Closing summary
The day has been dominated by a raft of manufacturing PMI reports for August, providing a snapshot of the global economy.
- The biggest surprise came from the UK, where an unexpected and sharp rebound in the headline index suggested the shock of the Brexit vote had faded.
- The eurozone PMI index fell to the lowest level in three months, giving Mario Draghi and his colleagues at the European Central Bank more to think about as they gather for their next policy meeting next week.
- Manufacturing growth slowed in the the US according to the PMI, but only slightly. Figures out just now however show a sharper drop on the ISM measure of manufacturing - to 49.4 in August from 52.6 in July.
- Weaker US manufacturing is likely to dampen expectations of a September US rate hike, but more importance will be placed by investors on Friday’s non-farm payrolls.
- The FTSE is still lagging other European markets, down 0.5% or 34 points.
That’s all for today. Thank you for all your comments today, please join us again tomorrow.
US manufacturing grows at slower pace in August
It’s America’s turn for the manufacturing PMI report...
The headline index dropped slightly to 52 in August from 52.9 in July, where anything above 50 signals growth.
Chris Williamson, chief economist at PMI provider Markit, says the slightly slower growth is no crisis:
Despite the PMI falling in August, the survey suggests the third quarter is shaping up to be the best quarter so far this year for manufacturing, with output growth picking up compared to the first half of the year on the back of improved export sales.
The overall rate of expansion remains only modest, however, and the upturn fragile. Weak domestic demand remains a drag on order books. Concerns about the outlook have also resulted in a marked reduction in the rate of job creation.
Manufacturing has been one of the weakest parts of the US economy in recent months, and Williamson says the latest PMI is supportive of the view that the Fed should hold rates for now:
The overall sluggish pace of expansion signalled by the survey, and the slacking of inflationary pressures, provides support to those arguing that interest rates should remain on hold.
Wall Street opens flat
US markets are subdued in early trading, opening roughly flat:
- Dow Jones: -0.05% at 18,393
- S&P 500: -0.02% at 2,171
- Nasdaq: +0.09% at 5,218
Just as last week investors awaited Janet Yellen’s Jackson Hole Speech, this week they await Friday’s non-farm payrolls for clues over the timing of the next US rate hike.
Economists polled by Reuters are expecting a 180,000 rise in August, following a 255,000 rise in July.
A number in line with or better than expectations will fuel speculation that the Fed will raise rates at this month’s meeting.
A disappointing number will prompt speculation that the Fed will be inclined to wait until December or later.
Children in UK workless households hits record low
The proportion of children living in workless households dropped in the second quarter of 2016 to 11% - the lowest level on record.
There were 1.4 million children living in workless households during the period, while 7 million were in working households and 3.9 million were in mixed households.
The report from the Office for National Statistics showed 57.4% of all UK households were working in the second quarter, up from 55.4% a year earlier and 49.3% in Q2 of 1996.
The disappearance of BHS from UK high streets continues:
Boards going up on BHS Oxford St.. Guess the sign is about to disappear.. pic.twitter.com/RnA3yW3U1U
— Sarah Butler (@whatbutlersaw) September 1, 2016
Neelie Kroes, the European commissioner for competition between 2004 and 2010, suggests her former colleagues have taken the wrong approach over Apple’s Irish tax affairs.
Writing for the Guardian, she says:
Rather than pursuing a handful of countries and companies for the past, we should focus on shaping a fair tax system for the future.
The controversy about state aid and tax rulings is not about whether companies pay their fair share, but where that share should be paid. That is an important question, but not one for state aid.
Read the full piece:
Wall Street is expected to open higher:
US Opening Calls:#DOW 18432 +0.19%#SPX 2174 +0.19%#NASDAQ 4785 +0.31%#IGOpeningCall
— IGSquawk (@IGSquawk) September 1, 2016
Donald Tusk: no informal Brexit talks with UK
Donald Tusk, president of the European Council, has set the tone for a meeting of EU leaders to discuss what Brexit means for the EU.
Theresa May is not invited to the meeting in Bratislava on 16 September, where leaders will be talking about her and not to her.
Tusk said on Thursday there would be no informal discussions with the UK over Brexit.
In a statement during a visit to Luxembourg, he said:
We need to discuss what Brexit means politically for the European Union. We need to talk about ourselves, the European Union, that sooner or later will be left by the UK.
It is not our intention to talk about the UK in Bratislava or our negotiation strategy vis-à-vis the UK.
Our position is crystal clear: there will be no negotiations without notification. This principle is enshrined in our treaties. And it is there for a reason: to protect the interests of the members of the Union that want to stay together, not the one which decides to leave. Therefore, we shall not give up on this principle.
Our principle of no notification, no negotiations is there to protect those who stay together, not the one leaving. We shall not give it up
— Donald Tusk (@eucopresident) September 1, 2016
US jobless claims rise
Over in the US, the number of people filing new claims for jobless benefits rose last week compared with a week earlier.
There were 263,000 new claims in the week ending 27 August, 2,000 fewer than economists were expecting, but 2,000 more than the previous week.
The four-week rolling average fell to 263,000 claims, from 264,000 according to the US Labor Department.
Updated
S&P: EU's Apple tax ruling has no direct impact on Ireland's rating
Ratings agency S&P says Ireland’s potential €13bn windfall from Apple following the EU’s controversial ruling does not alter its A+ stable rating.
At first glance, the tax ruling may appear favourable for the sovereign. However, while the sums involved are significant, they will not, in our view, fundamentally change Ireland’s credit metrics. There may also be downside risks should the ruling lead to weaker institutional effectiveness or compromise Ireland’s economic growth outlook.
Should the windfall be used entirely to reduce Ireland’s general government debt burden, public debt could fall to just over 80% of GDP next year. While not insignificant, it is dwarfed by the close to 40 percentage points of GDP reduction of the debt ratio from the 135% peak in 2012, brought about by Ireland’s robust economic expansion following the crisis and sizable asset sales.
Even if the tax funds were eventually received, they may not be fully dedicated to public debt reduction, further reducing the potential positive impact.
S&P goes on to highlight the potential negatives for Ireland, including divisions within the government over the issue:
The initial reaction has exposed hitherto invisible splits on the issue inside the ruling coalition, which could negatively affect the effectiveness, stability, and predictability of the sovereign’s policymaking and primary institutions, which we currently assess as a credit strength.
Foregoing such a significant financial windfall by appealing against it, the government’s credibility could suffer in the eyes of the electorate. An appeal could also lead to a more conflicted relationship with some of Ireland’s EU partners, some of which have eyed Ireland’s tax policies with suspicion in the past.
Finally, the EU tax ruling could come with economic risks. The fear is that the ruling undermines Ireland’s attractiveness as a business location for multinational corporations, hitherto a key factor in Ireland’s economic progress in recent decades.
Updated
The FTSE is just about holding on to positive territory, up five points or 0.1%.
Earlier gains from the miners have faded away, oil prices are dipping.
The UK’s leading index is lagging its counterparts in Europe, where investors are shrugging off a weaker eurozone manufacturing PMI.
- FTSE 100: +0.1% at 6,787
- Germany’s DAX: +0.5% at 10,641
- France’s CAC: +1% at 4,481
- Italy’s FTSE MIB: +1.7% at 17,222
- Spain’s IBEX: +1.7% at 8,866
- Greece’s ATG: +0.4% at 580
- Europe’s STOXX 600: +0.8% at 346
Martin Beck, senior economic advisor to the EY Item Club, says the August manufacturing PMI is the latest sign that sentiment quickly recovered after taking a bashing in July in the immediate aftermath of the Brexit vote.
The month-on-month change in the PMI was the joint largest in the survey’s history. It follows the pattern seen in a number of other indicators where a decline in sentiment in the immediate aftermath of the vote to leave the EU was followed by a recovery, as the dust settled.
But just as we cautioned against getting too carried away with the weak July reading, August’s rebound should not be taken as a sign that everything is fine. Taking the survey evidence in the round, there still remains a good chance that manufacturing output saw a contraction in Q3. Monday’s survey for the much larger services sector will provide a stronger steer.
More reaction now to the surge in UK manufacturing in August, following a sharp drop in July in the immediate aftermath of the Brexit vote.
The five-point jump in the headline PMI index to 53.3 took City economists and commentators by surprise.
Stephen Cooper, head of manufacturing at KPMG UK, says the number was “spectacular”:
The August UK PMI results are spectacular for UK manufacturing. Reports of postponed work and delayed projects being restarted, following the EU referendum, are amongst the reasons cited for the better than expected performance. The 10% fall in the value of sterling has had a marked impact on export orders too.
One swallow does not a summer make, and as autumn progresses, we will see if this is a blip, or whether it’s the start of a long-term trend.
Lee Hopley, chief economist at EEF, the manufacturers trade body, said companies had got their mojo back:
Manufacturers, unnerved in July by the referendum outcome, appear to have their mojo back in August.
Today’s data provides a lot of relief that manufacturing activity is still on the up.
But the heightened volatility in the indicator in the last couple of months still raises questions about whether sentiment has overshot somewhat and, rather than this pace of expansion being sustained, some moderation is likely in the coming months.
UK will continue to attract investment, chancellor says
Philip Hammond, the new(ish) chancellor, says Britain will remain an outward-looking country, attractive to foreign companies:
In a statement released to coincide with a visit to Jaguar Land Rover (owned by India’s Tata), he said:
As an outward-looking country, we will continue to attract companies to invest and grow in the UK, while supporting British businesses.
His boss Theresa May will attend the G20 summit in China later this week, where she is expected to tell world leaders Britain is “open for business” and keen to forge relationships with new markets.
Pound jumps on UK manufacturing rebound
Time to buy euros?
The pound has risen sharply following the surprisingly strong August manufacturing PMI.
It is up 0.9% against the euro and earlier hit a one-month high. The pound is also up 0.7% against the dollar at $1.3236.
Neil Wilson, market analyst at ETX Capital:
We’re seeing a strong bid for sterling after a stonking manufacturing PMI showed the UK’s factories sparked back into life in August following the July post-Brexit slowdown.
The pound is cranking higher on the results, with cable now trading around $1.3250, its best since the Bank of England cut interest rates a month ago.
The focus will now be on the key services sector PMI [on Monday]. The omens are good, with consumer spending very robust.
However, let’s remember that Brexit negotiations have not even begun yet so there is still plenty of time for things to turn south.
Weak pound boosts UK manufacturing exports in August
The five-point jump in the headline index of the August UK manufacturing PMI was a major rebound for the sector.
It was the joint biggest monthly surge in the survey’s near 25-year history, and will add weight to the view that the June Brexit vote has not (yet) plunged the UK economy into crisis.
Output, new orders, and employment all jumped in the sector in August. Firms taking part in the survey said stronger demand, new product launches, and customers committing to new and previously postponed contracts all boosted business.
Manufacturers said the drop in the pound since the Brexit vote had driven a rise in exports, with swelling sales to overseas markets such as the US, Europe, China, Southeast Asia, the Middle East and Norway.
A weak pound makes British goods cheaper abroad, which is a good for exporting businesses. But it also makes imports from other countries more expensive, and evidence of this could be seen in the August PMI.
Input prices - those paid by manufacturers for their raw materials - increased at the fastest rate in more than five years in August. About 44% of firms reported a rise in purchasing costs.
Factory gate inflation - the price charged by manufacturers as they leave the factory - also rose at the fastest pace for five years.
Rob Dobson, senior economist at IHS Markit, says the August report suggests the sector has swerved a (Brexit-induced) downturn:
The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum.
Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual.
Inflation is raising its ugly head, however. Rates of increase in input prices and output charges both hit five-year highs, which manufacturers placed squarely at the door of the cost impact of sterling on import prices.
It is too early to say whether the rebounds in growth and inflation will be sustained, but the upturn in August suggests that the weaker exchange rate and recent policy action have helped to avert a downturn.
Surprise surge in UK manufacturing in August
Big upside shock for UK manufacturing PMI in August.
The headline index jumped to 53.3 from 48.3 in July. Economists had expected the index to remain in contraction territory (below 50) at 49.
More soon.
Eurozone manufacturing PMI: growth could slow further
Looking at the detail of the eurozone manufacturing PMI survey, rates of growth slowed for production, new orders, and new export business, which in turn resulted in weaker job creation.
Chris Williamson, chief business economist at IHS Markit, said there were suggestions from the firms surveyed for the PMI that growth could slow further.
There is some suggestion of a Brexit impact, and growth may wane further in September after new orders growth slipped to a one-and-a-half year low. Anecdotal evidence suggests that the strengthening of the euro and reduced sales to the UK were partly to blame for the order book slowdown.
Employment growth also eased to a five-month low, indicating an increased hesitancy to hire amid the heightened political uncertainty.
Once again, it’s also a worryingly mixed picture across the region. Northern countries including Germany, the Netherlands and Austria are providing the main power to the expansion, but elsewhere the picture is looking more subdued. France and Italy are in decline, Greece is stagnating and both Spain and Ireland are enduring their worst growth spells since mid-2013.
Here is a country breakdown of the headline numbers for August. Anything above 50 signals growth, anything below 50 signals contraction:
- Germany: 53.6
- Netherlands: 53.5
- Austria: 52.1
- Ireland: 51.7
- Spain: 51
- Greece: 50.4
- Italy: 49.8
- France: 48.3
Breaking: eurozone manufacturing growth hits three-month low in August
Activity in the eurozone’s manufacturing sector grew at the slowest rate in three months in August according to the latest survey.
The headline index on the Markit PMI edged down to 51.7 in August from 52 in July. Anything above 50 signals expansion.
A breakdown of the surveys from the eurozone’s biggest economies showed a mixed picture.
In Germany, the sector grew in August at the same pace as July, as expected. It was the same story in Spain.
But Italy was a miss, with the manufacturing sector shrinking unexpectedly in August, and in France the sector contracted at a slightly quicker rate than July.
Oil prices rise 0.6%
The price of a barrel of Brent crude oil is up 0.6% this morning at $47.19.
The better-than-expected manufacturing data out of China has also pushed the prices of London zinc, lead and tin to the highest level in more than a year. China is the world’s biggest user of metals.
Miners on the FTSE 100 are reaping the rewards this morning:
European markets rise in early trading
Europe’s major markets are all up this morning, starting September off on a positive note.
The FTSE 100 is up 43 points or 0.6%, boosted by mining shares that have been a drag in recent days.
The miners are helped today by the better-than-expected Chinese manufacturing data, which is a positive for global demand and is pushing up commodity prices.
- FTSE 100: +0.6% at 6,823
- Germany’s DAX: +0.3% at 10,625
- France’s CAC: +0.6% at 4,464
- Italy’s FTSE MIB: +1% at 17,110
- Spain’s IBEX: +0.6% at 8,771
- Europe’s STOXX 600: +0.5% at 345
Surprise rise in activity in China's factories
Activity in China’s factories rose unexpectedly in August at the fastest pace in two years as construction boomed in a sign government spending is paying off.
The official purchasing managers’ index rose to 50.4 in August from 49.9 in July - crucially taking the index above the 50 mark which signals growth. Economists had expected the headline index to remain unchanged at 49.9.
The best manufacturing performance since late 2014 is likely to add to views that China’s central bank will be in no hurry to inject further stimulus into the world’s second largest economy.
Julian Evans-Pritchard, China economist at Capital Economics, said the survey would boost confidence:
This ought to boost sentiment and suggests that earlier policy easing is still being supportive of economic activity.
Today’s PMI readings paint a fairly reassuring picture about the current state of China’s economy and fit with our long-running view that earlier policy stimulus ought to be sufficient to shore up growth until the end of this year.
Also today: global healthcheck with manufacturing PMIs
The first of the PMI surveys for August will be published today, starting with manufacturing in the eurozone, UK and US.
The PMIs are business surveys rather than official data, but they are closely watched by central bankers, investors and economists, not least because they give the earliest indication of how an economy is performing. There is more of a lag with much of the official data.
As we begin a new month, attention is turning to potential action by the world’s central banks as they prepare for their next policy meetings.
In the UK and eurozone, the likelihood is for further stimulus, whereas in the US - where economic data and the outlook has been generally more robust - attention is focused on the timing of the next rate hike.
The PMI surveys will be scanned for any clues on whether policy action is more or less likely in the world’s major economies.
Weekly jobless claims will be published later in the US, ahead of the crucial non-farm payrolls report on Friday which is expected to give the clearest signal as to whether the US Fed will raise rates this month.
European markets are expected to open higher after most indices fell on Wednesday:
Our European opening calls:$FTSE 6805 up 24
— IGSquawk (@IGSquawk) September 1, 2016
$DAX 10619 up 27
$CAC 4453 up 15$IBEX 8741 up 24$MIB 16957 up 14
Apple's Tim Cook: EU tax row is 'political crap'
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Apple boss Tim Cook is still fuming over the EU’s ruling earlier in the week that the US tech giant must pay the Irish government up to €13bn plus interest in back taxes.
In a new interview with the Irish independent he condemns the move as “total political crap”, and repeats his vow to fight the EU.
Cook suggests Apple has been specifically targeted by commissioners in Europe and that Ireland - which does not want the company to repay the money and has also pledged to appeal the ruling - is being picked on.
I think we’ll work very closely together, as we have the same motivation. No one did anything wrong here and we need to stand together. Ireland is being picked on and this is unacceptable.
He rejects the claim by European competition Commissioner Margrethe Vestager that Apple paid just 0.005pc tax in Ireland in 2014:
It’s total political crap. They just picked a number from I don’t know where. In the year that the Commission says we paid that tax figure, we actually paid $400m. We believe that makes us the highest taxpayer in Ireland that year.
This conclusion that the Commission has reached has no basis in law or in fact. So I think it clearly suggests that this is politics at play.
He continues that while Apple hasn’t always see eye-to-eye with the US government, they are united on this particular issue:
This is a huge overreach that represents retrospective activity and is completely unfair,” he said. “It’s wrong. In the last several years, we’ve had political differences of opinion in the US on this. But on this one, literally 100pc of the comments are in agreement.
I think that Apple was targeted here,” he said. “And I think that (anti-US sentiment) is one reason why we could have been targeted.
People in leadership positions in several countries tell me that this is the agenda. I don’t know where that comes from. But what I feel strongly about is that this decision was politically based, of that I’m very confident. There is no reason for it in fact or in law.
He said Apple remains fully committed to Ireland, and will repay its loyalty.
We are going forward, absolutely,” he said. “I want to be really clear that we are very committed on Ireland.
We are going to continue with the expansions we talked about. We’ve been spending a lot of money on building out a large location in Cork, We have a 37-year-old marriage with Ireland and it means something to us.
It’s a very deep relationship. Every time I go there it brings me such joy. It is an integral part of the company.
I feel like Ireland stuck with Apple when it wasn’t easy to stick with Apple and now we’re sticking with Ireland.
A reminder of what this is all about:
