Rolling coverage of the latest economic and financial news, including new PMI surveys of the world’s manufacturing
- Latest: Trump imposes tariffs on Brazil and Argentina
- Also urges Fed to weaken the dollar
- UK factories slash jobs
- China’s factory growth hits three-year high
- But Ireland cuts jobs as exports fall
- Coming up: Christine Lagarde at European Parliament
Brazil is the third-largest exporter of steel to America, points out Bloomberg’s Michael McDonough, so these tariffs could have an impact.
“Trump to Restore Tariff on Steel Shipped From Brazil, Argentina”
Market Share of U.S. Steel Imports by Country:
President Trump’s decision is a blow to both Argentina and Brazil, who had previously persuaded the White House not to impose metal tariffs.
Back in May 2018, both countries secured “permanent exemptions” from the levies, which are 25% on steel and 10% on aluminium.
Newsflash: President Donald Trump has just announced new tariffs on steel and aluminium imports from Brazil and Argentina.
Trump is unhappy that Brazil and Argentina’s currencies have depreciated, making their exports to the US more competitive – so he’s hitting back.
Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries. The Federal….
…..Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!
Back in the markets, the pound is dipping today as general election jitters set in.
Sterling has lost a third of a cent to $1.2895, after several opinion polls showed the Conservative Party’s lead over Labour has narrowed.
Opinium said the gap had narrowed from 19 points to 15, with the Tories on 46% while Labour racked up 31%.
YouGov said its gap was down from 11 to 9 points, with the Tories receiving 43% of the vote compared to 34% for Labour.
Sam Tombs of Pantheon Economics says destocking following the latest Brexit extension is hurting factories:
“Destocking is driving the renewed slowdown.” @samueltombs on U.K. Markit/CIPS Manufacturing PMI, November, Final
The weakness in Britain’s factories in November suggests that growth may be modest in the current quarter, having barely grown in the last six months.
The CBI, which represents UK businesses, has warned that any recovery must be based on continuing to trade as freely as possible with Europe.
Britain’s stuttering economy is likely to pick up momentum over the next two years, but only if the government maintains tariff-free trade with the EU, the CBI said in its outlook for 2020.
According to the business lobby group’s latest economic forecast, GDP growth for over the next two years is set to remain at 1.2% in 2020 before picking up to 1.8% in 2021.
The UK PMI report also shows that factories making expensive, heavy-duty goods suffered particularly badly in November.
Consumer goods makers did better, though — perhaps benefitting from Christmas demand?
Investment goods producers remained severe, with production, new orders, new export business and employment all contracting at steeper rates than the other sub-industries. Output, new business and staffing levels at intermediate goods producers also fell.
There were brighter signs from the consumer goods sector, which saw growth of both output and new orders.
A triple-whammy of problems have hurt Britain’s factory sector, says Andrew Symms, partner at legal firm DWF:
“The UK manufacturing PMI figures illustrate the impact of global trade tensions, Brexit uncertainty and an impending General Election that has resulted in the PMI to 48.9 in November from 49.6.”
“The underlying data does not paint a rosy picture. Manufacturing production fell and new order inflows deteriorated from both domestic and overseas sources. Employment also fell for the eighth straight month in November. A lack of transparency caused by Brexit ambiguity is holding back investment. Manufacturers need to take positive steps to understand their supply chains, mitigate risks and ensure, to the best of their ability, that financing is available in case conditions deteriorate further.”
Britain’s factories are also suffering from some Brexit-unwinding, as companies run down stocks built up ahead of the October 31 deadline.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says this caused a drop in orders, leading to job losses last month:
“A heavy sense of inevitability hung around the sector in November as it continued to suffer the effects of a lethal cocktail of Brexit uncertainty, slowing global growth and an impending General Election. These combined to stifle any chance of manufacturing crawling out of the contraction zone, where the sector was stuck for a seventh month in a row.
“Supply chain managers cited weakened domestic demand and one of the biggest falls in export orders for seven years as companies unravelled their pre-Brexit stocks and resulting in one of steepest reductions in purchasing since 2013. Inevitably, where new orders fall, jobs are sure to follow and manufacturing employment fell at its fastest pace since September 2012. Firms tried to balance their books by reducing overheads and improving efficiencies quickly, and staff numbers were the casualties.
Rob Dobson, Director at IHS Markit, says next week’s general election is hurting Britain’s factories.
With orders dropping, and exports down too, firms are being forced to cut jobs to protect their finances, he warns.
“November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election. Downturns in output and new orders continued amid a renewed contraction in exports. The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales.
Destocking at manufacturers and their clients following the latest Brexit delay was a major contributor to the weakness experienced by the sector. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016.
Newsflash: Britain’s factories are slashing jobs at the fastest rate in over seven years, as the sector continues to shrink.
That’s according to the UK manufacturing report for November, just released, which shows that political and economic uncertainty are hurting the economy.
The UK manufacturing downturn continued in November, as businesses responded to the delay to Brexit and a fresh injection of uncertainty from the forthcoming general election. Output, new orders and employment all fell, while destocking activity resumed as firms depleted buffers built-up in advance of the postponed exit date.
Companies linked further job cuts to cost reduction efforts, efficiencies, Brexit uncertainty, redundancies, natural wastage and staff restructuring.
Kit Juckes of Societe Generale reports that investors are cheered by today’s Chinese factory upturn, although other PMI data has been less upbeat.
The first Monday of the month sees a feast of manufacturing PMI data around the world and this morning the overall impression, with some exceptions, is slightly upbeat.
An Japan’s came in at 48.9, up from 48.4, India’s at 5.1 vs 50.6, and China’s Caixin PMI came in at 51.8 vs 51.7. Russia was the most striking disappointment at 45.6 vs 47./2, but we saw a soft number for Sweden at 45.4 vs 46 last, too. Markets haven’t looked beyond the Chinese data too much…
Some reaction to the eurozone PMIs, from trading platform BP Prime:
Germany’s PMI rises to 44.1 from prev. 43.8 and more than exp. 43.8
Another (little) sign of rebound for euro area economy@graemewearden
Just in: Eurozone factories shrank again in November, for the 10th month in a row.
The IHS Markit Eurozone Manufacturing PMI has risen to 46.9 in November, a little better than expected, from October’s 45.9. That’s below the 50-point mark showing stagnation, continuing a contraction that began back in February.
Germany remained bottom of the table, despite recording its best PMI reading in five months.
Austria and Spain were the next worst performing, but similarly recorded weaker rates of contraction, whilst Italy registered its lowest PMI print for eight months.
“A further steep drop in manufacturing output in November means the goods-producing sector is likely to have acted as a major drag on the eurozone economy again in the closing quarter of 2019.
The survey data for the fourth quarter so far are indicating a quarterly rate of contraction in excess of 1% for manufacturing.
“Although still signalling a steep rate of decline, the manufacturing PMI nonetheless brings some encouraging signals which will fuel speculation that the worst is over for euro area producers, barring any new set-backs (notably in relation to Brexit and trade wars).
In particular, November saw the rate of loss of export sales easing further from July’s recent record, helping pull other indicators such as output, employment, order books and purchasing off their recent lows.
Back to the PMIs. Earlier, Markit reported that Australia’s factories suffered a sharp tumble in new orders last month:
#Australia‘s manufacturing conditions broadly stagnant in Nov, as a survey-record fall in new orders and a decline in output weighed on the headline #PMI. Read more: https://t.co/rBm0YNPq6k pic.twitter.com/9WW8x1HRVY
#PMI data showed the first deterioration in #Thai manufacturing conditions for 9 months during Nov as goods producers cut back on production volumes amid weak demand. Read more: https://t.co/th1rN6ARMM pic.twitter.com/TFZ4h9EWrQ
#Indonesia‘s manufacturing weakness extended into Nov, with #PMI data signalling that the economy is on course for a slower pace of growth in the fourth quarter. The average PMI so far for Q4 is consistent with #GDP expanding at 4.9%. Read more: https://t.co/Oqtr1CIiuJ pic.twitter.com/fa99feUYWf
Further signs of an easing downturn in South #Korea manufacturing sector, with #PMI rising to a seven-month high. Business confidence was also notably less pessimistic, suggesting that firms are building momentum. Read more: https://t.co/vdhAzuwefa pic.twitter.com/EzLYZrKZHD
Also in the City, shares in fashion chain Ted Baker have slumped to a 10-year low after it warned it has overstated the value of its inventory on its balance sheet.
Based on preliminary analysis, the Board estimates an impact on value of £20m to £25m. The Board believes that any adjustment to inventory value will have no cash impact and will relate to prior years.
Shares in mining companies are rallying, on hopes that Chinese factories will be buying more iron ore, copper and coal.
Rio Tinto (+2.5%), Glencore and BHP Billiton (both 1.8%) have jumped to the top of the FTSE 100 leaderboard in London. That’s lifted the Footsie by 44 points, or 0.6%, in early trading.
Ireland’s manufacturers are suffering from Brexit uncertainty, says Oliver Mangan, AIB Chief Economist.
“The primary source of the slowdown in manufacturing is weakening foreign demand. While total orders again rose marginally in November, new export orders fell for a fifth consecutive month and at a solid pace. Firms report that Brexit related weakness in the UK as well as softer US demand are weighing on export orders.
“The Irish November PMI reading of 49.7 remains well above the average for the Eurozone, which is put at 46.6, and the level of 48.3 in the UK as the stronger domestic economy helps support activity here. A further positive note is that confidence among Irish manufacturers regarding future output rose to a five-month high in November. Nonetheless, Brexit uncertainty continues to weigh on confidence levels, which remain low on a historical basis.”
We’ll get a lot of PMI data today, but Ireland’s stands out as particularly worrying.
Irish manufacturing activity shrank last month, for the fifth time in six months, according to the latest healthcheck from AlB and Markit.
Export sales decreased further during November, with the rate of contraction accelerating from October. Panellists stated that they had observed an overall weakening of foreign demand conditions, singling out weaker US and UK markets.
Asia-Pacific stock markets have been lifted by the rise in Chinese factory growth.
The main indices are mainly higher today, with Shanghai’s CSI 300 up 0.2%.
Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, says China’s factory slump may have bottomed out.
But while today’s PMI report shows some recovery, the trade war between Washington and Beijing is still hurting.
“China’s manufacturing sector continued to recover in November, with both domestic and overseas demand rising and the employment subindex returning to expansionary territory for the second time this year.
“However, business confidence remained subdued, as concerns about policies and market conditions persisted, and their willingness to replenish stocks remained limited. This is a major constraint on economic recovery, which requires continuous policy support. Currently, manufacturing investment may be lingering near a recent bottom. A low inventory level has lasted for a long time. If trade negotiations between China and the U.S. can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement.”
“The improvement last month was driven by different factors across the two manufacturing indices, making it hard to pinpoint the reason for the apparent uptick industrial activity,”
“We doubt this marks the start of a decisive rebound in activity.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
New business rose strongly, which underpinned a further solid increase in production. Notably, new export orders saw the first back-to-back monthly rise for over a year-and-a-half.
Staffing levels were broadly stable following a seven-month sequence of decline, but capacity pressures persisted, with backlogs of work expanding again.