Germany 'recession risk' as manufacturing hits seven-year low – as it happened

Jasper Jolly

from Economics | The Guardian on 2019-07-24 14:01 (#4KSYP)

Drop in exports prompts factory contraction in Eurozone's largest economy

3.01pm BST

A recap: the UK will shortly have a new prime minister, after months of paralysis as Theresa May has failed to get her Brexit deal through.

The success or otherwise of Boris Johnson's reign will almost certainly depend on how he handles the UK's exit from the EU. The battle lines will be drawn over the coming hours with Johnson expected to stuff his cabinet with former Vote Leave allies.

The data can only increase the pressure on the ECB, which meets tomorrow, to ease policy sooner rather than later.

Still, the ECB may well decide to delay any easing until September - not least because Draghi may need time to get the ECB to agree on what action to take. Most likely tomorrow, Draghi will just confirm that easing is very much on the cards - just not till September.

2.35pm BST

Meanwhile, back in London Theresa May has just finished her final speech as prime minister. Off to the Palace now to resign properly.

2.33pm BST

Wall Street has fallen at the open, but only slightly.

The Nasdaq composite lost 0.25%, the S&P 500 fell by 0.23%, and the Dow Jones industrial average fell by 0.45% at the market open - leaving it further short of a fresh record high.

2.27pm BST

US markets are just about to open (and are expected to fall) but Americans of all stripes could be forgiven for having their eyes elsewhere.

2.20pm BST

Another resignation confirmed: David Gauke is pegged to be one of the trickiest rebels for Boris Johnson.

Fleet Street has, with predictable inelegance, described him as leader of the "Gaukeward" squad committed to avoiding a no-deal Brexit.

Just to confirm that immediately after PMQs, I resigned as Justice Secretary and Lord Chancellor. I am very grateful to @theresa_may for giving me the opportunity to serve in her Cabinet. pic.twitter.com/S0GDqgiFLv

2.02pm BST

As traders in London return from their lunches, the FTSE 100 has recovered slightly, hovering at a loss of 0.8%.

The FTSE 250 is up by 0.3%, thanks in part to Sports Direct, which has gained almost 12% today after it said that its results on Friday will be within its previous guidance. The retailer had earlier delayed the publication of the results, to the chagrin of analysts.

1.56pm BST

GlaxoSmithKline has increased its 2019 earnings outlook after sales of its shingles vaccines, Shingrix, helped it to beat expectations for the second quarter.

GSK delivered continued good operating performance in Q2 despite the loss of exclusivity of Advair. We are increasing our expectations for the year and have updated our guidance for 2019.

We remain focused on strengthening our R&D pipeline and the execution of new product launches. Positive clinical data received so far this year offer significant new opportunities for products in oncology, HIV and respiratory and we expect more important readouts in the second half of the year.

1.43pm BST

Deutsche Bank's chief financial officer today said he expects the lender to make a loss for 2019, but to return to profit next year.

It has been a torrid time for Deutsche, with a failed merger and struggles across multiple divisions.

1.39pm BST

An update on the politics side: chancellor Philip Hammond has finally resigned from the government.

12.55pm BST

US aircraft maker Boeing has reported a $2.9bn (2.4bn) quarterly loss as it absorbed the cost of grounding its 737-Max planes following two deadly crashes.

12.48pm BST

US stock market futures suggest shares will fall at the open, after the US justice department said it will investigate major technology firms for potential competition breaches.

The price of futures for the S&P 500 has fallen by 0.24%, while futures for the Nasdaq, which counts more tech firms among its members, lost 0.37% at the time of writing.

12.33pm BST

Theresa May is currently carrying out/suffering through her final prime minister's questions - after all, Johnson is still technically just a Conservative backbencher.

12.15pm BST

The pound has risen to its highest level in a month against the euro after weaker-than-expected European data.

Sterling traded at a1.1226, a level last hit on 21 June. Against the dollar the pound broke back above the $1.25 mark, recovering the gains of the past three days.

11.43am BST

Then again, markets are pricing in a 50% chance of a rate cut at this meeting, meaning it would not come as a surprise if Draghi does pull the trigger.

The ECB is not the only central bank looking at the global economy and seeing a need for monetary policy support: the US Federal Reserve is expected to cut interest rates for the first time since the financial crisis next week.

Germany Manufacturing PMI falls to 43.1 - worst in 7 years. French manufacturing PMI also disappoints to the downside.

My bet is we get a 10bps rate cut from the @ECB tomorrow, with Draghi setting the stage for more QE starting in September. $EUR testing 1.11 pic.twitter.com/kMQ0bRMzZp

My Twitter feed is full to bursting of Boris. Meanwhile, too little screaming at Europe's leaders to put everything into turning the economy round before it sinks

11.35am BST

Today's weak German PMI data has pushed the euro to a two-month low against the US dollar this morning.

The euro traded as low as $1.1125, the lowest since the last day of May, as the weakness added to the feeling that the doves at the European Central Bank (ECB) have the ascendancy, making rate cuts more likely.

The most likely scenario for Thursday is that the ECB changes its forward guidance but delays decisions on rate cuts, tiering and additional quantitative easing until its next meeting on 12 September, when it can make a more thorough assessment of its policy in light of the new macro forecasts.

11.15am BST

London-based minicab firm Addison Lee has received interest for a takeover from Uber and Indian ride-hailing rival Ola, according to Sky News.

Uber and Ola are among "a handful" of parties in discussions with Addison Lee's owner, the private equity firm Carlyle, about a possible deal.

11.06am BST

The latest UK Finance mortgage approvals data shows a small pick-up in new house purchases for June.

There were 42,653 mortgage approvals for house purchase from the main high street banks in June, a 0.6% month-on-month rise. After strong gains in March and April that pushed the year-on-year change to 6.9%.

The strength of today's lending numbers should be interpreted with care. While UK Finance has recorded an elevated level of mortgage lending over last few months, those figures cover only two-thirds of the mortgage market. Meanwhile, the Bank of England data, which covers all of the market, show only a very small rise over the same period to May - the latest available reading.

As a result, the elevated level of house purchase mortgage lending probably reflects a shift in market share, rather than a market-wide expansion of lending.

10.55am BST

The FTSE 100 has now slipped to a 1% loss for this morning, as London's weighty mining contingent has fallen further.

Rio Tinto is down by 4%, while BHP and Anglo American are both down by more than 3%. Only Yorkshire chemicals company Croda has lost more, down by 4.1%.

10.36am BST

Lest we forget in the flurry of corporate and economic news, today is the first day of a new era for Britain: the premiership of Boris Johnson.

You can follow all of the cabinet reshuffle to and fro with Andrew Sparrow on the politics live blog here:

Two paths of success for Johnson. 1 (better for economy but less likely) is get cosmetic change to withdrawal agreement and use his persuasive skills to get it through parliament and end up with an oct 31 soft-ish brexit. The other option is (cont...)

Johnson's 2nd path to success. Likely he will choose this. Go hard brexit and get brexit party voters back to the Conservatives. When prl't rejects hard brexit, go to elexn. If Corbyn stays leader and remain divided b/w lab and LD, Tories get majority and hard brexit happens

10.20am BST

The Caledonian Sleeper's relaunch in the spring had some real teething problems, and now they have another issue: a vote by staff to strike.

9.59am BST

The maker of James Bond's favourite car (in the films, at least) has been shaken this morning after a surprise update pointed to a steep drop in sales. Whether it can be stirred into action is another matter.

Aston Martin has committed "one of the worst things a newly-listed company can do in the first year of being on the stock market", said Russ Mould, investment director at
investor platform AJ Bell: a revenue warning. Mould said:

Floating on the stock market can boost a company's reputation and provide an opportunity for the public to buy into the story. However, it can also expose a company to criticism from investors who are watching every move like a hawk.

Its credibility could be shattered for some time as investors question if they can trust management to do what they said Aston Martin would do at the time of the initial public offering last October. The situation shows how vulnerable it is to a period of economic weakness.

9.53am BST

The UK's competition regulator has announced that it will push ahead with an investigation into the takeover by JD Sports of trainer retailer Footasylum.

9.44am BST

European Central Bank (ECB) president Mario Draghi will have a case of jumpy doves in the latest meeting, says ING's Bert Colijn.

All in all, the PMI paints a picture of an economy that is flirting more with the downside than with swift recovery. More ECB stimulus seems to be a done deal, but the timing remains an exciting question.

If the ECB has yet to decide whether it is already tomorrow or September when it will act, this PMI has given the doves on the governing council even more ammunition.

9.41am BST

Even if the European services sector is still growing, the weakness of the German manufacturing sector (a big consumer of services) may eventually feed through.

The Eurozone PMI figures, which came out 15 minutes after the German data, tell much the same story of "significant" growth concerns, according to Bert Colijn, senior Eurozone economist for ING. He said:

Even though service sector activity remains strong for now, the question is how long that can be maintained when industrial production experiences a prolonged decline.

9.36am BST

The poor PMI data come ahead of the European Central Bank's latest monetary policy announcement tomorrow. The upshot is that the case for easing policy has been bolstered, say economists.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said:

It will reaffirm policymakers' desire for policy easing, and we think that they will begin by changing their forward guidance on interest rates and QE tomorrow.

[German PMIs] suggest that the economy was still weak at the start of the third quarter, following what is likely to have been stagnation or a small contraction in the second quarter.

9.18am BST

The weakness of the manufacturing sector - and the mighty car industry - has pushed Germany's composite PMI, including the services sector, to a four-month low of 51.4.

Weakness in the automotive sector was a major driver of the poor manufacturing performance. Manufacturing order books fell at the fastest rate since April amid reports of lower export sales to China in particular.

Confidence among manufacturers towards future output sank sharply in July, down to its lowest since late 2012 due in part to increased concerns towards the outlook for the car industry.

9.03am BST

Germany's manufacturers suffered their worst month in seven years in July, adding to fears that the Eurozone's largest economy could be headed for a recession.

The manufacturing purchasing managers' index (PMI) fell from 45 in June to a reading of 43.1 - far below the 50 mark which indicates an expansion - according to data company IHS Markit.

The health of German manufacturing went from bad to worse in July, according to the flash PMI data, raising the risk of the euro area's largest member state entering a mild technical recession.

The performance from Germany's goods producers in July is the worst recorded by the survey in seven years, with the renewed weakness mainly stemming from an accelerated drop in export orders-the most marked seen in over a decade.

8.50am BST

If you need a reminder of why Deutsche Bank is spending a3.4bn on cutting jobs, here it is: a share price graph showing the last decade.

No matter what a succession of chief executives have done, the fall from the heights before the financial crisis has been relentless.

8.41am BST

Back on Deutsche Bank, shares are down by 5.2%.

The a3.1bn (2.8bn) loss was driven by a larger-than-expected charge for restructuring, meaning it has already used up half of the money it set aside for the next three years.

Shrinking of Deutsche Bank continues. Posts Q2 net loss of a3.15bn amid restructuring costs, higher than guided a2.8bn they disclosed on Jul7. Revenue down 6%. Only Asset management decent. Outlook grim as Deutsche sees 2019 group rev lower than 2018. https://t.co/1lUjdbhPkV pic.twitter.com/TuYDVlu2UE

8.35am BST

Aston Martin's struggles may be a sign of the broader difficulties faced by the automotive industry, according to analysts.

Nissan is reportedly looking to cut 10,000 jobs (more detail here), as it tries to turn its business around. That could have worrying implications for workers at its plant in Sunderland, which has already seen investment pulled in part because of Brexit.

Bad day for auts!
First, Suzuki decides to to drive out fewer cars from Guj plant
Now Fitch downgrades @TataMotors from BB to BB- with negative outlook, citing profitability & free cash generation as reasons for the downgrade
Meanwhile, Nissan, Aston Martin flag off concerns too!

Aston Martin shares lose a fifth of their value after it cutes 2019 guidance pic.twitter.com/ZJUe6yG22r

8.24am BST

A quick look at the European indices: shares are flat across most of Europe, but the UK is acting as a weight on any gains.

The FTSE 100 is now down by 0.2% thanks to declines of between 1% and 2% for the London-listed mining contingent, while French shares have risen by 0.1%.

8.15am BST

Aston Martin Lagonda shares have fallen by 20%, hitting an all-time low after investors balked at cuts to sales forecasts.

8.06am BST

Shares in ITV are up by about 6% in the first few minutes of trade, beating the broader FTSE 100 index which fell by 0.1%.

ITV is to air two series a year of Love Island as the broadcaster looks to bolster declining TV ad revenues with a "winter" version of the hit reality TV show.

7.59am BST

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

Deutsche Bank this morning posted its biggest quarterly loss since the third quarter of 2015* as it absorbed the cost of laying off thousands of workers - with the UK and US in the crosshairs.

We have already taken significant steps to implement our strategy to transform Deutsche Bank. These are reflected in our results. A substantial part of our restructuring costs is already digested in the second quarter.

Excluding transformation charges the bank would be profitable and in our more stable businesses revenues were flat or growing. This, combined with our solid capital and liquidity position, gives us a firm foundation for growth.

Breaking: Aston Martin lowers guidance for FY2019 volumes down from 7,100-7,300 vehicles to 6,300-6,500 as the "challenging external environment...has worsened" $AML

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