Time to wrap up.

MPs have heard that the UK economy risks a ‘pandemic hangover’, even once Covid-19 vaccines are deployed.

Bank of England policymaker Michael Saunders told the Treasury Committee that Britain faces the risk of a significant rise in unemployment, higher corporate debt, and depleted household savings, particularly among poorer families.

Plus, firms will be more cautious after suffering this year’s economic slump, Saunders warned, in a reminder not to get carried away by vaccine optimism.

Obviously it’s better to have a vaccine than not, but those are hangovers from the pandemic even as and when there is an effective vaccine, which I suspect will weigh on the economy for some time.

Bank of England governor Andrew Bailey said the recent vaccine trial news was “excellent”

Speaking personally, it felt like the first time in eight or nine months that there is some lights coming at the end of the tunnel.

I have to say I think it’s terrific news, and I take my hat off to all the people involved in doing this work on these vaccines.

Bailey told MPs that a no-deal Brexit would have deeper long-term consequences for the economy than Covid-19, adding that a deal was in the UK and the EU’s best interests.

Bailey also said the Bank is investigating how its decision to conduct another £150bn of QE was reported in advance by The Sun.

The BoE also showed it has little time for MMT, with chief economist Andy Haldane dismissing it as “not modern...not monetary... and not really theory.”

The latest healthcheck on the UK economy is less terrific, showing that the private sector is shrinking this month amid the lockdown. Services sector firms reported a drop in activity, indicating that the UK economy may be shrinking again this quarter.

But, business confidence has risen following recent vaccine trial results.

Business activity in the eurozone also fell, driven by a sharp fall in France.

But America’s economy seems to be accelerating, despite the surge in Covid-19 cases, with the biggest PMI increase in five years.

The UK stock market has dipped, despite AstraZeneca becoming the third pharmaceuticals firm to report that its Covid-19 vaccine was effective. Trials shows it was 70% efficacy, up to 90% if a smaller dose is given first.

The oil price rallied by 2%, though, pushing Brent crude to its highest since September.

Here are some more of today’s stories:

Goodnight. GW

Back at the Treasury Committee, the Bank of England has poured plenty of cold water on Modern Monetary Theory.

Steve Baker MP raises the issue by pointing out that the Bank is on the way to conducting £875bn of quantitative easing (expanding its balance sheet to buy UK government bonds).

This huge QE programme is stimulating ideas about how the monetary system should work, says Baker.

Q: As I understand it, the modern monetary theorists suggest the central bank should inject money and when inflation comes in it should be taxed away somewhere else. Why don’t we write off these bonds?

Governor Andrew Bailey says it would create a huge hole in the Bank’s balance sheet, and also questions whether life is as simple as MMT advocates suggest.

MPC member Silvana Tenreyro weighs in too, quoting economist Willem Buiter’s line that the good things in MMT are not new, and the new things are not so good.

She questions whether it’s possible to keep expanding demand until you hit your inflation target, and then tackle inflation in real time by raising taxes.

MMT is difficult to pin down, Tenreyro continues, as there’s a lot of talk but “no clear model with functions and implications”. But there is also helpful guidance about not withdrawing demand too early if you’ve not hit your inflation target.

Chief economist Andy Haldane is also dismissive, saying he has three problems with MMT:

One, it’s not modern, two it’s not monetary, and three it’s not really theory.

On the first point, he says it’s the “oldest trick in the book”.

We’ve seen that trick repeated many times through history and it typically hasn’t ended very well.

Secondly he argues that it’s really about fiscal policy (about relaxing the budget constraints of the government, to allow more spending to increase demand).

Thirdly it’s a trick that could only be pulled off once in a one-shot game. In a repeated game, you’d see the good being undone, Haldane claims.

Andrew Bailey also chips in again, saying the BoE could only do its QE programme because it is “a credibly independent central bank”.

He’s read The Deficit Myth (Stephanie Kelton’s highly successful book on MMT), and reckons she cannot believe in independent central banks, so MMT ‘falls apart’ on those grounds too, Bailey argues.

Back in the City, the FTSE 100 has closed in the red, down 17 points or 0.3% at 6333 points.

Travel companies, oil firms and banks led the risers, with jet engine maker Rolls-Royce jumping 7.6% and airline group IAG up 5.4%. Hotel operator Whitbread gained 2.6%, while the pick-up in the oil price today lifted Royal Dutch Shell by over 4%.

On the smaller FTSE 250 index, holiday group TUI jumped 8% and budget airline easyjet gained 6.3%.

That all suggests that optimism about recovering from the pandemic has risen, following AstraZeneca’s vaccine results today.

But healthcare, consumer stocks and technology firms fell -- including AstraZeneca, which fell 3.8%.

Multinational stocks were also pulled back by the strengthening pound, which is up against the US dollar and the euro today.

David Madden of CMC Markets explains:

The FTSE 100 is underperforming versus its continental counterparts as the firmer pound has dented the market. In terms of index points, the biggest fallers on the FTSE are AstraZeneca, GlaxoSmithKline, British American Tobacco, Diageo, and Unilever – all of which earn a large portion of their total revenue from overseas, so the upward move in the pound has held back the stocks.

The FTSE 250 and eurozone equity markets have been lifted by the news that the possible Covid-19 vaccine being developed by AstraZeneca and Oxford University is 70% effective. On the face of it, the drugs from Pfizer-BioNTech and Moderna are far more effective, but that 70% reading is an average. One of the regimens was 90% effective and the other was 62% effective. Also, because it can be stored at -3 degrees, so it is far more practical from a transportation and production point of view.

Bank of England policymaker Michael Saunders has warned MPs that the UK economy risks scarring effects from the pandemic.

Saunders tells the Treasury committee that he is worried about “hangovers” from the pandemic, even if and when an effective vaccine is widely rolled out. He cites several areas of concern:

• The labour market, where we have already seen a sharp drop in employment among 18 to 24 year olds. There is the prospect of a more significant rise in unemployment across the population in the spring, Saunders warns.
  
  
• Second, the rise in corporate debt, which is now significantly higher than it was in previous years.
  
  
• Thirdly, many households have seen their savings depleted, especially at the bottom end of the income scale.

Although the overall savings rate has done up, that’s mainly due to higher earners, Saunders explains. At the bottom end, many households have seen their incomes weaken and their savings fall, so will come out of the pandemic in worst financial shape.

Saunders, an external member of the Bank’s monetary policy committee, also warns about “scarring effects” on demand from risk aversion.

Before this year, the idea of the economy shrinking 20% in a quarter was unthinkable, he says.

But having suffered that plunge in April-June, firms will want greater balance sheet resilience, and be more cautious about risk-taking, investment and hiring.

Saunders warns:

Obviously it’s better to have a vaccine than not, but those are hangovers from the pandemic even as and when there is an effective vaccine, which I suspect will weigh on the economy for some time.

Q: Is the progress towards vaccines that are going to be distributed and hopefully work broadly in line with your forecasts, or are you bouncier now that we have data from the likes of AstraZeneca?

Bouncy is pushing it, Haldane replies. But yes, the latest news is to the positive side of the Bank’s forecasts, for a gradual phasing in of improved treatments from the middle of next year.

He tells MPs:

“I’d say on balance that news has been to the positive side of our assumptions in November,”

Q: To what extent is the recent vaccine news transformational, or are you quite cautious?

Governor Andrew Bailey says the recent vaccine news is ‘terrific’

It’s excellent news. Speaking personally, it felt like the first time in eight or nine months that there is some lights coming at the end of the tunnel.

I have to say I think it’s terrific news, and I take my hat off to all the people involved in doing this work on these vaccines.

Q: And Dolly Parton, who has been funding some it...

Well, good for Dolly Parton as well, Bailey smiles.

He then explains that the Bank had a ‘broad expectation’ that there would be vaccine news, at least by February’s inflation report (November’s report was released just before Pfizer’s results).

There’s still the challenges of transporting and distributing vaccines, Bailey adds, but we can be reasonably optimistic that this is being addressed.

The important point is that there is currently “unprecedentedly high level of uncertainty” in the Bank’s forecasts. Vaccine progress should start to reduce that uncertainty over time, which is “entirely helpful to policymaking”.

Over in parliament, the Treasury committee is holding a session with senior Bank of England officials.

They’re hearing from governor Andrew Bailey, chief economist Andy Haldane, and external members of the Monetary Policy Committee Silvana Tenreyro and Michael Saunders. You can watch it at the top of the blog.

Haldane speaks first, saying it’s been a rollercoaster year, with contractions in Q1 and Q2, and then a recovery in Q3.

There are already signs of some slowing in activity in the fourth quarter of the year, due to voluntary social distancing as Covid-19 cases rose, and the tightening of restrictions.

The November inflation report (released on the 5th) predicted a small contraction of activity in the fourth quarter, Haldane adds, but there’s huge uncertainty around short-term projections.

The most significant piece of news since we closed the report is the announcements of prospective vaccines, Haldane continues.

There’s some way to travel until we know for sure they are 100% effective, but “so far so good on that”, he tells MPs.

Clearly it’s positive news for individuals, businesses, charities, the NHS, schools, and the economy, and for the Bank’s economic forecasts. But the Bank will work out what it means for the economy for its next Quarterly report in February

Q: How much of a contraction do you expect to see in the fourth quarter?

Haldane says there could be a 3 to 4 percentage point shortfall in GDP, compared to the previous forecasts.

But a chunk of that was “in the bag” already, due to the voluntary social distancing and tiered restrictions that were being introduced, before the national lockdown.

Q: Can you isolate the impact of the lockdown, within that 3 to 4%?

Haldane says it’s hard to prise those three effects apart.

But on a rough order of magnitude, perhaps a third, perhaps as much as a half, was the incremental effects of the national lockdown, Haldane says.

But he adds that there are some big uncertainty bounds around that - differentiating these different effects are very difficult.

Governor Andrew Bailey weighs in too, saying it’s very difficult to estimate the economic cost/benefit of the lockdown as you don’t know the counter-factual (what would have happened without it).

Chris Williamson, chief business economist at IHS Markit, says November’s flash PMI report suggests the US economy is strengthening.

He also points out that business confidence hit its highest level since February 2015.

“The November PMI surveys provide the first postelection snapshot of the US economy, and makes for very encouraging reading, though stronger economic growth is quite literally coming at a price.

First the good news: business activity across both manufacturing and services rose in November at the strongest rate since March 2015. The upturn reflected a further strengthening of demand, which in turn encouraged firms to take on staff at a rate not previously seen since the survey began in 2009.

However, the surge in demand and hiring has pushed prices and wages higher. Average selling prices for goods and services rose at the fastest rate yet recorded by the survey, with shortages of supplies also more widespread than at any time previously reported.

Firms are scrambling for inputs and workers to meet the recent growth of demand, and to meet rising future workloads. Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future.”

Just in: the US economy is growing at its fastest pace in over five years, according to the latest snapshot of American business activity.

The latest Flash US Composite PMI from IHS Markit shows that the recovery has gained further momentum this month, with service sector firms and factories both growing strongly.

November has also seen a survey record rise in employment and an unprecedented increase in prices, partly due to a surge in supply chain delays.

Markit says:

U.S. private sector business activity rose sharply in November, as growth momentum picked up further. The overall expansion was the fastest for over five and-a-half years, as both manufacturers and service providers indicated a steeper upturn in output.

The report found that:

• Flash U.S. Composite Output Index at 57.9 (56.3 in October). 68-month high.
• Flash U.S. Services Business Activity Index at 57.7 (56.9 in October). 68-month high.
• Flash U.S. Manufacturing PMI at 56.7 (53.4 in October). 74-month high.
• Flash U.S. Manufacturing Output Index at 58.7 (53.3 in October). 68-month high

Any reading over 50 points shows growth, so this is quite a contrast with the data from Europe today.

Here, lockdowns have pushed both the UK economy and the eurozone into contraction this month with PMIs below 50 points.

Markit says service sector firms drove the jump in employment:

Encouragingly, there was a marked uptick in hiring during November to result in the steepest monthly rise in employment recorded since the survey began in 2009. Service providers boosted their workforce numbers amid burgeoning demand, but hiring slowed slightly in manufacturing.

Stocks have opened higher in New York, as Covid-19 vaccine hopes override concerns over the escalating health crisis in the US.

• Dow: up 225 points or 0.77% at 29,489 points
• S&P 500: up 24 points or 0.7% at 3,581 points
• Nasdaq: up 74 points or 0.6% at 11,929 points

New Covid-19 infections in the US are approaching 200,000 a day, pushing the total case numbers over 12 million -- up over one million in a week.

With the human and economic cost of the pandemic mounting, the pressure for a successful vaccine rollout is intense, as Richard Hunter, Head of Markets at interactive investor, explains:

“Markets are now caught in no man’s land, with investors increasingly desperate for the gap between the discovery and physical distribution of the vaccine to be minimised.

The rise in new Covid-19 cases – and indeed lockdowns – brings the need for a rapid roll-out of an acceptable vaccine into sharp focus. In the meantime, the human and economic damage continues unabated as governments remain well aware of the need for easing measures.

As such, the reported rift between the Federal Reserve and the Treasury in the US on the status of any fresh fiscal stimulus package adds unwelcome uncertainty in delaying the timing of any economic revival.

The US dollar has dipped by around 0.3% today, showing that investors are feeling more confident following the trial results of AstraZeneca’s Oxford vaccine.

The dollar is a classic safe-haven when markets are edgy, and tends to fall when traders start buying riskier assets instead.

As this chart shows, the US dollar index is threatening to drop through its September lows, and hit the lowest point since May 2018.

This risk-on move is why shares in airlines, miners and oil companies are gaining today, with crude prices still at their highest since early September.

Fawad Razaqzada, analyst at ThinkMarkets, says investors are looking through the surge in Covid-19 cases:

The AstraZeneca-Oxford vaccine is produced at cost price and not for profit, and will thus cost a lot less than Pfizer and Moderna vaccines, which are made for profit. Given these benefits, the vaccine is likely to be in huge demand from poorer regions of the world.

The key takeaway point is that we are getting ever closer to hopefully becoming immunised to COVID, which means life can return to more normal levels soon. As such, investors are continuing to shrug off concerns about the ongoing global surge in coronavirus cases and piling back into sectors that had been hurt badly by the pandemic such as travel and leisure. Crude oil prices have also risen as investors hope that with the development of vaccines, there will be a quicker return to normal levels of travel and economic activity.

Stephen Innes, chief global markets strategist at Axi, also points out that emerging market (EM) economies should benefit from the AstraZeneca/Oxford jab:

The world should be jumping for joy as the AstraZeneca delivery is a big deal as most of the developed world will be able to immunize its most at-risk population to COVID by the spring and likely the entire community by mid-year.

Equities up, commodities up, bond curves bear- steepen, dollar down. Risk sentiment improves as the AstraZeneca-Oxford vaccine shows 70% effective for participants with covid-19, with the effectiveness rising to 90% for using half a dose followed by a full one. The AstraZeneca-Oxford vaccine should benefit many EM countries as it costs only a fraction of the others and will be manufactured in EM countries from India to Brazil.

An investment trust backed (and managed) by the asset manager Schroders and Big Society Capital, a UK social impact investor, plans to float on the London Stock Exchange just before Christmas, to tap into rising demand for positive social impact investments.

Schroder BSC Social Impact Trust will be the first London-listed investment firm with a “measurable positive social impact”. It is looking to raise £100m in the the float by selling 100m shares at 100p each and hopes to sell a further 100m shares in the coming year, with a goal of turning it into a £500m fund over five years.

Retail investors will be able to invest in the investment trust through Hargreaves Lansdown, AJ Bell and Interactive Investor. Big Society Capital and Schroders, with clients of Cazenove, are both expected to subscribe for shares, 25% and 17.5% respectively. The shares are set to start trading on 22 December.

Investments will focus on property funds that develop affordable housing – for example for people who were formerly homeless or fleeing domestic violence, and for low income renters – such as the Resonance Real Lettings Property Fund which works with St Mungo’s; debt for social enterprises including charity bonds; and social outcomes contracts - contracts between the public sector and other organisations that are repaid for their services based upon social outcomes delivered.

Jeremy Rogers, chief investment officer at Big Society Capital, said:

“The current coronavirus pandemic is exacerbating many social challenges from homelessness to domestic abuse. Social impact investing can directly help the charities and social enterprises tackling these problems.”

He told the Guardian that people’s interest in their local area had increased during the pandemic, and that the trust would enable them to invest in local projects that they care about.

Andy Howard, global head of sustainability at Schroders, added:

“The connection between social impact and investment is deepening and expanding across financial markets.”

Here’s our economics editor Larry Elliott on the sharp fall in UK service sector activity this month:

The first snapshot of the UK economy during England’s four-week lockdown has shown evidence of a looming double-dip recession as tougher restrictions took a toll of large chunks of service-sector output.

The monthly survey from IHS Markit and Cips reported the steepest fall in activity since May, with the closely watched purchasing managers’ index (PMI) dropping from 52.1 to 47.4. A reading below 50 indicates that the economy is contracting.

In an echo of the impact of the nationwide curbs on activity in the spring, the flash IHS Markit/Cips estimate reported steep downturns for restaurants, bars, hotels and other businesses heavily reliant on serving consumers face to face.

The fall was smaller than economists had feared, and nowhere near as severe as in the spring, when the final PMI dropped to a record low of 13.8 in April. Even so, the 15.5% growth in the economy in the third quarter is expected to be followed by renewed contraction in the final three months of the year.

More here:

The early stock market rally seems to be petering out.

The FTSE 100 is now down 2 points at 6348, erasing its earlier gains.

AstraZeneca’s vaccine trial news is still lifting some shares - British Airway parent IAG are up 5% today. Rolls-Royce is still 4.5% higher, on hopes that demand for new jet engines - and services - will pick up.

Holiday operator TUI (+6%) and easyJet (+5.5%) are also holding their gains.

Banks and oil companies are also up, along with hotels group Whitbread (+2%), and retail and food group ABF (+2.2%).

But some multinationals are down, with the stronger pound hitting the value of their export earnings. Safety equipment maker Halma is down 2.8%, chemicals producer Croda is off 2.5%, and engineering firm Spirax-Sarco has dipped 1.9%.

Economists are pointing out that today’s PMI report isn’t as bad as expected, even though it shows the UK private sector is shrinking again.

Although the composite PMI is a six-month low of 47.4 in November, that’s better than feared - with manufacturing output holding up, and business optimism growing.

Hugh Gimber, global market strategist at JP Morgan Asset Management, says businesses are pinning their hopes on vaccine rollouts next year.

“Optimism around a vaccine may have increased some investors’ willingness to look through short-term economic weakness, yet this morning’s data highlight just how quickly momentum is fading in parts of the UK economy.

“The two-speed nature of the recovery is increasingly clear. The manufacturing sector continues to tick along at a healthy pace, while new lockdowns have slammed the brakes on the nascent recovery in the service sector. It is encouraging however to see that expectations for future business activity are at the highest level in over five years. Businesses, like the markets, seem to be pinning their hopes on vaccines accelerating the return to some form of normality in 2021.”

Economist John Hawksworth argues that November’s PMI is relatively encouraging - the slump is nowhere near as bad as in April (when the Services PMI slumped to a staggeringly weak 13.4)

Rhys Herbert, senior economist at Lloyds Bank, says the UK needs to get through a ‘challenging winter’, before this month’s vaccine breakthroughs can pay off.

Despite the unknowns, the hope offered by the vaccine breakthroughs could be powerful in helping to curb the pace of redundancies as firms have more incentive to keep staff on furlough with the prospect of an improving picture by March.

Nevertheless, while the outlook is looking brighter for next year, there’s still a challenging winter to endure, and so businesses will likely remain cautious amid the ongoing uncertainty.”

Thomas Pugh of Capital Economics says the PMI reports shows the economy is shrinking, but not as much as feared.

Based on the relationship between the composite PMI and GDP during the first lockdown, a reading of 47.3 would be consistent with GDP falling by about 2% m/m in November. That’s less downbeat than our current forecast of an 8% m/m drop.

However, the drop in the composite employment balance (from 43.4 in October to 42.1 in November) suggests that firms are still laying off workers. A surge in unemployment once the furlough scheme ends, possibly from 4.8% in September to as high as 9.0%, could prolong the crisis.

Manufacturing companies have reported that supplies are taking longer to arrive, due to bottlenecks at UK ports.

Today’s PMI report shows that 32% of the survey panel reported longer lead times from suppliers, while only 2% noted an improvement. With supplies being delayed, companies are being forced to pay more for raw materials and parts.

Markit says:

Worsening supplier performance was widely linked to shipping delays amid bottlenecks at UK ports. Rising freight costs and stretched supply chains contributed to the strongest rate of overall input price inflation for two years.

My colleague Zoe Wood wrote last week that congestion was rising at Felixstowe. Goods ordered by retailers for Christmas is jostling for space alongside Brexit stockpiling, and 11,000 containers of PPE belonging to the government.

Despite the problems, factories continued to expand this month, as companies tried to stock up on crucial items before the Brexit transition period ends next month. Markit’s manufacturing output index rose to 56.3, up from 55.8, showing faster growth.

The sharp fall in private sector output this month shows that business activity collapsed in large parts of the economy, says Chris Williamson, chief business economist at IHS Markit.

He says the UK could suffer a ‘double-dip’ downturn, having shrunk in the first and second quarters of 2020, before recovering in Q3.

“A double-dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swathes of the economy. As expected, hospitality businesses have been the hardest hit, with hotels, bars, restaurants and other consumer facing service providers reporting the steepest downturns.

Some comfort comes from the data suggesting that the impact of the lockdown has not been as severe as in the spring, and manufacturing has also received a significant boost from inventory building and a surge in exports ahead of the UK’s departure from the EU at the end of the year, providing a fillip for many companies. However, while the lockdown will be temporary, so too will this pre-Brexit boost.

But successful vaccine rollouts could lift the economy in 2021, he adds:

The health of the economy in the new year therefore remains highly uncertain, but it is very encouraging to see the survey’s gauge of business optimism surge higher in November. Improved prospects for the year ahead are thanks mainly to the news of successful vaccine trials, which at last provides a light at the end of the tunnel for many businesses.”

There is some good news in the PMI report, though -- UK business confidence has jumped this month, to its highest level in over five years.

Bosses are more optimistic about their prospects over the next year, following recent encouraging vaccine trial data.

Markit explains

The degree of optimism improved since October and was the strongest since March 2015.

While some firms simply commented on an expected rebound from low levels of activity in November, there were also widespread reports that hopes of an end to COVID-19 restrictions and positive vaccine news had spurred business confidence about the year ahead.

The PMI data was collected during 12th and 19th November, shortly after Pfizer reported on 9th November that its vaccine has 90% efficacy (later lifted to 95%).

Just in: The UK economy is shrinking again this month as the latest wave of lockdown restrictions hit service sector companies, a new survey shows.

November has seen the sharpest fall in UK private sector output since May, according to the latest Flash UK Composite PMI report from IHS Markit and CIPS.

Although factories reported growth this month, this was more than wiped out by a new downturn in service sector activity, particularly in the hospitality and leisure sector where many businesses have been forced to temporarily close.

Markit explains:

Around 31% of the survey panel reported lower business activity in November, while only 21% signalled an expansion.

Reduced output was almost exclusively attributed to greater restrictions on trade due to the COVID-19 pandemic and heavily concentrated in consumer-facing parts of the service economy.

This pulled the services PMI down to 45.8 for November, from 51.4 in October -- below the 50-point mark that separates expansion from contraction. That’s the fastest fall in activity since May.

Overall activity in the economy is also falling at the fastest rate in six months, the PMI survey shows. The Composite Output Index (manufacturing and services) dropped to 47.4 this month from 52.1 in October.

That indicates that the economic recovery has faltered this quarter.

However, it’s not as severe a decline in the spring during the first lockdown (matching this morning’s news from the eurozone).

Worryingly, companies also reported that job shedding accelerated across the UK private sector, with staff levels falling at the fastest rate in the months.

Markit says:

Lower employment was mainly attributed to redundancy measures, although some service providers also commented on the renewed use of the government furlough scheme during the latest survey period.

Here are the details:

• Flash UK Composite Output Index Nov: 47.4, 6-month low (Oct final: 52.1)
• Flash UK Services Business Activity Index Nov: 45.8, 6-month low (Oct final: 51.4)
• Flash UK Manufacturing Output Index Nov: 56.3, 2-month high (Oct final: 55.8)
• Flash UK Manufacturing PMI Nov: 55.2, 3-month high (Oct final: 53.7)

And here are the key charts:

Europe’s economy has fallen back into a contraction this month, according to the latest survey of purchasing managers in the region.

Data firm Markit says the eurozone private sector suffered a steep downturn in November as governments imposed new lockdowns to slow the spread of Covid-19.

But, the downturn doesn’t look as severe as during the first lockdown in the spring.

Services companies, predictably, were hardest hit by the virus containment measures. Output in the services sector fell in November, at the fastest rate since May, Markit’s latest survey of purchasing managers showed.

Companies also reported that they kept cutting jobs this month.

This pulled its ‘flash Eurozone Services PMI Activity Index’ down to just 41.3, from October’s 46.9, showing a sharper contraction (any reading below 50 shows a fall)

The wider Eurozone PMI Composite Output Index also fell into contraction at 45.1, from 50.0 (stagnation) in October. That indicates the euro economy is shrinking, although not as rapidly as earlier in the first lockdown.

Chris Williamson, Chief Business Economist at IHS Markit, explains:

“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections.

The data add to the likelihood that the euro area will see GDP contract again in the fourth quarter. “The service sector has once again been the hardest hit, especially consumer-facing and hospitality businesses, though weakened demand has also taken a toll on manufacturing.

France’s economy has been hit particularly hard this month, while Germany held up better, Markit explains:

At 39.9, the flash composite PMI for France fell from 47.5 to indicate a third successive monthly decline in business activity and the steepest drop since May, acting as a major drag on the region as a whole. A third, and accelerating, month of services decline was accompanied by a downturn in factory output for the first time since May.

Germany, in contrast, continued to expand, albeit with the flash composite PMI dropping from 55.0 to 52.0 to register the weakest expansion since the recovery began in July. Although manufacturing output growth eased, it remained among the highest seen over the survey’s history. However, service sector activity fell for a second month running, contracting at the sharpest rate since May.

Vaccine optimism has lifted European stock markets to their highest level since the end of February.

The Europe-wide Stoxx 600 index has gained 0.7% this morning, lifted by gains in Frankfurt, Paris, Milan and Madrid as well as in London.

The German DAX and Spanish IBEX have risen 0.85%, while the French CAC is 0.9% higher, and Italy’s FTSE MIB is up over 1%.

This has lifted the Stoxx 600 to 392.4 points, the highest in almost nine months.

The London stock market has opened higher, following AstraZeneca’s vaccine trial news.

The blue-chip FTSE 100 index has gained 0.5%, or 34 points, to 6385 points. That lifts it close to the five-month high seen a week ago (after Moderna reports its vaccine trial results).

Travel stocks are leading the rally, with jet-engine maker Rolls-Royce up 4.3% and airline group IAG (which owns British Airways) gaining 3.8%.

Catering company Compass is up 2.3%; its business has been badly hit by the closure of hospitality venues and offices this year.

Banks are also gaining, with Lloyds Banking Group up 2.4%.

The oil price has hit its highest level in almost three months this morning.

Brent crude is up 1.67% at $45.71 per barrel, its highest level since early September.

Successful vaccine rollouts should lead to a pick-up in energy demand next year.

As Stephen Innes, Chief Global Markets Strategist at axi, explained overnight:

“Positive sentiment continues to be driven by the recent good news about the efficacy of coronavirus vaccines in development and the expectation that the OPEC+ meeting at the end of this month could see the group extend current cuts by 3-6 months”

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets are heading higher this morning after AstraZeneca announced that its Covid-19 vaccine is effective in preventing infection from the virus.

The pharmaceuticals firm reported that trials of its vaccine developed by Oxford University showed it can be 90% effective in giving immunity to Covid-19.

AstraZeneca reports that AZD1222 showed 90% efficacy when given as a half dose, followed by a full dose at least one month apart.

Another regime, two doses at least a month apart, showed 62% efficacy - giving an average efficacy of 70%.

That follows the encouraging results from Pfizer and Moderna earlier this month, who both reported 95% efficacy, and should further boost hopes of a solid economic recovery in 2021.

AstraZeneca also reports that no serious safety events were recorded during the trial. It now plans to immediately prepare regulatory submission of the data to authorities around the world that have a framework in place for conditional or early approval.

It will also seek an Emergency Use Listing from the World Health Organization for an accelerated pathway to vaccine availability in low-income countries.

The half dose/full dose result, of 90% efficacy, is the most exciting, as Professor Andrew Pollard, Chief Investigator of the Oxford Vaccine Trial at Oxford, explains:

These findings show that we have an effective vaccine that will save many lives. Excitingly, we’ve found that one of our dosing regimens may be around 90% effective and if this dosing regime is used, more people could be vaccinated with planned vaccine supply.

Today’s announcement is only possible thanks to the many volunteers in our trial, and the hard working and talented team of researchers based around the world.”

The news is expected to push European stock markets higher, with the FTSE 100 expected to gain around 0.5% -- back to last week’s five-month highs.

Also coming up this morning.

New economic surveys from the UK and eurozone will highlight the sharp impact of the latest Covid-19 lockdowns, and underline just why effective vaccines are needed.

Data firm IHS Markit’s latest Purchasing Manager surveys are expected to show that UK private sector activity is contracting this month, due to the closure of hospitality venues, non-essential shops and leisure activities.

The UK Services PMI is forecast to fall to just 42.5, showing a rapid downturn, from October’s 51.4 which showed modest grwoth.
France’s ‘flash’ PMI will also likely show that its economy is shrinking again this month [forecast to drop to 34, from 47.5] That could pull the wider eurozone into contraction this month, after it stagnated in October.

The agenda

• 8.15am GMT: French flash manufacturing and services PMI for November
• 8.30am GMT: German flash manufacturing and services PMI for November
• 9am GMT: Eurozone flash manufacturing and services PMI for November
• 9.30am GMT: UK flash manufacturing and services PMI for November
• 1.30pm GMT: Chicago Fed National Activity index
• 2.45pm GMT: US flash manufacturing and services PMI for November