Stock market rally muted after Fed official says ‘far away from inflation victory’ – business live

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UK house sales expectations fall to lowest since pandemic lockdowns – surveyor poll

The UK housing industry’s expectations for the year ahead are the most downbeat since the first coronavirus lockdowns began in March 2020, according to a regular poll of chartered surveyors.

The balance of respondents believing prices will fall in the next 12 months rose to 36% in July, up from 21% in June, according to the Royal Institution of Chartered Surveyors (Rics).

Enquiries by potential new buyers dropped for the third consecutive month.

Surveyors’ expectations of house price sales numbers for the year ahead are falling. Photograph: Royal Institution of Chartered Surveyors (Rics)

The surveyors blamed the prospect of higher interest rates and the cost-of-living crisis for the drop in demand: if borrowing is more expensive as the Bank of England battles inflation and people can save less then a fall in demand would not come as a surprise.

Yet one of the defining economic themes of the UK’s last decade has been the way that house prices have defied apparent economic gravity. Rics said “house prices continue to rise across the UK”, with a balance of 63% of respondents reporting that prices increased.

Tarrant Parsons, Rics’s senior economist said:

Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum. With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.

Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.

Another sign that inflationary pressures in the US economy may have peaked: the average price of US retail gasoline fell below $4 per gallon on Thursday.

The national average price for regular unleaded petrol fell to $3.990 a gallon on 11 August, according to the American Automobile Association’s price tracker. That is down from $4.68 a month ago, and above $5 in mid-June.

Rising petrol prices have been an important part of the inflationary story around the world, as many people outside urban areas cannot avoid filling up their cars. It filters through to the price of almost everything else via businesses.

Fuel subsidies have been used in several countries to cushion the inflationary blow, although many economists and analysts say this can be counterproductive, as it encourages people to continue to buy more fuel. And rich households tend to spend more on fuel, so subsidies help them more.

A few more interesting points. Firstly, the American Automobile Association’s map of petrol prices is not a bad proxy for a US election map (albeit with the colour scheme swapped):

US petrol prices tend to be higher in Democrat-led states where taxes are higher. Photograph: American Automobile Association

Secondly American petrol prices enjoy a huge implicit subsidy: prices are fundamentally lower than many other parts of the world. $4 per gallon – a pump price level that prompts howls of outrage in the US – equates to about 87p per litre in British money. That is less than half what British drivers pay, according to the RAC.

The FTSE 100 leaders this morning are Ladbrokes owner Entain and Coca-Cola Hellenic Bottling Company, both of which have given their shareholders positives amid a tricky macro environment.

Coca-Cola HBC, one of the biggest owners of a bottling franchise for US-based Coca-Cola, gained 3.6% after it forecast operating profits in 2022 similar to 2021 – even after reporting a €190m (£160m) hit from its Russian business, after it stopped selling Coke products following the invasion of Ukraine.

Gambling company Entain said it is buying a Croatia’s SuperSport Group bookmaker in a growth drive, and its profits (otherwise known as customers’ gambling losses) were up 20% on a year earlier. Its share price rose by 2.2%.

FTSE 100 flat as Federal Reserve officials say inflation ‘victory’ is far off

Good morning, and welcome to our live coverage of business, economics and financial markets.

Stock markets around the world have rallied after US consumer price index inflation slowed in July. However, Federal Reserve officials have done their best to emphasise that the world’s largest and most influential economy is not out of the woods yet.

The relief rally prompted by the slower inflation (which could imply less need for interest rate hikes to slow economic growth) continued in Asia overnight, with the Shanghai Stock Exchange Composite index gaining 1.5% and Hong Kong’s Hang Seng up 2.1%. In Europe the Stoxx 600 index gained 0.4% in the opening minutes of trading, but the FTSE 100 edged down.

Investors are trying to balance their hopes that inflationary pressures may be falling with the knowledge that the US Federal Reserve is still committed to increasing interest rates further, potentially triggering a recession. Falling inflation in the US would feed through directly to economies around the world, including the UK, where the Bank of England has already forecast a year-long recession.

Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, last night said the slower-than-expected US inflation reading was “welcome” news but did not alter his expectation that the US central bank would need to raise its rates to 3.9% by year-end and to 4.4% by the end of 2023. The rate is currently in the 2.25%-2.5% range.

The Fed is “far, far away from declaring victory” on inflation, Kashkari said at the Aspen Ideas Conference, Reuters reported.

President of the Federal Reserve Bank of Minneapolis Neel Kashkari said further monetary policy tightening may be necessary. Photograph: Shannon Stapleton/Reuters

Another official, San Francisco Federal Reserve Bank president Mary Daly, gave the Financial Times a similar message on Wednesday. She said:

There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal.

We will have a further indication of inflationary pressures in the US later today, with the producer price index giving an indication of the prices manufacturers are charging.

The agenda

  • 1:30pm BST: US producer price index inflation (July; previous: 11.3%; consensus: 10.4%)

  • 1:30pm BST: US initial jobless claims (week ending 6 August; previous: 260,000; consensus: 263,000)

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