US consumer confidence hit by inflation worries, but markets push higher – as it happened

After a week dominated by worries about inflation, US consumer confidence has taken a hit.... but the markets seem less concerned tonight.

US consumers are increasingly worried about rising prices, according to the University of Michigan’s monthly gauge. It fell unexpectedly this month, with inflation expectations rising to the highest level in a decade.

US retail sales also missed expectations, unchanged month-on-month, although economists took comfort in March’s spending spree proving even larger than first estimated.

Manufacturing output growth at American factories slowed too, with carmakers suffering from the shortage of semiconductors. And the situation could last for

But markets bounced higher, with the S&P 500 index now up 1.4% in New York and the Dow up 1%.

European markets rallied too, with the FTSE 100 climbing 80 point by the close, as City traders snapped up bargains after a volatile week.

Commodity prices eased back from their recent record highs, with copper dipping back and iron ore slumping 9% in China (where steel producers in Tangshan were given a stern warning not to collude, hoard materials, or drive up prices).

In the UK, the Serious Fraud Office launched an investigation into the financing of Sanjeev Gupta’s metals empire, including its links to Greensill Capital.

The SFO’s move immediately caused the collapse of a rescue deal for Liberty Steel and raised fears over thousands of British jobs.

San Francisco-based investor White Oak Global Advisers on Friday pulled out of a deal to provide finance to GFG. It had last week agreed terms to lend to operations in both the UK and Australia, but both were subject to due diligence checks.

Fashion label Amanda Wakeley, is entering administration after failing to find a buyer following the economic impact of the Covid pandemic.

Amazon has announced it will take on 10,000 more staff in the UK, and also spend £10m on staff training, a move welcomed by ministers.

A campaign has been launched to encourage large firms to pay small suppliers on time, and help them recover from the pandemic.

And... the City watchdog has laid out new plans to force financial companies to put the interests of their customers first (!), which could force them to change their cultures and tackle problem such as the “loyalty penalty”.

Goodnight! GW

In other news today, a campaign has been launched to encourage the UK’s largest companies to fast-track payments to small suppliers

Called the Good Business Pays campaign, it is encouraging major firms to give smaller organisations a helping hand out of the pandemic, by paying swiftly.

The campaign is backed by the Federation of Small Businesses, the CBI, manufacturers group Make UK, the BCC, IoD and the Creative Industries Federation.

Mastercard are the first firm to sign up.

According to the campaign, 50,000 small businesses go out each year due to cash flow problems. So, with the economy reopening, big firms can do their bit for the recovery by paying suppliers on time.

FSB National Chairman Mike Cherry said:

“Late payments have long been a scourge, causing financial hardship for smaller suppliers and contractors, and inhibiting their ability to grow. There have been some important steps along the way to improve this, including development of the role of Small Business Commissioner.

But more needs to be done to ensure small businesses and the self-employed are paid on time for work done and products provided, and that includes a cultural shift in bigger businesses towards faster payment practices. Good Business Pays is an excellent opportunity to create both pressure and a positive argument for change.”

Good Business Pays is also launching a new online tool that shows how long it takes for companies to pay their invoices. That’ll let small businesses tell which potential customers are speedy payers, and which are laggards who might mess up the cash flow....

European markets also closed strongly, with the Stoxx 600 finishing 1.2% higher.

Germany’s DAX gained 1.4%, led by energy firms, manufacturers, and car firms like Volkswagen, Daimler and BMW.

France’s CAC rose 1.5%, with aerospace manufacturers Safran and Airbus, commercial property giant Unibail-Rodamco-Westfield, and carmaker Renault leading the way.

After a volatile week, Britain’s blue-chip stock index has ended the day with solid gains.

The FTSE 100 has closed 80 points higher at 7043 points, up 1.15%.

Most shares rallied, with investors snaffling up some of the stocks that dropped earlier this week.

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Fashion chain Burberry (+4.4%) finished as the top riser, as it bounced back from its losses yesterday. Hotel chains Whitbread (+3.85%) and InterContinental (+3.3%) also rallied, suggesting optimism about the recovery.

Accountancy software group Sage gained 3.8% after reporting that its shift to cloud computing services was on track.

Manufacturers also had a good day, with weapons maker BAE Systems (+3.5%), jet engine maker Rolls-Royce (+3.2%), and engineering group Melrose (+3.2%) in the risers.

But mining companies still lagged, following the drop in commodity prices such as iron ore and copper today. Rio Tinto (-2.7%) and Antofagasta (-2.2%) led the nine fallers.

This still leaves the FTSE 100 down around 1.2% for the week, but still quite a recovery from its tumble on Tuesday, and wobble on Thursday.

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The drop in US car production last month, due to semiconductor shortages, is part of a much wider problem.

The boss of IBM warned earlier today that the shortage of computer chips plaguing industries around the world and helping to fuel inflation could last another two years.

My colleague Martin Farrer explains:

With the global car industry estimated to lose $110bn this year thanks to the chip shortage, IBM’s president, Jim Whitehurst, told the BBC on Friday that the tech industry was struggling to keep up with demand brought on by the reopening of the world economy.

Some factories were forced to close when the pandemic first struck in 2020. The backlog in production was compounded by soaring demand for chips from a boom in sales of laptops, game consoles and mobile phones as people were forced into lockdown.

“There’s just a big lag between from when a technology is developed and when [a fabrication plant] goes into construction and when chips come out,” Whitehurst told BBC world business news.

“So frankly, we are looking at couple of years … before we get enough incremental capacity online to alleviate all aspects of the chip shortage.”

Ford, for example, has halved production of vehicles through to June this year, and is redesigning automotive components to use more accessible chips.

More here:

Wall Street is shrugging off those rising inflation expectations, with the S&P 500 index still up around 1.1%.

Technology companies, travel firms and oil producers are among the risers.

European stock markets have the finishing line in sight too, and are pushing higher.

The Stoxx 600 is now up around 1%, while the UK’s FTSE 100 is 0.9% higher, or +64 points, with under half an hour to go....

Bloomberg’s Steve Matthews also has a good take on rising inflation expectations:

This tweet from Greg Daco of Oxford Economics show how US consumers are more worried about inflation:

Reminder: US CPI surged to a 13-year high of +4.2% last month, so consumers are already seeing higher prices.

Economist Julian Jessop thinks the Federal Reserve should be concerned:

Kathy Jones, chief fixed income strategist at Charles Schwab, argues it’s too early to tell if inflation expectations are becoming entrenched.

Just in. US consumer confidence has fallen unexpectedly this month, as Americans grow more concerned about rising prices.

The University of Michigan’s Index of Consumer Sentiment has dropped to 82.8 this month, down from 88.3 in April, preliminary data shows. Economists had expected it to rise, to 90.4.

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Chief economist Richard Curtin, who directs the survey, says inflation expectations jumped this month:

Consumer confidence in early May tumbled due to higher inflation--the highest expected year-ahead inflation rate as well as the highest long term inflation rate in the past decade.

Expectations for inflation over the next year rose to 4.6% in the month, the highest in a decade, Friday’s data show.

Long-term inflation expectations also rose, to 3.1% -- above the Federal Reserve’s target of 2%.

Rising inflation also meant that real income expectations were the weakest in five years, Curtin adds:

The average of net price mentions for buying conditions for homes, vehicles, and household durables were more negative than any time since the end of the last inflationary era in 1980.

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Curtin warns that the US could see an ‘inflationary psychology’, as pent-up demand and record savings will support consumer spending... unless the Federal Reserve was to change its stance.

Shifting policy language and even minor rate increases could douse inflationary psychology. Indeed, such a policy would be consistent with consumer expectations since two-thirds expect a rate hike in the year ahead.

It should be no surprise that consumers anticipate a booming economy over the next year or so, including rapid job gains as well as increases in the inflation rate and interest rates. Indeed, consumers think these economic prospects are the natural result of stimulating an economic boom from last year’s shutdown.

Wall Street has opened higher, as New York traders try to end a volatile week on an upbeat note.

Here’s the position:

• Dow: up 260 points or 0.75% at 34,282 points
• S&P 500: up 37 points or 0.9% at 4,149 points
• Nasdaq: up 121 points or 0.9% at 13,246 points

Nearly every stock is higher on the Dow, led by Chevron (+2%) following the pick-up in the oil price today.

Goldman Sachs (+1.8%), Microsoft (+1.6%) and Boeing (+1.5%) are also in the top risers.

But Walt Disney are falling, down nearly 5% after reporting fewer new subscribers to its Disney+ streaming service than expected last night.

The 4.3% drop in US motor vehicle production last month shows that the chip shortage “really began to bite”, says Paul Ashworth of Capital Economics:

Semiconductor imports did hit a record high last month, which suggests that particular shortage may become less acute in the coming months.

Unfortunately, the shortages now extend well beyond just semiconductors, and include raw materials, other intermediate inputs and, based on the very elevated job openings rate for manufacturing, labour too. The upshot is that we expect those broader supply constraints to hold back the recovery in manufacturing output this year.

US industrial output rose by 0.7% in April, below forecasts of a 1% rise, new figures show.

The narrower measure of manufacturing output rose 0.4%, but car production fell -- as US auto firms struggled to get hold of semiconductors amid the global shortage.

The Federal Reserve, which compiles the data, says the index for motor vehicles and parts fell 4.3% in April:

Automotive products, transit equipment, and consumer parts all recorded losses, as shortages of semiconductors held back motor vehicle assemblies.

Among the other market groups, chemical materials and consumer energy products posted strong gains of 6.7% and 3.8%, respectively.

The Fed has also revised its data from earlier this year, to show a deeper plunge in industrial output during the winter storms in February (-3.5%, down from -2.6%), and then a faster rebound in March (+2.4%, up from 1.4%).

An important contributor to the gain in factory output was the return to operation of plants that were damaged by February’s severe weather in the south central region of the country and had remained offline in March.

The weather-induced drop in total industrial production in February and the subsequent rebound in March are now estimated to have been larger than reported last month.

Neil Birrell, Premier Miton’s Chief Investment Officer, says:

“April US retail sales inevitably pulled back from the March surge, but still continued to advance; much in line with expectations. The data keeps telling us that the economy is pushing ahead and the University of Michigan survey later will be scrutinised for more signs of inflation.

The Fed will be keeping a close eye on the trend and how markets react, which seem to be in a holding pattern waiting for clear signs of any policy shift.”

Andrew Hunter, senior US economist at Capital Economics, says stimulus cheques and easing restrictions are supporting retail spending in the US, although labor shortages could be holding hospitality back...

He writes:

The unchanged reading for retail sales in April is slightly stronger than it looks given that it follows an upwardly-revised 10.7% m/m surge in March, and it suggests that the boost from the $1,400 stimulus cheques has only partly faded.

Nevertheless, as goods spending inevitably drops back over the coming months we were hoping for an offsetting rebound in services. But food services sales only increased by 3.0% m/m last month, a marked slowdown on the March gain, which is a hint that labour shortages and the resulting surge in wages and prices may be acting as a constraint on the recovery in real activity.

My colleague Amanda Holpuch examined this labor shortages last week. She found that concerns about Covid-19 among people not yet vaccinated and childcare pressures, are making it hard for people to take up vacancies:

Ben Casselman of the New York Times is tweeting some handy retail sales charts: