Trade war fears weigh on investors; UK, euro and US factories struggle - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-06-03 16:21 (#4GCKE)

Rolling coverage of the latest economic and financial news, as British manufacturing shrinks for the first time since July 2016

Summary: Trade war fears and factory weakness
UK manufacturing shrank in May
Boost from Brexit stockpiling has faded
Eurozone factories also contracted last month

Earlier:

5.21pm BST

Finally, a late recovery has seen the FTSE 100 index close up 23 points at 7,184, a gain of 0.3%.

Goodnight! GW

3.21pm BST

Time for a recap

The US-China trade war continues to rumble on, worrying investors and fuelling concerns that the global economy is weakening.

Resorting to intimidation and coercion, it persisted with exorbitant demands . . . and insisted on including mandatory requirements [that infringe on] China's sovereign affairs in the deal."

Just arrived in the United Kingdom. The only problem is that @CNN is the primary source of news available from the U.S. After watching it for a short while, I turned it off. All negative & so much Fake News, very bad for U.S. Big ratings drop. Why doesn't owner @ATT do something?

I believe that if people stoped using or subscribing to @ATT, they would be forced to make big changes at @CNN, which is dying in the ratings anyway. It is so unfair with such bad, Fake News! Why wouldn't they act. When the World watches @CNN, it gets a false picture of USA. Sad!

Ah. You see the the problem is that Fox News broke UK broadcasting rules so many times they would've been fined if they hadn't taken it off airhttps://t.co/zb3Y7q4zNQ https://t.co/uCQN1CkUzV

It's clear that challenges are starting to bite and we'll all be monitoring the evolving situation in the coming months - from the escalating trade war between the US and China affecting the sector's confidence to the fall in the volume of orders of UK manufactured goods domestically and globally.

Recent stockpiling, partly driven by the uncertainty from the UK leaving the EU, is also now impacting on new orders as businesses show caution in managing stock levels.

Dow drops in tandem w/ US 10y yields as US manufacturing hits lowest level since Oct2016. ISM manufacturing index fell to 52.1 for May, compared to expectations for 53, lowest reading since Oct2016. US 10y yields now at 2.1%. pic.twitter.com/GyiPGOIxoQ

3.18pm BST

Wall Street has now slid into the red, following the news that America's manufacturing growth weakened last month.

The Dow Jones industrial average is now down 109 points, or 0.4%, as the early rally fizzles out.

U.S. Manufacturing Surveys: (ISM at its lowest level since Oct. 2016) pic.twitter.com/Eur2l96kOD

3.07pm BST

America's Institute of Supply Management has given a slightly more optimistic view of the US factory sector.

Its US manufacturing PMI, just released, has dropped to 52.1 for May, down from 52.8 in April.

U.S. MANUFACTURERS reported a further deceleration in business activity with ISM composite activity index slipping to 52.1 in May from 52.8 in Apr and 58.7 a year ago.
Growth is slowest since Aug 2016 pic.twitter.com/U5IQgSxyzE

Details of US ISM Manufacturing PMI better. Recall ISM equal weights five components. The drop was mostly due to weaker supplier deliveries and inventories index. New orders and employment managed to increase modestly.

2.52pm BST

Newsflash: America's factory sector has grown at its weakest rate since the global recession a decade ago.

Data firm Markit's US manufacturing PMI, just released, has dropped to just 50.5, from 50.6 in April. That's the lowest reading since September 2009, and a level that is barely above stagnation.

The headline PMI fell to its lowest level since September 2009 as output growth eased and new orders fell for the first time since August 2009.

Weak demand conditions and ongoing trade tensions led firms to express the joint-lowest degree of confidence regarding future output growth since data on the outlook were first collected in mid-2012.

US Manufacturing PMI drops to lowest since September 2009, as new orders fall for the first time in nearly ten years. Business confidence weakens to joint-lowest in the survey history. More: https://t.co/Q2fuaXPApd pic.twitter.com/yrlj3vlQNw

2.43pm BST

Uh-oh! Brazil's factory sector has slowed to near-stagnation last month, another sign that global growth is weakening.

Brazil manufacturing PMI falls to 50.2 in May, lowest in 10 months. Sector activity virtually grinds to a halt and now on the cusp of outright contraction. pic.twitter.com/HHdKrDubML

UPDATE
Global recession fears mount as manufacturing PMIs around the world confirm contraction:
South Korea
Japan
Taiwan
Malaysia
Russia
Poland
Turkey
Czech Republic
Italy
Germany
UK
Canada

All below 50.0

China
Spain
Brazil

All 3 stagnating and on the brink of contracting

2.38pm BST

The New York stock exchange has opened cautiously, as investors fret about the prospects of a deeper trade war.

The tech-focused Nasdaq dipped by 0.15%, adding to last month's losses.

2.21pm BST

Mexican-themed restaurant chain Chipotle has just undermined Donald Trump's claim that his trade war won't hurt consumers.

"We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito".

2.04pm BST

Copper, another gauge of global growth prospects, has hit a five-month low today.

The price of a tonne of copper, traded in London, fell to $5,801 this morning, the lowest since early January.

1.54pm BST

Anxiety over the global economy are also driving investors into US government bonds.

This is pushing the price of Treasury bonds up, and driving down the interest rate on the debt. The yield on 10-year T-bills has now fallen to 2.1%, from over 3% last November.

Never catch a falling knife? The #yield on 10-year US Treasuries is heading for 2% at warp speed! pic.twitter.com/CL8KEA0jBg

1.26pm BST

Mexico's Ebrard: Mexican Officials Will Meet With US Trade Rep Lighthizer This Week

Mexican Foreign Minister Ebrard Says Mexican Officials Will Meet With U.S. Trade Representative Lighthizer And Acting U.S. Homeland Security Secretary Mcaleenan This Week

1.21pm BST

Mexico is pushing back against Donald Trump's threat to impose tariffs on its goods unless it reduces migration to the US.

Marcelo Ebrard, Mexico's foreign minister, is in Washington today. He's told a news conference that such tariffs could be 'counterproductive'.

Mexico's Ambassador to the US says slapping tariffs on the US could have counterproductive effect and will not stem flow of immigration. Mexico proposed to keep working with the US.

Mexico's US ambassador says tariffs are counterproductive, would hurt Mexico's economy and reduce its ability to stem the flow of migrants. pic.twitter.com/Ah7ZWnCogR

1.08pm BST

Selling at the start of May would have been a good investment strategy this year....

Welcome to June!

May was a rough month:
Nasdaq (-8.7%)
S&P (-6.6%)
DOW (-6.4%)$AAPL (-17%) ~ the worst Dow performer in May.$MYL (-40%) ~ the worst S&P performer in the S&P. pic.twitter.com/L3HFslJsRz

12.57pm BST

European stock markets have recovered some of this morning's losses, but are still in the red as lunchtime approaches.

The prospect of Mexico, and even Australia, being dragged into the US-led trade war continues to worry investors.

"Equity markets have retreated further and are now down some 6% in local currency terms from their late April high. In sterling terms, the decline has been cushioned somewhat by the weakness of the pound and is a more moderate 4%.

The escalation in trade tensions continues to be the main factor driving equities lower. Indeed, there was talk of China restricting exports of rare earth minerals and soybeans in response to the recent moves by the US against Chinese telecom companies. In addition, Trump out of the blue announced he was imposing tariffs on all Mexican imports until Mexico 'substantially stops the illegal flow of aliens'.

"The best that can now realistically be hoped from the end-June G20 summit is that Presidents Trump and Xi agree to restart negotiations and postpone the tariff increases set to be implemented in July. Longer term, we still believe China and the US will reach some kind of agreement - not least because neither side will want to risk a recession.

With the Presidential election next November, Trump will have every incentive to reach a deal rather than risk triggering a downturn in the economy.

12.27pm BST

Back in the markets, the gold price has hit a two-month high as nervous investors scamper for safe places to put their money.

The Mexican tariffs were probably the straw that broke the camel's back.

"Tariffs on Mexico also showed that no country is safe from the US weaponising trade to meet objectives of the Trump administration, stretching the possibility of the global economy losing growth steam."

12.17pm BST

President Trump began his trip to London by settling down in front of the TV, before making the short trip by helicopter to Buckingham Palace.

Unfortunately, he wasn't pleased to find himself watching CNN -- and has just bashed one of his least-favourite news channels:

11.57am BST

UK politicians are distracted by Donald Trump's state visit, but they really should take a closer look at the downturn in UK manufacturing last month.

Our economics editor Larry Elliott says:

The government has been sent a warning signal that Brexit uncertainty is pushing Britain's manufacturing sector into recession as the latest industry health check showed the weakest performance since the aftermath of the EU referendum three years ago.

Order books shrank rapidly after a period when businesses had been stockpiling goods in the run-up to the original Brexit deadline at the end of March, according to the regular monthly survey conducted for the Chartered Institute of Procurement & Supply by the research group IHS Markit.

11.29am BST

Just in: Donald Trump has just accused China of subsidising its industries to help them cope with the trade war.

The US president, at the start of his state visit to the UK, tweeted:

China is subsidizing its product in order that it can continue to be sold in the USA. Many firms are leaving China for other countries, including the United States, in order to avoid paying the Tariffs. No visible increase in costs or inflation, but U.S. is taking Billions!

Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins.

11.10am BST

Brexit stockpiling helped the UK economy to grow by a meaty 0.5% in the first three months of 2019. Today's weak PMI report suggests growth may be rather slower in the current quarter, points out Markit's Chris Williamson:

UK factories struggle as Brexit stock build impact unwinds: IHS Markit/CIPS manufacturing #PMI fell from 53.1 in April to 49.4 in May, below the 50.0 'no change' level for the first time since July 2016. Q1 boost to economy will reverse/fade in Q2 https://t.co/YVp5iDGwcM 1/3 pic.twitter.com/tVOxXFwU9j

10.52am BST

Lee Collinson of Barclays Corporate Banking says UK factories have fallen into a dip as Brexit stockpiling unwinds:

Manufacturers have been warning for some time that they are trying to navigate a number of headwinds, and the hard to predict Brexit negotiations have certainly made investment decisions more difficult, with falling car production indicative of the issues being faced.

It's not all about Brexit though, with weaker global demand already taking a bite out of exports.

"Any potential benefits from the auto shutdowns [in April] have been outweighed with falling orders, high inventory levels - from previous stockpiling - and worryingly, a reported shift with some EU customers moving their supply chains away from the UK amidst continued Brexit uncertainty.

The global backdrop is also one of uncertainty - with trade wars, geopolitical events, automotive developments and Brexit - all of these factors are weighing on manufacturing in Europe and Asia and they are reflected in May's readings.

10.23am BST

Here's Howard Archer, economist at EY Item Club, on this morning's worrying fall in UK factory growth:

10.21am BST

There is one glimmer of good news amid the gloom -- half of the factory bosses interviewed by Markit expect output to be higher in a year.

Duncan Johnston, UK manufacturing industry leader at Deloitte, says:

"This month's disappointing PMI figure of 49.4 is undoubtedly a combination of ongoing Brexit uncertainty and underlying macro and global trade factors. However, it is hard to unpick what has had the larger impact.

This backdrop of uncertainty is expected to continue for some months, but there is cause for optimism. Purchasing managers remain positive, with almost half expecting output to be higher in a year's time and only 10% expecting it to be lower."

10.13am BST

Make UK, which represents British manufacturers, says customers are taking their business elsewhere, driven away by Brexit worries.

Seamus Nevin, their chief economist, says this helped to pull manufacturing output down last month.

"The extent to which stockpiling was artificially boosting output earlier in the year is now clear with the PMI plunging into negative territory for the first time since the Referendum. Manufacturers are reporting export demand is weakening as customers look to buy goods from other countries which they once bought from the UK.

This is not only the case with European customers but also from countries in Asia with which UK manufacturers trade under the terms of EU free trade deals.

"The weakness in manufacturing output in the UK is also clearly linked to what is happening in our main trading market, the EU. Eurozone PMI remained in negative territory for the fourth consecutive month with both Germany and Italy struggling as the global economic slowdown gathers pace.

"This is not a good time for our economy to be preparing to go it alone. Once again the data is showing a consistently downward trend and, in this context, continued political uncertainty at home can only make an already difficult situation worse."

10.02am BST

Britain's factories could be heading into a recession now that they're no longer scrambling to protect themselves from a cliff-edge no-deal Brexit.

Capital Economics fear that the stockpiling boost that supported manufacturing earlier this year has now faded.

The sharper-than-expected drop in the #manufacturing #PMI from 53.1 to 49.4 (consensus 52.0, CE 51.0) means that the index is now at its lowest level since July 2016 and suggests the sector will slip back into contraction as the boost from no deal preparations unwind. pic.twitter.com/zO0l9jCPNl

9.56am BST

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, is also concerned that Britain's factories contracted last month:

With one of the fastest shrinking rates seen in six and a half years and the biggest drop since July 2016, straight after the referendum result, based on this result, there is the likelihood of more bad news to come.

"Supply chain managers voiced their deep anxieties over Brexit's continuing impacts as some supply chains were re-directed away from the UK resulting in a drop in total new orders for the first time since October.

9.51am BST

The UK factory sector was buffeted by ongoing Brexit uncertainty again in May, says Rob Dobson, dragging the PMI to a near three-year low.

He also fears that British manufacturing could continue to shrink in the comping months.

The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production.

"New order inflows declined from both domestic and overseas markets, as already high stock levels at manufacturers and their clients led to difficulties in sustaining output levels and getting agreement on new contracts.

9.41am BST

Newsflash: Britain's factory sector has suffered its worst contraction since the EU referendum almost three years ago.

Data firm Markit reports that new orders and employment both declined last month, hit by Brexit uncertainty and the knock-on impact of the US-China trade war.

New order inflows deteriorated from both domestic and overseas sources. New export business fell for the second month running and at the quickest pace in over four-and-a- half years. Manufacturers reported lower demand from Asia and Europe.

There was also mention of Brexit uncertainty, including clients diverting supply chains away from the UK, leading to lower demand from within the EU.

9.32am BST

We have confirmation that Europe's factory sector continued to struggle last month.

Data firm Markit has reported that its eurozone manufacturing PMI fell to 47.7 in May, down from 47.9 in April. That shows the sector is shrinking (as it's below the 50-point mark showing stagnation).

Germany Manufacturing PMI at 44.3 in May, still near its lowest since 2012. Rates of decline in output and new orders eased, but employment fell at the quickest pace in almost 6.5 years. More: https://t.co/Tu4FGs4goa pic.twitter.com/pFAUepIa2s

9.28am BST

9.21am BST

9.15am BST

Britain's smaller FTSE 250 index, is also having a bad morning - down 1% at 18,781 points.

Troubled outsourcing group Kier is doing some of the damage - it has slumped by 40% this morning to a 20-year low after issuing a profits warning.

8.52am BST

The sell-off is deepening in London.

The FTSE 100 is now down 80 points, or over 1%, with only a handful of stocks defying gravity. Every sector has fallen, led by energy (tracking the oil price), technology (China concerns), consumer goods-makers and miners (recession fears).

8.45am BST

Morgan Stanley has also warned investors that the US-China trade war could be worse than feared.

Its chief economist, Chetan Ahya, has warned that the global economy could slump into recession if president Trump expands the trade war to all Chinese exports.

"My recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions.

Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook."

Morgan Stanley sees a recession within a year if US-China Trade war gets worse. @EconomicTimes @business pic.twitter.com/dhEsdl5Ldl

8.37am BST

Wall Street giant Goldman Sachs has become more pessimistic about the trade war.

It now believes there's a 60% chance that America imposes tariffs on ALL Chinese goods (currently around half, or $300bn per year, are exempt from the trade war). That's up from 40% previously.

"Rhetoric in China has intensified... additional escalation looks likely from both sides, including tariff and non-tariff measures."

8.26am BST

European stock markets have fallen in early trading, hit by trade war anxiety.

Britain's FTSE 100 has shed 66 points, or 0.9%, to 7095, its lowest point since mid-March. China's latest criticism of America's trade war policy (see here) is hitting sentiment in the City.

Global stocks were down by around 6% in May - can we get a better June? The runes are not looking great.

European shares are lower today as trade tensions continue to mount and investors exhibit greater fear about the global economy and the risk of recession. Asian markets were generally lower after a big selloff on Wall Street on Friday that saw the S&P 500 decline 37 points, or 1.32%, to finish at 2,752.06, below its 200-day moving average.

8.09am BST

Investors are also reeling from the news that America considered beginning a trade war with Australia - a key US ally.

The New York Times reported that some of Mr Trump's top trade advisers had urged the tariffs as a response to a surge of Australian aluminium flowing onto the US market during the past year.

7.51am BST

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

"The China-US economic and trade consultations have been severely frustrated by the US tariff increases and [the US's] abuse of export controls by including Chinese companies on the entities list."

Resorting to intimidation and coercion, it persisted with exorbitant demands . . . and insisted on including mandatory requirements [that infringe on] China's sovereign affairs in the deal."

The paper contends that the trade actions have done serious harm to the U.S. economy by increasing production costs, causing prices hikes, damaging growth and people's livelihoods and creating barriers to U.S. exports to China. In short, Trump's tariffs aren't helping, China concluded.

"It is foreseeable that the latest U.S. tariff hikes on China, far from resolving issues, will only make things worse for all sides," according to the white paper.

European Opening Calls:#FTSE 7131 -0.43%#DAX 11646 -0.69%#CAC 5168 -0.76%#MIB 19625 -0.89%#IBEX 8946 -0.65%

Global mkts have started the week on negative footing & oil extends slide as trade wars stoke global recession anxiety. Crude oil tumbled 16% in May. Shanghai copper at 2y low. Treasuries flat w/US 10y yield at 2.13%. Mkts price in 50% chance of Fed cut by Jul. Bitcoin at $8.6k. pic.twitter.com/C9ARFJriTS

One of the additional worries would be that if the US has been so quick to escalate the trade war on these two countries [Mexico and China] the bar must be a bit lower to carry out a trade assault on Europe at some point in the future. Interesting times.

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