Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Travel stocks are sliding this morning after the UK government removed Portugal from the “green list” of countries exempt from significant travel restrictions,
The decision to move Portugal to the amber list is a major blow to the airline sector – just weeks after the UK lifted restrictions on international flights.
It has prompted warnings of a deepening crisis for aviation, with unions urging the ministers to provide more support.
The move was bitterly criticised by the tourism industry, which had been hoping for more countries to be added to the ‘green list’, meaning passengers wouldn’t need to quarantine on their return.
So the news that Portugal will moved to Amber on June 8th, while seven countries, including Egypt and Sri Lanka, are now on the “red list” of destinations that require hotel quarantine, has jolted the sector.
Jet engine manufacturer Rolls-Royce, whose engine servicing business is dependent on planes racking up flying hours, are down almost 2.5% this morning, the biggest faller on the blue-chip FTSE 100.
Shares in British Airways-owner IAG have dropped another 1.5% in early trading, adding to their 5% slide on Thursday as the Portugal news emerged.
Travel stocks are also among the fallers on the FTSE 250 index, with budget airline easyJet dropping by 1.5% (it also fell 5% yesterday). Wizz Air, which warned this week that it would make another loss unless restrictions were eased, are down 2.5%.
In Dublin, Ryanair have dropped another 1%.
The move has also hit the cruise sector, where Carnival are down 2%.
Yesterday’s selloff wiped around £2bn off travel stocks, as the prospect of revenues from Portugal trips faded.
Transport secretary Grant Shapps blamed concerns of a new coronavirus mutation and rising cases for the move; although Portugal called the decision ‘unfathomable’.
Airlines hit out at the plan, with EasyJet’s boss, Johan Lundgren, saying:
“The government has torn up its own rulebook and ignored the science, throwing people’s plans into chaos, with virtually no notice or alternative options for travel from the UK. This decision essentially cuts the UK off from the rest of the world.”
Unions are also concerned about the move, with prospect general secretary Mike Clancy warning that the industry risks losing ‘half of the summer’.
“This news today is further evidence of the instability facing the aviation industry this summer. With government advice shifting regularly it is imperative that proper financial support for the sector is put in place.
“Even in the most optimistic scenario, we now face losing half of the summer before holidaymakers can confidently book travel to major destinations, and the nearer we get to the school holidays the more likely they will be to just stay at home.
Given the uncertainty, Clancy adds, the government must consider doing more to help the sector – or risk seeing travel firms collapse – pushing up unemployment.
“The government starts phasing out its lifeline furlough scheme in four weeks’ time which is only adding to the damaging uncertainty facing aviation.
Ministers need to make clear that further support will be available to support jobs while restrictions on tourist travel remain in place. Without this, there’s a risk that the industry will no longer be there when restrictions are lifted.”
Also coming up today
Investors are bracing for the latest US jobs report, the Non-Farm Payroll, which will show whether hiring in America recovered in May after slowing in April.
Economists predict around 650,000 new hires last month, up from 266,000. A jump in employment would clearly be very welcome, as the US economy is still missing eight million jobs since the pandemic.
But a stronger-than-expected NFP could also jolt the markets, intensifying concerns about inflation- and the possibility that central bankers end their stimulus programmes.
Ricardo Evangelista, senior analyst at ActivTrades, explains:
The narrative in the markets has been dominated by the risk of high inflation becoming a collateral effect of the ongoing gargantuan stimulus. The Fed has, so far, refused to blink, insisting that any spikes in prices are likely to be temporary and that bringing forward the tapering could damage the economic recovery.
Amidst this tug-of-war, employment is likely to become a decisive factor, with a high reading having the potential to force the Fed to start thinking about tapering its current monetary and asset purchase policies. Looking at today’s dollar gains, it appears that many investors are already positioning themselves for such a scenario.
G7 finance ministers are meeting in the UK for two days of talks, where they will try to hammer out a landmark deal to end tax avoidance by multinationals and big technology companies using tax havens to exploit loopholes in the global system.
The UK and Norway are close to signing a trade deal, with a formal announcement expected as soon as today.
UK sources have told City AM that the deal could could cut Norwegian tariffs on British agricultural exports, like beef and cheese, and provide more access to Norwegian fish imports to the UK.
- All day: G7 finance ministers meeting
- 9am BST: UK car registrations for May
- 9.30am BST: UK construction PMI report for May
- 10am BST: Eurozone retail sales
- 1.30pm BST: US non-farm payroll jobs report for May
- 3pm BST: US factory orders