Closing summary: Markets up, US inflation peaking? US"s Opec plea Time to recap. Stock markets have rallied again amid signs that America’s inflation surge may have peaked, with the White House piling pressure on the Opec cartel to get its oil pumps working faster. In London, the FTSE 100 index closed at an 18-month high, while the smaller FTSE 250 index hit a fresh record peak again. Defence and aerospace Meggitt led the charge, up 16% at a record high itself, after it found itself in a takeover tug-of-war between two US firms. European markets also saw new peaks, as did Wall Street, as the pandemic stock market rally remained on track. Time to recap. Stock markets have rallied again amid signs that America’s inflation surge may have peaked, with the White House piling pressure on the Opec cartel to get its oil pumps working faster. In London, the FTSE 100 index closed at an 18-month high, while the smaller FTSE 250 index hit a fresh record peak again. Defence and aerospace Meggitt led the charge, up 16% at a record high itself, after it found itself in a takeover tug-of-war between two US firms. The rally came after the latest US inflation data raised hopes that the surge in consumer prices could be fading. The CPI index rose by 0.5% in July, down on June’s 0.9%, with core inflation also slowing. Prices for used cars and trucks, which have jumped almost 42% in the last year, rose just 0.2 per cent between June and July. The headline annual rate of inflation remained at a 13-year high of 5.4%, with gasoline, food and shelter costs all continuing to rise. But core inflation eased, up just 0.3% on the month -- although it was still 4.3% up on the year. The data has calmed some nerves that the US central bank might tighten monetary policy too soon. Neil Birrell, Premier Miton Chief Investment Officer and manager of Premier Miton Diversified Growth Fund, says: “The investing world was looking at the US CPI data for a lead on likely Fed policy and market direction but it came out bang in line with expectations at the headline level. The focus will be on re-opening sensitive sectors to give a feel for how much of the upward pressure is transitory. For now, though, prices continue to rise, driven largely by supply constraints. Overall, however, inflation climbed at a more moderate pace, which will give the Fed’s current view some support.” The White House urged Opec+ to pump more oil - throwing aside concerns that burning fossil fuels was contributing to the climate emergency. Jake Sullivan, Joe Biden’s national security adviser, warned that high oil prices “risk harming the ongoing global recovery”. In a broadside at Opec, and allies including Russia, Sullivan said the group’s plans to slowly raised production to pre-Covid levels were too slow. At a critical moment in the global recovery, this is simply not enough,” The White House’s move shows the ‘delicacy of the current situation’, says Danni Hewson of AJ Bell: Gas prices have been climbing as people have jumped back in their cars and when you look at pressure points for July it’s right up there. And while a big chunk of the inflation basket hikes have come from expected avenues like airfares, hotels and used car sales, keeping a lid on household costs will be vital going forward. As will keeping a lid on CO2 emissions.... In the UK, Heathrow Airport reported its busiest month since March 2020 - but also warned that barriers such as the US ban on UK travellers, and expensive Covid tests were hitting the recovery. Online takeaway delivery firm Deliveroo has doubled the number of orders from customers to 149m in the first six months of the year as the appetite for takeaways continued to grow despite the reopening of bars and restaurants. Winchester has the unwelcome distinction of becoming the UK’s most unaffordable city to buy a house in: The competition watchdog has sided with Great Britain’s energy regulator after an industry rebellion over a clampdown on the returns energy network companies can make at the expense of customer bills. The boom in demand for online shopping has prompted John Lewis to open a one million square foot warehouse in Milton Keynes, creating 500 jobs. And lamb grazed on the delightful Gower penisula in Wales has become the first UK food to receive protection under the post-Brexit regime. Goodnight. GW John Lewis is to open a 1m sq ft warehouse in Milton Keynes that will employ 500 people as it tries to meet surging demand for online shopping. The new facility at Fenny Lock, which it has leased from Tesco for 11 years, will be John Lewis’s second biggest distribution centre after nearby Magna Park. In addition, John Lewis has signed a three-year lease on a 300,000 sq ft distribution centre in Bardon, Leicestershire, which it will start using this month to help deal with the busy Black Friday discount period in late November. That site will be run by the specialist Clipper Logistics. The investments come as online orders at the staff-owned group have risen to 60% of overall sales, from 40% before the coronavirus pandemic. FTSE 250 hits record high amid Meggitt takeover drama The UK-focused FTSE 250 index of medium-sized companies has closed at a new record high - with Meggitt leading the way. The domestically focused FTSE 250 has closed nearly 185 points higher at over 23,756 points, up 0.8% today. That’s a fresh record peak, extending the index’s recent strong rally since the pandemic crash almost 18 months ago, lifted by economic optimism and a string of takeover offers for UK firms. Meggitt was the top riser, closing 16% higher at 830p after it revealed Transdigm has proposed a 900p-per-share takeover, trumping the 800p offer from Parker Hannifin. The blue-chip FTSE 100 index also had a strong day, finishing at its highest level in 18 months. It gained 59 points or 0.8% to 7,220 points, the highest since February 2020. Engineering group Spirax-Sarco finished as the top FTSE 100 riser (+4.2%), followed by insurer Admiral (+3.9%). Michael Hewson of CMC Markets explains: Amongst the outperformers has been Spirax-Sarco Engineering who have seen a decent jump in H1 revenues to £643.7m due to increased demand for its steam products. An increase in operating margins to 23.9% has helped drive a 41% increase in profits before tax to £150m. Admiral shares moved higher after the insurer saw a 76% rise in group profits before tax to £482.2m in the first half of the year, raising its interim dividend by 63% to 115p per share. Profits were boosted by the sale of its Penguin Portals business, which included Confused.com, as well as lower claims payouts. Cybersecurity firm Avast (+3%), also pushed the FTSE 100 higher after its takeover by NortonLifeLock was agreed (which the Telegraph reports puts up to 1,000 jobs at risk). Other markets also rallied, with Europe’s Stoxx 600 also hitting a fresh record high - alongside Wall Street’s new peak. Investors are showing confidence in the recovery, and seem calmer about the risks of inflation. President Biden’s council of economic advisors has welcomed the slowdown in monthly US inflation in July, but warned that supply chain problems remain: UK aerospace and defence firm Meggitt receives rival takeover approach Back in the UK, the takeover of defence and aerospace technology firm Meggitt has taken a twist. US firm Transdigm Group is trying to gatecrash Meggitt’s agreed takeover by American firm Parker-Hannifin, by proposing to pay 900p per share for the Coventry-based firm. Meggitt, a defence supplier to the UK government and provider of components for US F-35 Lightning II fighter jets, says it received this preliminary, non-binding proposal of a possible cash offer from Transdigm yesterday. Meggitt is currently reviewing the unsolicited proposal, and will consider both the financial terms and the potential impact of Transdigm’s offer on its employees, pension schemes and customers, as well as HM Government and other regulatory bodies. Shares in Meggitt have soared by over 16% to 833p on the FTSE 250 index. Parker’s offer, at 800p per share, included a series of commitments to the UK government, including honouring contracts, ensuring most of the company’s board are UK nationals; and increasing R&D spending by a fifth over the next five years. But the UK government is taking an “active interest” in Parker’s takeover, amid concerns over its impact on British jobs and investment - and the loss of a US defense company to an overseas owner. Meggitt add that there is no certainty that any firm offer will be made by TransDigm nor as to the terms on which any offer might be made. They are still recommending Parker’s offer: The directors of Meggitt continue to recommend unanimously the offer by Parker to Meggitt shareholders announced on 2 August 2021 and intend to include that recommendation in the Scheme Document expected to be sent to Meggitt shareholders in the week commencing 16 August 2021. The Board of Meggitt believes Parker’s offer continues to represent an attractive proposition for Meggitt’s shareholders and for its broader stakeholders, including its employees, pension schemes and customers, together with HM Government, for the long-term. Wall Street hits another record high after inflation report The US stock market has opened at a new record high, as investors welcome signs that inflation across America may have peaked. Although the headline annual inflation rate remained at a 13-year high of 5.4%, investors are relieved that core inflation eased (up 0.3% m/m), and that monthly price pressures moderated (with CPI up 0.5% during July, from 0.9% in June). It may take some pressure off the US Federal Reserve to start tapering its bond-buying stimulus programme. The Dow Jones industrial average has jumped by 203 points, or 0.6%, to 35,467 in early trading on Wall Street. Most of the 30 stocks on the Dow are higher, led by retail chains Home Depot (+1.7%) and Walmart (+1.5%), construction equipment maker Caterpillar (+1.6%) and aircraft maker Boeing (+1.2%). The broader S&P 500 has also hit a new record high, up 11.3 points or 0.25% at 4,448. Guy Foster, chief strategist at wealth manager Brewin Dolphin, says “the worst is over” for inflation, which is good news for stocks. “This is the validation stocks were look for that the extraordinary levels of inflation in recent months were anomalous and driven by outliers. It should be well received.” Here’s his take on July’s CPI report: “Inflation finally descended back into the realm of normality during July. “The July numbers had far fewer outliers than the last three months’ reports. “Hotels rooms continue to skew the figures upwards. Dental services also saw high price inflation. “Inflation remains a challenge and it will take some time for the numbers to revert to more normal levels. However, the annual rate of inflation will slow fairly sharply next year as the high figures from recent months drop out of the numbers. Jason Furman, who was Barack Obama’s top economic advisor, suggests the inflation report is not capturing, yet, the increase in shelter costs. That lag could mean shelter prices play catch-up in future inflation reports, pushing up the CPI: Tom Kremer, senior fund manager at Quintet Private Bank (the parent company of Brown Shipley), says companies have been passing on their higher costs onto consumers. But he also spies signs that inflation is normalising, after the economic shock of the pandemic: “US consumer prices rose at a more moderate pace in July, up 0.5% from June, with the core measure coming in somewhat lower than expected at 0.3% month-on-month. As in previous months, the majority of the increase can be ascribed to Covid-sensitive goods and services, which still face a range of supply disruptions and bottlenecks. Given that consumers appear relatively less price sensitive for the moment, retailers have been able to pass on higher input costs. Though with excess savings declining and the reopening-led surge in demand abating, we expect spending habits to normalize in coming months. Some price measures, such as those for airfares and used cars, which had seen outsized gains recently, have settled back into a normal range. Signs of growing price pressures in food and shelter bear watching however. Overall, the July CPI report shows signs of normalization, which should give the Fed further confidence in the transitory nature of inflation and thus have limited if any impact on the central bank’s policy path.” Cost of shelter keeps rising Housing costs continued to rise last month, putting more pressure on households. Shelter, a vital component of the inflation basket, was up 0.4% in July, and accounted for over half of the monthly increase in core inflation. Shelter costs (rent, or the equivalent that owner-occupiers would pay) were 2.8% higher year-on-year, showing underlying inflation pressures. Ambrose Crofton, global market strategist at J.P. Morgan Asset Management, explains: “There are signs that some of the inflation related to supply-chain bottlenecks and the reopening of the economy is easing. Used cars which had increased 10.5% in June only rose 0.2% in July, while airline fares actually fell 0.1% in the month. With 60% of the annual inflation figure coming from just a fifth of the inflation basket including restaurants, energy, used cars and transport – this lends credence to the argument that much of the pickup in prices will prove temporary. “However, while a good amount of inflation can be attributed to these temporary factors, there are signs that underlying price pressures that could prove more persistent continue to build. The shelter component that tends to move in long cycles and accounts for a third of the inflation basket rose to 2.8% year on year. “Overall, today’s inflation print is the latest in a string of strong economic releases that should raise the pressure on the Federal Reserve to announce the tapering of its asset purchases sooner rather than later. On an annual basis, US gasoline prices are almost 42% higher than in July 2020. Car rentals are 73.5% higher, despite that 4.6% monthly drop. Used car prices, hotel bills and airline tickets are all much pricier than a year ago -- when the Covid-19 lockdowns were hitting the economy, helping keep inflation at that 13-year high. The inflation report also shows that truck and rental prices fell by 4.6% last month, after jumping 5.2% in June. That could bolster hopes that the surge in inflation will be transitory.... Economist: US is now past peak inflation Economists are encouraged that US inflation rate dipped on a monthly basis last month, to 0.5% from June’s red-hot 0.9%. Greg Daco of Oxford Economics tweets that America’s economy is now passed peak inflation, even though annual inflation was the highest since August 2008. The Washington Post’s Heather Long points out that prices cooled in several notable areas - including used cars (up just 0.2% in July, after a 10.5% surge in June). US inflation sticks at 13-year high of 5.4% The annual rate of US inflation remained at a 13-year high last month, with gasoline prices one factor pushing up the cost of living. The US Consumer Prices Index rose by 0.5% in July, down from June’s 0.9%, the U.S. Bureau of Labor Statistics reports, as supply chain problems and strong demand as the economy reopens continues to push up the cost of living. Gas prices were up 2.4% during the month - highlighting why the White House is urging Opec to pump more. On an annual basis, CPI was 5.4% higher year-on-year in July, matching the 13-year high set in June as inflationary pressures hit the US economy. Core inflation, which strips out volatile food and energy components, did ease a little. It fell to 0.3% per month, from 0.9% in June. It was up 4.3% year-on-year, from 4.5% a month ago. The BLS reports that the cost of shelter, food, energy, and new vehicles all increased during July, although auto insurance and airline fares have dipped. The food index increased 0.7 percent in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8 percent. The energy index rose 1.6 percent in July, as the gasoline index increased 2.4 percent and other energy component indexes also rose. The index for all items less food and energy rose 0.3 percent in July after increasing 0.9 percent in June. Along with shelter and new vehicles, the indexes for recreation, for medical care, and for personal care increased in July. The index for used cars also increased in July, but the 0.2-percent advance was much smaller than in recent months. The index for motor vehicle insurance declined in July, and the index for airline fares fell slightly. As Bloomberg’s Javier Blas points out, pumping more oil hardly squares with the urgent need to tackle the climate crisis caused by burning fossil fuels.... The White House’s move follows a notable rise in gasoline prices in recent months. The national average for a gallon of gas jumped above $3 back in May for the first time since 2014, when the Colonial Pipeline shutdown led to shortages in some states. The Biden administration is also calling on the Federal Trade Commission to “monitor the U.S. gasoline market” and “address any illegal conduct that might be contributing to price increases for consumers at the pump.”, according to CNBC. CNBC says: The letter from the National Economic Council to the FTC urges the regulatory body to look into the factors contributing to the rise in gas prices in an effort to ensure that consumers aren’t footing an unfair bill. “With its suite of tools to monitor industry prices, review merger-and-acquisition activity, conduct market studies, and investigate market manipulation and anti-competitive practices, the FTC is well placed to lead the effort to evaluate what is happening in the U.S. gasoline market and take any necessary steps to address illegal conduct,” the letter said. CNBC: White House to call on OPEC to boost oil production as gasoline prices rise US calls on Opec+ to increase oil production The US government is calling on the Opec group, and their allies, to boost oil production amid worries that rising energy prices are weighing on the recovery. National Security Adviser Jake Sullivan said the Organization of the Petroleum Exporting Countries should to move faster to restore global supply of petroleum to pre-pandemic levels, to combat rising fuel prices. In a statement, Sullivan warned: “Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery,” Sullivan points out that crude oil prices have risen above their pre-pandemic levels, in a call for “reliable and stable global energy markets”. The news has knocked the oil price lower -- US crude is down 1.35% at $67.37 per barrel, while Brent crude is down 1.2% at $69.75. The Opec group, and allies including Russia, slashed production by millions of barrels per day early in the pandemic, as demand and prices slumped. They have been gradually relaxing those curbs, adding an extra 400,000 barrels per day each month from August. Sullivan says they must act faster to bring production back to pre-pandemic levels. “At a critical moment in the global recovery, this is simply not enough.” Sullivan adds that the Biden administration is pressuring OPEC and producers allied with the cartel, both in public and in private, to more swiftly undo the production cuts put in place at the start of the pandemic, adding: Competitive energy markets will ensure reliable and stable energy supplies, and Opec+ must do more to support the recovery.” In the US, meanwhile, mortgage applications have risen as borrowers look to take advantage of low rates, with housing supply still short. The Mortgage Bankers Association (MBA) reports that total mortgage application volumes rose by 2.8% last week, having fallen by 1.7% in the previous seven days. Joel Kan, MBA’s associate vice president of economic and industry forecasting, said: “Homeowners continue to respond to lower rates, with refinance activity climbing to the highest level since February 2021,” The number of applications for Federal Housing Administration Loans (FHA), popular with first-time buyers, rose 3.3% during the week. They require a lower minimum down payment and lower credit scores than many conventional loans. Kan says: With low for-sale inventory keeping home price appreciation in many markets at record highs, the jump in FHA purchase applications is potentially a sign that more first-time buyers are finding purchase options despite the high prices.” Housing news: Winchester has claimed the title of the UK’s least affordable place to buy a house, from Oxford (which has held the dubious award for several years). New data from mortgage lender Halifax show that the average Winchester property costs 14 times the city’s average earnings. My colleague Julia Kollewe has the details: A home in Winchester will set buyers back an average £630,432 – the highest in the country and up 8% on 2020, while average earnings are £45,059. Price growth in Winchester was far outstripping the rest of the UK in relation to wages, Halifax said. Its analysis of 61 cities in the year to June shows that the average home costs 8.1 times average earnings, up from 7.5 times last year. The ratio has increased for eight years. Russell Galley, the managing director of Halifax, said: “We can see from our research that affordability is significantly better in the north and there are now just two cities – Plymouth and Portsmouth – with better than average affordability in the south.” Oxford, Truro, Bath, Chichester and Cambridge made up the top six least affordable places, all with double-digit price/earnings ratios. Londonderry in Northern Ireland remains the country’s most affordable city for the third year in a row. Here’s the full story.