Fed chair Powell promises to protect US economy from trade war - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-06-04 16:47 (#4GF1R)

Rolling coverage of the latest economic and financial news, as Britain's building sector suffers its worst month in over a year

5.47pm BST

Update: Wall Street is now hailing Powell's pledge to take appropriate action to help the US economy ride the trade war rapids.

The Dow is now up 414 points at 25,235, a strong gain of 1.6%. Hopes of an imminent rate cut are building!

4.45pm BST

Finally, Britain's FTSE 100 index has ended the day 29 points higher at 7,214. That's a gain of 0.4%.

Jay Powell's pledge to do what it takes to address the trade war helped shares to close a little higher.

4.40pm BST

A deal to restructure Philip Green's Arcadia group may be close.... the retailer is expected to announce he'll provide more money to address the firm's pension deficit. More here:

4.34pm BST

David Madden, analyst at CMC Markets, agrees that the luke-warm words from China helped markets recover today.

He writes:

The Chinese Ministry of Commerce said the trade spat with the US will need to be worked out with additional talks. In the era of heighted trade tensions, any language that isn't hostile, and advocates further dialogue, is seen as a step forward. The situation is far from diffused, but the absence of aggression has promoted traders to snap up stocks. The FTSE 100 is lagging behind its Continental counterparts as big oil stocks are holding back the London index.

The Italian FTSEMIB is holding up well even though the coalition government in Rome is looking a little shaky. There has been chatter of a possible collapse in administration, but it was reported that the two coalition heads, Matteo Salvini, and Luigi Di Maio had a long and cordial telephone conversation, so that should take the heat off Italian government bonds in the near-term.

3.24pm BST

Newsflash: America's top central banker has pledged to take "appropriate" measures to protect the US economy from the impact of trade wars.

"We don't know how or when these issues will be resolved.

As always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective."

CME's neat FedWatch tool shows how fast US rate forecasts have shifted. Three months ago, rates steady to 2020 was a near-cert. Now that's only seen as a 3% probability, and less likely than *four cuts*. https://t.co/CfvQyv2R7z (The stacked area chart isn't quite as up-to-date.) pic.twitter.com/BwGBatDYRu

3.09pm BST

Just in: American factory orders have fallen, in (yet another) sign that global manufacturing is weak.

Orders shrank by 0.8% in April, new official figures show. March's data has been revised lower too, to a 1.3% increase (from 1.9% before).

#UnitedStates Factory Orders month-on-month at -0.8% https://t.co/MCO95X647G pic.twitter.com/P2D3fUzcEU

2.52pm BST

Ding Ding! The New York stock exchange has opened higher, following the turnaround in Europe today.

The Dow Jones industrial average has gained 263 points, or just over 1%, in early trading, as investors grip onto hopes of trade war progress with Beijing and/or Mexico City.

2.37pm BST

Just in: Donald Trump has warned Mexico that he will press on with tariffs on their goods.

He told a press conference in London that Mexico needed to do more to prevent migration to the US, saying he "I don't want to hear that Mexico is run by the ... cartels and the coyotes."

Trump says 5 per cent tariff will go ahead on Mexico next Monday "I think it is more likely that the tariffs go on and it's more likely we will be talking with the tariffs on"

2.25pm BST

Investors are taking comfort from those mollifying comments from China (here) and Mexico (here).

European stock markets are all positive, shaking off their earlier losses, on hopes that the trade tensions will ease - before they cause even more damage to the global economy.

Starting this day off on a more optimistic note...China Commerce Ministry: US trade dispute will need to be solved with dialogue and mutual respect &
MX PRES LOPEZ OBRADOR SAYS I AM OPTIMISTIC, I BELIEVE THERE WILL BE A DEAL BEFORE JUNE 10 THE TALKS IN THE US ARE GOING WELL

Against the background of uncertainty over US tariffs on China, Mexico and now possibly India, the market is waiting for new clues before making any decisive trade moves.

1.58pm BST

Mexico's foreign minister Marcelo Ebrard has also talked up the prospects of an agreement with the US.

"We're going to find common ground, I think... We are ready.

1.26pm BST

China's latest statement on the trade war with America is a classic blend of carrot and stick.

On the one hand, the Ministry of Commerce insists that the trade war will only be resolved through fresh talks, saying:

"However, consultations are principled and need to be based on mutual respect, equality and mutual benefit...

It is hoped that the US will abandon its wrong practices and work in tandem with the Chinese side. In the spirit of mutual respect, equality and mutual benefit, we will control differences and strengthen cooperation to jointly safeguard the healthy and stable development of China-US economic and trade relations."

China Commerce Ministry: US trade dispute will need to be solved with dialogue and mutual respect https://t.co/ENkIalQbnf

12.55pm BST

Newsflash: China commerce ministry has called for "dialogue and negotiations" to resole the ongoing trade war with the US.

Details to follow...

China Commerce Ministry: US Trade Dispute Should Be Solved Via Talks

12.39pm BST

Anxiety over global growth prospects, and fears that stock markets will fall, have pushed the gold price to a three-month high today.

Gold has gained 4%, or nearly $50 per ounce, this week to nearly $1,320/ounce - its highest level since the end of February.

Seeking shelter in gold: https://t.co/vDvxYvCfDD Gold has had its biggest five-day rally (on a percentage basis) since early 2017. pic.twitter.com/DHYPZHPt3p

12.06pm BST

South Africa's central bank needs to follow Australia's lead, and cut interest rates fast, argues Jameel Ahmad of curency trading firm FXTM.

Emerging markets are having to contend with a tornado of different external headwinds, and these including persistent trade tensions that are adding further downside anxieties to economies that are reliant on resilient global demand. South Africa is just one of the many nations that is heavily exposed to the fears of another world recession arising at the turn of the next decade.

The problem that is not helping South Africa, or other emerging markets across the world by any means is that the latest Manufacturing PMIs across the world are confirming further contractions. South Korea, Japan, Taiwan, Malaysia, Russia, Poland, Turkey, Italy, Germany and the United Kingdom have all seen Manufacturing PMIs contracting in recent weeks.

11.30am BST

South Africa's currency, the rand, has fallen sharply since the weak GDP figures were released.

$USDZAR pic.twitter.com/DyseodDfdc

11.25am BST

More gloom! South Africa's economy has suffered its worst quarter since the financial crisis.

South African GDP shrank at an annual rate of 3.2% in the first three months of 2019, new government data shows. That's twice as bad as expected (it's effectively a 0.8% contraction quarter-on-quarter).

South Africa's economy contracts the most in a decade https://t.co/cegMemyICR pic.twitter.com/qaLkRDXM7A

10.56am BST

The latest eurozone inflation data is also flashing a warning light.

Consumer price inflation across the currency block fell to 1.2% per year in May, new 'flash' figures from Eurostat show. That's down from 1.7% in April - so a very substantial decline.

#Eurozone inflation (#CPI) falls significantly in May to +1.2% from +1.7% (exp. 1.3%), with core inflation falling to a meagre +0.8% (exp. +1.0%). Unemployment rate falls to 7.6%. After this evidence #ECB could delay its first rate hike further in mid-2020. @graemewearden

10.42am BST

Today's UK construction PMI report is surprisingly weak, says Max Jones, relationship director in Lloyds Bank Commercial Banking's infrastructure and construction team.

"The drop can partly be attributed to a change in focus, with a lot of contractors now placing more emphasis on cashflow rather than revenues. However, many are also feeling the pinch on their working capital, as requirements to pay clients within 30 days become more stringent.

Cash will be king in the coming months, and those able to reduce debt while improving cashflow will be in a much stronger position when activity picks up again.

10.35am BST

It's only Tuesday morning, and we've already had three piece of weak UK economic data, namely:

Construction decline on top of record retail sales decline reported by @the_brc and yesterday's poor manufacturing PMI from @IHSMarkitPMI all suggest #ukeconomy still bedevilled by Brexit uncertainty. Tomorrow's Service sector PMI now vital

Construction weakness driven by commercial building says @IHSMarkitPMI as major projects face delay in the political/Brexit fog. House building still holding though even here pace is slackening #ukeconomy

10.19am BST

Tim Moore, associate director at IHS Markit, also blames the confusion over Britain's departure from the EU for the construction slowdown.

"May data reveals another setback for the UK construction sector as output and new orders both declined to the greatest extent since the first quarter of 2018. Survey respondents attributed lower workloads to ongoing political and economic uncertainty, which has led to widespread delays with spending decisions and encouraged risk aversion among clients.

"Commercial building remained hardest-hit by Brexit uncertainty, with construction firms reporting the steepest fall in this category of activity since September 2017. Civil engineering work also dried up in May and a fourth consecutive monthly fall in activity marked the longest period of decline since the first half of 2013. Construction companies often commented that recent tender opportunities for civil engineering work had been insufficient to replace completed projects.

10.16am BST

This chart shows how Britain's construction PMI (which measures activity across the sector) has weakened in recent months:

9.58am BST

Brexit uncertainty is having a chilling effect on UK builders, says Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

Here's his explanation for why UK construction went into reverse last month:

"A fragile dreariness descended on the sector this month with lower workloads leading to the fastest decline in purchasing of construction materials since September 2017. With the continuing uncertainty around Brexit and instabilities in the UK economy, client indecision affected new orders which fell at their fastest since March 2018 and particularly affected commercial activity.

"The previously unshakeable housing sector barely kept its head above water, growing at its weakest level since February as residential building started to lose momentum. The biggest shock however, came in the form of job creation as hesitancy to hire resulted in the largest drop in employment for six and a half years.

9.50am BST

Newsflash: Britain's construction sector has slumped back into a contraction.

Activity across UK building firms fell last month, driven by a sharp decline in commercial construction and civil engineering, according to data firm Markit.

9.35am BST

Ireland's factory sector has weakened, mirroring the global slowdown in manufacturing.

Activity at Irish manufacturers grew at its slowest rate in nearly three years in May, new figures from data firm Markit shows.

9.26am BST

The Woodford debacle could cause significant damage to investor confidence. Will people be as willing to put their money into such funds, if they can suddenly be frozen without warning?

Shares in Hargreaves Lansdown, which provides easy access to retail funds (for a fee!), have slumped by 6% this morning - the biggest faller on the FTSE 100.

"The suspension follows a period of underperformance and outflows for the Woodford Equity Income Fund. We are advocates of long-term investing and think Woodford's multi-decade track record remains compelling - but we don't underestimate the disappointment investors must feel with Woodford's recent performance.

"The suspension is understandably frustrating, but it's important to remember that the value of your investment will be dependent on the share prices of the portfolio's underlying holdings, which are not directly impacted by the suspension.

9.10am BST

It's a grim morning for investors who backed one-time top stock picker Neil Woodford.

Yesterday, Woodford blocked investors from pulling cash from his flagship fund -- called 'equity income' -- after becoming overwhelmed by customer withdrawals following a series of bad market bets.

Neil Woodford's decision to stop redemptions in flagship fund makes top story in @ft @TimesBusiness & @BusinessDesk pic.twitter.com/yYKqeOeVio

9.02am BST

There has been a sense of panic spreading through markets in recent sessions. With fears over the long term impact of Donald Trump's international trade policy, investors are flooding into the safety of Treasuries.

8.51am BST

Technology stocks are vulnerable to global slowdown worries, and the US-China trade war, so it's notable how far they've fallen recently:

FAANGs off the Highs

Baidu $BIDU -62%
Tesla $TSLA -54%
Twitter $TWTR -54%
NVIDIA $NVDA -54%
Alibaba $BABA -30%
Facebook $FB -26%
Apple $AAPL -27%
Google $GOOGL -20%
Netflix $NFLX -20%
Amazon $AMZN -17%

via @BearTrapsReport

NYFANG index components' drawdowns, Bloomberg data

8.48am BST

European stock markets have also fallen in early trading.

Technology stocks are the big fallers, following the FAANG losses on Wall Street overnight, followed by healthcare and consumer goods firms.

Markets remain on the hook to the trade war rumblings, but a new war has opened up that threatens equity investors - a war on tech. What the Fed threatens to give, the DoJ takes away.....

Political pressure is building - lawmakers sniff votes in tackling big tech. The shift really happened last year with Facebook's scandals, which broken the illusion of Silicon Valley being in it for the little guy. They're just big corporations out to make money like any other - the politicians can smell blood.

8.34am BST

Anxiety over the economic outlook hit shares in Asia today.

China's Shanghai Composite fell by almost 1%, while Hong Kong's Hang Seng has lost 0.65% and India's Sensex dipped by 0.5%.

8.28am BST

Slowdown fears have forced Australia's central bank to slash interest rates to a record low.

The Reserve Bank of Australia cut borrowing costs to just 1.25%, warning that household spending is suffering from low income growth and falling housing prices.

8.10am BST

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

How healthy is the world economy? Fears of a global slowdown are building, as America's pugnacious trade policies threaten to derail the long, slow, recovery from the financial crisis.

"The latest developments this week are likely to have lasting damaging effects on business confidence. Growth concerns are unlikely to dissipate over the near term, and could in fact build further."

The Dow's down almost 7% in the past month. The yield curve's inverted. The trade war with Mexico is getting out of control. It's not too early for Bill Weld and any other GOP challenger, and for free trade, pro-NAFTA Democrats, to start warning about the coming Trump Recession.

We remain of the view that the bond market is simply running ahead of the stock market. We think that the equities will "catch up" in due course.

Admittedly, we aren't explicitly forecasting another recession, just a significant economic slowdown. But our end-2019 forecast of 2,300 for the S&P 500 would only leave it 22% or so below its recent peak. This would be a much smaller drop than the declines seen around the two recessions of the 2000s.

Today the ECB will get the last important piece of news before this week's policy meeting, and it's not going to be pretty. Consensus for core HICP is 0.9% in May (down from 1.3% in April), but risks are for core inflation to drop to a one-year low post Easter (0.7%). pic.twitter.com/FyTpfmp7bg

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