UK factories return to growth as PMIs show global slump easing - as it happened

Graeme Wearden

from on 2020-06-23 15:49 (#54XGG)

Rolling coverage of the latest economic and financial news, as the latest PMI reports show the global recession is easing

4.48pm BST

And finally, after a late flurry, the UK's FTSE 100 index has ended the day 75 points higher at 6,320 points, a gain of 1.2%.

That's its highest closing level since 10 June.

Stocks are in positive territory as traders have welcomed the news that lockdown restrictions in England will be eased from 4 July. The changes will allow pubs, restaurants, cinemas and galleries to re-open. In addition to that, the social distancing rule of staying two metres away from people, will be reduced to one metre. The update didn't come as a shock as there was speculation about this for a while, but it was welcomed nonetheless.

Stocks were already up on the session in advance of the lockdown announcement. President Trump had to clarify that US-China trade relations were intact after Peter Navarro, one of his trade advisors, said otherwise. The confirmation that trading relations were good acted as a boost to sentiment, and it helped distract traders from the health crisis.

4.31pm BST

Confirmation that America's tech giants are driving the rally:

How about this? AMZN, AAPL, MSFT, FB, NFLX are *ALL* trading at record highs pic.twitter.com/bDwCZR7O9G

4.14pm BST

Tomorrow is Quarter Day in the UK retail sector, when shops are meant to hand over their rent for the next three months.

But in the current pandemic, many may hold onto their cash. That would mean more pain for landlords, such as INTU which is already close to administration.

We expect a grim day for most UK commercial real estate landlords on Wednesday when the quarter rent is due, with most likely to collect less than half of due amounts.

Weaker cash flow, struggling tenants and reduced demand for commercial space will weaken credit metrics and contribute to a more challenging operating environment. Retail landlords will be particularly hard hit while logistics landlords will see much higher collection rates likely above 80%."

4.02pm BST

The publisher of Q magazine is in advanced talks to sell the music monthly and four other titles, and cease publication of three others including Planet Rock, as the coronavirus pandemic hastens the digital transition of readers and advertisers.

Last month the German-owned Bauer Media, one of the UK's biggest publishers which also owns titles including Grazia and Empire, said that it was reviewing the future of 10 magazines.

In order to protect the long-term health of our publishing business we have had to make tough decisions about the future of some much-loved titles."

3.58pm BST

My colleague Jason Rodrigues is in London's West End today, and reports that the streets are the busiest he's seen in many weeks.

He says:

It seems like a combination of fine weather and price reductions by many retailers have drawn shoppers to Oxford Street in good numbers.

London's west end tries to lure shoppers back as lockdown rules are relaxed, making it possible for retailers to open for the first time in weeks pic.twitter.com/nHCG2w1a9Z

3.32pm BST

Robert Alster, head of investment services at wealth manager Close Brothers Asset Management, says the US economy is still weak, despite the pick-up in June's PMI:

The PMI data in the US is showing signs of improvement, but with both services and manufacturing coming in below 50 we must not forget that things are still getting worse - albeit at a slower rate than before. Manufacturing is likely to bounce back fastest - while factories may be operating under capacity due to newly imposed social distancing measures, having staff back in the building at all is a huge step forward.

The recovery of the service sector relies on consumer confidence improving, and with some US states reporting a resurgence of Coronavirus cases, the resumption of normal behaviour is still a while off. Even with shops and restaurants reopening, consumers are self-regulating to stay safe. Across the world, governments and businesses alike are grappling with the same question; how to get people spending, and fast. With the Presidential election looming on the horizon, this question is more urgent for Trump than most of his global peers"

Consistent w/the hard data so far, the soft data in today's @IHSMarkitPMI shows that US #manufacturing is recovering faster from the #CCPVirus #recession than US #services - tho its situation is still far from good: https://t.co/VpWhiyyXOK #PMI #mfg #economy #WuhanVirus #COVID

The IHS Markit Flash U.S. Manufacturing PMI stabilized for the second consecutive month in June, bouncing back from the fastest rate of decline in April since March 2009. The headline index has increased from 36.1 in April to 39.8 in May to 49.6 in June. pic.twitter.com/VWUxeG01wO

2.57pm BST

Chris Williamson, chief business economist at IHS Markit, says the jump in America's PMI index is encouraging - but the recovery will take a long time.,...

The flash PMI data showed the US economic downturn abating markedly in June. The second quarter started with an alarming rate of collapse but output and jobs are now falling at far more modest rates in both the manufacturing and service sectors.

The improvement will fuel hopes that the economy can return to growth in the third quarter.

2.52pm BST

Newsflash: America's economy continued to shrink this month, but at a much slower rate than in May.

The flash' US PMI index, just released, has risen to 46.8, from 37.0 in May - close to the 50-point mark showing stagnation.

As more firms and states began to reopen following the coronavirus disease 2019 (COVID-19) outbreak, offsetting weak demand faced by many other companies, the overall pace of decline eased among goods producers and service providers.

New business across the private sector declined further in June, albeit at only a marginal pace. Despite many firms noting a rebound in client demand, some stated that renewals and requests for new business were historically muted.

2.40pm BST

The US stock market has opened higher, with the tech-focused Nasdaq index hitting a fresh all-time high.

The Nasdaq index has gained 81 points, or 0.8%, to 10,137 points, as it continues to surge back from its slump in February and March. Apple is up 1% after it announced its next operating system, Big Sur, and a move from Intel chips to its own semiconductors.

The rate at which confirmed COVID-19 cases are growing by state on a per capita basis over the past 60 days. #Arizona is at the top... pic.twitter.com/qKbAKUsy6M

2.26pm BST

Sacha Lord, night time economy adviser for Greater Manchester, has welcomed the relaxation of the 2-metre rule - as it could save thousands of operators across the country from going bust.

Today's announcement comes just in time, he says:

We are 12 days away from reopening the sector and by the very nature of our industry, we simply wouldn't have been able to wait any longer to get clarity. I've personally spoken to hundreds of operators who are desperate to open their doors and who can now start planning rotas, opening booking systems and restocking fridges."

The last three months have been the toughest our sector has ever faced. There will be hard times to come as we adjust to these new ways of operating, but I'm confident with the guidance being published that we will now have the blocks to start rebuilding the sector and helping it back onto its feet."

We have an incredibly important live music scene in the UK, and in Manchester in particular, and the current measures do little to protect this small but critical industry.

We need more information on when these specific venues are likely to be allowed to reopen so preparations can be made, and we must ensure that the financial aid continues past current deadlines to give them the same opportunities to recover as the rest of the sector."

1.42pm BST

Here's a handy list of the UK businesses which can now reopen, and which must remain closed:

Full list of what can open if Covid-secure under 1m plus" social distancing guidelines... hotels, pubs, restaurants, cafes, theme parks, theatres, museums...

And what, *by law*, will remain closed - eg clubs, gyms, pools, spas, soft play, massage, tattoo and piercing parlours" pic.twitter.com/M1VSrfnz7Q

1.30pm BST

Oil is also rallying today, on hopes that the world economy could be turning the corner on Covid-19.

US crude has gained 2% to $41.56 per barrel, with the benchmark Brent crude up 1.9% at $43.88.

1.13pm BST

UK leisure companies such as pub chains and cinema operators are among the top risers on the London stock market today, as the government eases its lockdown rules.

JD Wetherspoon are up 5% today, with Cineworld gaining 6.5%, as Boris Johnson confirms that (as rumoured) the two-metre distancing rule has been lowered to 1-metre-plus. That should allow pubs, restaurants and hair-dressers to resume work.

12.34pm BST

Over in parliament, Boris Johnson is starting to announce plans to ease the lockdown in England, and allow pubs, restaurants. museums and cinemas to open.

Our Politics Live blog is tracking the action:

12.30pm BST

Shopping centre operator INTU must be desperately hoping that the economy picks up soon.

INTU, which owns the Trafford Centre and Lakeside in Essex, has been badly hurt by the lockdown, with many tenants missing their rent payments. The company, which was already reeling from problems in the high street, has now lined up KPMG as potential administrators, if it can't reach a deal with its creditors.

11.34am BST

European stock markets are pushing higher, as this morning's PMI reports bolster confidence that economies will recover from the pandemic.

Britain's FTSE 100 index of blue-chip shares has gained 80 points, or 1.1%, to 6,323 - the highest in almost two weeks. Traders are pleased that factory output has picked up, and hoping to hear new lockdown easing measures from the government soon.

STOCKS IN EUROPE JUMP ACROSS THE CONTINENT IN RISK-ON TRADE AFTER NAVARRO WALKS BACK ON TRADE COMMENTS

- STOXX 50 1.8%
- DAX 2.1%
- FTSE 100 1.1%
- CAC 40 1.5%
- FTSE MIB 1.6%
- IBEX 35 1.7%

DOW FUTURES EXTEND GAINS, NOW UP 200 POINTS, OR 0.8%$DIA pic.twitter.com/LI8Ri0jAmL

Markets went `bump' in the night: https://t.co/y0WGy3ei7i via @markets pic.twitter.com/Rab4CqKS1n

10.50am BST

Bloomberg's Ed van der Walt makes an important point - today's reports do not show a V-shaped economic recovery.

Because a PMI of 50 shows no change, UK factories (and companies in France and Australia) haven't recovered all the growth lost in the pandemic, even though activity has picked up slightly.

Econ data 101:
PMI going from 50, to 20 and back to 50 does not make a V-shape. It makes an L-shape.
Just saying.

But a 50 reading does not indicate travel. It indicates no travel.

10.46am BST

Britain's economy won't return to the old days, even once the Covid-19 pandemic has ended.

Many firms will have changed their working patterns dramatically, and won't reverse all these changes - either because they fear another lockdown or simply because new remote-working methods work well.

Some banks will cut office space in London's financial district as they reset" their operations following the COVID-19 pandemic, Britain's financial services minister said on Tuesday.

Some of the banks will reduce their physical footprint in terms of their square footage in the City," John Glen told an online event held by New Financial think tank.

10.24am BST

Despite the pick-up in work recently, the UK car industry remains deeply worried.

One in six jobs are at risk, the Society of Motor Manufacturers and Traders (SMMT) warns today, due to weak demand and lower productivity (as factories stick to social distancing rules).

10.18am BST

Sam Tombs of Pantheon Economics reckons the recovery will slow as factories chew their way through orders which were put on hold by the lockdown:

The solid recovery in the composite PMI in June is consistent with a V-shaped recovery since April so far. Note though that the manuf. orders bal. was much weaker than the output bal. (47 v 51) - firms are working through backlogs. Job cuts still rapid too. The recovery will slow pic.twitter.com/U1cPAzeDpP

10.13am BST

Many of the UK firms interviewed for today's PMI survey say they have slashed prices, in an attempt to spur demand.

Markit explains:

UK private sector firms indicated a squeeze on margins during June, with subdued demand leading to widespread price discounting despite a rebound in average cost burdens.

A number of survey respondents noted that they had absorbed extra operating costs amid efforts to adapt and restart business operations with COVID-19 safety measures.

10.03am BST

Duncan Brock, group director at CIPS, is encouraged that UK factories returned to growth this month - just (a PMI of 50.1 is barely over stagnation).

But the wider economy still appears to be shrinking, he points out:

Services remained weakened and still in contraction and there are deep concerns about how the end of furlough support will affect employment levels in the next few months.

In general, this is good news for the UK economy, but in terms of any significant recovery, 2020 is likely to be a write-off. The following year may see some more stability and real growth as the pandemic's effects continue to ripple through the remainder of 2020.

A very similar number from the UK at 47.6 for its PMI. However surely both numbers should be above 50 now.... https://t.co/RQT6Lsdlhs

The nature of the PMIs makes them tricky to interpret at the moment, but the rise in the composite PMI from 30.0 in May to 47.6 in June (consensus 41.0) suggests that the further easing in the lockdown on 15th June has led to a further rebound in economic activity after the sharp fall in April.

Taken literally the fact that the flash composite PMI remained below the no-change level of 50 in June suggests that activity fell further as it should compare activity to the previous month. But many respondents appear to be comparing activity in June to its normal level. So the rise in the composite PMI suggests that activity continued to recover in June, but that it is still well below normal.

Big rebound in UK flash PMIs in June, to 47.6 - just shy of the 50 level that separates expansion from contraction. Factories just in growth territory. But companies reporting an improvement in activity compared with April and May does not mean we are anywhere close to normal

9.48am BST

UK manufacturing output index is rising this month after a three-month slump, Markit reports.

Here's the details:

Higher volumes of production were linked to a partial reopening of manufacturing plants. However, total new orders continued to decline in June, with manufacturers often commenting on shortages of new sales to replace completed contracts. Survey respondents cited particularly weak demand across the automotive and aviation sectors in June. Looking ahead, manufacturers indicated a rise in business optimism to its highest since September 2018.

Expectations of higher output in the next 12 months reflected hopes of a sustained recovery in manufacturing operations from the slump in production volumes seen during the initial phase of the COVID-19 pandemic

9.42am BST

Newsflash! UK factories have returned to growth this month, as the Covid-19 recession eases.

The flash' manufacturing PMI, which tracks activity across the sector, has jumped to 50.1 this month from 40.7 in May. Crucially, that's just above 50-point mark showing stagnation.

June's PMI data add to signs that the economy looks likely return to growth in the third quarter, especially given the further planned easing of the lockdown from 4th July. June saw a record rise in the PMI for a second successive month, confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the COVID-19 pandemic was felt back in April.

Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential bigticket items, is likely to remain weak for many months, with Brexit uncertainty also continuing to cast a shadow over the economy. Our forecasting team therefore expects the economy to contract by 11.9% this year before expanding by a relatively modest 4.9% in 2021, which is far more cautious than the 15% surge anticipated in 2021 by the Bank of England."

9.27am BST

These charts show how the eurozone slump is easing. But, any reading below 50 still shows a contraction -- so employment, new business and output still aren't growing....

9.24am BST

The pick-up in eurozone PMIs surveys this month could be a signal that the recession will end this summer, as lockdown measures are lifted.

But, it will probably take several years to repair the damage caused by the unprecedented slump in recent months.

The flash eurozone PMI indicated another substantial easing of the region's downturn in June. Output and demand are still falling but no longer collapsing. While second quarter GDP is still likely to have dropped at an unprecedented rate, the rise in the PMI adds to expectations that the lifting of lockdown restrictions will help bring the downturn to an end as we head into the summer.

France has even staged a tentative return to growth, albeit having suffered a steeper decline at the height of the COVID-19 pandemic than Germany. Germany and the rest of the euro area meanwhile saw welcome moderations in rates of decline. However, with the timing of a return to normal still something that can only be speculated upon, and virus-related restrictions likely to continue to hit many businesses for the rest of the year, we remain very cautious of the strength and sustainability of any economic rebound.

9.09am BST

Just in: the eurozone recession has eased markedly" this month, with companies reporting that the slump in activity has slowed.

The Eurozone PMI Composite Output Index, which tracks services firms and factories across the region, has jumped to 47.5 in June from 31.9 in May.

Flash Eurozone PMI shoots up to 47.5 in June (31.9 in May) to signal a far softer economic downturn than at the peak of lockdowns across Europe, but headcounts were still strongly reduced. Read more: https://t.co/e37wt2yi1s pic.twitter.com/b9I3z0NVuJ

Output fell again in both manufacturing and services, the latter showing the slightly steeper rate of decline. Both sectors nevertheless reported markedly reduced rates of contraction for a second month running.

The ongoing downturn in output was linked to a fourth consecutive monthly deterioration of inflows of new business, which in turn contributed to a further steep decline in backlogs of orders for companies to work through.

Euro area PMIs: a-V-not-really-a-V. pic.twitter.com/pIm9IjD9mo

8.46am BST

Germany pmi's lagging France still in the 40s ....Flash manufacturing in June 44.6, services 45.8 and composite 45.8 #economy #coronavirus

8.41am BST

The slump in Germany's economy is slowing, in another encouraging signal.

The German flash PMI index, just released, has risen to its highest level since the lockdown began.

8.31am BST

Here's some snap reaction to the pick-up in France's Purchasing Managers index this month:

Euro liking this

FRANCE (JUNE) MANUFACTURING PMI ACTUAL: 52.1 VS 40.6 PREVIOUS; EST 46.0

FRANCE (JUN) MARKIT COMPOSITE PMI ACTUAL: 51.3 VS 32.1 PREVIOUS; EST 46.8

FRANCE (JUNE) SERVICES PMI ACTUAL: 50.3 VS 31.1 PREVIOUS; EST 45.2 pic.twitter.com/MXvf6uU17W

Markets rallying on the back of this big beat in French Manufacturing PMI#FTSE 6291.28 +0.75%#DAX 12436.24 +1.41%#CAC 5008.65 +1.21%#DOW 26218 +0.74% https://t.co/NDHxehU8tf

Your usual reminder that *all* PMIs should be above 50 post lockdown. French services PMI at 50.3 doesn't scream booming yet.

8.29am BST

Just in: France's economy has returned to growth this month, as some of the Covid-19 lockdown measures are eased.

Data firm Markit reports that private sector activity in France rose for the first time in four months during June. Encouragingly, output growth was recorded in both the manufacturing and service sectors.

There was renewed optimism among French private sector firms, with sentiment towards the 12- month business outlook moving into positive territory for the first time since February. Confidence was seen across both monitored sub-sectors, although it was slightly stronger at service firms. Anecdotal evidence suggested that optimism was driven by hopes of an economic recovery following the further loosening of coronavirus-related restrictions.

8.20am BST

European stock markets have opened higher, lifted by hopes that the global economy us turning the corner.

In London, the FTSE 100 is up 50 points or 0.8% at 6295, recovering Monday's losses.

8.16am BST

Overnight, the markets got a quick attack of the heebie-jeebies after the White House appeared to suggest the US-China trade deal was in trouble.

Trade adviser Peter Navarro triggered the panic by telling Fox News that relations between the two sides were over". This triggered volatility in the markets, with US stock futures plunging and riskier currencies wobbling.

The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!

8.03am BST

Investors have welcomed the news that Australia's private sector economy seems to be growing again.

Jeffrey Halley, Senior Market Analyst at OANDA, says the pick-up in business activity this month is a welcome sign:

Today sees a swath of manufacturing and services PMI's released across the globe. The prints so far this morning from Australia and Japan give a reason for some cheer. Australian Manufacturing PMI climbed back to an almost expansionary 49.20, while Services PMI jumped to an expansionary 53.20. Japan's Manufacturing PMI was a still subdued 37.80, but Services PMI jumped to 42.30, from 26.50 in May.

We expect to see similar trends across Europe and the US this evening, with perhaps not the exuberance of the Australian data. That would be in line with the gradual reopening of developed economies around the world.

7.42am BST

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

Today we'll learn whether the world economy is starting to recover from the Covid-19 slump.

The June PMIs are consistent with our view that we are now past the low point in economic activity. Overall conditions are still very soft, but there were a few encouraging pieces of information in the PMIs.

Confidence has improved in both the manufacturing and services sectors. And the lift in both input and output prices is welcome as it suggests we are more likely to be in a period of disinflation rather than deflation. The further decline in employment was disappointing, but given the lagging relationship between employment and output it is not surprising. We should see headcount lift from here."

The Markit composite PMI for Australia jumped back up to 52.6 in June, a far larger improvement than that in Japan and implying that output is rising again #AUDUSD pic.twitter.com/sVqJq0Kmrk

#Australia's Services #PMI for June 53.2, up from 26.9, indication the services sector is improving from depressed levels. #flow pic.twitter.com/CAL0cBwgQu

Flash #PMI showed #Japan's business activity contracted sharply again in June despite an easing of #COVID-19 related measures. While the downturn slowed further, the economy continued to struggle amid global trade weakness. Read more: https://t.co/x4WKxjO4In pic.twitter.com/mrS0Mhmv9L

Japan composite PMI improves, although it remains in deep contraction.

Positive improvement in services, but "goods production fell at an accelerated pace in June" according to IHS Markit. pic.twitter.com/q8PN7LZ0iu

Today's latest June flash manufacturing and services PMIs for France, Germany and the UK, are another set of leading indicators that should see further gains from the record lows seen in April, and the subsequent improvements seen in May.

Optimism over a rebound in economic activity across Europe gained traction in May when there was a decent rebound from the record lows seen in April when economic activity collapsed sharply, in the wake of the lockdown measures.

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