US factory output growth slows 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: New York manufacturing strengthens 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. Pound rallies despite Brexit fears 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 High Court ruling over Covid-19 insurance 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. The UK’s weakening labour market loomed over today’s cabinet meeting at Downing Street: Over in Germany, investor sentiment has jumped this month despite fears of a Covid-19 second wave...and the reemergence of Brexit fears. The ZEW institute’s survey of investor morale jumped to 77.4 this month, from 71.5. ZEW’s gauge of current economic conditions also rose, but the survey also found concerns that bad debts will rise in the next six months. Markets boosted by Chinese data European stock markets are all higher this morning, partly lifted by decent economic news from China. Retail sales across China rose 0.5% year-on-year in August, the first positive move since 2020 began. The increase was driven by a 25% jump in sales of communication equipment, and an 11.8% jump in car sales. China’s National Bureau of Statistics also reported that industrial production grew 5.6% in August from a year ago, as factories continued to shake off their weakness during the pandemic. This has lifted optimism in the markets (despite the IEA’s gloomy view on oil demand), putting the FTSE 100 index on track for a three-week closing high. It’s up 45 points, or 0.7%, this morning at 6,071, with Ocado the top riser. Here’s another decent thread on today’s UK unemployment statistics, from Resolution Foundation’s Torsten Bell: IEA cuts oil demand forecast again Just in: Concerns over the world economy has forced the International Energy Agency (IEA) to cut its oil demand forecast for 2020, for the second month running. The IEA now predicts that oil demand will plunge by 8.4 million barrels per day this year, up from 8.1m bpd a month ago. That will pull demand down to its lowest level in seven years. In its latest monthly report, the IEA warns that the recovery in oil demand is now slowing. It cites a resurgence of Covid-19 cases in many countries, local lockdown measures, continued teleworking and weakness in the aviation sector. It says: For 2020 as a whole, we see the fall in demand versus 2019 at 8.4 mb/d, slightly deeper than last month. At 91.7 mb/d, demand has returned to its level in 2013. The slump in oil demand this year highlights the weakness of the global economy, a factor driving up UK unemployment. The IEA also warned that the uncertainty created by Covid-19 shows little sign of abating, with the outlook ‘very fragile’. In Europe, the number of new cases has risen as the holiday season ends, though the rate of hospitalisations and deaths is lower than seen earlier this year. Case numbers in the United States are falling and the situation seems to be improving in Japan and Korea. However, in various places, the situation is worrying and we are seeing localised lockdowns. Some countries, for example France and the UK, have introduced measures such as mask-wearing obligations and restrictions on gatherings and they may yet go further to fight the pandemic. These developments weigh heavily on economic activity and lead to lower expectations for a recovery in energy demand. Home working reduces demand but fear of using public transport is leading many workers to use personal vehicles. Factoring these unprecedented developments into conventional analysis is very challenging, to say the least. Minister for Employment Mims Davies MP insists that the government is taking action to protect jobs -- including through its new Kickstart Scheme. That programme is designed to help younger people into the labour market (a vital issue, given the record FALL in younger people in work), through 6-month job placements paid for by the government (details here). Davies say: “We recognise that the pandemic has been difficult for many people who are worried about their incomes and that’s why our £30bn Plan for Jobs is aimed at protecting, supporting and creating jobs and it’s welcome news that there is some recovery in vacancies. “Meanwhile, we’re creating hundreds of thousands of fully subsidised new jobs for young people through our £2bn Kickstart Scheme to give those starting out a leg up onto the career ladder and offer them hope for the future. And within our jobcentres we’re recruiting a further 13,500 Work Coaches so all jobseekers throughout the UK have access to tailored support, to build their skills and pivot into new roles.” Domino’s Pizza, Britain’s biggest pizza delivery chain, is bucking the job loss trend by hiring 5,000 more staff. With its busiest time of the year approaching, Domino’s announced today it will take on more pizza chefs, delivery drivers and customer service staff, on top of the 6,000 jobs already created this year. Although takeaways in high demand during the pandemic, Domino’s did suffer a drop in sales as it had to bar customers from collecting orders. Some popular items, such the cheeseburger pizza, stuffed crust options and chicken wings, were also dropped as it is simplified its menu to keep operating safely. Ocado shares jump Over in the City, meanwhile, shares in Ocado have jumped 6% after it reported a surge in sales over the last quarter. The home delivery grocer posted a 52% increase in sales in the 13 weeks to 30 August, as the pandemic continued to drive more customers to online shopping. Ocado told shareholders that: ● Retail sales grew faster compared to Q2 as demand remained high versus a seasonally softer quarter in Q3 2019 ● Average order size continues to normalise from COVID-related peaks to £1411, but remains above pre-crisis levels It also insists that the switch away from Waitrose products, to M&S food, has gone well, despite some customers seeing their orders cancelled. Shares have jumped to almost £25 each this morning, near to last month’s record high -- and up almost 100% since January..... Business groups: More help needed to protect jobs UK business groups are urging the government to act, before unemployment surges higher in the coming months. Matthew Percival, director of people and skills at the CBI, warns that a successor to the furlough scheme is badly needed: “The easing of lockdown restrictions and a more flexible Job Retention Scheme in July have led to the beginning of a recovery in vacancies and hours worked. But rising redundancies, rising unemployment and a record fall in the number of young people in work are clear warning signs of what is to come. “Looking ahead, a successor to the Job Retention Scheme is needed to protect jobs and businesses.” Suren Thiru, head of economics at the British Chambers of Commerce, says companies hit by local lockdowns need more help: “While there was a rise in the number of job vacancies, this is more likely to reflect a temporary bounce as the economy gradually opened, rather than a meaningful upturn in demand for labour. With many firms are still facing waves of cash flow problems, rising costs and an uncertain economic outlook, it is probable that unemployment will escalate sharply as government support winds down. “To help avoid a damaging cliff edge for jobs more must be done help firms keep staff on through this deeply challenging period. This should include a significant cut in employer National Insurance Contributions and more substantial support for firms placed under local lockdowns.” Chancellor Rishi Sunak has responded to the jump in unemployment, by pledging to protect jobs. However, there’s no sign that he’s going to reverse his decision to end the furlough scheme next month.... Sunak says: “This is a difficult time for many as the pandemic continues to have a profound impact on people’s jobs and livelihoods. That’s why protecting jobs and helping people back into work continues to be my number one priority.”