Global manufacturing growth hits 25-month high; US jobless claims fall – as it happened

Graeme Wearden

from on 2020-10-01 16:14 (#58P0X)

Rolling coverage of the latest economic and financial news, as UK manufacturing recovery continues....but headcounts are still cut

5.14pm BST

Time for a quick recap, after a day dominated by employment worries.

Global manufacturing has posted its strongest growth in over two years. Factory bosses across the world reported that new orders and output grew in September.

4.52pm BST

European stock markets have closed rather weakly, as the early optimism about US stimulus talks waned.

The Stoxx 600 index has close just 0.5 points higher at 361, a gain of 0.15%.

4.20pm BST

Less impressively, factories around the globe continued to cut jobs last month (including in the UK, as we learned earlier).

That's the 10th month of falling manufacturing employment in a row. But the pace did slow, with staffing levels raised in the US and China, but reduced in the eurozone and Japan.

The global industrial sector continued its recovery in September. While overall the September manufacturing PMIs disappointed, there were a number of positive aspects in the report.

Against a decline in the output index, the new orders PMI and its ratio to finished goods inventory both increased suggesting a near term gain in the output index. Overall we think the recovery should be sustained as the re-opening of economies continues.

4.13pm BST

Brazil's factories posted the fastest growth last month, followed by India, according to the PMI surveys, while Myanmar and Mexico suffered contractions.

4.10pm BST

Growth across the world's factories hit its highest level in over two years in September, as manufacturing recovered from Covid-19 lockdowns.

That's according to JP Morgan, which has crunched all the latest manufacturing PMI reports from the UK, eurozone, the US and across Asia. It found that output and new orders both rose for the third successive month, while new export business expanded for the first time in over two years.

Faster expansions in the US and the eurozone were partly offset by slower growth in China and the UK and ongoing contraction in Japan. Subsector PMI data signalled that the upturn remained broad-based, with expansions signalled across the consumer, intermediate and investment goods industries.

Growth accelerated to a near ten-year high at investment goods producers, but eased in the other two categories. Underpinning higher production volumes was a further increase in new business. New order intakes rose at the quickest pace in almost two-and-a-half years, boosted by the first increase in international goods trade since August 2018.

The J.P. Morgan Global Manufacturing #PMI rose to a 25-month high of 52.3 in September (Aug: 51.8), to signal a further improvement in conditions. Output and order book volumes rose again, with new export orders also increasing. Read more: https://t.co/fcLq3A6YHu pic.twitter.com/k1IoKEIwgT

3.21pm BST

Just in: America's manufacturing posted solid growth last month, two rival surveys have showed.

The Institute of Supply Management's monthly factory PMI has dropped to 55.4 for September, from 56.0 in August. That shows pretty decent expansion, although slightly slower than a month ago.

*US ISM MANUFACTURING PMI FALLS FROM 56.0 TO 55.4 IN SEPTEMBER; EST. 56.4 pic.twitter.com/MSNx5IDixv

3.14pm BST

Ah... perhaps we won't get a stimulus deal today after all:

NEW - @SpeakerPelosi sounded VERY skeptical about a deal with @stevenmnuchin1 just now on a Dem whip call

Said Republicans and democrats don't share the same values. She cited the child income tax credit. Dems have gone down significantly and republicans are at 0, she said.

3.05pm BST

The European Medicines Agency, the European regulator, has started its first rolling review of a Covid-19 vaccine: the vaccine that is being developed by the University of Oxford and AstraZeneca.

This means its human medicines committee has started evaluating the first batch of data, although a conclusion can't be reached yet on safety and effectiveness. To speed up the approval process, the committee will review data as it becomes available from the ongoing clinical studies, before deciding that it has received enough data and that a formal application for approval should be submitted by the company. The vaccine is currently being tested in trials involving up to 60,000 people around the world.

2.40pm BST

Wall Street has opened higher, with the Dow Jones industrial average gaining 223 points or 0.8% to 28,005.

Investors are looking beyond the persistently high US jobless claims, and hoping for a fiscal stimulus deal to be hammered out on Capitol Hill.

US Opening Bell

Go Go Gadget Stocks.

DOW UP 174.34 POINTS, OR 0.63%, AT 27,956.04

NASDAQ UP 124.22 POINTS, OR 1.11%, AT 11,291.73

S&P 500 UP 25.10 POINTS, OR 0.75%, AT 3,388.10

2.30pm BST

Despite America's high unemployment levels, the country's housing market remains hot.

House prices at the 20 largest US cities jumped by 3.9% per year in July, up from 3.5% in June, according to the latest S&P CoreLogic Case-Shiller index.

Prices were particularly strong in the Southeast and West regions, and comparatively weak in the Midwest and Northeast"

U.S. home-price growth accelerated in July: Case-Shiller https://t.co/Xxbwg5aTHX

2.08pm BST

Worryingly, there's been little reduction in the number of new weekly jobless claims during September, despite the drop to 837,000 last week.

That suggests there's a lot of churn in the US labor market:

US jobless claims fell to 837,000 last week (s.a.)--a new pandemic low. But let's be clear: that's still a huge increase relative to pre-pandemic history -- a reminder that the labor market's recovery continues to struggle: https://t.co/eX1riNwo34 pic.twitter.com/oX7FEeQ2AO

The latest UI claims report shows UI claims made almost no progress so far in September, unchanged from the end of August. Claims remain stagnant at high levels, which is a difficult reality for millions of workers six months into the pandemic.

Economic recovery propelled by sheer momentum can only go so far amid a pandemic. This stagnation signals enormous ongoing churn underneath the labor market as layoffs continue."

1.56pm BST

Today's weekly jobless report is an appetiser for tomorrow's Non-Farm Payroll, which will show how many jobs were created in September.

Elizabeth Pancotti of Employ America predicts the NFP (the last before the presidential election) could be unimpressive.

Given where we were at in August with temporary layoffs/furloughs in the COVID supplemental tables, the layoffs reported in the last few weeks, and the (albeit wonky) UI claims, tomorrows jobs report probably won't be great.

Tomorrow morning is the last Jobs Report before the election. We'll have one more Personal Income and Outlays report (10/30).

Whatever deal may get through Congress in the next few days is unlikely to change the ~big charts~ as people head to the polls.

1.49pm BST

Richard Flynn, UK managing director at Charles Schwab, says today's US jobless report shows a marginal recovery:

Today's decline in initial jobless claims shows some sign of improvement in the labour market,, but without extended supplemental unemployment benefits, the outlook for the broader economic recovery and US GDP growth remains highly uncertain.

While equities have continued to endure another round of volatility, market technicals appear to be improving following the recent correction. Any progress towards a fiscal relief package may also have the potential to act as a bullish catalyst, even if market participants are already expecting it.

Unemployment claims still staggeringly high with some people forced to apply for special pandemic claims as their regular UI benefits expired. Note below. Data is a mess as California has paused its reporting to deal w backlog and fraud. https://t.co/8j9DEQHwvQ

Initial #unemployment claims -36k to 837k (SA) in w-e Sep26 & -40k to 787k (NSA)

> PUA claims (NSA): 650k (+36k)

> Total UI+PUA: very high 1.4mn (NSA) new claimants!

> Climb is long & plateaus are unavoidable but this one is worrisome, especially w/ many biz announcing layoffs pic.twitter.com/pLTAaQw64A

1.39pm BST

Newsflash: The number of Americans filing new unemployment claims in the last week has fallen, but is still painfully high.

Around 837,000 fresh initial claims for jobless support were filed across the US last week, down from 873,000 in the previous seven days.

BREAKING:

*U.S. CONTINUING JOBLESS CLAIMS RISE BY 11.767M LAST WEEK, EST. 12.225M pic.twitter.com/MZb5Ay8Q8L

1.32pm BST

Ocado has responded to Autostore's claims of patent infringement -- telling the City that it was unaware of these allegations until today.

Ocado is also vowing to protect its own robotic shopping intellectual property against Autostore.

Ocado Group plc notes the press release from Autostore today. Ocado confirms it has not received any papers in relation to these claims and this is the first we have heard of this new claim. We are not aware of any infringement of any valid Autostore rights and of course we will investigate any claims once we receive further details.

We have multiple patents protecting the use of our systems in grocery and we are investigating whether Autostore has, or intends to infringe those patents. We will always vigorously protect our intellectual property.

1.12pm BST

Wall Street is on track to rally when trading begins in an hour, as investors hope for progress on a US stimulus package.

The S&P 500 index is 1% higher in the futures market, ahead of fresh talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin.

It's been a very US-centric week so far and that's unlikely to change, with stimulus talks continuing and Friday's jobs report being of great interest.

It's the former that's getting investors excited over the last 24 hours, with the Democrats and Republicans seemingly edging gradually closer to a deal. The talks have moved at a snails pace and there's still a significant difference between the packages the two are proposing, but they are heading in the right direction.

US Opening Calls:#DOW 28029 +0.96%#SPX 3394 +1.05%#NASDAQ 11575 +1.43%#RUSSELL 1523 +0.89%#FANG 5475 +1.43%#IGOpeningCall

12.59pm BST

Ocado's shares are down 5% today after a Norwegian rival accused the company of stealing the technology behind its robot-powered grocery picking warehouses.

AutoStore has filed patent infringement lawsuits in America and the UK against the FTSE 100-listed online grocery company.

We will not tolerate Ocado's continued infringement of our intellectual property rights in its effort to boost its growth and attempt to transform itself into a global technology company."

12.31pm BST

Quite a day for sterling pic.twitter.com/bMwfd31R2e

12.30pm BST

The pound has just dramatically recovered those early losses, after the FT's Sebastian Payne tweeted that negotiations on a Brexit free trade deal are making progress.

Sterling has jumped back to $1.2940, on the prospect of a landing zone" to resolve differences on state aid. Fishing rights, though, seem to be the sticking point.....

Despite the EU launching legal proceedings against the UK over the internal market bill, officials in London are increasingly optimistic a Brexit deal.

We've gone from about 30% chance of a deal to the other way around. I think it's almost certain we'll enter the tunnel."

Officials with knowledge of the talks say a landing zone on state aid has been identified but fishing is the last sticking point. We both have to jump together."

The mood in Whitehall as cautiously optimistic" but insiders warn it's going to go to the brink."

12.07pm BST

Getting back to Rolls-Royce... the UK government is playing a vital role in its rescue fundraising, argues Edward Cropley of Reuters Breakingviews.

The pledge, in principle, for an extra 1bn loan from the taxpayer underpins today's 5bn package - and recognises just how important Rolls-Royce is to the UK economy today.

In its darkest hour, Britain turned to Rolls-Royce for salvation. As a developer of the Merlin engine that powered the legendary Spitfire, the 114-year-old firm can claim more credit than most for the Battle of Britain air victory that prevented a Nazi invasion. Eighty years later, in arguably Rolls' darkest hour, Prime Minister Boris Johnson is returning the favour.

The comparison is apt, and not just because Johnson likes to model himself on wartime leader Winston Churchill. Rolls-Royce engines and technology keep Britain's nuclear submarine fleet afloat, making it still central to national security. And as the world's second-largest maker of jet engines, behind General Electric, it is also arguably too big to fail" at a global level.

In its darkest hour, Britain turned to Rolls-Royce for salvation. 80 years later, in arguably Rolls' darkest hour, Prime Minister Boris Johnson is returning the favour, writes @edwardcropley: https://t.co/QeCJLbs0uc pic.twitter.com/rjxrPlhdpz

11.54am BST

Halfords has raised its profit guidance for the rest of the year after a surge in bike sales during the pandemic.

The retailer said demand for bikes and cycling products had continued following the end of the peak cycling and summer staycation season, and sales were growing again for its car products and services.

11.21am BST

Back in the markets, the pound has weakened after the EU launched legal action against the UK for planning to breach the Brexit withdrawal agreement.

Brussels took action after Boris Johnson failed to respond to demands that he drop elements of the UK's draft internal market bill that would break international law.

If/When Commisison announces legal action against UK for Internal Market Bill (approx 30 mins) - worth remembering this is long process w/ lots of time to reverse a breach of EU law before big fines in the ECJ.
More than enough time to agree a trade deal for example.

The oven ready deal" was an international treaty - for the EU Commission, that is like the Bible.

Whilst the EU always acts in bad faith, all they are doing today is asking Boris to keep his promises.

It should never have been signed in the first place. https://t.co/PybqaSXUwk

10.59am BST

The Office of National Statistics has reported that 11% of the UK workforce were on furlough as of mid-September, with 85% of businesses currently trading.

That suggests that millions of jobs are vulnerable, as the furlough scheme (in which the government currently pays 70% of wages) ends at the end of October

10.51am BST

The Bank of England has reported that UK businesses are expecting to cut their workforces, and slash investment.

The BoE's latest survey of chief financial officers from small, medium and large UK businesses, conduced this month, found that sales are expected to remain weak for many months:

10.09am BST

The Covid-19 pandemic has also driven up unemployment in the euro area.

Figures just released show that the jobless rate in the euro area rose to 8.1% in August, the fifth monthly rise in a row, up from 8.0% in July.

Euro area #unemployment up to 8.1% in August 2020 (8.0% in July). EU up to 7.4% https://t.co/AFJJPZlmbN pic.twitter.com/OgBDYSymdm

In August 2020, 3.032 million young persons (under 25) were unemployed in the EU, of whom 2.460 million were in the euro area.

In August 2020, the youth unemployment rate was 17.6% in the EU and 18.1% in the euro area, up from 17.4% and 17.8% respectively in the previous month.

9.56am BST

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says the employment picture at UK factories has darkened' - despite manufacturers reporting that activity picked up again last month.

Manufacturing made solid progress towards recovery in September, with just a minor step back from August's two-and-a-half-year index high. New pipelines of work increased for the third month in a row and export orders the strongest for almost two years.

The impetus behind this resurgence, lies in the release of delayed projects and more people returning to work but the employment picture overall darkened significantly. Some firms continued to make use of the furlough scheme to retain their workforce, but larger numbers of redundancies this month means we have a wretched end to the third quarter as job numbers fell for the eighth month in a row.

Longer delivery times and increased competition for raw materials, caused the highest rate of input price inflation since December 2018. The increase in prices to customers followed closely behind and is set to continue for the remainder of the year.

In spite of these difficulties, the sector's glass remained half full, and optimism for the year ahead was sustained. Some businesses were using forward buying strategies to build stocks for Christmas and Brexit, which may boost employment levels, but it is anyone's guess whether more lockdown disruptions derail this hope."

9.43am BST

Rob Dobson, Director at IHS Markit, fears that more manufacturing jobs will be lost once the furlough scheme ends this month, even though companies say activity is rising.

Here's his take on today's UK manufacturing PMI report:

September saw UK manufacturing continue its recovery from the steep COVID-19 induced downturn.

Although rates of expansion in output and new orders lost some of the bounce experienced in August, they remained solid and above the survey's long-run averages. Export demand is also picking up, as economies across the world restart operations and adjust to COVID-19 restrictions. Business sentiment remained positive as a result, with three-fifths of UK manufacturers forecasting a rise in output over the coming year.

9.41am BST

Here's the UK factory PMI report:

9.39am BST

UK factories posted solid growth in September too, although not quite as fast as in August.

The UK manufacturing PMI has dipped to 54.1 in September, down from August's two-and-a-half year high of 55.2. That's still over the 50 point mark showing stagnation, for the fourth month in a row.

Solid expansions were seen in the consumer, intermediate and investment goods sectors, with the steepest increase in intermediate goods. Large manufacturers saw the fastest growth and small-sized firms the slowest. Underpinning the ongoing recovery in output volumes was a further increase in new order intakes.

New business rose for the third successive month, reflecting a combination of improving customer demand, rising export orders, signs of recovery in the retail sector and the reopening of schools.

Job losses were registered for the eighth consecutive month in September, although the rate of reduction eased to its lowest since February. Some firms implemented redundancy programs in response to the ongoing economic impact of the COVID-19 pandemic.

9.19am BST

Just in: Eurozone factory growth has hit its strongest level in over two years, led by a recovery in Germany.

The eurozone manufacturing PMI, produced by data firm IHS Markit, has jumped to 53.7 in September, up from 51.7 in August.

Business conditions across the German manufacturing sector improved at the quickest rate for over two years during September. The result was underpinned by a sharp increases in output and new orders. Meanwhile, the rate of job shedding eased. Read more: https://t.co/cw4iB2b2se pic.twitter.com/vtdCRv6RVk

The eurozone's manufacturing recovery gained further momentum in September, rounding off the largest quarterly rise in production since the opening months of 2018.

Order book growth and exports also accelerated, indicating a welcome strengthening of demand. Job losses consequently eased as firms grew more upbeat about prospects for the year ahead, with optimism returning to the highs seen before the trade war escalation in early 2018.

The recovery would have been far more modest without Germany, however, where output has surged especially sharply to account for around half of the region's overall expansion in September. Germany's performance contrasted markedly with modest production growth in Spain, slowdowns in Italy and Austria, plus a particularly worrying return to contraction in Ireland.

9.07am BST

Here's our news story on Rolls-Royce's new funding package:

8.59am BST

Today's 5bn package of new equity and bonds, and fresh loans, should help Rolls-Royce handle the crushing impact" of Covid-19 crisis, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:

The aircraft manufacturer is in a bleak position given the collapse in international air travel. There is little end in sight for the falling demand for new planes and it's already shed assets and announced mass job losses.

It had considered getting a cash injection from sovereign wealth funds in Singapore and Kuwait, but withdrew from those talks. It will instead raise another 1 billion through the corporate bond market.

Weekend speculation over a heavily discounted rights issue has seen Rolls Royce shares continue to decline this week, with management also reported to be in lengthy talks with a host of sovereign wealth funds. At the end of last week there was also speculation that the Kuwait Investment Office was also mulling a stake, which would have put the UK government in a somewhat tricky situation given it has a veto of sorts over any overseas shareholders.

Rolls Royce clearly needs the cash to shore up its balance sheet, given the sharp drop in revenues it has experienced in the last few months, and which is likely to continue for some time to come. The continued procrastination however is not helping, and last night's news that it had called off its talks with KIO and Singapore's sovereign wealth fund closed off another avenue for the business. It's being reported that the failure of talks was due to opposition from existing shareholders, which is fair enough, but then these existing shareholders need to come up with alternatives or face the breakup of the business. A vote will be held on the deal on 27^th October, where shareholders will have the opportunity to either put up or shut up.

8.45am BST

Despite the drag effect from Rolls-Royce, the London stock market has opened higher.

The FTSE 100 index has gained 45 points, or 0.8%, to 5911.

The focus will would be on the talks between Mnuchin and Pelosi today after Mnuchin put forward a new plan, reported to be $1.62trn (Mnuchin described it as in the neighbourhood of $1.5trn), which is an improvement on the previous Republican stance.

Crucially, the new proposals include increased provisions for state and local aid, which has been a key demand for the Democrats. It is not clear whether the proposal also includes a clause for $400bn of additional stimulus if the COVID situation worsens. The improved Republican offer, though short of the $2.2trillion proposed by the Democrats, has raised market hopes that a deal could be reached on the stimulus.

8.40am BST

Rolls-Royce says it has also agreed commitments" for a new two-year term loan facility of 1bn.

That means today's total proposed package of new equity and borrowing is worth 5bn (2bn from shareholders, an upcoming 1bn bond, this new two-year loan, and (RR hopes) a 1bn loan from the UK Export Finance).

8.24am BST

Oof. Shares in Rolls-Royce have slumped to their lowest level since January 2004.

They fell as much as 7% at the start of trading in London, hitting 120p.

8.05am BST

Rolls-Royce's chief executive, Warren East, says the company is taking decisive and transformative action' in response to the Covid-19 crisis.

The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our Civil Aerospace business and, to a lesser extent, our Power Systems business.

By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities.

The strength of our people, brand and global footprint, together with our innovation and technology will support us as we emerge from the COVID-19 pandemic and implement our longer-term strategy, playing a crucial role in the world's transition towards a net-zero carbon economy.

8.01am BST

Rolls-Royce is also hoping to receive more financial support from the UK government, through a new 1bn loan.

It says:

UK Export Finance has indicated that it would, in principle, support an extension of its 80% guarantee of our existing 2bn five year term loan to support a loan amount increase of up to 1bn.

This is subject to completion of the Rights Issue, agreement of terms with lenders and approval of those terms by UK Export Finance and HM Treasury, and there is therefore no guarantee that this increase will take place.

7.58am BST

Rolls-Royce, one of the UK companies worst hit by the Covid-19 pandemic, has announced plans to raise billions of pounds to shore up its balance sheet.

7.41am BST

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

European Opening Calls:#FTSE 5887 +0.35%#DAX 12808 +0.37%#CAC 4829 +0.52%#AEX 551 +0.53%#MIB 19102 +0.46%#IBEX 6756 +0.59%#OMX 1833 +0.19%#STOXX 3210 +0.50%#IGOpeningCall

Global markets in Risk On mode w/ US and European Futures higher on signs of potential progress toward fresh US fiscal stimulus. Bonds drop w/US 10y yields at 0.69%. Dollar lower w/Euro at $1.1744. Gold at $1893, Bitcoin $10.8k. pic.twitter.com/5Q9nRcmyLz

Hinging on hopes for the passage of the next US fiscal stimulus package, US equities mostly concluded the quarter on a positive note. US treasury secretary Steven Mnuchin's latest optimism in working out the next fiscal package served as a ray of sunshine through the clouds, although some doubts cast by the Republican party did find some paring of gains later into the Wednesday session.

The fact of the matter however remains that both sides remain at work in ironing out the details that would add this into the list of things to watch into the end of week. Assuming any middle ground achieved between what had been the higher bound for Republicans at $1.5 trillion and Democrat's latest $2.2 trillion plan in terms of costs, this could potentially provide the US market with another booster shot. One to watch.

The much stronger than expected rise in the Chicago PMI in September seems to bode well for the national business surveys, although the other regional surveys have not been as positive pic.twitter.com/LfQnbCDKDA

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