The London stock market has posted its best day in five months, as shares bounce back from Monday’s rout.

The FTSE 100 index of blue-chip shares has rallied by 1.7% today, closing 117 points higher at 6,998 points. That’s its best percentage gain since 15th February, just two days after its worst fall in two months.

Jet engine maker and servicer Rolls-Royce finished as the top riser, up 7.7%, followed by Next (+7.5%) after it reported strong sales in the last quarter and hiked its profit forecasts.

Travel and hospitality firms dominated the risers, including Premier Inns operator Whitbread (+6.1%), catering firm Compass (+5.6%), and British Airways parent company IAG (+5.6%).

The smaller FTSE 250 index had its best day since last December, surging by 1.9%. Cinema chain Cineworld jumped by almost 15%, while cruise operator Carnival gained 9.3%.

After Monday’s wobble, triggered by fears over the delta variant, investors seem to have regained some optimism, as Michael Hewson of CMC Markets explains:

Less than two days after Monday’s sharp falls, markets have undergone a complete and utter mood change. The concern that rising Delta infections will slow down the economic rebound, appears to have been replaced by optimism that today’s better than expected company reports speak to a consumer that is down but by no means out.

That’s not to say Monday’s concerns have disappeared completely, but today’s trading updates appear to have had the effect of adding some calming balm, on some early week frayed nerves.

Travel, leisure, and retail stocks have fuelled a rebound in the FTSE100 back towards the 7,000 level on the basis that the recent declines may well have been a little overdone, while the FTSE250 has also come storming back.

In the past month the likes of TUI, easyJet, IAG and Jet2 have seen declines in the region of 10% to 15%, inviting the question as to whether all the bad news might now be in the price.

We’ve also seen big rebounds in the likes of Cineworld, up over 10% today, while pubs are also seeing good gains with Mitchell and Butlers and Wetherspoon reversing some of the big declines over the last two weeks.

Rolls Royce shares are also higher for the second day in a row, helped by reports yesterday that it, along with Babcock was looking to sell its stake in aircraft leasing company AirTanker, as both look to bolster their finances in the weeks and months ahead.

We’ve also seen a decent rebound in general retail after Next blew the doors in with its latest quarterly update.

Other European markets also rallied strongly today, with the Stoxx 600 having its best session since May.

Business leaders, health experts and trade associations representing tens of thousands of businesses have hit out at the government’s handling of the “pingdemic” self-isolation crisis.

Amid mounting concern that staff absences are stifling economic recovery, Princess Yachts and luxury carmaker Bentley added their names to a growing list of firms with a significant number of workers absent.

And a day after the business lobby group the Institute of Directors criticised “poor communication and mixed messages” from the government, a host of trade associations followed suit.

Leading figures in farming, accounting, boating, paper and printing, and engineering said they were dismayed by the government’s apparent confusion over whether staff who are pinged by NHS test and trace need to isolate.

The government has retreated from comments by the business minister Paul Scully – and a letter to one manufacturer from the investment minister Lord Grimstone – stressing that pings were only advisory. No 10 later insisted self-isolation after a ping was “crucial”.

“The mixed messages coming from government on self-isolation rules are now having a serious impact on businesses,” said Mark Bridgeman, the president of the Country Land & Business Association, which represents 28,000 farmers and rural businesses.

Here’s the full story:

Insured losses from natural disasters hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February, insurance broker Aon said today.

Reuters has the details:

Overall economic losses came in below their 10-year average, however, at $93 billion, Aon said in a report.

Disasters which hit developed countries typically lead to greater insured losses. Seventy-two percent of global insured losses occurred in the United States in the first half, Aon said.

The Polar Vortex-induced period of extreme cold there led to an insured loss of at least $15 billion.

Major storms in western and central Europe in June caused at least $4.5 billion in insured losses, Aon said.

Floods in Europe since last week have likely caused $2-3 billion in reinsurance losses, analysts say.

Natural disasters were responsible for around 3,000 deaths globally in the first half, with 800 fatalities from the heatwave which hit parts of Western Canada and the U.S. Pacific Northwest in late June.

“The juxtaposition of observed record heat and cold around the globe highlighted the humanitarian and structural stresses from temperature extremes,” said Steve Bowen, managing director and head of catastrophe insight on the Impact Forecasting team at Aon.

Here’s Holly Inglis, beverages analyst at GlobalData, on Coca-Cola’s strong quarter (net revenues grew 42% while earnings-per-share rose 48%):

“Success for Coca-Cola across all regions in Q2-2021 clearly emphasises a step in the right direction for the company to achieve pre-COVID-19 volumes. Not only does growth reinforce the company’s stable market position, but highlights recovery of the non-alcoholic beverages market across many parts of the world - although countries such as India continue to be impacted by COVID-19.

Coca-Cola’s 14% growth in Q2-2021 for sparkling soft drinks is no easy feat in a category that has continually seen a downward trend in recent years. According to GlobalData’s latest survey (Q2-2021), one in four (38%) of consumers are actively trying to reduce their sugar consumption, which has created a challenging landscape for soft drink producers. Strong brand recognition, alongside continued innovations to core brands such as Coca-Cola Zero Sugar, have helped stimulate this growth.

Laura Hoy, Equity Analyst at Hargreaves Lansdown, says:

“With restaurants back in action across most of the world, Coca-Cola saw a sizable revenue bump compared to last year. While some of the increase can be attributed to easier comparisons — last year’s away-from-home sales were practically non-existent — you can’t help but admire the fact that the group’s also marginally ahead of where it was at this time in 2019. That’s all the more impressive given pandemic headwinds still exist to some degree.

The reopening of Costa Coffee in the UK has been a breath of fresh air for Coke as well—the group took on a sizable amount of debt to acquire the coffee chain and get it’s foot in the door of the hot beverage market, only to see its revenue dry up a year later. With things getting back to normal, Coke can carry on with plans to develop the brand further.

The guidance upgrade is encouraging, but we’re taking the big numbers from this quarter’s update with a grain of salt. Coke is back to where it was before the pandemic. Now we’ll be watching for whether or not the group can bubble to the top of the pack by holding on to at-home gains as away-from-home growth picks up speed.”

Drinks giant Coca-Cola has beaten sales expectations after seeing a bounceback as economies reopened.

Coke’s organic revenue climbed 37% in the three months to July 2nd, beating forecasts of 29% growth and ahead of the 2019 level.

The company also raised its revenue forecast for the year, after seeing a rebound in sales in “away-from-home channels” as restrictions eased in certain markets

James Quincey, Chairman and CEO of The Coca-Cola Company, says the results are strong.

“Our results in the second quarter show how our business is rebounding faster than the overall economic recovery, led by our accelerated transformation. As a result, we are encouraged and, despite the asynchronous nature of the recovery, we are raising our full year guidance.

“We are executing against our growth plans and our system is aligned. We are better equipped than ever to win in this growing, vibrant industry and to accelerate value creation for our stakeholders.”

The governor of the Bank of England has pledged to do more to tackle systemic racial inequality after a hard-hitting review found the 327-year-old institution was failing to do enough to promote diversity.

In an article for the Guardian, Andrew Bailey conceded that structural and cultural change was needed in the light of a report by the Bank’s governing court detailing a series of failings and weaknesses in Threadneedle Street’s approach to inclusion.

The review said staff from ethnic minority backgrounds were less likely to be promoted, earned less and were more likely to feel they were being treated unfairly than their white colleagues.

Despite efforts to foster a more diverse and inclusive Bank, the review concluded that there was “still a long way to go” for one of the UK’s most high-profile employers.

In today’s article, governor Bailey writes:

We are well aware of just how damaging it can be for organisations to be made up solely of people from similar backgrounds who think in the same way: the dearth of diversity and inclusion in financial services contributed to the unchallenged, dangerous decision-making that helped drive the financial crisis of 2008.

After last year’s horrific murder of George Floyd, I had a series of wide-ranging and, quite frankly, humbling conversations with my minority ethnic colleagues at the Bank. I want to thank all of those who were so open and honest with me about their experiences. It was apparent that, despite the substantial efforts by the organisation over the past decade or so, we were making insufficient progress on diversity and inclusion, particularly in the area of ethnicity. And it is against that backdrop that I – alongside the other governors and court (our governing board) – commissioned a review into ethnic diversity and inclusion, which we have published today.

The review found that, despite our efforts to enhance diversity and inclusion at the Bank, there are still material disparities between the collective lived experiences, career opportunities and outcomes of minority ethnic colleagues and their white counterparts. The aim of the review is to help all of us, including me, get a better understanding of where we are today, and to understand what we need to do to meet our ambition of tomorrow. That ambition is to create a truly diverse and inclusive Bank where all colleagues – irrespective of any personal characteristic – can meet their full potential. It is no exaggeration to say that, as for all organisations, such an ambition is mission-critical.

UK property transactions surged in June, as buyers rushed to complete deals before the stamp duty holiday was curtailed.

New figures from HMRC show there were 213,120 residential transactions last month, the highest since the survey began in 2005.

That’s 108.5% higher than May 2021, and more than triple the number completed in June 2020.

On a seasonally adjusted basis, there were 198,240 residential transactions, 219.1% higher than June 2020 and 74.1% higher than May 2021.

Andrew Southern, chairman of property developer Southern Grove, says the figures are ‘jaw-dropping’.

“Today’s data paints a picture of a breathless stampede to the finishing line as frantic buyers battled to get their deals inked before the Stamp Duty holiday began to taper.

“We’ve become accustomed in recent months to seeing records smashed, but spikes like this are still jaw-dropping nonetheless. It is quite possible we will never witness anything like this again in our lifetime.

“As the Stamp Duty holiday is phased out in the coming months, we can expect the year-on-year growth to become less pronounced.

“But the demand for larger, quality homes, particularly in commuter towns around the Home Counties, remains strong and any nosedive in transactions is probably still a long way off.”

The stamp duty holiday in England and Northern Ireland ‘tapered’ at the end of June, falling from £500,000 to £250,000, while it ended in Wales -- meaning people were keen to complete deals that month.

Anna Clare Harper, CEO of property consultancy SPI Capital, says the stamp duty deadline, limited supply and a move for larger houses suited to homeworking all drove the surge:

‘The tapering down of the temporary reduction in stamp duty began at the end of June, meaning this was a ‘bumper month’. Investors, homeowners, solicitors and banks pushed hard to get transactions done in time for buyers to capitalise on the summer discount to an otherwise costly transaction tax.

‘Medium term, the boom in housing transactions has in many ways resulted from Covid and and policies around it, designed to protect consumer and investor confidence, rather than happening despite the pandemic.

Specifically, housing transactions were boosted on by the temporary stamp duty reduction designed to fuel the housing market amidst the pandemic, lockdown-led upsizing and a flight to safer assets alongside long-term low interest rates.

‘The boom in demand shown by the transactions data over the last year, in particular in June 2021, set against limited supply, has created house price growth.

Stock markets are rebounding strongly now, as investors shake off some of their worries that the pandemic will hit the global recovery.

The FTSE 100 index is now up 104 points, or 1.5%, at 6985 -- meaning it’s now clawed back much of Monday’s tumble (the worst in two months).

Next (+9.6%) is still leading the charge, after its blowout sales numbers this morning.

Jet engine maker Rolls-Royce (+5.9%), airline group IAG (+5.8%), catering firm Compass (+5%) and hotel chain Whitbread (+4.2%) are also topping the risers.

Kyle Rodda of IG says:

An uptick in US ten-year Treasury yields suggests some easing of concerns over the economic impact from recent virus resurgences, although it remains a key risk to watch.

Some optimism may arise among investors as further spreads of virus cases support the Fed’s accommodative policy stance to last for longer and ease previous concerns on policy tightening, ahead of the Fed meeting next week. While the financial sector is gaining traction from the rise in yields, the industrials sector may be drawing strength from updates over the US infrastructure spending bill negotiations.

Ahead, investors may be looking towards earnings releases to keep up with the market momentum, with several big tech companies set to release their earnings next week.

Current expectations are for annual S&P500 earnings growth of 72.9% for 2Q, a significant revision from the 54% growth at the beginning of the quarter.

Rishi Sunak is poised to usher in cuts to public services of up to £17bn compared with the government’s pre-pandemic plans unless he takes action this summer to increase funding, a leading thinktank has warned.

The Institute for Fiscal Studies said the government was on track to spend between £14bn and £17bn less each year on a range of public services from April 2022 than had been earmarked prior to Covid-19.

As the chancellor prepares to allocate funding for government departments against a backdrop of rising Covid-19 infections, the leading tax and spending thinktank warned that there were growing demands on the public finances that needed to be tackled head on [as flagged in their tweets earlier].

It comes after Sunak was forced to push back the formal launch of the Treasury’s spending review as part of the continuing fallout from his and the prime minister’s requirement to self-isolate.

In the City, the FTSE 100 index has jumped by 51 points or 0.75% to 6932 points.

Retail chain Next are leading the risers, surging by 10% after upgrading its profit guidance this morning. It is also repaying business rates relief to the UK government, after smashing its sales forecasts in the last few months.

Next told shareholders that trading had been rather stronger than expected since the easing of lockdown restrictions.

• Full price sales in the eleven weeks to 17 July were up +18.6% versus two years ago. Our previous central guidance assumed an increase of +3%.
• We have increased our full price sales guidance for the rest of the year from +3% to +6%.
• The Company has decided to repay £29m of business rates relief to the Government. This sum accounts for the period of time this year that our shops were not charged business rates but were open. This decision was taken after consulting major shareholders who, between them, account for around 30% of our shares in issue.
• We are increasing our central guidance for full year profit before tax by +£30m to £750m (pre-IFRS 16). This is towards the top of our previous guidance and accounts for (1) the profit from additional sales and (2) the cost of the unplanned repayment of business rates relief.
• For the full year, surplus cash is forecast to be £240m. We plan to distribute this cash to shareholders through special dividends during the current financial year, the first of which will be paid in September.

The jump in debt interest payments to a record £8.7bn last month won’t derail the deficit reduction, says Michal Stelmach, senior economist at KPMG UK.

But it does show the risks that higher inflation poses, as a large chunk of UK government debt is linked to the RPI inflation measure.

Stelmach also warns that the UK economy isn’t free of the pandemic, given the risk of further restrictions being imposed in coming months:

“Public sector net borrowing was £22.8bn in June, down compared with the previous year but still significantly higher than the pre-pandemic June average of £6bn.

“Debt interest spending rose by £6bn on the previous year to its highest level on record. It reflected a surge in RPI inflation in April, which feeds through to payments on index-linked gilts with a two-month lag. The volatility of debt interest spending underscores its sensitivity not just to inflation but also to interest rates, which can rapidly change the path of fiscal sustainability.

“We still expect borrowing to undershoot the OBR’s latest forecast for this year. But we are not out of the woods yet, with the recent surge in Covid-19 cases putting some parts of the economy at risk of further restrictions later in the year and the uncertainty around the impact of phasing out the furlough scheme on unemployment.”

The drop in government borrowing in June shows that the economic recovery is feeding through the public finances.

It shows that a growing economy can do more of the job in “fixing” the public finances than a fiscal tightening, says Ruth Gregory of Capital Economics.

Total tax receipts of £62.2bn in June were well above May’s (upwardly revised) £59.5bn and last June’s £52.7bn. And the trend in tax receipts should continue to improve over the rest of the year as stronger GDP growth than anticipated by the OBR boosts the public coffers.

However, current expenditure jumped from £75.8bn in May to £77.9bn in June.That reflected an unexpected rise in spending on the furlough scheme (£2.2bn in June, up from £1.9bn in May). And the rise in RPI inflation in April 2021 meant that debt interest payments rose by £8.7bn. That was the highest monthly payment since the series began in 1997.

But while debt service costs will probably stay higher than the OBR estimated over next few years, the public finances should continue to reap the benefits of a faster and fuller recovery in GDP than the OBR expects, meaning that the deficit should still fall faster

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

UK government borrowing fell in June as the economy continued to recover from the shock of the pandemic.... but the interest payments on the national debt were pushed up by rising inflation.

Figures released by the Office for National Statistics this morning show that public sector net borrowing (excluding the cost of public sector banks) fell to £22.8bn last month.

That’s £5.5bn less than in June 2020, but still the second-highest June borrowing since monthly records began in 1993.

The ONS reports that tax receipts were stronger in June than a year ago, following the reopening of parts of the economy earlier this year:

Central government receipts in June 2021 were estimated to have been £62.2 billion, a £9.5 billion (or 18.0%) increase compared with June 2020. Of these receipts, tax revenues increased by £8.1 billion (or 21.7%) to £45.5 billion.

Public spending rose, partly due to to the cost of fighting the pandemic, the ONS says:

Central government departments spent £31.1 billion on goods and services in June 2021, an increase of £1.7 billion (or 5.7%) including £17.7 billion on procurement and £12.8 billion in pay.

This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic including the NHS Test and Trace programme and the cost of vaccines.

Borrowing so far this financial year is also lower than in the teeth of the first wave of Covid-19.

Since April, the government has borrowed an estimated £69.5bn to balance the books -- £49.8bn less than in the same period last year (but again, the second-highest April-June borrowing on record).

Last year’s record borrowing has been revised down a little too -- by £1.5bn, to an unprecedented £297.7bn (the highest borrowing since financial year records began in 1946).

It means the national debt is now £2,218.2bn -- or around 99.7% of UK GDP, the highest ratio since the 102.5% recorded in March 1961.

The report also shows that interest payments on central government debt were £8.7bn in June 2021, the highest monthly payment on record (since April 1997) - up from just £2.7bn in June 2020.

This was largely due to a rise in the Retail Prices Index (RPI) measure of inflation, to which index-linked gilts (government bonds) are pegged.

The ONS explains:

The interest related to the £470.7 billion index-linked gilts in circulation (at redemption value) increased by £6.0 billion in June 2021 compared to June 2020, mainly as a result of the large increase in the RPI between March and April 2021 impacting on the uplift of the three-month lagged index-linked gilts.

Public sector finance statistician Fraser Munro has more details:

Reaction to follow....

European stock markets are set for a slightly higher open, after a small recovery yesterday following Monday’s tumble.

The agenda

• 7am BST: UK public finances for June
• Noon BST: US weekly mortgage approvals
• 2.30pm BST: Treasury committee hearing on the Office for Budget Responsibility’s Fiscal Risks Report
• 3.30pm BST: IEA weekly US oil inventory figures