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Trade war worries hit markets; UK factory growth hits reverse - business live Trade war fears weigh on investors; UK factory growth hits reverse - business live
(32 minutes later)
Mexican-themed restaurant chain Chipotle has just undermined Donald Trump’s claim that his trade war won’t hurt consumers.
Mexican Grill Chipotle has sad that it could cover the cost of Trump’s proposed tariffs on Mexican imports by raising the cost of a burrito by around 5 cents.
The company also suggested (to Reuters) that a new 10% levy on goods from Mexico - such as avocados - could push up its costs by around $15m this year. That means Chipotle must choose between pushing up prices, or letting its profits suffer.
Chief financial officer Jack Hartung said a hit to earnings was one option, adding:
“We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito”.
A 5c price rise won’t make much impact on the cost of living (unless you’re really keen on burritos). But it does show how tariffs can drag on the economy.
Copper, another gauge of global growth prospects, has hit a five-month low today.
The price of a tonne of copper, traded in London, fell to $5,801 this morning, the lowest since early January.
Anxiety over the global economy are also driving investors into US government bonds.Anxiety over the global economy are also driving investors into US government bonds.
This is pushing the price of Treasury bonds up, and driving down the interest rate on the debt. The yield on 10-year T-bills has now fallen to 2.1%, from over 3% last November.This is pushing the price of Treasury bonds up, and driving down the interest rate on the debt. The yield on 10-year T-bills has now fallen to 2.1%, from over 3% last November.
That suggests investors are cutting their expectations for growth and inflation. Many now expect the US Federal Reserve to cut interest rates this year, rather than keep raising borrowing costs.That suggests investors are cutting their expectations for growth and inflation. Many now expect the US Federal Reserve to cut interest rates this year, rather than keep raising borrowing costs.
Never catch a falling knife? The #yield on 10-year US Treasuries is heading for 2% at warp speed! pic.twitter.com/CL8KEA0jBgNever catch a falling knife? The #yield on 10-year US Treasuries is heading for 2% at warp speed! pic.twitter.com/CL8KEA0jBg
Mexico’s Ebrard: Mexican Officials Will Meet With US Trade Rep Lighthizer This WeekMexico’s Ebrard: Mexican Officials Will Meet With US Trade Rep Lighthizer This Week
Mexican Foreign Minister Ebrard Says Mexican Officials Will Meet With U.S. Trade Representative Lighthizer And Acting U.S. Homeland Security Secretary Mcaleenan This WeekMexican Foreign Minister Ebrard Says Mexican Officials Will Meet With U.S. Trade Representative Lighthizer And Acting U.S. Homeland Security Secretary Mcaleenan This Week
Mexico is pushing back against Donald Trump’s threat to impose tariffs on its goods unless it reduces migration to the US.Mexico is pushing back against Donald Trump’s threat to impose tariffs on its goods unless it reduces migration to the US.
Marcelo Ebrard, Mexico’s foreign minister, is in Washington today. He’s told a news conference that such tariffs could be ‘counterproductive’.Marcelo Ebrard, Mexico’s foreign minister, is in Washington today. He’s told a news conference that such tariffs could be ‘counterproductive’.
Mexico’s US ambassador, Martha Bárcena Coqui, has also hammered home that message:Mexico’s US ambassador, Martha Bárcena Coqui, has also hammered home that message:
Mexico’s Ambassador to the US says slapping tariffs on the US could have counterproductive effect and will not stem flow of immigration. Mexico proposed to keep working with the US.Mexico’s Ambassador to the US says slapping tariffs on the US could have counterproductive effect and will not stem flow of immigration. Mexico proposed to keep working with the US.
Mexico's US ambassador says tariffs are counterproductive, would hurt Mexico's economy and reduce its ability to stem the flow of migrants. pic.twitter.com/Ah7ZWnCogRMexico's US ambassador says tariffs are counterproductive, would hurt Mexico's economy and reduce its ability to stem the flow of migrants. pic.twitter.com/Ah7ZWnCogR
Selling at the start of May would have been a good investment strategy this year....Selling at the start of May would have been a good investment strategy this year....
Welcome to June!May was a rough month:Nasdaq (-8.7%)S&P (-6.6%)DOW (-6.4%)$AAPL (-17%) ~ the worst Dow performer in May.$MYL (-40%) ~ the worst S&P performer in the S&P. pic.twitter.com/L3HFslJsRzWelcome to June!May was a rough month:Nasdaq (-8.7%)S&P (-6.6%)DOW (-6.4%)$AAPL (-17%) ~ the worst Dow performer in May.$MYL (-40%) ~ the worst S&P performer in the S&P. pic.twitter.com/L3HFslJsRz
European stock markets have recovered some of this morning’s losses, but are still in the red as lunchtime approaches.European stock markets have recovered some of this morning’s losses, but are still in the red as lunchtime approaches.
The prospect of Mexico, and even Australia, being dragged into the US-led trade war continues to worry investors.The prospect of Mexico, and even Australia, being dragged into the US-led trade war continues to worry investors.
China’s attack on Washington over the weekend (blaming US ‘intimidation and coertion’ for the breakdown in negotiations) is also a worry. Wall Street is expected to drop when trading begins in 90 minutes.China’s attack on Washington over the weekend (blaming US ‘intimidation and coertion’ for the breakdown in negotiations) is also a worry. Wall Street is expected to drop when trading begins in 90 minutes.
May was a grim month for the markets, and June isn’t starting much better.May was a grim month for the markets, and June isn’t starting much better.
Rupert Thompson, head of research at Kingswood, explains how the latest trade conflict has worried the markets:Rupert Thompson, head of research at Kingswood, explains how the latest trade conflict has worried the markets:
“Equity markets have retreated further and are now down some 6% in local currency terms from their late April high. In sterling terms, the decline has been cushioned somewhat by the weakness of the pound and is a more moderate 4%.“Equity markets have retreated further and are now down some 6% in local currency terms from their late April high. In sterling terms, the decline has been cushioned somewhat by the weakness of the pound and is a more moderate 4%.
The escalation in trade tensions continues to be the main factor driving equities lower. Indeed, there was talk of China restricting exports of rare earth minerals and soybeans in response to the recent moves by the US against Chinese telecom companies. In addition, Trump out of the blue announced he was imposing tariffs on all Mexican imports until Mexico ‘substantially stops the illegal flow of aliens’.The escalation in trade tensions continues to be the main factor driving equities lower. Indeed, there was talk of China restricting exports of rare earth minerals and soybeans in response to the recent moves by the US against Chinese telecom companies. In addition, Trump out of the blue announced he was imposing tariffs on all Mexican imports until Mexico ‘substantially stops the illegal flow of aliens’.
But Thompson also hopes that Donald Trump and Xi Jinping can end the dispute, before the global economy really suffers:But Thompson also hopes that Donald Trump and Xi Jinping can end the dispute, before the global economy really suffers:
“The best that can now realistically be hoped from the end-June G20 summit is that Presidents Trump and Xi agree to restart negotiations and postpone the tariff increases set to be implemented in July. Longer term, we still believe China and the US will reach some kind of agreement – not least because neither side will want to risk a recession.“The best that can now realistically be hoped from the end-June G20 summit is that Presidents Trump and Xi agree to restart negotiations and postpone the tariff increases set to be implemented in July. Longer term, we still believe China and the US will reach some kind of agreement – not least because neither side will want to risk a recession.
With the Presidential election next November, Trump will have every incentive to reach a deal rather than risk triggering a downturn in the economy.With the Presidential election next November, Trump will have every incentive to reach a deal rather than risk triggering a downturn in the economy.
Back in the markets, the gold price has hit a two-month high as nervous investors scamper for safe places to put their money.Back in the markets, the gold price has hit a two-month high as nervous investors scamper for safe places to put their money.
Spot gold has jumped 1% today, and just hit $1,317.6 a troy ounce. That’s its highest levels since late March.Spot gold has jumped 1% today, and just hit $1,317.6 a troy ounce. That’s its highest levels since late March.
Analysts are blaming the latest tensions in the trade war -- especially Donald Trump’s threat to impose tariffs on Mexican imports.Analysts are blaming the latest tensions in the trade war -- especially Donald Trump’s threat to impose tariffs on Mexican imports.
Analysts at OCBC Bank told clients:Analysts at OCBC Bank told clients:
The Mexican tariffs were probably the straw that broke the camel’s back.The Mexican tariffs were probably the straw that broke the camel’s back.
“Tariffs on Mexico also showed that no country is safe from the US weaponising trade to meet objectives of the Trump administration, stretching the possibility of the global economy losing growth steam.”“Tariffs on Mexico also showed that no country is safe from the US weaponising trade to meet objectives of the Trump administration, stretching the possibility of the global economy losing growth steam.”
China’s latest criticism of the US’s approach to the trade talks is also worrying the market, of course, driving people out of shares and into safer assets.China’s latest criticism of the US’s approach to the trade talks is also worrying the market, of course, driving people out of shares and into safer assets.
President Trump began his trip to London by settling down in front of the TV, before making the short trip by helicopter to Buckingham Palace.President Trump began his trip to London by settling down in front of the TV, before making the short trip by helicopter to Buckingham Palace.
Unfortunately, he wasn’t pleased to find himself watching CNN -- and has just bashed one of his least-favourite news channels:Unfortunately, he wasn’t pleased to find himself watching CNN -- and has just bashed one of his least-favourite news channels:
Just arrived in the United Kingdom. The only problem is that @CNN is the primary source of news available from the U.S. After watching it for a short while, I turned it off. All negative & so much Fake News, very bad for U.S. Big ratings drop. Why doesn’t owner @ATT do something?Just arrived in the United Kingdom. The only problem is that @CNN is the primary source of news available from the U.S. After watching it for a short while, I turned it off. All negative & so much Fake News, very bad for U.S. Big ratings drop. Why doesn’t owner @ATT do something?
I believe that if people stoped using or subscribing to @ATT, they would be forced to make big changes at @CNN, which is dying in the ratings anyway. It is so unfair with such bad, Fake News! Why wouldn’t they act. When the World watches @CNN, it gets a false picture of USA. Sad!I believe that if people stoped using or subscribing to @ATT, they would be forced to make big changes at @CNN, which is dying in the ratings anyway. It is so unfair with such bad, Fake News! Why wouldn’t they act. When the World watches @CNN, it gets a false picture of USA. Sad!
Donald Trump would rather have watched Fox News, I suspect. Unfortunately (for him), Fox pulled its UK feed in 2017, after communications regulator Ofcom criticised its coverage several times.Donald Trump would rather have watched Fox News, I suspect. Unfortunately (for him), Fox pulled its UK feed in 2017, after communications regulator Ofcom criticised its coverage several times.
Back in November 2017, Ofcom ruled that the Fox News programmes Hannity and Tucker Carlson Tonight breached impartiality rules covering British broadcasting. This related to its coverage of the Manchester Arena bombing, and Trump’s executive order that restricted travel to the US from seven majority-Muslim countries.Back in November 2017, Ofcom ruled that the Fox News programmes Hannity and Tucker Carlson Tonight breached impartiality rules covering British broadcasting. This related to its coverage of the Manchester Arena bombing, and Trump’s executive order that restricted travel to the US from seven majority-Muslim countries.
Fox News shows broke UK TV impartiality rules, Ofcom findsFox News shows broke UK TV impartiality rules, Ofcom finds
UK politicians are distracted by Donald Trump’s state visit, but they really should take a closer look at the downturn in UK manufacturing last month.UK politicians are distracted by Donald Trump’s state visit, but they really should take a closer look at the downturn in UK manufacturing last month.
Our economics editor Larry Elliott says:Our economics editor Larry Elliott says:
The government has been sent a warning signal that Brexit uncertainty is pushing Britain’s manufacturing sector into recession as the latest industry health check showed the weakest performance since the aftermath of the EU referendum three years ago.The government has been sent a warning signal that Brexit uncertainty is pushing Britain’s manufacturing sector into recession as the latest industry health check showed the weakest performance since the aftermath of the EU referendum three years ago.
Order books shrank rapidly after a period when businesses had been stockpiling goods in the run-up to the original Brexit deadline at the end of March, according to the regular monthly survey conducted for the Chartered Institute of Procurement & Supply by the research group IHS Markit.Order books shrank rapidly after a period when businesses had been stockpiling goods in the run-up to the original Brexit deadline at the end of March, according to the regular monthly survey conducted for the Chartered Institute of Procurement & Supply by the research group IHS Markit.
The purchasing managers’ index – a closely watched guide to the strength of the manufacturing sector – fell from 53.1 points in April to 49.4 in May. A finding below 50 indicates contraction.The purchasing managers’ index – a closely watched guide to the strength of the manufacturing sector – fell from 53.1 points in April to 49.4 in May. A finding below 50 indicates contraction.
With the deepening global trade war adding to industry’s woes, Cips/Markit said it was one of the sharpest declines in the index in six and a half years.With the deepening global trade war adding to industry’s woes, Cips/Markit said it was one of the sharpest declines in the index in six and a half years.
More here:More here:
UK factory output shrinks on back of Brexit uncertaintyUK factory output shrinks on back of Brexit uncertainty
Just in: Donald Trump has just accused China of subsidising its industries to help them cope with the trade war.
The US president, at the start of his state visit to the UK, tweeted:
China is subsidizing its product in order that it can continue to be sold in the USA. Many firms are leaving China for other countries, including the United States, in order to avoid paying the Tariffs. No visible increase in costs or inflation, but U.S. is taking Billions!
Unfortunately, most of those “billions” are coming from American firms, not Chinese ones, as they’ve been picking up the tab.
Late last month, the International Monetary Fund showed that the tariff revenue collected has been borne almost entirely by US importers. IMF researchers found that US and Chinese consumers are “unequivocally the losers from trade tensions”.
They explained:
Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins.
Brexit stockpiling helped the UK economy to grow by a meaty 0.5% in the first three months of 2019. Today’s weak PMI report suggests growth may be rather slower in the current quarter, points out Markit’s Chris Williamson:
UK factories struggle as Brexit stock build impact unwinds: IHS Markit/CIPS manufacturing #PMI fell from 53.1 in April to 49.4 in May, below the 50.0 ‘no change’ level for the first time since July 2016. Q1 boost to economy will reverse/fade in Q2 https://t.co/YVp5iDGwcM 1/3 pic.twitter.com/tVOxXFwU9j
We’ll have a clearer picture by Wednesday, when the Service Sector PMI is released (we also get the UK construction PMI tomorrow).
Lee Collinson of Barclays Corporate Banking says UK factories have fallen into a dip as Brexit stockpiling unwinds:
Manufacturers have been warning for some time that they are trying to navigate a number of headwinds, and the hard to predict Brexit negotiations have certainly made investment decisions more difficult, with falling car production indicative of the issues being faced.
It’s not all about Brexit though, with weaker global demand already taking a bite out of exports.
KPMG’s Stephen Cooper agrees that Brexit isn’t the only reason the UK manufacturing PMI has tumbled:
“Any potential benefits from the auto shutdowns [in April] have been outweighed with falling orders, high inventory levels - from previous stockpiling - and worryingly, a reported shift with some EU customers moving their supply chains away from the UK amidst continued Brexit uncertainty.
The global backdrop is also one of uncertainty - with trade wars, geopolitical events, automotive developments and Brexit – all of these factors are weighing on manufacturing in Europe and Asia and they are reflected in May’s readings.
Here’s Howard Archer, economist at EY Item Club, on this morning’s worrying fall in UK factory growth:
On the export front, manufacturers are hampered by recently slower global growth. Global trade conflicts and tensions are also a concern for UK manufacturing exporters. On the positive side, the weakness in the pound may provide some help to UK manufacturing exporters.
UK manufactures could be hurt by EU companies switching supply chains away from the UK. This may be countered though by UK companies switching their supply chains from the EU to the UK
If the UK does ultimately leave the EU with a “deal” at the end of October manufacturers will clearly hope that this reduces uncertainty, boosts confidence and lifts business demand for capital goods as well as consumer demand for big-ticket manufactured goods.
There is one glimmer of good news amid the gloom -- half of the factory bosses interviewed by Markit expect output to be higher in a year.
Duncan Johnston, UK manufacturing industry leader at Deloitte, says:
“This month’s disappointing PMI figure of 49.4 is undoubtedly a combination of ongoing Brexit uncertainty and underlying macro and global trade factors. However, it is hard to unpick what has had the larger impact.
This backdrop of uncertainty is expected to continue for some months, but there is cause for optimism. Purchasing managers remain positive, with almost half expecting output to be higher in a year’s time and only 10% expecting it to be lower.”
Make UK, which represents British manufacturers, says customers are taking their business elsewhere, driven away by Brexit worries.
Seamus Nevin, their chief economist, says this helped to pull manufacturing output down last month.
“The extent to which stockpiling was artificially boosting output earlier in the year is now clear with the PMI plunging into negative territory for the first time since the Referendum. Manufacturers are reporting export demand is weakening as customers look to buy goods from other countries which they once bought from the UK.
This is not only the case with European customers but also from countries in Asia with which UK manufacturers trade under the terms of EU free trade deals.
Nevin also points out that Europe’s factories are also slowing (see 9.32am for details), hit by the global slowdown.
“The weakness in manufacturing output in the UK is also clearly linked to what is happening in our main trading market, the EU. Eurozone PMI remained in negative territory for the fourth consecutive month with both Germany and Italy struggling as the global economic slowdown gathers pace.
“This is not a good time for our economy to be preparing to go it alone. Once again the data is showing a consistently downward trend and, in this context, continued political uncertainty at home can only make an already difficult situation worse.”
Britain’s factories could be heading into a recession now that they’re no longer scrambling to protect themselves from a cliff-edge no-deal Brexit.
Capital Economics fear that the stockpiling boost that supported manufacturing earlier this year has now faded.
The sharper-than-expected drop in the #manufacturing #PMI from 53.1 to 49.4 (consensus 52.0, CE 51.0) means that the index is now at its lowest level since July 2016 and suggests the sector will slip back into contraction as the boost from no deal preparations unwind. pic.twitter.com/zO0l9jCPNl
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, is also concerned that Britain’s factories contracted last month:
With one of the fastest shrinking rates seen in six and a half years and the biggest drop since July 2016, straight after the referendum result, based on this result, there is the likelihood of more bad news to come.
“Supply chain managers voiced their deep anxieties over Brexit’s continuing impacts as some supply chains were re-directed away from the UK resulting in a drop in total new orders for the first time since October.
Clients from Europe and Asia were particularly reluctant to commit to new business across all sectors but the intermediate sector suffered the worst fall in seven years as the pipeline of work dried up. It has now become obvious that the stockpiling activities of the last few months were propping up the sector’s performance.
The UK factory sector was buffeted by ongoing Brexit uncertainty again in May, says Rob Dobson, dragging the PMI to a near three-year low.
He also fears that British manufacturing could continue to shrink in the comping months.
The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production.
“New order inflows declined from both domestic and overseas markets, as already high stock levels at manufacturers and their clients led to difficulties in sustaining output levels and getting agreement on new contracts.
Demand was also impacted by ongoing global trade tensions, as well as by companies starting to unwind inventories built up in advance of the original Brexit date.
Newsflash: Britain’s factory sector has suffered its worst contraction since the EU referendum almost three years ago.
Data firm Markit reports that new orders and employment both declined last month, hit by Brexit uncertainty and the knock-on impact of the US-China trade war.
Firms also reported that they have slowed their recent flurry of stock-piling, following the latest Brexit extension to the end of October.
Markit says:
New order inflows deteriorated from both domestic and overseas sources. New export business fell for the second month running and at the quickest pace in over four-and-a- half years. Manufacturers reported lower demand from Asia and Europe.
There was also mention of Brexit uncertainty, including clients diverting supply chains away from the UK, leading to lower demand from within the EU.
This pulled Markit’s UK manufacturing PMI down to 49.4 -- the lowest reading since July 2016, when factories were reeling from the Brexit vote.
That’s worse than the City forecast (of 52), and shows that the sector contracted in May.
That suggests that Britain’s manufacturing sector has weakened, which is a worrying sign for the wider economy.
Reaction to follow!