Stronger economy is good news for general election winner
The upward revision to Q1 GDP growth from 0.6% quarter-on-quarter to 0.7% q/q this morning (see opening post) suggests whoever is Prime Minister this time next week may benefit from the economic recovery being a bit stronger than expected.
So says Paul Dales, chief UK economist at Capital Economics.
He told clients that the economy may grow faster than expected this year – a boost to the winner of next Thursday’s general election.
The larger rise in GDP in Q1 was mainly due to upward revisions to consumer spending (from +0.2% q/q to +0.4% q/q) and the contribution from net trade (from +0.4ppts to +0.6ppts) more than offsetting downward revisions to government spending (from +0.3% q/q to 0.0% q/q) and residential investment (from +4.1% q/q to +3.2% q/q).
The revision suggests that real GDP growth in 2024 as a whole may be more likely to come in a bit above our existing forecast of 1.0%.
Dales adds:
It now looks as though real household disposable income will grow by more than our forecast of 2.0% this year and we are expecting a solid 3.5% gain next year too. This underpins our forecast that consumer spending will be the main driver of a rise in GDP of at least 1.0% this year and about 1.5% next year. Should the saving rate fall back from its unusually high level, the economic recovery could be even stronger.
This is certainly good news for whoever will be the Prime Minister this time next week, although it could also contribute to the Bank of England cutting interest rates a bit slower than otherwise.
Key events
Wall Street has opened higher as traders welcome the drop in PCE inflation.
The Dow Jones industrial average has gained 221 points, or 0.5%, to 39,385 points, while the broader S&P 500 index is up 0.7%.
“Huge relief” for Federal Reserve as its preferred inflation measure slows
Over in the US, the Federal Reserve’s favourite inflation measure has dipped.
The PCE price index rose by 2.6% in the year to May, down from 2.7% in April.
Encouragingly for the Fed, underlying inflation fell too. Core PCE, which strips out food and energy, also slowed to 2.6% in May, down from 2.8%.
Supercore PCE, which tracks the prices of core services excluding housing, also cooled….
This may reassure the Fed that inflation is easing back towards its 2% target, which could encourage it to consider cutting interest rates later this year.
James McCann, deputy chief economist at abrdn, says:
“Following an alarming acceleration at the start of the year we continue to see signs that inflation in cooling again, which will be a huge relief for the Fed and financial markets. This month’s data showed a tepid increase in underlying price pressures, with this weakness spread across the inflation basket. Alongside signs of easing activity rates these figures look consistent with the soft landing the Fed has been hoping for.
However, the central bank won’t be celebrating yet. Indeed, the message from Chair Powell and others has been that an extended run of softer inflation data is needed to make them confident that inflation heading sustainably back to their target. The upshot is that while the door remains open for a September rate cut, it seems more likely that a cautious central bank will wait a little longer before pulling the trigger on easing.”
France’s CAC 40 lowest since January
Back in Paris, the stock market has hit its lowest level since late January.
The CAC 40 share index of France’s largest companies has dropped by 0.9% today, ahead of Sunday’s parliamentary vote.
David Morrison, senior market analyst at fintech and financial services provider Trade Nation, says:
Investors should prepare for potential market volatility on Monday, particularly in the, admittedly unlikely, event that Marine Le Pen’s RN party won an outright majority.
Delays at Gatwick after runway briefly closed
Travellers at Gatwick Airport have been hit by disruption today, when its runway was briefly closed.
Gatwick’s runway has reopened after being closed earlier today; the airport has blamed a “departing aircraft having hot brakes” for the disruption.
Happily, the runway has reopened – but plenty of flights out fo Gatwick have been delated (see the latest here).
Hi Teresa, the main runway was closed for a short time today (28 June) due to a departing aircraft having hot brakes. Safety is our top priority and the dedicated airport fire service swiftly attended to support the aircraft. A number of flights were diverted. The runway is 1/2
— London Gatwick LGW (@Gatwick_Airport) June 28, 2024
now open and operating as normal. We advise passengers to speak to their airline for the latest information on their flight. Thanks, Naomi 2/2
— London Gatwick LGW (@Gatwick_Airport) June 28, 2024
Flight tracking website Flightradar24 reported the closure of the runway at 12.53pm and stated at 1.14pm it had reopened, PA Media reports.
Nike shares slide on sales gloom
Shares in Nike have tumbled 15% in pre-market trading, after the sportswear company reported a drop in sales.
Nike missed expectations by posting fourth-quarter revenues of $12.61bn for the last quarter of its financial year, to 31 May, a 2% fall compared with the previous year (when sales totalled $12.83bn).
Revenues for Nike’s Converse brand tumbled by 18% in the quarter, which the company says is primarily due to declines in North America and Western Europe.
Nike also forecast a surprise drop in fiscal 2025 revenue; it expects a mid-single-digit percentage fall in annual revenue, Reuters reports, as customers favour newer brands such as On and Hoka.
John Donahoe, President & CEO of Nike, told shareholders:
“We are taking our near-term challenges head-on, while making continued progress in the areas that matter most to NIKE’s future – serving the athlete through performance innovation, moving at the pace of the consumer and growing the complete marketplace.”
Nike shares plunged in after-hours trade after the sportwear giant forecast a surprise drop in fiscal 2025 revenue, hurt by faltering demand for its sneakers as consumers covet newer brands such as On and Hoka. Read more https://t.co/ptcQl8OrJH pic.twitter.com/MdRrxo3K8d
— Reuters Business (@ReutersBiz) June 28, 2024
French election uncertainty may also be hitting European equities.
Bank of America reports today that European stocks saw outflows of $2.1 billion in the last week, their most in 14 weeks.
Over in Germany, the number of people out of work has risen faster than expected.
New figures from the Federal Labour Office today show the number of unemployed grew by 19,000 in seasonally adjusted terms.
Analysts polled by Reuters had expected a smaller rise, of 15,000.
This has lifted Germany’s unemployment rate to 6%, from 5.9%, indicating the labour market is cooling.
Good Morning from Germany, where the labour market is deteriorating significantly. Germany’s seasonal-adjusted unemployment unexpectedly rate rose to 6% in June, up from 5.9% in May. The number of unemployed individuals in Germany grew by 19k in June, against prior 25k rise and… pic.twitter.com/LlQiEVn9Dq
— Holger Zschaepitz (@Schuldensuehner) June 28, 2024
Curiously, there is also an issue with banking services at Virgin Money today.
It says some customers have been hit by delays to payments both in and out of their Virgin Money accounts…..
We’ve experienced an issue this morning where some customers have seen delays to payments both in and out of their Virgin Money account. If you have tried to send a payment from your Virgin Money account and received an error message, please do not try to make the payment again.
— Virgin Money (@VirginMoney) June 28, 2024
On the French elections, analysts at Investec say:
Politics continues to be the dominant focus in France too, with the first round of the National Assembly elections on Sunday 30th. Candidates with over 50% of the vote in each constituency will be elected straight away.
Where this does not happen, contenders with support of at least 12.5% will go to a second round on Sunday week (7 July). The risk continues to be that the decision to call a snap election backfires badly for Macron – polls still suggest that the Assembly will be dominated by the hard-right FN (with the most seats) and the left to hard-left NFP, rendering political ‘cohabitation’ between an FN government and a centrist Elysée difficult to say the least.
Nationwide customers are also experiencing some banking problems today, Sky News reports.
Nationwide said there was a “delay with some customers receiving their salary or pension payments today”, Sky says.
