All the day’s economic and financial news, as Britain’s services companies report that activity rose at a faster pace in June
- Latest: UK service sector PMI beats forecasts
- UK economy may have grown by 0.4% in last quarter
- Introduction: Tariffs come in on Friday
- Stocks fall in China again
Here’s the statement in full from Beijing’s finance ministry, courtesy of Reuters.
The Chinese government’s position has been stated many times. We absolutely will not fire the first shot, and will not implement tariff measures ahead of the United States doing so.
China has already made preparations.
As long as the United States issues a so-called tariff list, China will take necessary measures to firmly protect its legitimate interests.
China has denied that it will fire the first shot in an escalating trade dispute with the US.
Beijing’s finance ministry said in a statement it would not implement its tariffs on US goods before Washington’s tariffs on Chinese imports take effect, according to Reuters.
Here our story on the UK outlook:
A stronger-than-expected UK services reading, which suggests an improved growth outlook for Britain, has helped the pound this morning. Sterling is extending gains against the euro, rising 0.4% to 88.01p.
Jennifer McKeown at Capital Economics said about the eurozone numbers:
This is a sign that at least some of the weakness in the first quarter was temporary and at least suggests we are not embarking on the start of a sharp slowdown.
There has been some stabilisation in the surveys if nothing else. That will reassure the ECB that a gradual normalisation of policy is warranted.
Here is our full story about the impending trade war between Beijing and Washington.
Over in the eurozone, it’s a similar story. Business activity picked up in June, according to the latest PMI reports, making it easier for the European Central Bank to tighten policy – although it should be noted that confidence among companies declined to its lowest level since late 2016.
The ECB has already set out plans to end its bond buying programme by the end of the year, dismantling the economic stimulus a decade after the eurozone’s economic downturn started. However, interest rates are likely to stay on hold for quite some time, and ECB president Mario Draghi might leave office in October 2019 without having raised rates once during his eight-year term.
Markit’s PMI reports suggest that UK companies grew rather faster in June than in March, when snow was dragging the economy back.
Jacob Nell of Morgan Stanley says they are “consistent with a robust rebound” in the second quarter of 2018:
ING economist James Smith also spies a UK interest rate hike on the horizon….
Just like the manufacturing and construction indices, the latest UK services PMI has beaten expectations. At 55.1, it now stands at the highest level since October, and despite the ongoing uncertainty surrounding Brexit, new orders are rising at the fastest rate in over a year too.
This, much like the recent data emerging from the retail sector, suggests that the economy is having a better ride in the second quarter than in the first – and for the Bank of England, this will be put a fairly big tick in the August rate hike box
The jump in UK service sector growth has helped the pound to shake off its early losses.
Sterling has crept back over $1.32, having dropped to $1.317 earlier, as traders conclude that an August interest rate hike is now a little more likely.
The Services PMI print today concluded a trifecta of phenomenal PMI figures from the UK this month, posting 7-month highs at 55.1. The bullish figures from the Services, Construction and Manufacturing sectors, along with GDP beating estimates last week, prove the UK economy is gaining momentum once again.
As a result, the likelihood of the Bank of England raising rates this summer has strengthened, with chances currently sitting over 60% in favour of a hike.
The pick-up in growth does have a downside. Companies are struggling to find skilled staff to help them tackle their new orders.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, explains:
“Exceeding expectations the sector ended on a positive note at the end of the second quarter, buoyed up by the fastest rise in new orders in over a year and the strongest overall performance since last October.
“However the downside of this achievement came in the form of relentless capacity difficulties as business backlogs rose to an acute degree, not seen for around three years. Not even the minor uplift in hiring could alleviate the problem as salary pressures and the struggle to find skilled hires caused firms to hesitate to increase staff numbers further.
Today’s forecast-beating services data shows that Britain has recovered from the winter slowdown – when the ‘Beast from the East’ forced school and shops to close.
Jeremy Thomson-Cook, chief economist at WorldFirst, comments:
“These are the best sentiment numbers for the UK services industry since October and highlight that the sector is continuing to bounce back from the weather affected Q1 that saw shops shuttered and supply lines cut.
Both growth and inflation within the services sector and the wider economy are set to have risen in Q2 with the PMIs for the period hinting at a GDP number of 0.4-0.5% with inflation higher on both higher fuel and wage costs.”
The pick-up in growth last month will encourage the Bank of England to raise interest rates in August, suggests Capital Economics:
Today’s stronger-than-expected services PMI makes the all-sector output balance consistent with GDP growth of 0.4% q/q in Q2. That is in line with the MPC’s forecast, leaving the committee on course to raise Bank Rate in August. pic.twitter.com/2sFLzeuMVd
Boom! Britain’s dominant service sector has picked up pace, suggesting that UK economic growth has accelerated in the last quarter.
Service sector firms enjoyed the strongest rise in activity since last October, data firm Markit reports, thanks to a rise in new orders.
“Stronger growth of service sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher.
“The survey data indicate that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.
Just in: Eurozone service sector growth picked up last month, suggesting Europe’s economy is recovering after a weak start to 2018.
Data firm Markit’s eurozone services PMI has risen to 55.2, up from May’s 53.8.
The eurozone economy regained some traction at the end of the second quarter. Rates of expansion in output and new business accelerated, although failed to fully recover the momentum lost earlier in the year.
The main impetus was provided by the services economy, which saw growth accelerate to a four-month high, offsetting a further waning in the pace of increase in manufacturing production.
Beijing policymakers will be relieved to hear that growth in China’s service sector rose last month, despite trade war jitters.
The monthly Chinese service sector PMI rose to 53, the highest in four months, showing accelerating growth. Service companies reported a pick-up in new orders, encouraging them to take on more staff.
#China services activity expands the quickest for four months in Jun, according to #Caixin #PMI. Employment and new business indices both climbed moderately, pointing to a positive trend in the service supply and demand sides. More here: https://t.co/L8Wa0k3l9h pic.twitter.com/p0jcW3oCEP
Trade war worries are hit metal prices today.
Copper has dropped to a nine-month low (at $6,423 per tonne) while zinc touched its lowest level in a year.
China’s stock market has dropped again today, as traders fret about the escalating trade dispute with America.
“Investors should expect volatility to continue. Uncertainty over interest rates, protectionism, and China are key risk factors.
We recommend investors stay invested, but consider five actions: looking to alternatives, hedging equity exposure, improving credit quality, diversifying sector and country risks, and taking a longer-term view.”
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Chinese tariffs on $34bn of U.S. goods will take effect from midnight July 6 Beijing time, a person with knowledge of the plan told Reuters, amid worsening trade tensions between the world’s two largest economies.
Washington has said it would implement tariffs on $34bn of Chinese imports on July 6, and Beijing has vowed to retaliate on the same day.
Even if service sector activity is stronger than forecast, it may fail to capture investors’ attention for any significant amount of time. Brexit will be firmly back on the agenda, with the Prime Minister due to hold talks at the Chequers residence this weekend, in the hope of finding a solution to the customs partnership with the EU post Brexit.
Theresa May has made a series of pleas to her bickering party to sort out their differences and to the EU, not to decline the third proposal.