Trade war fears drag markets down as factories are hit by tariffs - as it happened

Graeme Wearden

from on 2018-07-02 16:16 (#3T6PP)

All the day's economic and financial news, as US president says Europe is "possibly as bad as China", and EU threatens tariffs on more American goods

Latest: Tariffs hit US factory confidence
Wilbur Ross: Market volatility won't shake Trump
Eurozone factory growth slows as trade war fears bite
Trump tells Fox News: Europe treats us unfairly
EU: We'll hit back if US imposes car tariffs

5.16pm BST

Time for a recap.

Worries over a potential trade war have weighed on market today, as factories report that America's recent move towards protectionism is hurting.

Wanna find out? https://t.co/zCiKwXezYf

The ongoing trade standoff between the US and China has triggered a wave of selling, as traders are fearful the tarifffs could hurt economic growth and bring about a slowdown.

4.20pm BST

The US stock market is recovering some ground, but the Dow is still down 100 points (0.45%) today.

3.46pm BST

ISM have also reported that every commodity got more expensive for US factories last month.

That suggests that firms were scrambling to lay their hands on raw materials before a trade war breaks out.

Commodities up in price vs. commodities down in price, according to US manufacturers https://t.co/hOC15QG9so pic.twitter.com/7AYxiUHVlG

3.42pm BST

Here's our Brussels correspondent Jennifer Rankin on Europe's threat to retaliate against America if Trump delivers on his threat to impose 20% tariffs on EU car imports.

Donald Trump will put a "tax on the American people" if he goes ahead with a threat to hit European carmakers with punitive tariffs, the European Unionhas warned.

In a hard-hitting paper, the European commission said Trump's tariffs would be "self-defeating and would weaken the US economy", estimating that almost $300bn (228bn) worth of US goods could be hit by countermeasures.

3.33pm BST

The US Institute of Supply Management has also reported that tariffs are having a negative effect on American factories.

ISM's survey of US manufacturing found that factories are finding it harder to get supplies delivered on time. That suggests that recent curbs on steel and aluminium imports are already having an effect (echoing what Markit reported a few minute earlier)

"Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue.

Demand remains robust, but the nation's employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business."

Manufacturers say business is good, except for Trump's damn trade war. "Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business," ISM says.

3.06pm BST

Newsflash: American factories are also feeling the impact of Donald Trump's trade dispute.

Data firm Markit has just reported that US manufacturing growth hit a four-month low last month. New order growth slowed to the lowest rate since November 2017, which American factory bosses blamed on recent tariffs.

US manufacturing PMI survey points to Trump's tariffs raising the cost of inputs (parts, materials, etc) required by factories - while supply chain delays also hit a record high

Markit US manufacturing:

"Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays - which hit the highest on record, exacerbating existing tight supply conditions."

Business optimism about the year ahead also fell to the lowest since January, with survey respondents worried in particular about the potential impact of trade wars and tariffs.

"Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays - which hit the highest on record, exacerbating existing tight supply conditions."

2.36pm BST

DING DING: Wall Street has joined the global selloff at the start of trading in New York.

The Dow Jones industrial average has dropped by 180 points, or 0.75%, at the open to 24,085 points. The broader S&P 500 is also down around 0.7%.

2.06pm BST

The US commerce secretary has insisted that market volatility won't deter Donald Trump from shaking up the global trade system.

All these claims that the sky is falling are at least premature and probably inaccurate.

The stock market hates uncertainty, business hates uncertainty, everyone hates uncertainty.

The worst fear is the first of the unknown. But in the end arithmetic prevails, facts prevail, and fears are either realised or they go away.

The president is trying to fix long-term problems that should have been dealt with a long time ago.

Obviously there will be some pushing and tugging as we try to deal with very serious problems. There will be some hiccups along the way.

1.31pm BST

Over in Athens the Bank of Greece has released its much-awaited monetary policy report on the state of the economy following last month's key debt-relief package.

1.20pm BST

The pound is flat against the euro today, at a1.13, meaning one euro is worth around 88.5p.

But Brexit uncertainty is still swirling, as Theresa May tries to devise a customs deal which her cabinet can support (and which the EU will accept).

"We've long been advocates that economics not politics should drive markets. However, the current stalemate between the UK and Europe on a Brexit deal cannot be overlooked. In the near future, it is not just events in Threadneedle Street that will matter. Downing Street will be equally important in the minds of markets.

"Businesses have been fairly resilient in the face of Brexit uncertainty, but they may not stand for much more. If the negotiations drag on we expect confidence in a transition deal to wane. This poses a tangible risk to the economy.

12.55pm BST

Worries over trade wars are pushing many currencies down today, as traders seek the safety of the US dollar.

The pound is down half a cent against the dollar at $1.315, while the euro has lost a similar amount to trade around $1.163.

Select Developing Market Currencies, YTD Performance: {@TheTerminal Chart Link: https://t.co/M3rVekNOcm } pic.twitter.com/2iCFYmSc1X

12.00pm BST

Over in California, Tesla's employees should have enjoyed a good night's sleep after finally hitting their production targets.

The electric carmaker succeeded in churning out 5,000 of its Model 3 model last week, after a major push which saw founder Elon Musk spend his birthday on the production line.

"We did it! What an incredible job by an amazing team."

7000 cars, 7 days
aTMi Tesla Team aTMi

7000 cars, circa 4 hours. aiFord Teamai https://t.co/FZSclsFoS0

11.16am BST

The price of copper has hit its lowest level since late March, as investors fear that tariffs are hurting economic growth.

Benchmark copper was down 0.5% at $6,585 a tonne at 1040 GMT from an earlier $6,550 a tonne, its lowest since March 26.

Prices of the metal used widely in power and construction have tumbled 10 percent since June 7.

11.00am BST

The US stock market is expected to drop when trading begins in three and a half hours, following the lead from Asia and Europe.

The Dow Jones Industrial Average is being called down 167 points, or 0.7% while the S&P 400 is expected to drop 16 points or 0.5%.

10.44am BST

Back the markets, shares continue to be buffeted by trade war worries.

From Sunday Canada started imposing trade tariffs on $12.6 billion worth of American goods including iron, orange juice and whiskey in response to the US tariffs on Canadian steel and aluminium which were introduced on 22 June.

America's northern neighbour joins the ranks of the EU and Mexico, both of which have also hit back against US import tariffs with tariffs of their own, with Mexico penalising imports of US pork, steel, cheese and apples and the EU levying duties on whiskey, motorcycles and orange juice.

10.25am BST

Finally, some good news. Unemployment across the eurozone is its lowest since the financial crisis began a decade ago.

The euro-area jobless rate was 8.4% in May, statistics body Eurostat reports, matching April's figure. It's the lowest reading since December 2008.

Among the Member States, the lowest unemployment rates in May 2018 were recorded in the Czech Republic (2.3%) and Germany (3.4%). The highest unemployment rates were observed in Greece (20.1% in March 2018) and Spain (15.8%).

May 2018: euro area #unemployment stable at 8.4%, EU28 at 7.0% #Eurostat https://t.co/uOGsCz79S7 pic.twitter.com/AqIsbzjjET

10.00am BST

Economists are concerned by this morning's factory growth figures from the UK and the eurozone.

Jeremy Thomson-Cook, chief economist at WorldFirst says there is weakness at the heart of the UK's manufacturing sector:

Growth is lower as manufacturing business rely on backlogs and inventory building to keep machines working, something that cannot continue for too much longer.

Similarly, businesses are passing on higher costs to customers but there will be a limit as to how much those customers can or will take. Risks for the sector remain in everything from the weakness of sterling, the threat of trade tariffs and more difficult international trade terms, Brexit and those higher input prices from commodity markets.

PMIs show the evidence of global slowdown.

Manufacturing PMI June 2018

China 51.0 vs 51.5 in January
Eurozone 54.9 vs 59.6 in Jan
Japan 53.0 vs 54.8 in Jan

With the rest of the EU being a dominant source of growth over the past year this slowdown, in part driven by fears about global trade tensions, could be a further signal of more weakness to come."

"In normal times we would expect the weak pound, especially against the Dollar, to have translated into higher manufacturing growth. These are not normal times, however.

The weakness of sterling is reflective of investor concern about Brexit and the strength of the UK economy and it could be that these same concerns are holding back manufacturers from investing in growth

9.43am BST

Newsflash: factory growth in Britain remained steady last month, but bosses are getting gloomier.

Markit's UK manufacturing PMI has come in at 54.4 this morning, slightly up on May's 54.3 (reminder, any reading over 50 shows growth).

Although the rate of increase in new business edged up to a three-month high, it remained among the weakest registered over the past year- and-a-half.

Some firms expressed concerns about input price increases, possible future trade tariffs, the exchange rate and Brexit uncertainty.

9.14am BST

Newsflash: eurozone factory growth has slowed to an 18-month low - another sign that trade war fears are hurting the economy.

Data firm Markit reports that output and new order growth at European firms has slowed this year, and that factory bosses are more pessimistic about future business.

The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline. The survey reveals mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses.

Not surprisingly, business expectations for future production deteriorated in June to the lowest November 2015.

8.55am BST

City economist Paul Donovan of UBS isn't impressed by Trump's claim that Europe is "as bad as China" when it comes to trade.

He says:

US President Trump sounded upset about Europeans selling Americans things Americans want to buy.

The Financial Times reports the EU is threatening to tax a fifth of US exports if the US imposes taxes on consumption of EU autos and auto parts. That would be a trade war. US carmakers are lobbying against the proposed US taxes, showing that tariffs are an outdated concept.

8.49am BST

July has started in a "troubled mood", says Connor Campbell of City firm SpreadEx, as he watches the main European markets slide into the red.

Trump kicked off July by targeting the EU, not China, saying that the region was 'possibly as bad' as Beijing in how it treats the US, 'just smaller'.

This has sent the President's previous threat of tariffs on EU car imports back to the top of investors' 'To Fear' lists, with the added spice of a report from the Financial Times suggesting the European Union could respond in kind with tariffs of $300 billion on US products.

8.17am BST

Financial stocks are also having a bad morning.

The Stoxx 600 banks index, which tracks Europe's largest banks, has dropped by 1.9% in the first few minutes of trading.

8.11am BST

Britain's FTSE 100 has fallen by 72 points, or almost 1%, at the start of trading.

That takes the blue-chip index of top shares down to 7574 points.

Investors are worried about the stalemate in discussions within Angela Merkel's Germany coalition government and Trump's intention to slap China with more tariffs.

8.02am BST

In a worrying sign, Chinese factories are suffering from falling export orders.

Data firm Caixin has reported that new export sales at Chinese manufacturing firms shrank last month, for the third month in a row. That may be a signal that Trump's tariffs are already hurting global trade.

The index for new export orders fell to a low for the year so far and remained in contraction territory, pointing to a grim export situation amid escalating trade disputes between China and the U.S., which led to weak demand across the manufacturing sector.

7.44am BST

Asian stock markets are a sea of red today, as traders fret about the prospect of a global trade war.

Every major share index is in the red, and many emerging market currencies are sliding against the US dollar again.

Bad, bad day across Asia. Horrible start to the second half. pic.twitter.com/8Qw3yTlue0

A ramping up of trade war headlines over the weekend, such as a strong warning of retaliation from the EU and a potential currency war with China (US), will ensure that the fear of an all out global trade war is central in trader's mind, as the session begins on Monday.

7.28am BST

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

"Look what they do to our farmers, they don't want our farm products. In all fairness they have their farmers so they want to protect their farmers.

"But we don't protect ours and they protect theirs."

Brussels said that an American investigation into whether foreign cars and parts posed a national security risk could plunge the global economy into a full-on trade war, harming employment in the US's auto sector, which accounts for more than 4m jobs.

In a sign of the EU's exasperation at Mr Trump's confrontational trade policy, which has already stoked tensions over steel and aluminium, the document said the move "could result in yet another disregard of international law" by the US. It said imposing the car tariffs would not be accepted by the international community and would "damage further the reputation" of the US.

Monday's FT: Trump car tariffs threaten to spark full-scale trade war, warns Brussels #tomorrowspaperstoday pic.twitter.com/g8igoU29jc

#FTSE100 called to open -50pts at 7585 pic.twitter.com/frN3hoeXuQ

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