European shares close lower
A combination of downbeat factors - the raft of disappointing data from around the world, the EU cutting its growth forecasts, falling commodity prices thanks to weak Chinese numbers, a cut in Australian interest rates to boost flagging growth and a volatile day for the dollar - all combined to revive worries about the state of the global economy and sent stock markets sharply lower. The final scores showed:
- The FTSE 100 fell 56.30 points or 0.9% to 6185.59
- Germany’s Dax dropped 1.94% to 9926.77
- France’s Cac closed down 1.59% at 4371.98
- Italy’s FTSE MIB fell 2.46% to 17,966.81
- Spain’s Ibex ended 2.85% lower at 8764.9
- In Greece, the Athens market dipped 0.15% to 583.65
On Wall Street, the Dow Jones Industrial Average is currently down 150 points or 0.8%.
Elsewhere Brent crude is down 1.9% at $44.96 a barrel.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Commenting on the JP Morgan global survey, Capital Economics said:
Manufacturing activity seems to have remained weak across the board at the start of the second quarter. Markit’s global manufacturing PMI, released today, slipped from 50.6 in March to 50.1 in April, extending a downward trend which began in 2013. On past form, it is now consistent with global growth of only around 2%.
Updated
A number of factors have led to today’s market sell-off, including weak economic data and a volatile dollar. Jasper Lawler, market analyst at CMC Markets, said:
Woeful economic news and weak bank earnings put stock market bears in charge on Tuesday. Weak manufacturing data from China and the UK, downgraded forecasts for UK and Eurozone growth as well as the Reserve Bank of Australia cutting interest rates to ward off deflation all point to a weaker economic outlook.
US stocks slumped on the open with the Dow Jones losing over 200 points after weak auto sales number added to a weak economic outlook in China, the UK and Europe.
The day started with new multi-month lows for the dollar index and corresponding highs in the euro, British pound and the yen. But dollar losses were reversed after the Fed’s Dennis Lockhart suggesting June was a ‘live meeting’ triggered short-covering at oversold levels.
Global manufacturing growth slips
Global manufacturing growth slipped in April, according to the latest JPMorgan and Markit survey.
The global manufacturing purchasing managers’ index came in at 50.1 in April, down from 50.6 in March and only just above the 50 level which separates growth from contraction. The reading is the second weakest in the past forty months. David Hensley, director of global economic coordination at J.P.Morgan, said:
The latest PMI data indicate global manufacturing output is growing at an anemic pace, similar to the past year. What is notable is the sharp drop in the PMI finished goods inventory index. Once manufacturers have aligned inventories with sales, faster production gains should ensue.
Updated
Markets continue to come under pressure. with the Dow Jones Industrial Average now down 178 points or just over 1%. Here are the biggest movers in the index:
The latest New York manufacturing survey showed business activity growing at its fastest pace since December last year.
But there was a drop in the six-month outlook in April to a seven year low. The Institute for Supply Management index rose from 50.4 in March to 57 but the six month outlook fell to 53.1.
The ISM said the drop in outlook “should raise a caution flag.”
Updated
Wall Street opens lower
As expected, and in line with other global markets, Wall Street is on the slide.
The Dow Jones Industrial Average is down 134 points or 0.75% in early trading, as fears about the global economy re-emerge. Poor manufacturing data from the US on Monday, and China and the UK today, have unsettled investors, along with the news that Australia’s central bank cut interest rates to help support growth.
The S&P opened 0.4% lower while Nasdaq is down 0.7%. Meanwhile the FTSE 100 is currently 0.65% lower, Germany’s Dax has dropped 1.68% and France’s Cac has fallen 1.2%.
The US could raise interest rates twice this year, following December’s increase, but there were a number of uncertainties including whether Britain votes to leave the European Union.
That is the view of Atlanta Federal Reserve president Dennis Lockhart. Speaking to reporters in Florida he said two hikes were possible, but it depended on how the economy evolved. He said (quote from Reuters):
It is the repercussions [of a Brexit vote] for the US economy that would concern me....it’s really a question of indications in the financial markets of a reaction to rising uncertainty and the degree of volatility we are seeing again in financial markets.
But he added that the markets should put more probability on June being “a real option” for a rise.
Atl #Fed Pres Lockhart (dove/non-voter) claims June meeting is “live”. Futures market seems to disagree, assigning only a 10% probability
— Joseph A. LaVorgna (@Lavorgnanomics) May 3, 2016
Indeed the dollar is currently weaker after Monday’s disappointing US manufacturing data suggested no imminent rate rise.
Javid cancels Iranian trip to focus on steel
Never let it be said that government ministers can’t learn from their mistakes.
Britain’s business secretary, Sajid Javid, has postponed a trade delegation to Iran so he can focus on the UK steel crisis.
The trip had been billed as Britain’s biggest ever trade mission to Iran, giving UK companies a chance to cash in develop business opportunities following the lifting of sanctions.
But it’s been put on ice, until the future of Britain’s steel industry is resolved.
A spokesman told Reuters:
“Given the Business Secretary’s focus on the steel industry,he has decided to postpone his trip to Iran.
He remains committed to exploring the opportunities for trade and investment with this emerging market and an alternative date will be arranged in due course.”
Tata UK wants potential buyers to register their interest in its steel operations this week, so Javid’s decision may indicate that progress is being made. One company, Liberty House, has already thrown its hard hat into the ring:
Alternatively, Javid may be desperate to avoid a repeat of his infamous Australia trip - which left him on the far side of the world when Tata announced it was selling up.
Markets hit by factory gloom and banks
It’s an old City motto, to “sell in May and go away”.
The theory is to cash in your gains once the May Day morris dancers have done their thing. Then, sit tight until the horses competing at the St Leger Stakes in early September have been rubbed down and fed a few sugar lumps
It doesn’t always pay off - although it worked rather well last year, when the FTSE 100 hit a record high in April, only to shed 12% by the end of August.
So perhaps that’s one reason that investors are reacting badly to today’s disappointing economic data. The selloff in European markets has gathered pace, with Germany’s DAX now down around 1.7%.
And the FTSE is still at a three-week low, currently down 75 points.
Mining stocks are suffering from concerns over the global economy, with Anglo American shedding 10%.
Joshua Mahony, market analyst at IG, says the decline in the US dollar is hitting European shares, as eurozone companies benefit from a weaker euro, not a stronger one.
The foreign exchange markets are taking centre stage today, as incessant US dollar selling has brought about an 18-month low in the US dollar-Japanese yen rate, an eight month high in the euro-US dollar rate, and a four-month high for the pound against the US dollar.
With IG clients currently seeing a 71% chance of the UK remaining in the EU, it is clear traders are heavily betting that the late February low of $1.3836 represents the bottom for GBP/USD.
Banking shares are also suffering, after Germany’s Commerzbank reported that its net profits had halved in the last quarter.
Updated
Martin Beck, senior economic advisor to the EY ITEM Club, has warned that today’s grim UK factory data could herald more bad new...
“Manufacturing output in April recorded a shocking reading dropping to the lowest point since the throes of the euro-zone crisis in March 2013. The tailwinds afflicting the manufacturing sector – concerns around the health of the global economy, uncertainty surrounding the result of June’s EU referendum and evidence of a broad slowdown in activity in the UK – means that the ‘makers’ will struggle to avoid a repeat in Q2 of the decline in output seen in the first three months of the year.
“The detail of the survey offered further causes for pessimism. Both the consumer and investment goods sectors registered declines in output, while survey respondents highlighted a weakening in both domestic and overseas demand. In addition, export orders dropped for the fourth month in a row, while jobs in the sector fell at the fastest rates since February 2013.”
Here’s our news story on the downturn in UK manufacturing:
America’s stock market is expected to fall when it opens in three hours time, following today’s disappointing news from China and the UK.
BREAKING: Dow futures drop triple digits on weak China data https://t.co/RXfm5R2qn1
— CNBC International (@CNBCi) May 3, 2016
The EC has also predicted another year of recession in Greece, with its GDP shrinking by 0.3%.
We all want Greece to find growth again, and create jobs particularly for its young people, says commissioner Mosocovici.
In contrast, Ireland is expected to post the strongest growth this year:
Lower growth, lower inflation, and a stronger euro - the best charts from the EU's forecast https://t.co/gFWJGUFelJ pic.twitter.com/sUmpPtQ7t7
— fastFT (@fastFT) May 3, 2016
European commissioner Pierre Moscovici has challenged Europe’s politicians to do more to stimulate growth:
He says:
Growth in Europe is holding up despite a more difficult global environment.
“The recovery in the euro area remains uneven, both between Member States and between the weakest and the strongest in society. That is unacceptable and requires determined action from governments, both individually and collectively.
In this context of modest growth and high risks, economic policy has to reinvigorate potential growth #ECforecast pic.twitter.com/TMelV7dOR2
— Pierre Moscovici (@pierremoscovici) May 3, 2016
Today’s forecasts assume that the British public vote to remain in the EU, the Commisison says:
'Our forecasts are built on assumption of no policy change and for UK you know what no policy change is' - @pierremoscovici on Brexit
— Danny Kemp (@dannyctkemp) May 3, 2016
EC slashes UK growth forecasts, blames Brexit risks
In another blow, the European Commission has just cut its forecast for UK growth this year.
The EC now expects Britain’s economy to expand by just 1.8% this year, down from a previous forecast of 2.1%, inching up to 1.9% in 2017.
It blames the uncertainty created by June’s EU referendum -- echoing the slump in UK factory output.
The commission says:
“Risks to the outlook are tilted to the downside, reflecting less favourable external demand and uncertainty in the lead-up to the June referendum.
Net exports are forecast to continue to detract from growth although less markedly in 2017.”
Breaking - EU spring forecast says 'uncertainty ahead of the UK’s EU referendum' poses 'considerable' risk to economic outlook @AFP #Brexit
— Danny Kemp (@dannyctkemp) May 3, 2016
But Britain isn’t alone.
The EC has also cut its forecast for eurozone growth, despite the bloc posting better-than-expected GDP figures last Friday. It now expects eurozone growth of 1.6% this year (down from 1.7%) and 1.8% in 2017 (down from 1.9%).
And it has also admitted that its previous inflation forecasts were too optimistic - predicting that prices will only rise by 0.2% this year.
All that ECB easing too...
— Jamie McGeever (@ReutersJamie) May 3, 2016
EU Commission cuts 2016 euro zone inflation forecast to 0.2% from 0.5%.
EEF: EU referendum is hurting the economy
Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation, agrees that the Brexit referendum is partly to blame for the slump in UK manufacturing:
“The sharp drop to a three year low and another month of reported job cuts could be the clearest sign yet that referendum uncertainty is starting to weigh on the real economy.
However, this is just another straw on the back of a sector already grappling with the struggling oil and gas sector, softening domestic demand and weak order outlook from other parts of the world, all of which are failing to provide any counterbalance to the political uncertainty at home.
Manufacturing decline: the key charts
These chart shows how UK factories have weakened in the last few months:
UK factories in 'deep unease' as slowdown hits
The shock slump in UK factory activity last month is a serious sign, warns David Noble of the Chartered Institute of Procurement & Supply.
Noble says an “atmosphere of deep unease” is building throughout the manufacturing supply chain, as new orders and exports come under pressure.
He also cites the recent collapse of high street chain BHS as proof that economic conditions are worsening.
“A sense of apprehension across the sector is being caused by enduring volatility in the oil and gas industry, falling retailer confidence and the uncertainty created by the EU referendum. In a month that saw the collapse of BHS, the troubles in the British High Street are being felt just as keenly in Britain’s factories.
Manufacturers are compensating for stalling new order growth by depleting their stocks, and dramatically cutting the amount of raw materials they buy from suppliers.
Noble is also concerned that large factories cut jobs last month:
The sector is nervously waiting to see whether this is a temporary blip or the beginning of a more pervasive slow down.
Job cuts accelerate as manufacturers suffer
UK factories slashed jobs last month at the fastest rate since February 2013, led by major manufacturers.
Markit explains:
The downturn at manufacturers was reflected in the labour market at the start of the second quarter.
Job cuts were reported for the fourth successive month, with the rate of decline the fastest since February 2013. Losses were mainly centred on large-sized companies, as SMEs recorded (on average) a further increase in workforce numbers.
Updated
UK FACTORIES SUFFER SHOCK BLOW
Breaking! Britain’s manufacturing sector has suffered its worst performance in three years.
Markit’s UK manufacturing PMI, which measures activity across the sector, has slumped to 49.2 in April, down from 50.7 in March
It’s the first time since March 2013 that the PMI has fallen below the 50-point mark, which separates expansion from contraction.
British companies are suffering a double-whammy, with domestic demand softening and new orders from overseas falling too.
Markit reports that new export orders fell for the fourth straight month in April, as global economic growth continued to slow.
Rob Dobson, economist at Markit, says that June’s EU referendum is partly to blame too:
“Manufacturers are emphasising slower domestic demand growth and declining new export orders as the key weaknesses they are facing, amid rising uncertainty about the global economy, the oil & gas industry, retail sector and the EU referendum.
With this backdrop unlikely to change in the coming months, the second quarter is likely to remain a bleak landscape for industry.”
More details and reaction to follow....
Updated
Pound hits four-month high as dollar slides
The British pound is on a tear this morning, hitting its highest level against the US dollar since last December.
Sterling has gained almost one cent to $1.4758, a level last seen in mid-December before Brexit fears began to bite.
It appears that the pound has been recovering because City traders expect Britain to vote to remain in the EU on June 23, even though recent polls have suggested a tight fight.
But the pound isn’t alone -- the dollar is weakening against all the major currencies this morning (apart from the Australia dollar, of course).
US dollar getting spanked, except against the $AUD $DXY pic.twitter.com/BRNHrhKN1R
— Michael Hewson (@mhewson_CMC) May 3, 2016
FTSE 100 hits three-week low
The London stock market has now hit its lowest level since early April, as traders begin May with a bout of selling.
Updated
Europe’s stock markets have all fallen in the first hour of trading.
London’s FTSE 100 is down 35 points at 6208, dragged down by those falling mining stocks.
Germany’s DAX has shed 1.5%, and France’s CAC is down 0.8%. Shares are being hit because the euro has strengthened against the US dollar this morning.
Mario Draghi will be spluttering into his expresso this morning as he notes a Euro exchange rate near 1.16 versus the US Dollar #ECB #QE
— Shaun Richards (@notayesmansecon) May 3, 2016
Mining stocks are sliding this morning, pulling London’s stock market into the red.
The miners are suffering from falling commodity prices, after today’s weak Chinese factory data.
Tony Cross of Trustnet Direct says:
Once again commodity stocks are taking a toll with Anglo American leading the pack lower, with a slide in oil prices during yesterday’s session instrumental here.
Updated
The Japanese yen has just hit an 18-month high against the US dollar, in another blow to the country’s exporters.
Investors are piling into the yen after the Japanese central bank disappointed investors last week by not boosting its stimulus programme. That’s going to worry policymakers in Toyko, who are gunning for a weaker currency to help get inflation moving.
#USDJPY lowest since September 2014. Kuroda pain trade gets a little bit more painful pic.twitter.com/p1xtlZJuNK
— Jonathan Ferro (@FerroTV) May 3, 2016
Over in the City, HSBC shares have jumped 3% in early trading as investors show relief that profits have ‘only’ fallen by 14%.
Just Eat, the online takeaway ordering company, have soared by almost 7% after it reported a 41% surge in sales and hiked its profit forecasts.
But Aberdeen Asset Management is still struggling from the slowdown in emerging markets. It reported a 40% slump in underlying pre-tax profits this morning, sending its shares down 6% in early trading.
Australia’s interest rate cut will fuel fears of another round of ‘currency wars’ as nations fight for the competitive edge of a weaker currency, says Mike van Dulken of Accendo Markets.
Australia’s stock market has hit a six-month high following today’s interest rate cut.
The S&P/ASX jumped 2%, as investors welcomed the promise of cheaper money (even though it was driven by deflation fears).
The Australian dollar suffered a predictable selloff, slumping by 1.5% against the US dollar to $0.756.
Aussie dollar getting ripped apart after RBA rate cut. U.S. dollar drops below 106 yen. https://t.co/wAwvcjifm7 pic.twitter.com/69eXjxa6sO
— Barbara Kollmeyer (@bkollmeyer) May 3, 2016
Chinese factories shrink again
There’s no let-up in the pain gripping China’s factories.
The latest healthcheck of the sector shows that activity fell again last month. Total new orders stagnated and new export orders shrinking for the fifth month in a row.
Data firm Caixin also reports that Chinese firms cut jobs, in the face of weakening demand for their products. Overall employment declined again, with the rate of job shedding nearly as sharp as in February’s, when it hit a post-global financial crisis record.
This drove Caixin’s Chinese manufacturing PMI down to 49.4, from 49.7, on an index where anything below 50 shows a contraction.
Dr. He Fan, chief economist at Caixin Insight Group, fears that the Chinese economy could be heading into dangerous waters:
“All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out.
The government needs to keep a close watch on the risk of a further economic downturn.”
Australia slashes interest rates
Australia has fired another shot in the currency battles by unexpectedly cutting interest rates to fresh record lows.
The Reserve Bank of Australia blamed lower inflation, a stronger Aussie dollar and signs of weakness in its jobs market, as it slashed borrowing costs to just 1.75%, down from 2%.
It’s the latest sign that economic conditions remain weak, forcing central bankers to ease policy in an attempt to spur demand and ward off another financial crisis.
The move also sparked a political row, as my colleague Paul Karp explains:
Shadow treasurer, Chris Bowen, said the interest rate decision reflected the Liberal government’s incredibly poor economic management.
He said in August 2013 when interest rates were cut to 2.5% the Coalition seized on it as a sign of economic weakness.
“This decision reflects a weaker economic outlook, with the RBA expecting growth to moderate this year,” he said.
“In addition, incomes are falling, living standards are stagnating and home ownership is out of reach for so many Australians – facts the government will be hiding from tonight.”
In question time, Malcolm Turnbull responded to claims the rate cut demonstrated a softening economy by promising the budget would help manage a transition away from an economy reliant on the mining sector, and deliver jobs and growth.
Here’s the full story:
Updated
The agenda: UK factory report and HSBC's falling profits
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Traders in London are struggling back to their desks after the long weekend, and wondering whether the advice to “sell in May and go away” holds firm this year.
So they’ll be watching the latest UK manufacturing data, due at 9.30am, for signs that the British economy is slowing down in the run-up to June’s EU referendum.
Yesterday, Germany and Italy reported a pick-up in factory growth, but France bucked the trend with another contraction.
HSBC, the global bank, has already given investors something to ponder. It has just reported a 14% slide in profits following the stock market turmoil at the start of 2016.
Our City editor Jill Treanor has studied the numbers, and explains:
Profits at HSBC fell in the first three months of the year after Britain’s biggest bank was knocked by the volatility that gripped global markets in January and February.
Statutory pre-tax profits in the three-months to the end of March fell 14% to $6.1bn, which the bank described as “a resilient performance despite challenging market conditions”. If currency movements and other one-off items were excluded profits fell 18% to $5.4bn.
Stuart Gulliver, the bank’s chief executive, said: “Market uncertainty led to extreme levels of volatility in January and February, which affected our ability to generate revenue in our markets and wealth management businesses. However, our diversified, universal-banking business model helped to cushion the impact through growth in other parts of the bank”.
Time is running out for potential bidders to express interest in Tata Steel’s UK operations, including its famous blast furnace at Port Talbot in Wales. One firm, Liberty House, has already revealed it will bid....
At 10am UK time the European Commission releases its latest economic forecasts. Pierre Moscovici will be giving a press conference in Brussels.
And we’re also getting results from investment group Aberdeen Asset Management, and takeaway firm Just Eat.
UK companies posting results today - HSBC, SAB Miller, Aberdeen Asset Management, Just Eat
— David Buik (@truemagic68) May 3, 2016
Updated
