Pent-up demand after a year of stop-start activity due to the coronavirus outbreak pushed factory order books to fresh highs in May, adding to previous growth records set in April, according to a bellwether survey of factory owners.

Oil prices surged, with Brent crude surpassing $70 a barrel for the first time since March, while US crude hit its highest price in two years. The broad-based recovery increased demand for precious metals such as silver, used in environmentally friendly electric cars and solar panels.

With more than half of all US adults fully vaccinated and much of the economy open for business, American manufacturers were able to ramp up production to unprecedented levels and reinforce predictions from some analysts that GDP growth could hit double figures by the end of the year.

US president Joe Biden’s $1.9tn stimulus package and the prospect of a multi-trillion infrastructure boost later this year have also fueled demand from consumers and businesses to push the ISM measure of production activity to 61.2 last month from 60.7 in April, well above the 50 mark that separates expansion from contraction.

The UK saw even sharper growth in May across its manufacturing sector as factories enjoyed swelling orders books from domestic and foreign buyers. The IHS Markit purchasing managers index (PMI) increased to 65.6, up from 60.9 in April.

In continental Europe, Spain and France lagged behind Italy and Germany in the race to secure manufacturing orders, according to the PMIs, after German factories maintained a strong run of increasing output.

Mining companies and housebuilding firms – which made gains following an 11% increase in annual house prices – pushed the FTSE 100 index of listed shares back towards last month’s high of 7,129, after closing at 7,083, up almost 1% on the day.

A vote of confidence by investors in German companies sent the Dax index to an all-time high of 15,567, up from a low of 8,928 last year as the pandemic struck.

The Dow Jones recovered earlier losses to reach 34,576, up 0.1% on the day and well ahead of the 19,173 crash registered in March 2020. MSCI’s index of global stocks rose 2.51 points or 0.35%, to 713.96, marking a record high.

Analysts said markets in the UK and US were held back by concerns that vital components and raw materials were in short supply and could put the brake on output growth in the coming months.

Some economists have warned that manufacturers will be forced to pass on price rises unless supply-chain bottle necks ease, alleviating pressure on inflation.

Inflation in Germany hit 2.4% and the average for the eurozone leapt to the European Central Bank’s 2% target from 1.6% in April, indicating that prices across the 19-member currency bloc are increasing at a rate not seen for two years.

Fears of price rises were borne out by a tweet from Elon Musk, the Tesla boss, on Monday which said shortages would force the electric carmaker to increase prices this month, making it the sixth incremental hike this year, according to the Electrek website.

Import prices have increased in the US in part because of the declining value of the dollar, which has depressed domestic buying power of foreign goods. The UK has seen the pound increase this year, mainly in response to the Brexit deal with the EU, offsetting the rising cost of oil.

Danni Hewson, an AJ Bell financial analyst, said: “Robust figures from the housing market lifted the housebuilding sector while miners were in demand as commodity prices resumed an upwards trajectory.”

She said the FTSE’s rise was all the more impressive against the backdrop of the rally in sterling, which also has the effect of depressing the relative worth of the overseas earnings among firms that dominate the index.

There was also concern that the recovery could slow later this year unless vaccination programmes are rolled out to developing world nations.

In a warning to governments and markets to avoid exuberance, the International Monetary Fund said the current boom could easily falter if mutations of the virus are allowed to spread, especially in developing countries.

The Washington-based organisation’s managing director, Kristalina Georgieva, said her proposal for a $50bn plan to end the pandemic was needed to end a situation where fewer than 1% of Africans were vaccinated. She said the $50bn price tag was dwarfed by the estimated $9tn increase in economic activity by 2025 that could be gained, “making it the best public investment ever”.

In his first speech since becoming the secretary-general of the Organisation for Economic Co-operation and Development, Mathias Cormann reinforced the message that without widespread protection against the virus, the global economy’s recovery would slow.

“We need to continue to overcome the immediate health challenge, including by pursuing an all-out effort to reach the entire world population with vaccines. This is not just an act of benevolence from advanced economies,” said the former Australian finance minister.

Source: https://www.theguardian.com/