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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US producer prices slide as inflationary pressures ease; UK housing market weakens – as it happened

Elon Musk ING Tesla Inc. United States US Federal Reserve Inflation Jerome Powell Kathaleen McCormick Delaware
A Shell petrol station in Alhambra, California.
A Shell petrol station in Alhambra, California. Photograph: Frederic J Brown/AFP/Getty Images

Closing post

Time to wrap up…. here’s today’s main news stories so far:

Stocks are rallying on Wall Street in early trading, as traders hail the easing of inflation pressures.

The tech-focused Nasdaq index has hit a new intraday record high; it’s up 112 points, 0.64%, at 17,721 points.

But shares are weakening in Europe today; in London, the FTSE 100 share index has now dropped by 52 points, or 0.65%, at 8162 points.

The US producer prices report shows “a sustained easing in pricing pressures”, as the tide turns against inflation, says Ken Tjonasam, portfolio strategist at Global X.

Tjonasam explains:

“The softer PPI figures, coupled with other recent inflation data, start to throw cold water on the Fed’s overtly cautious comments from yesterday’s FOMC meeting. These shifts suggest a more favorable path ahead, potentially accelerating discussions around easing monetary policy.

In short, the data is clear: We’re on a more favorable path, with potential rate cuts becoming more likely as inflation continues to cool.”

Updated

Today’s “soft” PPI report adds to the better inflation news from the US, says Paul Ashworth, chief North America economist at Capital Economics.

Ashworth explains:

The 0.2% m/m decline in final demand producer prices was principally due to a 7.1% m/m drop back in gasoline prices but, even excluding food and energy, core producer prices were unchanged. The annual rate of producer price inflation moderated to 2.2%, with core producer price inflation down to 2.3%.

US producer prices fall at fastest rate since October

Just in: US producer prices unexpectedly fell last month, by the most since last October, another sign that inflationary pressures are moderating.

New data from the Bureau of Labor Statistics shows that the producer price index for final demand decreased 0.2% in May, compared with April (when they rose by 0.5%).

PPI is a guide to what goods and services producers charge for their wares, so is a good guide to inflationary pressures in the US economy.

On an annual basis, the PPI index rose by 2.2% compared with May 2023, down from 2.3% in April.

The monthly fall in the PPI index was driven by an 0.8% drop in prices charged for goods, thanks to a 7.1% decline in prices for gasoline.

Th BLS adds:

The indexes for diesel fuel, chicken eggs, electric power, jet fuel, and basic organic chemicals also fell. Conversely, prices for cigarettes rose 3.3 percent. The indexes for hay, hayseeds, and oilseeds and for residual fuels also moved higher.

Services producer prices were unchanged in May after increasing 0.6%.

Coming on top of yesterday’s fall in consumer price inflation, this is another welcome sign that the price pressures in the US are easing.

It’s the sort of evidence the US Federal Reserve will like to see, as it assesses when it can start lowering US interest rates (after keeping them on hold yesterday).

Updated

US jobless claims jump

Over in the US, the number of people filing new claims for unemployment support has risen.

There were 242,000 seasonally adjusted initial claims last week, an increase of 13,000 on the previous week’s figures.

That suggests an increase in US companies laying off workers, as initial claims are a proxy for job losses.

More people are missing their direct debit payments, a sign that the cost of living squeeze has not relented.

Thre was a 2% jump in the Direct Debit failure rate in May compared with April, according to the Office for National Statistics. On an annual basis, it was 12% higher than in May 2023.

A cut to UK interest rates might help to revitalise the housing market, but one doesn’t look imminent.

The money markets indicate there’s just a 9% chance that the Bank of England cuts interest rates, from 5.25% to 5%, at its next meeting in a week’s time.

Currently, a rate cut is only fully ‘priced in’ for the November meeting, but the Bank could start ease policy in August or September instead, if it is confidence that inflation is falling.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says:

Mortgage misery is set to endure, as the Bank of England sits on its hands.

The swaps market has moved recently, because it’s expecting higher rates to endure for longer, so banks are paying more for their fixed rates, and are passing this onto borrowers. We’ve seen fixed rates from the high street giants rise, and Moneyfacts says the average two-year fixed rate is now 5.97% - the highest since the middle of December last year.

RICS figures have revealed that this has already hit the property market, with fewer people looking for a new home and fewer sales agreed. With so many new properties still flooding onto the market, it means agreed prices are on their way down too.

The good news is that this shouldn’t endure for too much longer. The market isn’t fully pricing in a cut until November, but it may have gone too far. An August cut isn’t out of the question, so if the data starts to point towards an earlier cut, we could see rates pull back in the coming weeks and months.

Greg Abbott, Texas governor, has congratulated Elon Musk on (apparently) winning the shareholder vote on his pay deal, and on moving Tesla from Delaware to Texas.

Abbott adds:

Welcome to a state that has neither a personal nor a corporate income tax.

Incidentally, the value of Musk’s pay deal was estimated at up to $56bn in January. At the current share prices, it’s more like $45bn, we reckon.

Tom Bill, head of UK residential research at Knight Frank, predicts the UK housing market will pick up once the general election campaign is over.

“Political uncertainty and fading hopes of a summer rate cut mean demand for UK housing has fallen in recent weeks.

Supply remains strong in many areas, which means there is downwards pressure on prices. We expect a stronger autumn market once the election is over and a rate cut moves onto the agenda and average UK prices should rise by 3% this year.”

Keir Starmer, the front-runner to become prime minister after the election, has pledged today that Labour will “reform the planning rules,” and build the homes and infrastructure that Britain needs. More here.

Eurozone manufacturers made a weak start to the second quarter of this year, new data today shows.

Eurozone industrial production fell by 0.1% month-on-month in April, and was 3% lower than a year before.

Statistics body Eurostat reported that, over the last year, production of heavy-duty capital goods fell by 5.3%, while output of intermediate goods (used in final products) was down 2%. Production of durable consumer goods fell 3.1%, while non-durable goods were up 0.7%, and energy output fell 1.1%.

Technology analyst Dan Ives says the ‘overhang’ created by the row over Elon Musk’s pay packet is now lifting (although we don’t have the final shareholder vote details yet!).

Updated

Tesla shares rally in pre-market trading

Shares in Tesla are rallying in pre-market trading, after Elon Musk posted that shareholders are voting in favour of his $56bn pay award.

They’re up around 6.6% at $189, which would recover some of their 28% fall so far this year (they began January near $250).

AJ Bell investment director Russ Mould says the results of today’s AGM (which begins in almost 12 hours time) will have an impact on Tesla’s share price:

“A crunch vote on Elon Musk’s pay at Tesla’s AGM later could either provide a further catalyst for the share price to stall or remove an overhang and allow the shares to power up once more.

“Musk, no stranger to controversy, has gone on record as saying his blockbuster pay package will pass by a wide margin but there has been considerable disquiet about its size relative to the recent performance of Tesla. He also says the move to incorporate the business in Texas, linked to the renumeration issue, will get through.

“The company’s attempt to protect market share and invest in areas like automation and artificial intelligence has diluted margins and the shares have lost nearly 30% of their value since the start of 2024. Defeat could further undermine Musk’s credibility.

“Somewhat unusually ordinary investors, which make up around 30% of the shareholder register, will have a major part to play in the destiny of the vote.”

The Moscow stock market has dropped to its lowest level since last December, after the US ratched up sanctions on Russia’s “full war economy”.

The MOEX index, which tracks the largest companies listed in Moscow, hit a near-six month low this morning, and is currently down 1.5%.

The selloff came after the US has broadened its sanctions on Russia, including a fresh crackdown on banks dealing with sanctioned entities.

The US Treasury announced:

Today’s actions ratchet up the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy; restrict the ability of Russian military-industrial base to take advantage of certain U.S. software and information technology (IT) services; and, together with the Department of State, target more than 300 individuals and entities both in Russia and outside its borders — including in Asia, the Middle East, Europe, Africa, Central Asia, and the Caribbean — whose products and services enable Russia to sustain its war effort and evade sanctions.

In response, the Moscow Exchange announced the immediate suspension of trading in dollars and euros.

Russia’s central bank added:

“Companies and individuals can continue to buy and sell U.S. dollars and euros through Russian banks. All funds in U.S. dollars and euros in the accounts and deposits of citizens and companies remain safe.”

The rouble has fallen by 1% against the US dollar this morning, to 88 to the $, on the foreign exchanges.

Short-term UK mortgage rates are hovering close to the 6% mark today, having risen earlier in the spring.

Financial data provider Moneyfacts reports that:

  • The average 2-year fixed residential mortgage rate today is 5.97%. This is unchanged from the previous working day.

  • The average 5-year fixed residential mortgage rate today is 5.53%. This is unchanged from the previous working day.

Two months ago, the average 2-year fixed residential mortgage rate was 5.81%, while longer-term five year mortgages averaged 5.38%.

Housebuilder Crest Nicholson warns on profits

UK housebuilder Crest Nicholson has tumbled into the red, highlighting the struggles in the property sector.

Crest made a pre-tax loss of £30.9m in the six months to the end of April, down from a £28.4m profit a year earlier. It completed 11.9% fewer homes than a year before, down from 894 to 788, and was also hit by a fall in reservations at the end of last year.

It now expect to make an adjusted pre-tax profit of £22m-£29m for the full financial year, below analyst forecasts of almost £39m.

CEO Peter Truscott says the housing sector faces “several macro headwinds”, including stretched affordability, volatile mortgage rates, and low consumer confidence.

He told shareholders:

Over the last six months, the UK economy has experienced a mix of challenges and positive developments. Inflation, while starting to decline, has remained a persistent issue, impacting consumer purchasing power and business costs.

The timing of an interest rate cut by the Bank of England has been a subject of speculation, adding to economic uncertainty. Mortgage rates have been volatile, initially decreasing but rising again due to SWAP3 rates increasing, which has impacted the housing market.

Shares in Crest have dropped 10% in early trading.

Updated

UK housing market falters as rate cut hopes fade

There are signs this morning that the UK housing market is losing momentum, as recent increases in mortgage rates dampen demand from home buyers.

The latest poll of UK property surveyors has found that a net balance of 8% saw home buyer demand falling rather than rising in May. That’s the weakest reading since November 2023,

Buyer demand was weakest in the South East and South West of England, the report said.

The Royal Institution of Chartered Surveyors (Rics) also reported signs of house prices weakening; its net balance of house prices fell to -17 from a downwardly revised -7 in April, the lowest reading since January.

Survey participants also reported a fall in the number of sales agreed during May, although this is expected to rise over the next quarter.

Rics chief executive Justin Young said:

“Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos.

“Greater attention must be paid to improving conditions for ‘generation rent’, who are faced with rising rents and a lack of suitable options.

“This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.

“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation.

“With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.”

Julian Jessop, economist at the right-wing thinktank the Institute of Economic Affairs, says Rics’s data shows the need to cut UK interest rates soon:

SpaceX and its chief executive, Elon Musk, were sued on Wednesday by eight engineers who say they were illegally fired for raising concerns about alleged sexual harassment and discrimination against women, their lawyers have said.

The lesson of the Tesla pay packet saga, our financial editor Nils Pratley wrote this week, is that being a director of a listed company involves more than being a cheerleader in the Elon Musk fan club.

Nils explains:

But before this saga slips out of the headlines, there is the small matter of what the Delaware judge, Kathaleen McCormick, actually said in her 200-page judgment in January. Read the whole thing and the board of Tesla in 2018 comes across as a collection of patsies who were so in thrall to the boss that they were incapable of running even a semi-robust process for setting his incentives.

Nobody disputes that Tesla’s share price had to perform a minor miracle to deliver Musk’s prize in full: from a valuation of $50bn-ish, the requirement was to get above $650bn by 2028 (which actually happened in just three years). Rather, the problem was the people Tesla put in charge of negotiating with Musk to determine a fair jackpot.

As the judge noted, Ira Ehrenpreis, the lead director, had a 15-year business relationship with Musk. Another member of the working group, Antonio Gracias, went on holiday with Musk’s family. A third was Todd Maron, Musk’s former divorce attorney and the company’s general counsel, “whose admiration for Musk moved him to tears during his deposition”.

McCormick concluded that the process behind the award was “deeply flawed” and the terms “not entirely fair” to all shareholders: in essence, Musk said what he wanted and received minimal push-back.

Should Tesla pay Elon Musk $45bn? The shareholders will decide

Even if Tesla’s shareholders do approve Musk’s mega pay deal, the company also needs to persuade an already skeptical Delaware judge to recognize it.

My colleague Nick Robins-Early explains:

However, it is unclear if a court that blocked the deal will accept the re-vote, which is not binding, and allow the company to restore the pay package and move its HQ.

A Delaware chancery court judge nullified Musk’s pay package in January. Chancellor Kathaleen McCormick ruled that the board’s process of reaching the dollar figure, which she called “unfathomable”, was illegitimate and that Musk’s ties with board members were too extensive for them to be considered independent.

Updated

Musk says Tesla shareholders voting yes for his pay package

Today is a red letter day for Tesla, which is asking its shareholders to approve a massive compensation package for CEO Elon Musk worth at one stage up to $56bn (£44bn).

The package is up for approval, again, after being thrown out by a Delaware judge earlier this year – which has prompted the electric car manufacturer to also seek investor approval to shift its legal base to Texas.

Tesla has been urging shareholders to back the package – the largest ever granted to an executive at a US-listed company – with chair Robyn Denholm warning that Musk could step back if it was blocked.

Despite that plea, some major shareholders are opposing the package, including Norges Bank Investment Management, and the California State Teachers’ Retirement System (CalSTRS). And major proxy firms Glass Lewis and Institutional Shareholder Services (ISS) had urged shareholders to reject the pay package.

Musk, though, has declared this morning that shareholders are voting to approve the package, and the move to Texas, by “wide margins”.

Rolling out the red heart emoji, he posted:

“Thanks for your support!!”

The AGM starts at 9.30pm UK time tonight. Reuters points out that shareholders are allowed to change their vote up to the start of the annual meeting….

The pay package was first agreed by Tesla’s board, and backed by shareholders, in 2018. For Musk to qualify for the money, Tesla had to hit various revenue, profit and share price targets, which were met.

But back in January, Delaware judge Kathaleen McCormick ruled in favor of a Tesla shareholder who argued that the company’s board inappropriately set the pay package. The judge agreed Musk’s pay package was unnecessary in keeping Musk dedicated to Tesla, an argument that company officers made during the trial.

Updated

Introduction: Soft landing hopes alive after Fed meeting

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

Financial markets are clinging onto hopes of a soft landing after the world’s most powerful central banker hailed a fall in US inflation.

Under a soft landing, central bankers tame inflation and eventually cut interest rates while avoiding a recession. Sticky price pressures in the US have made this scenario seem less likely, as we’ve moved through 2024.

But investors are cheered by yesterday’s data showing that US consumer price inflation weakened to 3.3% in May, along with a fall in underlying inflation.

Federal Reserve chair Jerome Powell bolstered that optimism, telling reporters last night that it was “certainly a better inflation report than almost anybody expected.”

Powell was speaking after the Fed left US interest rates on hold, at a two-decade high.

And its latest dot plots showed that Fed officials now expect just one interest rate cut this year, down from three forecast in March. They also expect inflation to be more stubborn this year than they thought in the spring.

But Powell also hinted that the Fed is ready to cut rates if inflation falls quickly, or if the economy weakened, saying:

“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond.”

This lifted stocks on Wall Street, where the S&P 500 and the Nasdaq Composite closed at record highs for a third straight session.

Traders are encouraged that the Fed doesn’t see a big slowdown on the horizon, and sanguine that this may mean fewer rate cuts than hoped this year. After all, the Fed now sees an extra rate cut in 2025.

So while the landing may be delayed, it may not be too bumpy.

Analysts at ING say the Fed wants to see three things: More evidence of inflation pressures easing, more evidence of labour market slack, and softening consumer spending.

They add:

If we get all three of these, we believe the Fed will indeed seek to move monetary policy from “restrictive” to “slightly less restrictive” with 25bp rate cuts at the September, November and December FOMC meetings.

Also coming up today

Leaders from the G7 are meeting in Borgo Egnazia in the southern region of Puglia, where they’re expected to approve a plan to use the interest from frozen Russian assets to support Ukraine

The latest index of US producer prices will test the soft landing narrative, with economists predicting a slowdown in price rises in May.

The agenda

  • 9.30pm BST: Tesla AGM, where shareholders will vote on Elon Musk’s$56bn pay deal

  • 1.30pm BST: PPI index of US producer prices

  • 1.30pm BST: US weekly initial jobless claims

  • 2pm BST: Russia’s trade balance for April

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