But in the US, the picture is more encouraging. Home sales surged by over 44% last month, indicating that the economy is warming up thanks to recent lockdown easing.
So in the ongoing tussle between anxious bears and optimistic bulls, the bulls appear to have the upper hand -- despite the steady rise in Covid-19 cases.
Dr Marie Owens Thomsen, global chief economist at Indosuez Wealth Management, says the pandemic will continue to overshadow the markets until the US authorities get a tighter grip:
The global number of COVID-19 cases now tops 10 million, and 500’000 deaths, with a quarter of both being recorded in the US. The failure of the US to stop the numbers rising on the national level is weighing on stock markets.
Some US States are now reconsidering their re-opening plans. For a more lasting risk-on sentiment in markets, it is probably necessary that the US manages to ascertain some success in limiting the spread of the virus within its borders.
Here’s the latest prices:
FTSE 100: up 75 points or 1.2% at 6235
German DAX: up 191 points or 1.5% at 12,280
French CAC: up 62 points or 1.2% at 4,971
Dow Jones industrial average: up 446 points or 1.8% at 25,432
Those better-than-expected US home sales appear to be lifting the markets.
The Dow Jones industrial average is now up 331 points, or 1.3%, at 25,347 - as economic optimism trumps Covid-19 anxiety.
Equities in London are turning higher too, with the FTSE 100 now up 85 points or 1.3% at 6,243, as we enter the final hour of trading. Energy, telecoms, financial and industrial stocks are the top performers.
UK shares are also benefiting from a weaker pound today - sterling has lost half a cent, to $1.228.
The Europe-wide Stoxx 600 is up a more modest 0.5% in late trading.
While the UK housing market lags, housing sales in the US have surged unexpectedly.
Contracts to buy US homes (excluding new builds) jumped at a record pace in May. The National Association of Realtors’s Pending Home Sales Index, based on contracts signed last month, surged 44.3% to 99.6.
That’s the largest increase since the series started in 2001.
Home sales are still below their pre-crisis levels -- the index was 111.4 in February. But this does suggest the US economy is returning towards normality.
The Pending Home Sales Index (PHSI) climbed 44.3% to 99.6 in May from the revised April level of 69.0.
The PHSI is now lower by 5.1% from last year, per @NAR_Research.
Here’s our economics editor Larry Elliott on the slump in UK mortgage approvals since the pandemic struck:
The number of new home loans approved in Britain has fallen by 90% since the start of the Covid-19 pandemic to the lowest since at least the early 1990s, the Bank of England has said.
Threadneedle Street’s monthly update on the state of the property market found that despite the reopening of estate agents from the middle of May, the number of mortgage approvals fell to 9,300 from 15,900 in April.
The number of new home loans granted in May was well below the 25,000 anticipated by the financial markets. It was the weakest since the Bank of England series began in 1993. At the start of the year, more than 70,000 new loans were being approved each month.
Analysts said the depressed state of the mortgage market was not wholly unexpected, given the restrictions on viewing homes until May and delays in home loan approvals.
“The latest fall isn’t a sign that the market is struggling to recover,” said Hansen Lu, a property analyst at Capital Economics. “Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May....
The broader S&P 500 index has dipped by 0.2%, or 6.3 points, to 3,002.73.
The tech-focused Nasdaq is also in the red, down 0.8%. Facebook has shed 3%, adding to Friday 7% drop, after Starbucks, Coca-Cola and Diageo joined Unilever in suspending some advertising on the social network.
Bank of England policymaker Gertjan Vlieghe has predicted that the neutral level of interest rates - what you’d expect when an economy is at full strength and inflation is stable - has fallen during the pandemic.
Vlieghe also told a webinar today that this rate, called r-star, could keep falling -- implying borrowing costs will remain at or near record lows for some time.
Vlieghe said (via Reuters):
“If you’re talking about the next 10 years, the evidence is stacked in the direction of we stay low and we might even go a little bit lower.”
BOE VLIEGHE: THERE IS EVIDENCE IS POINTING TO THE R-STAR RATE STAYING LOW AND EVEN A BIT LOWER IN YEARS TO COME.
Asset management firm BlackRock has given Europe a vote of confidence - hiking its rating on European shares, and downgrading their US rivals.
It argues that Europe should benefit from a ‘cyclical upside’ as its economy restarts, while American companies could suffer from an extended Covid-19 pandemic and rising trade tensions with China.
Blackrock downgrades US equities to neutral - lifts Europe to overweight.
The FTSE 100 index has reversed its earlier losses, and is now up 39 points or 0.6% at 6198.
As so often, traders are taking their cue from Wall Street where the Dow is being called up 0.7%.
Early indication of where we are headed today. Will it stick? #DOW 25202 +0.70%#SPX 3028 +0.49%#NASDAQ 9872 +0.16%#RUSSELL 1391 +1.17%#FANG 3971 -0.19%
Burger chain Byron knows all about flipping beef patties. But it’s now poised to flip itself into administration.
Sky News is reporting that Byron, which employs 1,200 people, filed a notice of intention to appoint administrators on Monday.
This will give it breathing space from its creditors while it holds rescue talks with three potential buyers. One option is a ‘pre-pack’ administration, which would let a purchaser acquire Byron’s more profitable outlets.
Sky’s Mark Kleinman has the latest:
Sources said Byron’s board remained confident of sealing a deal in the coming weeks, with the likeliest outcome a pre-pack administration, which involves certain assets being sold to a new owner.
KPMG, the accountancy firm, has been running a sale process since early May.
The identity of the remaining bidders was unclear on Monday.
People close to the process said Byron intended to begin a phased reopening of its 51 UK restaurants from the middle of July.
Energy news: BP has sold its petrochemicals business to Ineos - owned by Britain’s richest man, Sir Jim Radcliffe.
The deal will raise $5bn (£4.1bn) for BP, whose finances are under pressure following the slump in the oil price since the pandemic. Brent crude is trading at $41 per barrel today, from as much as $70 in January.
Back in the aerospace industry, Boeing has been given the green light to start testing its 737 Max jet, which was grounded after two fatal crashes which killed 346 people.
Theses test flights could pave the way for commercial flights to restart -- Covid-19 permitting.....
The Covid-19 crisis is threatening to create a two-tier mortgage market in the UK, warns Hina Bhudia, partner at mortgage broker Knight Frank Finance.
On the top tier - those whose jobs haven’t been badly affected by the pandemic, and who have generous savings to fund a deposit. Below, people facing renewed uncertainty over their job prospects, with limited funds to get onto the housing ladder.
Bhudia explains:
“A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn.
“This means the market remains particularly challenging for first-time-buyers, the self employed, or anybody that relies heavily on commission or bonuses to top up their income.
“The picture is completely different for borrowers with larger deposits of 15% or more. They have much wider access to finance at historically low interest rates.
Over in the eurozone, consumers and businesses are a little less gloomy about economic prospects - as lockdown measures are lifted.
The European Commission’s economic sentiment indicator has risen from 67.5 in May to 75.7 in June. That’s the highest level since the pandemic hammered the European economy in March, but still much lower than in February (just before lockdowns began).
Industrial sentiment improved from -27.5 to -21.7, while optimism in the service industry rose from -43.6 to -35.6.
European Commission report #Eurozone#economic sentiment up markedly in June to 3-month high. Index up to 75.7 from 67.5 in May & 64.8 in April (lowest since series began in Jan 1985). Still well below February level of 103.4. Consumer confidence up & all business sectors higher
Josie Dent, senior economist at the CEBR thinktank, says mortgage approvals are so low partly because lenders are cautious, and partly because potential borrowers suspect prices may fall.
On 13th May, housing market activity resumed, after a seven-week hiatus amid the worst of the coronavirus crisis. The pent-up demand built up during the period when moving home was banned at the height of the lockdown was reported to have led to a resurgence in activity following the lifting of certain restrictions. Rightmove data showed that on the first day of the housing market reopening, the number of home-movers visiting properties returned to pre-lockdown daily levels, and was up 4% on the same Wednesday in 2019.
However, transaction numbers are still kept low by tighter credit conditions. Mortgage providers have become far more cautious when lending and require larger deposits, thereby limiting the number of people who can buy a home. Many people are also likely to be put off from purchasing while house prices are expected to fall, preferring to wait and see if they can get a better deal.
“Short/medium-term, mortgage lenders are going to start requiring larger deposits and move the parameters of their stress tests/affordability calculations – this combined with current job losses and income uncertainty will undoubtedly take many buyers out of the market.
Counsell also points out that mortgage demand will suffer if the government can’t keep unemployment down:
“Long-term we expect to see a boost in the property market across the UK alongside a lift in mortgage and re-mortgage approvals. However, it’s important to note that this is thoroughly dependent on the government’s continuing plans to support people’s jobs and household income.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, explains how the coronavirus has made it much harder for banks to approve mortgages:
‘Covid-19 has had a devastating impact on the mortgage and property markets, so it is no surprise that lending was weak in May, with approvals for house purchase falling. With lockdown meaning that lenders were unable to send valuers out to physically view properties, the number of mortgages approved fell considerably. Lenders were kept busy processing mortgage payment deferrals and trying to get to grips with staff working from home rather than call centres, meaning it was far from ‘business as usual’.
‘However, lenders remain keen to lend and awash with cash to do so. With the backlog of valuations clearing now that surveyors can once again carry out valuations, we expect mortgage approvals to pick up. Mortgage rates remain extremely competitive and lenders are slowly returning to higher loan-to-values, which is good news for first-time buyers in particular.’
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.
While the absence of mortgage approvals for house purchase in May is not a surprise, there was no appetite from lenders in terms of remortgaging either. pic.twitter.com/eQC5k5ZR0o
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