Hong Kong falls deeper into recession; US factory orders tumble - as it happened

Graeme Wearden

from on 2020-05-04 16:23 (#530AK)

Rolling coverage of the latest economic and financial news, as investors worry about new trade war between Washington and Beijing

5.23pm BST

Time to wrap up, after another day dominated by the economic pain of the coronavirus.

Hong Kong's economy has suffered its worst slump on record. GDP across the city state shrank by 5.3% in the first quarter of this year, extending its recession.

5.23pm BST

More bad news: America's General Electric is cutting as many as 13,000 jobs in its jet engine business.

GE has announced it is accelerating its cost-cutting programme, and permanently reducing the Aviation division's global workforce by as much as 25% this year. The plan will include voluntary redundancies and compulsory layoffs, as the company reels from the shock of Covid-19.

[The] deep contraction of commercial aviation is unprecedented, affecting every customer worldwide. Global traffic is expected to be down approximately 80% in the second quarter."

5.18pm BST

Although Britain's FTSE 100 only dropped 0.15% today, there are some chunky risers and fallers out there.

The losers column is dominated by travel companies - with British Airways parent company IAG down 5% and easyJet losing 7.2%. Betting firm Flutter fell 4.9%, amid signs that UK sporting events will remain disrupted for some time.

4.57pm BST

Europe's stock markets have ended the day with solid losses.

Worries that the US-China trade dispute might flare up again, amid Covid-19 recriminations, knocked all the major indices lower.

Sell in May' continues as airlines get dumped, US-China tensions are back, and as the virus spread accelerates in some parts of the US as many states begin reopening. Reopening doubts are growing after President Trump had to acknowledge the virus was more lethal than initially thought. Trump, known for being overly optimistic, now sees the death toll from the coronavirus reaching as high as 100,000 in the US.

The reason financial markets are not substantially lower is because tech giants are surging higher. Not everyone is Warren Buffett and will sit on a huge pile of cash. Investors are jumping out of airlines, financials and real estate and overloading on big-tech. Airlines might not see a return to prior crisis levels for a couple years and low interest rates are here for the foreseeable future.

4.49pm BST

Good news for those nursing a sweet tooth through the lockdown -- high-end confectionery chain Hotel Chocolat is planning to reopen a few stores next week.

My colleague Sarah Butler explains:

Hotel Chocolat is to reopen up to five stores next week - for takeaways only - after restarting production at its UK factory to help top up dwindling supplies.

The specialist retailer and cafe operator said it will reopen first in Borough Market in London, serving hot chocolates, ice-creams and coffees, as it tests out new ways of working while protecting staff and customers from the spread of the coronavirus.

4.27pm BST

The UK government has just reported that 6.3 million workers have been furloughed since the coronavirus crisis began.

That's nearly a fifth of Britain's total workforce, I estimate (the employment total hit 33.07m in February).

The Job Retention Scheme launched on 20 April.

By midnight 3 May a total of:

6.3m jobs furloughed *
800K employers furloughing **
Total value of claims 8bn

Apply for a grant to cover the wages of your furloughed staff now: https://t.co/bx1Nszshsr pic.twitter.com/29n9h0RB2k

4.21pm BST

German car market are also feeling extremely worried about the future, due to the Covid-19 lockdown.

A survey of the business climate in Germany's auto sector suffered its biggest slump in April, dropping from -13.2 to -85.4 -- the worst since the survey began in 1991.

Situation of German car industry is getting "dramatically worse" - ifo institut:https://t.co/0BWubk4rce

3.48pm BST

More reaction to the tumble in demand for US factory goods:

March US factory orders -10.3% vs. -9.4% est. & -0.1% in prior month-largest drop on record; durable goods orders -14.7% vs. +1.1% in prior month; consumer goods orders -10.9% vs. -0.4% in prior month @CommerceGov pic.twitter.com/oyuxh4qpWH

The great pullback, industrial edition: US factory orders fell to a 4-year low in March. The 10.3% decline was deeper than expected. pic.twitter.com/PRYHuqNNmE

3.17pm BST

Here's Reuters take:

New orders for U.S.-made goods fell more than expected in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports.

The Commerce Department said on Monday factory orders dropped 10.3%. Data for February was revised down to show orders dipping 0.1% instead of being unchanged as previously reported. Economists polled by Reuters had forecast factory orders tumbling 9.7% in March.

3.07pm BST

Newsflash: America has suffered the biggest slump in factory orders on record.

New factory orders fell by 10.3% in March. That's worst than expected, and the biggest decline on record.

Quick US data update

At down 10.3%, US factory orders came in worse than consensus expectation. #economy #markets #production

Worst factory orders reading in history for March at -10.3%, and also slightly worse than expected (though not really surprising, again, given that was the start of the virus-related shutdown of the #economy)

2.50pm BST

As feared, airline stocks are falling sharply after Warren Buffett revealed he'd sold his stakes in the industry.

American Airlines and SouthWest are down 6%, United has dropped 7% and Delta has lost 8%.

#DOW 23398.81 -1.37%#SPX 2800.03 -1.08%#NDX 8670.89 -0.54%#RTY 1234.04 -2.10%#VIX 39.36 +5.83% https://t.co/wCU5sulpa4

2.34pm BST

The US stock market has opened lower, as fears of a new US-China trade war weigh on Wall Street.

The Dow Jones industrial average has dropped 1% in early trading, down 245 points at 23,478.

The sour market mood of the last couple of days has been triggered most obviously by the ratcheting up of tensions between the US and China. The US is now blaming China for a cover-up and even asserting the virus was developed in a Chinese lab. Trade tariffs, which were a major concern for the market for most of last year, are once again back in the headlines, with Trump now threatening to impose new tariffs on China.

However, the latest market falls are also in part no real surprise given the strength of the rebound with markets gaining more than 25% in little more than a month. The recovery was the sharpest ever out of a bear market and has looked overdone.

2.12pm BST

A stock market wobble is usually a busy time for Warren Buffett - the man who became super rich by being greedy when others are fearful (and vice versa).

There was a period right before the Fed acted, we were starting to get calls. They weren't attractive calls, but we were getting calls.

And the companies we were getting calls from, after the Fed acted, a number of them were able to get money in the public market frankly at terms we wouldn't have given."

1.38pm BST

The covid-19 pandemic has pushed fashion chain J Crew to seek bankruptcy protection.

1.08pm BST

Over in the US, meat processing giant Tyson Foods has warned that the Covid-19 pandemic will hurt its business this year.

Given the nature of our business, demand for food and protein may shift amongst sales channels and experience short-term disruptions, but over time we expect worldwide demand to continue to increase. We are experiencing multiple challenges related to the pandemic. These challenges are anticipated to increase our operating costs and negatively impact our volumes for the remainder of fiscal 2020.

Operationally, we have and expect to continue to face slowdowns and temporary idling of production facilities from team member shortages or choices we make to ensure operational safety. The lower levels of productivity and higher costs of production we have experienced will likely continue in the short term until the effects of COVID-19 diminishes.

12.45pm BST

Feeling worried about life? You're not alone.

More than 25 million people reported high levels of anxiety in late March as the decision to put the UK into lockdown triggered fears about health, job security and making ends meet among half the country's adult population.

12.28pm BST

Shares in America's airlines are down over 10% in pre-market trading, after billionaire Warren Buffett revealed he'd sold his stakes in the industry.

On Saturday, Buffett said he'd ditched his shares in Delta, American Airlines, Southwest and United following the Covid-19 pandemic.

We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss. We will not fund a company ... where we think that it is going to chew up money in the future."

I owned some stocks when I ran American. I thought then, and told my employees, This is a great business, makes a great contribution to the world, but I don't think it's an investable business," says former $AAL CEO Bob Crandall reacting to Buffett exiting the industry. pic.twitter.com/06bm3mCrkn

12.17pm BST

Norwegian Air's future is looking more secure this morning after investors backed an emergency rescue package.

My colleague Julia Kollewe explains:

The embattled carrier Norwegian Air will push ahead with its rescue plan and unlock government aid after winning support from shareholders, bondholders and aircraft lessors for a 10bn kroner (770m) debt-for-equity swap.

After a weekend of frantic talks, the airline's shareholders gathered at an emergency meeting in Oslo on Monday morning and voted 95% in favour of all proposals, including a 400m kroner share issue.

11.43am BST

Hong Kong's lurch deeper into recession hasn't brightened the mood in the markets.

The main European indices are all sharply lower still, as investors worry about the escalating tensions between the US and China - and the threat of a new trade war.

11.29am BST

Back in the UK, sugar and starch producer Tate & Lyle has reported that sales were affected by the Covid-19 lock down.

Earlier in the month, demand was strong for ingredients used in packaged and shelf-stable foods as consumers in North America and Europe filled their pantries for consumption at home.

11.05am BST

ING analyst Iris Pang fears that Hong Kong's recession will last longer than the Covid-19 pandemic.

She suspects that the pro-democracy protests that gripped Hong Kong last year -- and badly damaged its tourism and retail sectors -- will return as the lockdown measures are eased.

Consumption contracted 10.3% YoY as opportunities for shopping and travel were severely curtailed during the Covid-19 outbreak. Investment contracted even more, by 13.9% YoY, as construction projects were delayed because outdoor work was prohibited.

Even though the government spent money and imports dropped in 1Q20, this has not stopped the economy from contracting for three quarters in a row.

Protesters are returning to the streets of Hong Kong and trade tensions are heating up again, suggesting the recession will continue here after Covid-19 subsides, says @Iris_Pang_China https://t.co/BizPEl4uu1

10.36am BST

This chart shows that Hong Kong's economy has shrunk faster than in the global financial crisis of 2008, or after the Asia financial crisis a decade earlier:

Hong Kong has done very well in controlling Covid-19 (just 4 deaths), but there are economic costs. Q1 GDP down by 5.3% qoq, 8.9% in year to Q1, sharper than the Asian financial crisis, SARS, & the GFC. 4th consecutive quarter of GDP contraction. #smalleconomies pic.twitter.com/VFURqhXbEv

9.57am BST

Here's Bloomberg's take on Hong Kong's dire growth figures:

Hong Kong's downturn is now the worst on record, extending the first recession seen in a decade as the coronavirus outbreak further battered an economy already weakened by political unrest.

The city's economy contracted 8.9% in the first quarter from year-ago levels, according to advance government data. The decline surpasses the previous record of -8.3% in the third quarter of 1998 and a 7.8% contraction in the first quarter of 2009, the two worst quarterly readings in data back to 1974, according to the Census and Statistics Department Hong Kong.

BREAKING: Hong Kong's downturn is now its worst on record, with the economy shrinking 8.9% in the first quarter https://t.co/csA0fXhPhB pic.twitter.com/QatYfOB164

9.46am BST

Hong Kong appears to have suffered its worst economic slump on record:

#BREAKING: Hong Kong sees the greatest decline in GDP on record since 1974 since the #coronavirus hits the city, with a decrease of 8.9% in the first quarter of 2020. Hong Kong govt forecasts that local exports will remain under notable pressure" due to the pandemic.

Breaking: Hong Kong economy shrinks 'record' 8.9% in first quarter on-year: govt -- @AFP

9.41am BST

Newsflash: Hong Kong's recession has deepened as the Covid-19 pandemic hits its economy.

Hong Kong's GDP shrank by 5.3% in the first quarter of 2020, official figures show. That's a very sharp contraction, extending its economic downturn.

The big dip

Hong Kong GDP-8.9%YoY (don't forget it was the only economy in contraction in 2019 in Asia) pic.twitter.com/wN9wqq4kzD

Hong Kong registers record economic contraction in 1Q and the sixth quarterly contraction in the last eight quarters. Gaaaaaaaa pic.twitter.com/gyRTH0IB5j

Hong Kong GDP... oh man.

Hong Kong Q1 GDP much weaker than expected at -8.9% y/y. Third consecutive quarter of negative growth. Government revises 2020 forecast to -4% to -7%. Says local economic activity will remain subdued in the near term if the threat of pandemic continues.

9.11am BST

France, Germany and the Netherland's manufacturing sectors also slumped last month, according to Markit's new survey of purchasing managers.

They confirm the message from the flash' PMIs two weeks ago - activity contracted in April even faster than after the financial crisis:

Germany #PMI data for April emulates that seen for lockdown countries, with output levels collapsing at an even quicker rate than during financial crisis. Read more at https://t.co/cawrdpv5CL pic.twitter.com/DIPtpAWHWX

French Markit Manufacturing PMI - April Report #PMI https://t.co/ketE1MrGRQ pic.twitter.com/3C8CXFecO8

Dutch manufacturing output contracted at a survey record rate in April amid the #COVID-19 pandemic, with the PMI down to a near 11-year low of 41.3 in April (50.5 - March). New business also declined at the quickest pace on record. More here: https://t.co/hdm5PrnSU9 pic.twitter.com/yICez6lSfa

8.53am BST

Italy's factory sector also had a torrid April:

Italy April manufacturing PMI 31.1 vs 30.0 expected https://t.co/IWNGT1GNMp | https://t.co/VOmsi4fwOp #forex #trading pic.twitter.com/6N0fpzmk1l

8.38am BST

Ouch. Spain's factory sector has suffered an unprecedented' slump last month.

Output, new orders and purchasing activity all fell at a record pace last month, according the latest Spanish manufacturing PMI survey.

Spain Manufacturing PMI plummets in April.

Record contractions in output, new orders and
purchasing. Severe job cuts signalled as confidence sinks to series-low. pic.twitter.com/8H3UVP64YP

8.30am BST

Companies badly affected by the Covid-19 pandemic are leading the fallers on the London stock market today.

Travel firms are having a bad morning, with Intercontinental Hotels are down 6.5%, cruise operator Carnival down 65% and budget airline easyJet down 5%.

8.21am BST

China's Global Times, the state-controlled tabloid, has hit back at Washington's claims in an editorial today.

It accuses US Secretary of State Mike Pompeo of bluffing" and trying to fool" the American public, by claiming that COVID-19 originated in a laboratory in Wuhan. More here.

8.07am BST

European stock markets have opened in the red, as traders respond to the latest US criticism of China.

The Europe-wide Stoxx 600 index has dropped by 2.6%, with France's CAC and Germany's DAX both shedding 3%.

8.00am BST

The Covid-19 pandemic has had a devastating impact on factory output across Asia, new data shows.

Data firm Markit has reported that manufacturing activity in India, Taiwan and South Korea slumped alarmingly last month, as the world economy lurched into recession:

India's Manufacturing PMI fell to 27.4 in April from 51.8 in March.

This is the sharpest contraction recorded since the survey began 15 years ago. pic.twitter.com/HOy2n31P9M

The #COVID-19 pandemic led to a substantial deterioration in the health of #Taiwan's manufacturing sector in April, according to #PMI data. Output and new orders both fell at the quickest rates since the global financial crisis. https://t.co/goIGOeDKy2 pic.twitter.com/Dv6N3ZWAmB

South #Korea's manufacturing downturn worsened at the start of the second quarter, according to the latest #PMI survey. Export demand plummets amid lockdowns in key foreign markets. More here: https://t.co/tOKDeXJrPh pic.twitter.com/fxNUwGbOTy

7.47am BST

Worries about the global economy are weighing on the oil price this morning.

US crude has dropped by 6% to $18.60 per barrel, while Brent crude is 1% lower at $26.19.

7.44am BST

The Trump administration is turbocharging" an initiative to remove global industrial supply chains from China, according to Reuters this morning.

They cite officials familiar with U.S. planning", who say Washington wants US companies to move their supply chains away from China.

We've been working on [reducing the reliance of our supply chains in China] over the last few years but we are now turbo-charging that initiative," Keith Krach, undersecretary for Economic Growth, Energy and the Environment at the U.S. State Department told Reuters.

I think it is essential to understand where the critical areas are and where critical bottlenecks exist," Krach said, adding that the matter was key to U.S. security and one the government could announce new action on soon.

7.36am BST

The threat of a new US-China trade war has knocked Asia-Pacific markets.

Hong Kong's Hang Seng index slumped by almost 4%, after Donald Trump declared that new tariffs would be the ultimate punishment' for China.

Asian markets suffer steep losses, tracking a selloff in New York after Donald Trump sparks fears of a renewed trade war with China over its role in the #coronavirus pandemic https://t.co/wnCaunCHpf pic.twitter.com/3Alq29WKEH

Given it's a US election year this issue isn't likely to go away, especially as Joe Biden has suggested that Mr Trump is weak on China. However, on Thursday night and Friday it became a more immediate topic as the Washington Post reported that the US had held preliminary discussions to punish China for its role in the virus outbreak that included the possibility of the US cancelling its debt obligations with China.

There was an immediate denial from Larry Kudlow who confirmed that the full faith and credit of US debt obligations is sacrosanct'. Nevertheless, the risk of a cold war between the two nations seems to be building.

7.23am BST

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

I think they made a horrible mistake and they didn't want to admit it...

My opinion is they made a mistake. They tried to cover it, they tried to put it out. It's like a fire.

- US President Trump said tariffs would be the ultimate punishment on China and warned that that if China doesn't buy US goods, the US will end the trade deal

The US media is pointing to the growing possibility that China will be the focal point of the 2020 election campaign. Polls conducted by President Trump's campaign suggest that China will be an ongoing issue, according to Republican sources cited by Politico.

The Democrats are examining a harder line on China to boost their chances. Either way, China will be in the US spotlight and not in a pleasant way.

Though Beijing & Tokyo are closed today, investors realise "The world has an economic problem to face" plus Sino/US jingoistic rhetoric to consider- Suggested European opening calls - FTSE 100 -32 at 5723, DAX -115 at 10491, CAC 40 -36 at 4536, DJIA futures -175 at 23555

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