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Markets shrug off trade war fears ahead of Spanish vote and US jobs data - business live Markets shrug off trade war fears ahead of Spanish vote and US jobs data - business live
(35 minutes later)
The International Monetary Fund has called for countries to work together on trade. In response to the US tariff moves, IMF spokesman Gerry Rice said:
Everybody loses in a protracted trade war, we encourage countries to work constructively together to reduce trade barriers and to resolve trade disagreements without resort to exceptional measures.
It is unfortunate that trade tensions are rising at a moment where the global recovery is being supported by trade. For the first time in a long time, trade is growing faster than global GDP, and spreading recovery around the world. Because of trade and innovation, billions of people today enjoy longer, healthier, and more prosperous lives.
Earlier IMF managing director Christine Lagarde, tweeted from the G7 Symposium in Canada:
At the end of the day, if #trade is massively disrupted, if the level of trust among economic actors is severely damaged, those who will suffer most are the poorest people. #G7 pic.twitter.com/hOCLAHvg6W
Markets seem to be unmoved, not only by the US tariffs, but also the political uncertainty in Spain. UBS analyst Bosco Ojeda explains:
In a quick succession of events the Spanish parliament will vote this Friday June 1st a vote of no confidence which could remove from power president Mr. Rajoy (Partido Popular) and appoint Mr. Sanchez (PSOE)...
Mr. Sanchez (PSOE) has indicated that he aims to call for early elections but the exact timing is uncertain. Current polls show weak support for PSOE, while there is increasing support for [rival] Ciudadanos. So incentives to call elections are unclear and may extend towards the 2020 limit. Mr. Sanchez has reiterated a commitment with European orthodoxy and budget control in Spain. His plan includes the acceptance on the current 2018 budget. Going forward it may be more expansive on spending but there is not much room. Attempts to reverse reforms may not find a majority in parliament.A complete u-turn in policy seems unlikely.
Assuming, for the time being, a high degree of policy continuity, we do not anticipate a substantial impact on the pace of growth. Usually elections have a mild impact on GDP with delays in confidence and investments. Spain’s GDP growth at 3% YTD is solid but may slow moderately over the coming quarters, with full year growth of 2.8% in 2018 and 2.3% in 2019. According to polls the 3 largest parties (PP, Ciudadanos and PSOE) have c70% of vote intentions and support pro-European orthodox policies which in our view are unlikely to drive a u-turn in economic policy. Far left party Podemos according to polls does not have enough support to lead the economic policies. Overall, Spanish equities and bonds have lately suffered and discount a high level of uncertainty. Only contagion from Italy would represent a real risk to risk premium levels, in our view. Latest correction on equities offer opportunities, particularly on banks and largecaps.
Italy’s economy, the eurozone’s third biggest, grew by 0.3% in the first quarter of the year, in line with initial estimates.
The annual increase was 1.4%. Fourth quarter growth was revised up quarter on quarter to 0.4% from 0.3%.
Meanwhile the country’s manufacturing PMI came in below expectations:
Italy Markit Manufacturing PMI below forecasts (52.9) in May: Actual (52.7) https://t.co/MIRdN4f3X5 pic.twitter.com/pvm5Z3o5VL
The GDP figure and the PMI survey both came before the latest Italian political turmoil, of course.
Eurozone factory growth was subdued in May, falling to a 15 month low, and the weakness looks set to continue.
The IHS Markit final manufacturing purchasing managers index came in at 55.5, in line with an initial estimate but below the April figure of 56.2. Chris Williamson, chief business economist at Markit, said:
Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in the coming months.
There are signs the soft patch has further to run. Despite the production trend slowing markedly in recent months, the order book slowdown has been even sharper.
Although growth is slowing, it may still be strong enough for the European Central Bank to press on with its plans to reduce its economic stimulus programme, due to finish by the end of 2018.
Final #Eurozone manufacturing #PMI at 15-month low of 55.5 in May, down from 56.2 in April and unchanged from the earlier flash estimate. Full release here https://t.co/Dl8dH6a0ir pic.twitter.com/1kWeCoWysl
Away from trade for a moment, and here is a handy round-up of predictions for the non-farm payroll numbers later:Away from trade for a moment, and here is a handy round-up of predictions for the non-farm payroll numbers later:
Primary Dealer #NFPguessesJPM 250KMerrill Lynch 220KUBS 217KRBC 215KGoldman 205KJefferies 205KNomura 205KBarclays 200KCiti 200KMorgan Stanley 200KScotia 200KTD 200KDaiwa 185KHSBC 185KSocGen 185KBMO 180KDeutsche 180KWells Fargo 180KCredit Suisse 170KBNP 165KPrimary Dealer #NFPguessesJPM 250KMerrill Lynch 220KUBS 217KRBC 215KGoldman 205KJefferies 205KNomura 205KBarclays 200KCiti 200KMorgan Stanley 200KScotia 200KTD 200KDaiwa 185KHSBC 185KSocGen 185KBMO 180KDeutsche 180KWells Fargo 180KCredit Suisse 170KBNP 165K
We expect to hear more details of the EU’s response to the US tariffs at lunchtime (1pm BST) when the bloc’s trade commissioner gives a press conference.We expect to hear more details of the EU’s response to the US tariffs at lunchtime (1pm BST) when the bloc’s trade commissioner gives a press conference.
With European markets moving higher, taking their cue from Italy not tariffs, Wall Street is also expected to open in positive territory, with IG indicated a 90 point or so rise on the Dow Jones Industrial Average. Connor Campbell, financial analyst at Spreadex, said:With European markets moving higher, taking their cue from Italy not tariffs, Wall Street is also expected to open in positive territory, with IG indicated a 90 point or so rise on the Dow Jones Industrial Average. Connor Campbell, financial analyst at Spreadex, said:
Setting aside the trade war tensions between the US and EU, for now anyway, the European indices got off to a strong start on Friday as the Italian political crisis appeared to come to an end.Setting aside the trade war tensions between the US and EU, for now anyway, the European indices got off to a strong start on Friday as the Italian political crisis appeared to come to an end.
Though not exactly the ideal government in the eyes of the markets, with a combination of ministers from the anti-establishment Five State Movement and the right-wing League, the formation of any Italian government is something to celebrate given how pronounced fears were that the situation would result in a Eurosceptic snap election...Though not exactly the ideal government in the eyes of the markets, with a combination of ministers from the anti-establishment Five State Movement and the right-wing League, the formation of any Italian government is something to celebrate given how pronounced fears were that the situation would result in a Eurosceptic snap election...
The euro wasn’t quite as enthused, its joy tempered by the brewing transatlantic trade issues, the nature of the Italian government and the fact today could see Spanish PM Mariano Rajoy receive a vote of no confidence. This meant the single currency only managed a 0.1% rise against both the dollar and the euro, crossing $1.17 against the former and £0.88 against the latter.The euro wasn’t quite as enthused, its joy tempered by the brewing transatlantic trade issues, the nature of the Italian government and the fact today could see Spanish PM Mariano Rajoy receive a vote of no confidence. This meant the single currency only managed a 0.1% rise against both the dollar and the euro, crossing $1.17 against the former and £0.88 against the latter.
Legal proceedings against the US measures are due to be triggered at the World Trade Organisation today.Legal proceedings against the US measures are due to be triggered at the World Trade Organisation today.
The EU wants the US actions declared illegal, but under WTO rules it will have to wait until mid-June to implement any balancing - i.e. retaliatory - measures. The US tariffs, of course, came into effect at midnight on Thursday.The EU wants the US actions declared illegal, but under WTO rules it will have to wait until mid-June to implement any balancing - i.e. retaliatory - measures. The US tariffs, of course, came into effect at midnight on Thursday.
A new reaction from China to the US tariffs, courtesy Reuters:A new reaction from China to the US tariffs, courtesy Reuters:
China’s foreign ministry said on Friday all countries should protect the normal trade order, when asked about United States’ decision to impose tariffs on steel and aluminum exports from the European Union, Canada and Mexico.China’s foreign ministry said on Friday all countries should protect the normal trade order, when asked about United States’ decision to impose tariffs on steel and aluminum exports from the European Union, Canada and Mexico.
Ministry spokeswoman Hua Chunying made the comments at a regular briefing in Beijing.Ministry spokeswoman Hua Chunying made the comments at a regular briefing in Beijing.
On Tuesday the White House imposed 25% tariffs on $50bn of Chinese goods with “industrially significant technology.”On Tuesday the White House imposed 25% tariffs on $50bn of Chinese goods with “industrially significant technology.”
The threat of a trade war does not seem to have spooked European investors too much, so far at least.The threat of a trade war does not seem to have spooked European investors too much, so far at least.
The FTSE 100 has climbed 0.6%, while Germany’s Dax is up a similar amount. News of the new government in Italy has helped the FTSE MIB gain 2.14% while Spain’s Ibex has added 1% despite the prospect of prime minister Rajoy being ousted.The FTSE 100 has climbed 0.6%, while Germany’s Dax is up a similar amount. News of the new government in Italy has helped the FTSE MIB gain 2.14% while Spain’s Ibex has added 1% despite the prospect of prime minister Rajoy being ousted.
The EU, Canada and Mexico have said they will take the trade dispute to the World Trade Organisation.The EU, Canada and Mexico have said they will take the trade dispute to the World Trade Organisation.
Europe has a list of products which will be subject to retaliatory measures, including peanut butter, Levi’s jeans, Harley-Davidson motor bikes and bourbon whiskey.Europe has a list of products which will be subject to retaliatory measures, including peanut butter, Levi’s jeans, Harley-Davidson motor bikes and bourbon whiskey.
Canada plans tariffs on £9.6bn worth of goods, from steel to orange juice. Mexico plans to target a range of products including lamps, sausages, cranberries and cheese.Canada plans tariffs on £9.6bn worth of goods, from steel to orange juice. Mexico plans to target a range of products including lamps, sausages, cranberries and cheese.
Former White House Press Secretary Anthony Scaramucci said there was still room for negotiation. He said President Trump’s action was a measure to correct the uneven and unbalanced trade system. He told Radio 4:Former White House Press Secretary Anthony Scaramucci said there was still room for negotiation. He said President Trump’s action was a measure to correct the uneven and unbalanced trade system. He told Radio 4:
If you need to put up protective tariffs to protect your farming industry or parts of your industrial base, the United States is just basically saying ‘okay that’s not fair to us because we’re accepting your goods and services into our country’.If you need to put up protective tariffs to protect your farming industry or parts of your industrial base, the United States is just basically saying ‘okay that’s not fair to us because we’re accepting your goods and services into our country’.
You’ve got to give us an opportunity to compete in your country.You’ve got to give us an opportunity to compete in your country.
I am sure that there are chips on both sides that can get traded to make the problem go away.I am sure that there are chips on both sides that can get traded to make the problem go away.
There’s always room in a negotiation with him, but he’s also the type of person that will walk from a negotiation.There’s always room in a negotiation with him, but he’s also the type of person that will walk from a negotiation.
Back with the US move on steel and aluminium, and Gareth Stace, from trade body UK Steel, told BBC Radio Five Live that the US tariffs were “illegal and protectionist.” He added:Back with the US move on steel and aluminium, and Gareth Stace, from trade body UK Steel, told BBC Radio Five Live that the US tariffs were “illegal and protectionist.” He added:
This unilateral decision beggars belief. It is the last thing we need given that we are coming out of the worst steel crisis in a generation.This unilateral decision beggars belief. It is the last thing we need given that we are coming out of the worst steel crisis in a generation.
He said the claims that the tariffs were being imposed for national security reasons was a smokescreen, given only 3% of steel in the US is used for defence products. And he warned that UK manufacturers exporting to the US not only faced a direct hit, but also there would be a glut of steel which would otherwise have gone to the US flooding the European market. He said:He said the claims that the tariffs were being imposed for national security reasons was a smokescreen, given only 3% of steel in the US is used for defence products. And he warned that UK manufacturers exporting to the US not only faced a direct hit, but also there would be a glut of steel which would otherwise have gone to the US flooding the European market. He said:
Twenty to twenty five million tonnes could flood our market.Twenty to twenty five million tonnes could flood our market.
Deutsche Bank, which on Thursday reportedly saw its US business put on a Federal list of problem banks, has now had its credit rating cut by S&P. The agency said:Deutsche Bank, which on Thursday reportedly saw its US business put on a Federal list of problem banks, has now had its credit rating cut by S&P. The agency said:
S&P Global Ratings today lowered its long-term issuer credit ratings on Deutsche Bank AG and its core subsidiaries to ‘BBB+’ from ‘A-’. The outlook is stable. We removed the ratings from CreditWatch negative. ..S&P Global Ratings today lowered its long-term issuer credit ratings on Deutsche Bank AG and its core subsidiaries to ‘BBB+’ from ‘A-’. The outlook is stable. We removed the ratings from CreditWatch negative. ..
The lowering of our long-term issuer credit rating reflects that Deutsche Bank’s updated strategy envisages a deeper restructuring of the business model than we previously expected, with associated non-negligible execution risks.The lowering of our long-term issuer credit rating reflects that Deutsche Bank’s updated strategy envisages a deeper restructuring of the business model than we previously expected, with associated non-negligible execution risks.
While we consider management is taking tough, although likely inevitable, actions and proposes a logical strategy to successfully restore the bank to more solid, sustainable profitability over the medium to long term, the bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring.While we consider management is taking tough, although likely inevitable, actions and proposes a logical strategy to successfully restore the bank to more solid, sustainable profitability over the medium to long term, the bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring.
Over the coming 18 months, we will look in particular for robust delivery against 2019 objectives, such as the €22 billion cost target, and evidence that the bank retains the solid support of its clients, something that would help underpin the revenue base in the CIB division amid a period of downsizing. While we regard capital markets earnings as inherently more volatile than retail and commercial banking, we consider a well-balanced blend of profitable businesses to be supportive of the bank’s creditworthiness. Therefore the bank’s ability to preserve its global capital markets franchise, focused in particular on Europe, underpins our stable outlook.Over the coming 18 months, we will look in particular for robust delivery against 2019 objectives, such as the €22 billion cost target, and evidence that the bank retains the solid support of its clients, something that would help underpin the revenue base in the CIB division amid a period of downsizing. While we regard capital markets earnings as inherently more volatile than retail and commercial banking, we consider a well-balanced blend of profitable businesses to be supportive of the bank’s creditworthiness. Therefore the bank’s ability to preserve its global capital markets franchise, focused in particular on Europe, underpins our stable outlook.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Normally on a day like today, markets would be focused on the US jobs figures due later and the manufacturing surveys which will give the first snapshots of how the global economy performed last month.Normally on a day like today, markets would be focused on the US jobs figures due later and the manufacturing surveys which will give the first snapshots of how the global economy performed last month.
But there are a few other distractions for investors to worry about, notably the prospect of a global trade war now that the US has confirmed it will slap steel and aluminium tariffs on the EU, Canada and Mexico. Traders are now waiting to see how the move, and the threatened retaliation will play out.But there are a few other distractions for investors to worry about, notably the prospect of a global trade war now that the US has confirmed it will slap steel and aluminium tariffs on the EU, Canada and Mexico. Traders are now waiting to see how the move, and the threatened retaliation will play out.
Here is our latest story on the US action:Here is our latest story on the US action:
Wall Street fell by 1% and European markets ended lower but the general reaction was more restrained than might have been expected (Germany’s Dax was one of the biggest losers but that has as much to do with fears about Deutsche Bank’s financial health as anything else.}Wall Street fell by 1% and European markets ended lower but the general reaction was more restrained than might have been expected (Germany’s Dax was one of the biggest losers but that has as much to do with fears about Deutsche Bank’s financial health as anything else.}
Asian market seem to have taken the news in their stride, given that the move was widely expected. The Nikkei 225 is down just 0.14% and the indications are that European markets will open mostly higher:Asian market seem to have taken the news in their stride, given that the move was widely expected. The Nikkei 225 is down just 0.14% and the indications are that European markets will open mostly higher:
European Opening Calls:#FTSE 7695 +0.21%#DAX 12654 -1.01%#CAC 5424 -0.07%#MIB 22100 +1.45%#IBEX 9534 -0.34%European Opening Calls:#FTSE 7695 +0.21%#DAX 12654 -1.01%#CAC 5424 -0.07%#MIB 22100 +1.45%#IBEX 9534 -0.34%
Jasper Lawler, head of research at London Capital Group, said:Jasper Lawler, head of research at London Capital Group, said:
The expected tit for tat response from the EU, Mexico and Canada is setting the scene for a trade war, which is not conducive to global growth. However, the losses have not been as large as we would have expected just a few months ago. The market is becoming more familiar with this administrations’ negotiating tactics and as a result, rather than seeing a move straight into risk off trading, we are seeing some investors take a wait and see approach. The traditional safe haven Japanese yen moved lower versus the dollar, as did gold and European bourses are pointing to a stronger start on the open.The expected tit for tat response from the EU, Mexico and Canada is setting the scene for a trade war, which is not conducive to global growth. However, the losses have not been as large as we would have expected just a few months ago. The market is becoming more familiar with this administrations’ negotiating tactics and as a result, rather than seeing a move straight into risk off trading, we are seeing some investors take a wait and see approach. The traditional safe haven Japanese yen moved lower versus the dollar, as did gold and European bourses are pointing to a stronger start on the open.
There are other things on the agenda too.There are other things on the agenda too.
Markets slumped earlier in the week on fears of a new Italian election, but those fears have now been eased with the formation of a populist government.Markets slumped earlier in the week on fears of a new Italian election, but those fears have now been eased with the formation of a populist government.
Indeed, as far as Europe goes, Spain has taken over the mantle of immediate problem child. Prime minister Mariano Rajoy is facing a vote of no confidence and according to the latest reports, he may well lose.Indeed, as far as Europe goes, Spain has taken over the mantle of immediate problem child. Prime minister Mariano Rajoy is facing a vote of no confidence and according to the latest reports, he may well lose.
As far as the manufacturing surveys are concerned, there could be some signs of a slight rebound from April. Michael Hewson at CMC Markets said:As far as the manufacturing surveys are concerned, there could be some signs of a slight rebound from April. Michael Hewson at CMC Markets said:
After a strong year of economic activity in 2017 the manufacturing sector got off to a slightly softer start at the beginning of this year, across the board. In some of the recent April data there is evidence that this softness has evened out a little and started to stabilise. In Europe activity was able to rebound a little in part, while in the US we also saw increasing evidence of rising prices with prices paid at 7-year highs. If this trend continues in today’s numbers then that should be supportive of a rebound in Q2. Expectations for Spain, Italy, France and Germany manufacturing are for 54, 53, 55.1 and 56.8.After a strong year of economic activity in 2017 the manufacturing sector got off to a slightly softer start at the beginning of this year, across the board. In some of the recent April data there is evidence that this softness has evened out a little and started to stabilise. In Europe activity was able to rebound a little in part, while in the US we also saw increasing evidence of rising prices with prices paid at 7-year highs. If this trend continues in today’s numbers then that should be supportive of a rebound in Q2. Expectations for Spain, Italy, France and Germany manufacturing are for 54, 53, 55.1 and 56.8.
In the UK we also saw a decent rebound after a soft March number, which may well have been weather related. Activity in May is expected to have steadied at around 53.5, a slight decline from the modest rebound seen in the April numbers with particular attention likely to be on cost price inflation which still looks fairly robust.In the UK we also saw a decent rebound after a soft March number, which may well have been weather related. Activity in May is expected to have steadied at around 53.5, a slight decline from the modest rebound seen in the April numbers with particular attention likely to be on cost price inflation which still looks fairly robust.
Finally the non-farm payrolls, where around 190,000 jobs are expected to have been created in May after a weak 164,000 figure in April. Wages are forecast to grow by around 2.8%, up from 2.6%.Finally the non-farm payrolls, where around 190,000 jobs are expected to have been created in May after a weak 164,000 figure in April. Wages are forecast to grow by around 2.8%, up from 2.6%.
Even if the numbers are disappointing, analysts believe this will not stop the Federal Reserve raising US interest rates in June.Even if the numbers are disappointing, analysts believe this will not stop the Federal Reserve raising US interest rates in June.
Agenda:Agenda:
9.00 BST Eurozone Markit manufacturing PMI9.00 BST Eurozone Markit manufacturing PMI
9.00 BST Italian GDP9.00 BST Italian GDP
9.30 BST UK Markit manufacturing PMI9.30 BST UK Markit manufacturing PMI
13.30 BST US non-farm payrolls13.30 BST US non-farm payrolls
14.45 BST US Markit manufacting PMI14.45 BST US Markit manufacting PMI