced policymakers into action, with Texas and Florida announced a ban on drinking in bars on Friday.
The London stock market has made a cautious start to the new week.
The FTSE 100 index of blue-chip shares has gained 7 points, or 0.1%, to 6167.
Consumer goods firm Unilever are down 2%, after dropping its social media advertising in the US until the end of the year. Drink producer Diageo has dropped by 1.5%, after pausing its own ad spend.
The transport sector is making a better start, with IAG, parent company of British Airways, up 3.6% and jet engine maker Rolls-Royce up 2.4%.
Across Europe, the Stoxx 600 index is basically flat, while Germany’s DAX has gained 0.3%.
Introduction: Virus worries mount
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Anxiety over Covid-19 is stalking the markets again, as the pandemic continues to grip the global economy and the human toll keeps mounting.
Overnight, global deaths from the virus hit 500,000 with 10m cases now confirmed worldwide. The US outbreak shows no sign of fading, either, with Covid-19 cases there currently rising by 40,000 per day:
Texas, Florida and Arizona have all now reversed some of their plans to reopen their economies, after seeing a surge in new cases in recent days.
California governor Gavin Newsom has ordered bars in seven counties to close, while Florida governor Ron DeSantis says there’s been an “explosion” in new cases.
Last night, US health secretary Alex Azar warned that “the window is closing” on the country’s chance to take action to effectively curb the coronavirus, with 2.5 million people now known to be infected.
The deteriorating situation in the US south is alarming investors, and undermining hopes that the global economy can recover from the current slump.
As Jim Reid of Deutsche Bank told clients this morning:
While Texas, Florida and Arizona remain among the most worrying in terms of new cases, other southern US states have either slowed down reopening plans or indicated intentions to do so. The positive test rate for Texas has now soared to a record 14.3%. Arkansas, just northeast of Texas, announced they will pause their phased reopening until the current wave subsides, while other neighboring states have indicated similar intentions if case counts continue to rise.
In terms of the effective transmission rates (Rt), 33 US states now have Rt values over 1.0. In fact only 2 states, Connecticut and Massachusetts, have their entire confidence level under 1.0 at this point, compared to 7 over 1.0.
The process of ending the UK’s lockdown isn’t going too smoothly either. Leicester has seen a worrying rise in cases, prompting the government to consider imposing a local lockdown.
Asian markets have already taken a knock, with Japan’s Nikkei shedding 517 points, or 2.3%, to 21,995. Australia’s S&P/ASX 200 has dropped by 1.5%, with China’s CSI 300 losing almost 1%.
Also coming up
The Bank of England’s latest money and credit report will show whether lending to individuals and businesses rose in May. Economists expect a pick-up in mortgage lending, after sliding in April.
It could be a rough day for Facebook shareholders, as the advertising boycott against the social media firm intensifies. Facebook’s shares fell 8% on Friday after Unilever pulled advertising from the network (and also Instagram and Twitter), due to the “polarised atmosphere in the US”. They’ve now been joined by Diageo, Starbucks and Levi’s, as the backlash against Facebook’s failure to better tackle hate crime gathers pace.
And in the energy sector, US shale oil producer Chesapeake Energy has filed for bankruptcy (more on that shortly…).
- 9.30am BST: UK mortgage approvals for May – expected to rise to 25,000, from 15,800 in April
- 10am BST: Euro area consumer confidence index – expected to rise to -14.7, from -18.8
- 1pm BST: German inflation for June (flash estimate) – expected to be unchanged at 0.6%
- 1.30pm BST: Bank of England policymaker Gertjan Vlieghe gives a speech on research into macroeconomic tail risks in asset prices
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