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| Markets shrug off trade war fears and Spanish vote ahead of US jobs data - business live | Markets shrug off trade war fears and Spanish vote ahead of US jobs data - business live |
| (35 minutes later) | |
| Markets so far continue to be fairly relaxed about the prospect of a global trade war, and the ousting of Mariano Rajoy as Spanish prime minister. The resolution of the turmoil in Italian politics certainly seems to be helping sentiment, with Italy’s FTSE MIB now up 2.5%. | |
| Elsewhere Spain’s Ibex is up 1.77% following the vote against Rajoy, Germany’s Dax has risen 0.9% and France’s Cac has climbed 1.24%. In the UK, the FTSE 100 is 0.65% better. On Wall Street, the Dow Jones Industrial Average is forecast to open nearly 120 points higher. Craig Erlam, senior market analyst at Oanda said: | |
| The imposition of steel and aluminium tariffs by the US on Europe, Canada and Mexico has drawn plenty of criticism from officials but maybe in a sign of how markets can become less sensitive to certain issues, the response has so far been fairly muted. Focus will now be on the retaliatory measures that these countries have lined up and whether that in turn triggers a larger and quite unnecessary trade war. Investors currently appear at ease with the situation but that could quickly change. | |
| And a handy guide to the potential global trade war from ING Bank: | And a handy guide to the potential global trade war from ING Bank: |
| We're at red alert now as Mexico, Canada hit back against US steel and aluminium tariffs! Global trade war threat moves to DEFCON 4. pic.twitter.com/17igIUUVAY | We're at red alert now as Mexico, Canada hit back against US steel and aluminium tariffs! Global trade war threat moves to DEFCON 4. pic.twitter.com/17igIUUVAY |
| Here’s a US Federal Reserve member on the trade tariffs: | Here’s a US Federal Reserve member on the trade tariffs: |
| Trade talks are increasing uncertainty in the economy, says the Fed's James Bullard https://t.co/D66FcM3RUN pic.twitter.com/wF1qhTzpSc | Trade talks are increasing uncertainty in the economy, says the Fed's James Bullard https://t.co/D66FcM3RUN pic.twitter.com/wF1qhTzpSc |
| The voting in Spain by the way showed 180 in favour of ousting prime minister Rajoy, 169 against, and one abstention. | The voting in Spain by the way showed 180 in favour of ousting prime minister Rajoy, 169 against, and one abstention. |
| The Spanish vote has had less impact than the turmoil in Italy, says Seema Shah, global investment strategist at Principal Global Investors: | The Spanish vote has had less impact than the turmoil in Italy, says Seema Shah, global investment strategist at Principal Global Investors: |
| Much of the market panic around Italy was about the threat to its membership of the Euro area but, by contrast, all of the main Spanish political parties are supportive of the single currency. Presuming Sanchez does not try to hang on to power, Spain is likely to see new elections later this year and a market-friendly, pro-European government should materialise from there. In the meantime, given that the support of Basque nationalist MPs required a promise to not change the budget, Sanchez is unlikely to make sweeping changes to the budget. | Much of the market panic around Italy was about the threat to its membership of the Euro area but, by contrast, all of the main Spanish political parties are supportive of the single currency. Presuming Sanchez does not try to hang on to power, Spain is likely to see new elections later this year and a market-friendly, pro-European government should materialise from there. In the meantime, given that the support of Basque nationalist MPs required a promise to not change the budget, Sanchez is unlikely to make sweeping changes to the budget. |
| Material economic progress has been made in recent years - Spain’s fiscal position has improved; unemployment has fallen; and the banking system has been strengthened - the latest political disruption does not upset the generally positive outlook for the Spanish economy. Of course, political uncertainty is never welcome, but it has been telling that Spanish bond yields have fallen again today. It seems that Italian politics are more important for Spanish markets than Spanish politics. | Material economic progress has been made in recent years - Spain’s fiscal position has improved; unemployment has fallen; and the banking system has been strengthened - the latest political disruption does not upset the generally positive outlook for the Spanish economy. Of course, political uncertainty is never welcome, but it has been telling that Spanish bond yields have fallen again today. It seems that Italian politics are more important for Spanish markets than Spanish politics. |
| Here is Sanchez receiving the applause after becoming prime minister elect: | Here is Sanchez receiving the applause after becoming prime minister elect: |
| Its done. PM Rajoy ousted. Pedro Sanchez becomes PM-elect as Spain turns left. | Its done. PM Rajoy ousted. Pedro Sanchez becomes PM-elect as Spain turns left. |
| The confidence vote is underway in Spain and here’s a link: | The confidence vote is underway in Spain and here’s a link: |
| WATCH: Confidence Vote Underway In Spanish Parliament https://t.co/WWITKcZgC8 | WATCH: Confidence Vote Underway In Spanish Parliament https://t.co/WWITKcZgC8 |
| Here’s a quick summary of some of the day’s PMIs: | Here’s a quick summary of some of the day’s PMIs: |
| Final IHS Markit #Eurozone Manufacturing #PMI at a 15-month low of 55.5 in May, down from 56.2 in Apr and unchanged from the earlier flash estimate https://t.co/rrKsNJTIIE pic.twitter.com/eapFs82qPr | Final IHS Markit #Eurozone Manufacturing #PMI at a 15-month low of 55.5 in May, down from 56.2 in Apr and unchanged from the earlier flash estimate https://t.co/rrKsNJTIIE pic.twitter.com/eapFs82qPr |
| Back with UK manufacturing, and despite the unconvincing outlook, ING Bank economist James Smith believes the Bank of England is still inclined to raise interest rates this summer: | Back with UK manufacturing, and despite the unconvincing outlook, ING Bank economist James Smith believes the Bank of England is still inclined to raise interest rates this summer: |
| At 54.4, the latest UK manufacturing PMI is a little better than hoped but is still a far cry from the levels seen towards the end of last year. | At 54.4, the latest UK manufacturing PMI is a little better than hoped but is still a far cry from the levels seen towards the end of last year. |
| Whilst Markit/CIPS noted the weakness partly reflected a slower pace of domestic orders, we also wonder whether the steadier global growth over the past few months is starting to weigh. We suspect it is too early to see any tariff impact in these figures, but the slowdown in the Eurozone that we saw through the first quarter may be playing a role. The gradual strengthening in the trade-weighted pound since last summer could also be beginning to hit demand at the margin. | Whilst Markit/CIPS noted the weakness partly reflected a slower pace of domestic orders, we also wonder whether the steadier global growth over the past few months is starting to weigh. We suspect it is too early to see any tariff impact in these figures, but the slowdown in the Eurozone that we saw through the first quarter may be playing a role. The gradual strengthening in the trade-weighted pound since last summer could also be beginning to hit demand at the margin. |
| Of course, the UK’s manufacturing sector only makes up around 10% of the economy, so we suspect the Bank of England will be paying closer attention to next week’s services index as it tries to gauge whether growth is rebounding after the weaker first quarter. | Of course, the UK’s manufacturing sector only makes up around 10% of the economy, so we suspect the Bank of England will be paying closer attention to next week’s services index as it tries to gauge whether growth is rebounding after the weaker first quarter. |
| After a couple of months of dismal weather, May finally saw the sun come out and this should have given the struggling high street a much needed boost. That said...we think consumer-facing sectors are not out of the woods just yet. Households remain cautious in the face of rising petrol prices, stagnant real wages, as well as economic uncertainty more generally. | After a couple of months of dismal weather, May finally saw the sun come out and this should have given the struggling high street a much needed boost. That said...we think consumer-facing sectors are not out of the woods just yet. Households remain cautious in the face of rising petrol prices, stagnant real wages, as well as economic uncertainty more generally. |
| For that reason, a rate hike over the summer is still far from guaranteed. However our feeling from recent Bank of England commentary is that the committee has a preference to hike rates sooner rather than later if the data allows, in part to combat the risk of rising wage growth and underlying inflation. | For that reason, a rate hike over the summer is still far from guaranteed. However our feeling from recent Bank of England commentary is that the committee has a preference to hike rates sooner rather than later if the data allows, in part to combat the risk of rising wage growth and underlying inflation. |
| Earlier we also had the German manufacturing PMI: | Earlier we also had the German manufacturing PMI: |
| #Germany Manufacturing #PMI hits 15-month low in May. Output, new orders, exports and employment all rise at slower rates, while optimism sinks to lowest since October 2015 https://t.co/an84Idgslh pic.twitter.com/IzFSbsJwXj | #Germany Manufacturing #PMI hits 15-month low in May. Output, new orders, exports and employment all rise at slower rates, while optimism sinks to lowest since October 2015 https://t.co/an84Idgslh pic.twitter.com/IzFSbsJwXj |
| The Spanish confidence vote is due in around 15 minutes (10am BST), and it seems Mariano Rajoy is resigned to leaving, with socialist Pedro Sanchez set to take over as prime minister. | The Spanish confidence vote is due in around 15 minutes (10am BST), and it seems Mariano Rajoy is resigned to leaving, with socialist Pedro Sanchez set to take over as prime minister. |
| British factory growth was stronger than expected in May, according to a survey of the sector, but the increase masks its underlying weakness. | British factory growth was stronger than expected in May, according to a survey of the sector, but the increase masks its underlying weakness. |
| The Markit/CIPS manufacturing PMI came in at 54.4, up from 53.9 in April and above expectations of a figure of 53.5. | The Markit/CIPS manufacturing PMI came in at 54.4, up from 53.9 in April and above expectations of a figure of 53.5. |
| Markit: - UK Manufacturing PMI rises slightly to 54.4 in May- Output growth ticks higher despite slower expansion of new work received- Supply-chain constraints and cost pressures intensify | Markit: - UK Manufacturing PMI rises slightly to 54.4 in May- Output growth ticks higher despite slower expansion of new work received- Supply-chain constraints and cost pressures intensify |
| Markit director Rob Dobson said: | Markit director Rob Dobson said: |
| At first glance the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive. | At first glance the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive. |
| However scratch beneath the surface and the rebound in PMI from April’s 17 month low is far from convincing. | However scratch beneath the surface and the rebound in PMI from April’s 17 month low is far from convincing. |
| Raw material prices rose more sharply in May, but manufacturers were less able to pass on these increases and also faces supply issues. Dobson said: | Raw material prices rose more sharply in May, but manufacturers were less able to pass on these increases and also faces supply issues. Dobson said: |
| These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector. | These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector. |
| Muted rebound: UK #manufacturing #PMI up from 53.9 in April to 54.4 in May, but at 54.2 the average PMI so far in Q2 is down from 54.9 in Q1 & puts sector on course for its weakest quarterly performance since end of 2016. New orders saw weakest rise since June of last year #BoE pic.twitter.com/m57IY5pd0M | Muted rebound: UK #manufacturing #PMI up from 53.9 in April to 54.4 in May, but at 54.2 the average PMI so far in Q2 is down from 54.9 in Q1 & puts sector on course for its weakest quarterly performance since end of 2016. New orders saw weakest rise since June of last year #BoE pic.twitter.com/m57IY5pd0M |
| 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: | 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. | 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. | 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: | 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 | 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: | 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)... | 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. | 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. | 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. | 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%. | 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: | 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 | 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. | 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. | 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: | 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. | 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. | 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. | 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 | 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 165K | 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 165K |