Markets shrug off trade war fears and Spanish vote as US jobs beat forecasts - as it happened
Investors await developments after US imposes steel and aluminium tariffs, while US non-farm payrolls soar; Spain ousts prime minister Rajoy
2.54pm BST
Investors pretty much knew that the US was about to slap steel and aluminium tariffs on the EU, Mexico and Canada, so in true market fashion, it was sell on the rumour and buy on the fact.
The EU however said it was pressing ahead with a complaint to the World Trade Organisation about the US move, and had also opened a challenge against China over intellectual property.
2.54pm BST
Kudlow "I don't think he gave anything away"
Question needs to be asked then - would he have tweeted anything if it was a bad report. Think we all know the answer to that question. https://t.co/LZf5u0CQ89
2.50pm BST
US factories grew strongly again last month, but slightly more slowly than expected.
The final Markit manufacturing PMI came in at 56.4 compared to the intial estimate of 56.6 and April's figure of 56.5.
US Manufacturing PMI (May F) 56.4 versus 56.6 flash/expected
- Sharp increases in output and new orders
- Staffing levels expand at quicker pace
- Inflationary pressures remain elevatedhttps://t.co/ul2zqkR5jX pic.twitter.com/XpmejKNZt0
2.49pm BST
White House economic adviser Larry Kudlow has spoken about the Trump tweet on the jobs figures:
*KUDLOW SAYS TRUMP KNEW ABOUT MAY JOBS DATA THURSDAY NIGHT
*KUDLOW SAYS TRUMP TWEET NOT INTENDED TO SIGNAL STRONG REPORT pic.twitter.com/rVzPm5ZTOh
2.43pm BST
Despite the growing trade tensions after the US imposed its tariffs on the EU, Canada and Mexico, Wall Street has followed European markets higher, helped by a better than expected jobs figure.
The Dow Jones Industrial Average is currently up 210 points or 0.86% while the S&P 500 opened up 0.5% and the Nasdaq Composite was 0.6% higher.
2.26pm BST
Looking forward to next month, where there won't be a tweet ahead of NFPs and the lack of one will be interpreted as a bad number.
2.26pm BST
Here is our story on the US jobs data, and the president commenting on the figures before their official release:
Donald Trump broke with years of protocol on Friday, commenting on the US's latest jobs report an hour before its official release.
The Bureau of Labor Statistics announced at 8.30am that the US had added 223,000 new jobs in May as the unemployment rate slid t0 3.8%, its lowest level since April 2000 and one of the lowest levels since after the second world war.
Related: Trump comments on jobs report before its official release
2.21pm BST
And more Trump. The president has turned his attention back to trade, and Canada:
Canada has treated our Agricultural business and Farmers very poorly for a very long period of time. Highly restrictive on Trade! They must open their markets and take down their trade barriers! They report a really high surplus on trade with us. Do Timber & Lumber in U.S.?
2.17pm BST
Former US treasury secretary Summers has strong views on the Trump tweet which came ahead of the official announcement of the jobs numbers:
If during the Clinton or Obama Administrations there had been a statement from @POTUS or anyone senior official in the morning before the Employment Report it would have been a major scandal-with all sorts of investigations following on.
2.01pm BST
More from ING Bank. Economist James Smith says the jobs data means a June rate hike is still on the cards. He said:
Rising employment and an above-consensus wage growth figure will reinforce expectations for a rate rise in a couple of weeks, although Fed voters will also have a firm eye on the latest trade developments.
President Trump said shortly before today's US jobs report that he was "looking forward" to seeing the numbers. And with the economy having added 223k jobs in May, he is likely to be fairly chuffed.
1.46pm BST
Here's ING strategist Viraj Patel on the US jobs numbers:
Hard to find a -ve in the US jobs report. Decent jobs, lower u/e rate, lower U-6 rate. +0.3% MoM wage growth was a rounding effect (+0.298%) which might be the only -ve one could cite (& lower participation rate).
Soft reaction in #FX. NFP days mattering less these days... $USD pic.twitter.com/wrTOIpqzkb
1.45pm BST
The US unemployment rate has fallen to a new 18 year low of 3.8%, slightly better than the 3.9% expected.
1.37pm BST
yup, he knew.
1.35pm BST
April's jobs figure was revised down from 164,000 - already weak - to 159,000 but March was higher than originally reported, up from 135,000 to 155,000.
On the wages front, year on year earnings were up 2.7% compared to 2.6% in April, in line with forecasts.
1.33pm BST
Perhaps no surprise given Trump's positive tweet, but the US jobs figures are much better than expected.
Some 223,000 jobs were created in May compared to expectations of a 190,000 increase.
1.28pm BST
Back with the EC, and commissioner Malmstrom says we are not in a trade war yet but in a very difficult situation brought on by the US. It is a very worrying situation, she says, it could escalate and the economic recovery risks being diminished by this. " The US is playing a dangerous game here."
1.23pm BST
Meanwhile, on the US jobs data which is due shortly, President Trump has tweeted about them ahead of time:
Looking forward to seeing the employment numbers at 8:30 this morning.
This is the first time a president had ever sent a signal to investors about what the jobs numbers might look like an hour before they came out. https://t.co/M8PaXsHnhg
1.22pm BST
On the US tariffs, she says the EU is talking to Canada, Mexico, as well as Japan. There might be others as well who will react.
1.20pm BST
Malmstrom says the WTO| complaint about the US tariff will be made in the next few days, and the EU is also making a challenge against China on intellectual property. She says:
We are not choosing any sides. We are determined to deal with the root causes of the current tension in the trade system. But we need to do that within the rules.
1.11pm BST
Here's a link to the European Commission press conference by Commissioner Cecilia Malmstrom on the response to the US tariffs.
12.27pm BST
Here's Liberal Democrat leader Sir Vince Cable on the US tariffs, courtesty PA:
As well as being petty and most probably illegal, Trump's trade war is ultimately self-defeating.
In the inevitable retaliation, there will end up being tariffs on a plethora of US products from jeans to Trump Tower merchandise.
The US administration has made clear again this week that they are very keen to see an agreement with the UK but regard steel imports as an EU issue.
12.00pm BST
The European Union is pressing ahead with its retaliation to the US trade tariffs:
The EU is opening a case at the World Trade Organisation, after the US imposition of a 25% duty on European steel and a 10% duty on European aluminium came into force this morning. Cecilia Malmstrim, the EU trade commissioner, is also expected to announce retaliatory tariffs on classic American products, such as Levi's jeans, bourbon whiskey, cranberries and peanut butter, at a press conference later on Friday.
"The European Union will today proceed with the WTO dispute settlement case adding those additional duties on a number of imports from the United States," Federica Mogherini, the EU high representative on foreign policy, told journalists this morning. "The European Union measures will be reasonable, proportionate and in full compliance with WTO rules and obligations."
Related: EU starts retaliation against Donald Trump's steel and aluminium tariffs
11.30am BST
Markets so far continue to be fairly relaxed about the prospect of a global trade war, and the ousting of Mariano Rajoy as Spanish prime minister. The resolution of the turmoil in Italian politics certainly seems to be helping sentiment, with Italy's FTSE MIB now up 2.5%.
Elsewhere Spain's Ibex is up 1.77% following the vote against Rajoy, Germany's Dax has risen 0.9% and France's Cac has climbed 1.24%. In the UK, the FTSE 100 is 0.65% better. On Wall Street, the Dow Jones Industrial Average is forecast to open nearly 120 points higher. Craig Erlam, senior market analyst at Oanda said:
The imposition of steel and aluminium tariffs by the US on Europe, Canada and Mexico has drawn plenty of criticism from officials but maybe in a sign of how markets can become less sensitive to certain issues, the response has so far been fairly muted. Focus will now be on the retaliatory measures that these countries have lined up and whether that in turn triggers a larger and quite unnecessary trade war. Investors currently appear at ease with the situation but that could quickly change.
11.16am BST
And a handy guide to the potential global trade war from ING Bank:
We're at red alert now as Mexico, Canada hit back against US steel and aluminium tariffs! Global trade war threat moves to DEFCON 4. pic.twitter.com/17igIUUVAY
11.04am BST
Here's a US Federal Reserve member on the trade tariffs:
Trade talks are increasing uncertainty in the economy, says the Fed's James Bullard https://t.co/D66FcM3RUN pic.twitter.com/wF1qhTzpSc
10.46am BST
The voting in Spain by the way showed 180 in favour of ousting prime minister Rajoy, 169 against, and one abstention.
10.42am BST
The Spanish vote has had less impact than the turmoil in Italy, says Seema Shah, global investment strategist at Principal Global Investors:
Much of the market panic around Italy was about the threat to its membership of the Euro area but, by contrast, all of the main Spanish political parties are supportive of the single currency. Presuming Sanchez does not try to hang on to power, Spain is likely to see new elections later this year and a market-friendly, pro-European government should materialise from there. In the meantime, given that the support of Basque nationalist MPs required a promise to not change the budget, Sanchez is unlikely to make sweeping changes to the budget.
Material economic progress has been made in recent years - Spain's fiscal position has improved; unemployment has fallen; and the banking system has been strengthened - the latest political disruption does not upset the generally positive outlook for the Spanish economy. Of course, political uncertainty is never welcome, but it has been telling that Spanish bond yields have fallen again today. It seems that Italian politics are more important for Spanish markets than Spanish politics.
10.39am BST
Here is Sanchez receiving the applause after becoming prime minister elect:
10.33am BST
Its done. PM Rajoy ousted. Pedro Sanchez becomes PM-elect as Spain turns left.
10.12am BST
The confidence vote is underway in Spain and here's a link:
WATCH: Confidence Vote Underway In Spanish Parliament https://t.co/WWITKcZgC8
10.03am BST
Here's a quick summary of some of the day's PMIs:
Final IHS Markit #Eurozone Manufacturing #PMI at a 15-month low of 55.5 in May, down from 56.2 in Apr and unchanged from the earlier flash estimate https://t.co/rrKsNJTIIE pic.twitter.com/eapFs82qPr
9.59am BST
Back with UK manufacturing, and despite the unconvincing outlook, ING Bank economist James Smith believes the Bank of England is still inclined to raise interest rates this summer:
At 54.4, the latest UK manufacturing PMI is a little better than hoped but is still a far cry from the levels seen towards the end of last year.
Whilst Markit/CIPS noted the weakness partly reflected a slower pace of domestic orders, we also wonder whether the steadier global growth over the past few months is starting to weigh. We suspect it is too early to see any tariff impact in these figures, but the slowdown in the Eurozone that we saw through the first quarter may be playing a role. The gradual strengthening in the trade-weighted pound since last summer could also be beginning to hit demand at the margin.
9.56am BST
Earlier we also had the German manufacturing PMI:
#Germany Manufacturing #PMI hits 15-month low in May. Output, new orders, exports and employment all rise at slower rates, while optimism sinks to lowest since October 2015 https://t.co/an84Idgslh pic.twitter.com/IzFSbsJwXj
9.44am BST
The Spanish confidence vote is due in around 15 minutes (10am BST), and it seems Mariano Rajoy is resigned to leaving, with socialist Pedro Sanchez set to take over as prime minister.
9.38am BST
British factory growth was stronger than expected in May, according to a survey of the sector, but the increase masks its underlying weakness.
The Markit/CIPS manufacturing PMI came in at 54.4, up from 53.9 in April and above expectations of a figure of 53.5.
Markit:
- UK Manufacturing PMI rises slightly to 54.4 in May
- Output growth ticks higher despite slower expansion of new work received
- Supply-chain constraints and cost pressures intensify
At first glance the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive.
However scratch beneath the surface and the rebound in PMI from April's 17 month low is far from convincing.
These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector.
Muted rebound: UK #manufacturing #PMI up from 53.9 in April to 54.4 in May, but at 54.2 the average PMI so far in Q2 is down from 54.9 in Q1 & puts sector on course for its weakest quarterly performance since end of 2016. New orders saw weakest rise since June of last year #BoE pic.twitter.com/m57IY5pd0M
9.30am BST
The International Monetary Fund has called for countries to work together on trade. In response to the US tariff moves, IMF spokesman Gerry Rice said:
Everybody loses in a protracted trade war, we encourage countries to work constructively together to reduce trade barriers and to resolve trade disagreements without resort to exceptional measures.
At the end of the day, if #trade is massively disrupted, if the level of trust among economic actors is severely damaged, those who will suffer most are the poorest people. #G7 pic.twitter.com/hOCLAHvg6W
9.26am BST
Markets seem to be unmoved, not only by the US tariffs, but also the political uncertainty in Spain. UBS analyst Bosco Ojeda explains:
In a quick succession of events the Spanish parliament will vote this Friday June 1st a vote of no confidence which could remove from power president Mr. Rajoy (Partido Popular) and appoint Mr. Sanchez (PSOE)...
Mr. Sanchez (PSOE) has indicated that he aims to call for early elections but the exact timing is uncertain. Current polls show weak support for PSOE, while there is increasing support for [rival] Ciudadanos. So incentives to call elections are unclear and may extend towards the 2020 limit. Mr. Sanchez has reiterated a commitment with European orthodoxy and budget control in Spain. His plan includes the acceptance on the current 2018 budget. Going forward it may be more expansive on spending but there is not much room. Attempts to reverse reforms may not find a majority in parliament.A complete u-turn in policy seems unlikely.
9.12am BST
Italy's economy, the eurozone's third biggest, grew by 0.3% in the first quarter of the year, in line with initial estimates.
The annual increase was 1.4%. Fourth quarter growth was revised up quarter on quarter to 0.4% from 0.3%.
Italy Markit Manufacturing PMI below forecasts (52.9) in May: Actual (52.7) https://t.co/MIRdN4f3X5 pic.twitter.com/pvm5Z3o5VL
9.09am BST
Eurozone factory growth was subdued in May, falling to a 15 month low, and the weakness looks set to continue.
The IHS Markit final manufacturing purchasing managers index came in at 55.5, in line with an initial estimate but below the April figure of 56.2. Chris Williamson, chief business economist at Markit, said:
Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in the coming months.
There are signs the soft patch has further to run. Despite the production trend slowing markedly in recent months, the order book slowdown has been even sharper.
Final #Eurozone manufacturing #PMI at 15-month low of 55.5 in May, down from 56.2 in April and unchanged from the earlier flash
estimate. Full release here https://t.co/Dl8dH6a0ir pic.twitter.com/1kWeCoWysl
8.55am BST
Away from trade for a moment, and here is a handy round-up of predictions for the non-farm payroll numbers later:
Primary Dealer #NFPguesses
JPM 250K
Merrill Lynch 220K
UBS 217K
RBC 215K
Goldman 205K
Jefferies 205K
Nomura 205K
Barclays 200K
Citi 200K
Morgan Stanley 200K
Scotia 200K
TD 200K
Daiwa 185K
HSBC 185K
SocGen 185K
BMO 180K
Deutsche 180K
Wells Fargo 180K
Credit Suisse 170K
BNP 165K
8.53am BST
We expect to hear more details of the EU's response to the US tariffs at lunchtime (1pm BST) when the bloc's trade commissioner gives a press conference.
8.47am BST
With European markets moving higher, taking their cue from Italy not tariffs, Wall Street is also expected to open in positive territory, with IG indicated a 90 point or so rise on the Dow Jones Industrial Average. Connor Campbell, financial analyst at Spreadex, said:
Setting aside the trade war tensions between the US and EU, for now anyway, the European indices got off to a strong start on Friday as the Italian political crisis appeared to come to an end.
Though not exactly the ideal government in the eyes of the markets, with a combination of ministers from the anti-establishment Five State Movement and the right-wing League, the formation of any Italian government is something to celebrate given how pronounced fears were that the situation would result in a Eurosceptic snap election...
8.42am BST
Legal proceedings against the US measures are due to be triggered at the World Trade Organisation today.
The EU wants the US actions declared illegal, but under WTO rules it will have to wait until mid-June to implement any balancing - i.e. retaliatory - measures. The US tariffs, of course, came into effect at midnight on Thursday.
8.33am BST
A new reaction from China to the US tariffs, courtesy Reuters:
China's foreign ministry said on Friday all countries should protect the normal trade order, when asked about United States' decision to impose tariffs on steel and aluminum exports from the European Union, Canada and Mexico.
Ministry spokeswoman Hua Chunying made the comments at a regular briefing in Beijing.
8.19am BST
The threat of a trade war does not seem to have spooked European investors too much, so far at least.
The FTSE 100 has climbed 0.6%, while Germany's Dax is up a similar amount. News of the new government in Italy has helped the FTSE MIB gain 2.14% while Spain's Ibex has added 1% despite the prospect of prime minister Rajoy being ousted.
8.14am BST
The EU, Canada and Mexico have said they will take the trade dispute to the World Trade Organisation.
Europe has a list of products which will be subject to retaliatory measures, including peanut butter, Levi's jeans, Harley-Davidson motor bikes and bourbon whiskey.
8.01am BST
Former White House Press Secretary Anthony Scaramucci said there was still room for negotiation. He said President Trump's action was a measure to correct the uneven and unbalanced trade system. He told Radio 4:
If you need to put up protective tariffs to protect your farming industry or parts of your industrial base, the United States is just basically saying 'okay that's not fair to us because we're accepting your goods and services into our country'.
You've got to give us an opportunity to compete in your country.
7.56am BST
Back with the US move on steel and aluminium, and Gareth Stace, from trade body UK Steel, told BBC Radio Five Live that the US tariffs were "illegal and protectionist." He added:
This unilateral decision beggars belief. It is the last thing we need given that we are coming out of the worst steel crisis in a generation.
Twenty to twenty five million tonnes could flood our market.
7.50am BST
Deutsche Bank, which on Thursday reportedly saw its US business put on a Federal list of problem banks, has now had its credit rating cut by S&P. The agency said:
S&P Global Ratings today lowered its long-term issuer credit ratings on Deutsche Bank AG and its core subsidiaries to 'BBB+' from 'A-'. The outlook is stable. We removed the ratings from CreditWatch negative. ..
The lowering of our long-term issuer credit rating reflects that Deutsche Bank's updated strategy envisages a deeper restructuring of the business model than we previously expected, with associated non-negligible execution risks.
7.35am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Normally on a day like today, markets would be focused on the US jobs figures due later and the manufacturing surveys which will give the first snapshots of how the global economy performed last month.
Related: US on brink of trade war with EU, Canada and Mexico as tit-for-tat tariffs begin
European Opening Calls:#FTSE 7695 +0.21%#DAX 12654 -1.01%#CAC 5424 -0.07%#MIB 22100 +1.45%#IBEX 9534 -0.34%
The expected tit for tat response from the EU, Mexico and Canada is setting the scene for a trade war, which is not conducive to global growth. However, the losses have not been as large as we would have expected just a few months ago. The market is becoming more familiar with this administrations' negotiating tactics and as a result, rather than seeing a move straight into risk off trading, we are seeing some investors take a wait and see approach. The traditional safe haven Japanese yen moved lower versus the dollar, as did gold and European bourses are pointing to a stronger start on the open.
After a strong year of economic activity in 2017 the manufacturing sector got off to a slightly softer start at the beginning of this year, across the board. In some of the recent April data there is evidence that this softness has evened out a little and started to stabilise. In Europe activity was able to rebound a little in part, while in the US we also saw increasing evidence of rising prices with prices paid at 7-year highs. If this trend continues in today's numbers then that should be supportive of a rebound in Q2. Expectations for Spain, Italy, France and Germany manufacturing are for 54, 53, 55.1 and 56.8.
In the UK we also saw a decent rebound after a soft March number, which may well have been weather related. Activity in May is expected to have steadied at around 53.5, a slight decline from the modest rebound seen in the April numbers with particular attention likely to be on cost price inflation which still looks fairly robust.
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