Afternoon summary
OK, time for a quick catch-up.
Britain has missed out on a general pick-up in factory output last month.
The UK manufacturing sector cooled in June, with growth hitting a three month low.
Economists blamed political worries over Brexit, as the weak pound failed to prevent export order growth cooling. But some pointed out that growth over the last three months was still strong.
The eurozone powered ahead, though, with growth hitting a new six-year high. Germany, Austria and the Netherlands were particularly strong, while Greece made a welcome return to growth.
China’s factory sector beat forecasts, with growth nudging a three-month high.
The data from America is a little patchy, though. The ISM shows that US factory growth hit a three-year high, but Markit’s alternative PMI report signalled a slowdown.....
In other news...
Stock markets have begun July with some solid gains; in London the FTSE is up 62 points at 7375, a gain of 0.86%.
Europe’s Stoxx 600 has gained 1%, putting it on track for its best day in two months.
US manufacturing growth hits three-year high.
This is more like it.
America’s factory sector has posted its strongest growth in almost three years, according to The Institute for Supply Management.
The ISM US manufacturing PMI has jumped to 57.8, up from 54.9 in May, and the highest reading since August 2014.
That’s a rather more encouraging view than Markit’s rival survey.
US factory bosses told ISM that new orders, production and employment levels all rose last month, in an encouraging signal.
ISM +2.9; New Orders +4, Jobs +3.7 but Prices -4.5
— Mike van Dulken (@Accendo_Mike) July 3, 2017
Andrew Hunter of Capital Economics says:
The rise in the ISM manufacturing index to 57.8 in June, from 54.9, leaves the index at its highest level in nearly three years and supports our view that annualised GDP growth has rebounded strongly in the second quarter.
Here’s the key points from Markit’s survey of the US factory sector in June:
Breaking: America’s factory sector slowed last month, according to Markit’s PMI survey at any rate.
Markit reports that new orders growth among US manufacturers slowed last month, while production rose at the lowest rate in 10 months.
That pulled Markit’s US manufacturing PMI down to 52.0, from 52.7 in May.
Manufacturing growth in the #US weakens again in June, with #PMI down from 52.7
— Markit Economics (@MarkitEconomics) July 3, 2017
in May to 52.0 https://t.co/gdquWTIFAJ
Curiously, there are two rival PMI surveys covering America - we’re about to find out if ISM agree with Markit.
Updated
Wall Street has started the third quarter of 2017 in a positive mood.
The Dow Jones industrial average has gained 120 points, or almost 0.6%, led by banks and technology companies.
A cocktail of factors has pushed the gold price down to a seven-week low today.
Bullion is changing hands at $1,125 per ounce, its the lowest level since the middle of May, a fall of 1.2%.
Gold is being hurt by the stronger dollar, which has rallied today.
Speculation that global central banks are getting closer to raising interest rates are also weighing on gold - which is a less attractive investment when you can get a higher return for holding cash instead.
Neil Wilson of ETX Capital explains:
Gold’s poor start to July comes after a nasty fall in June which broke its best winning streak since 2010. Nevertheless gold rallied 8% in the first half of the year as the Trump trade faded, but has stalled again as markets see central banks taking a more hawkish stance in the second half.”
Here’s Larry Elliott on today’s FSB report:
Mark Carney: G20 must resist reform fatigue
The organisation responsible for monitoring the health of global financial system is urging regulators not to cave in to ‘reform fatigue’.
Mark Carney, head of the Financial Stability Board, has put down his spade and hockey stick and turned his attention to the upcoming meeting of G20 leaders later this week.
He says leaders risk driving up financing costs, hurting economic growth, if they fail to crack on with financial stability reforms.
He warns that:
In particular, giving into reform fatigue could erode the willingness of G20 members to rely on each other’s systems and institutions and, in the process, fragment pools of funding and liquidity.
The FSB is particularly keen that leaders agree and implement the Basel III rules, a set of tougher capital rules for lenders which some countries claim are too onerous.
As the 10th anniversary of the financial crisis approaches, the FSB is also awarding itself a pat on the back, arguing that many problems have been fixed.
As Bloomberg puts it:
Carney, head of the Financial Stability Board, reeled off regulators’ accomplishments, including better-capitalized banks, reduced risk of big public bailouts, a thorough reform of the derivatives markets and a decline in the most dangerous activities of so-called shadow banking.
One of the biggest threat to all these achievements, he said on Monday, is “reform fatigue.”
Carney says financial-crisis victory in sight if G-20 stays firm https://t.co/qH6WcPz3lY via @borisg_work pic.twitter.com/pxFyUUqg7a
— Bloomberg Markets (@markets) July 3, 2017
Strike at the Bank of England
Britain’s cost of living crisis has reached the vaults of the Bank of England.
Workers at Britain’s central bank have voted to hold a four-day strike, starting on July 31, as they push for a larger pay increase. It’s the first strike to hit the Bank of England in 50 years, according to the Unite union.
Around 95% of Unite members backed a strike, after the BoE only offered staff a below-inflation increase in earnings (which is a little awkward, as the Bank is meant to be controlling inflation)
Unite represents workers in the Bank’s maintenance, parlours and security departments.
Union official Mercedes Sanchez says the walkout will hit BoE operations, and urged governor Mark Carney to step in.
“The result of the bank’s unwillingness to negotiate fair pay will be that the bank’s sites, including the iconic Threadneedle Street in the city of London will effectively be inoperable without the maintenance, parlours and security staff.
“Mark Carney needs to get his own house in order. It is nothing short of shameful that the iconic symbol of financial services in the UK is choosing to ride roughshod over the concerns of its dedicated and hardworking staff and impose this derisory pay deal. The governor can no longer turn a blind eye to what is happening on his own patch.
The Bank of England claims, though, that it will keep operating as usual:
“The Bank has been informed of industrial action being called by Unite the Union. The Union balloted approximately 2% of the workforce. Should the strike go ahead, the Bank has plans in place so that all sites can continue to operate effectively. We will continue to have discussions with Unite and hope that there will be a positive outcome.”
Governor Carney, meanwhile, has been doing his bit at the Haven House Children’s Hospice in Woodford Green, London....
Last week, the Governor planted a tree at @HavenHouseCH, one of our charities of the year 2016/17. https://t.co/JTae3JmS1j pic.twitter.com/yDjMHrGn5n
— Bank of England (@bankofengland) July 3, 2017
He also squeezed in a spot of ice hockey at Trafalgar Square to mark his native Canada’s 150th birthday:
Sterling continues to drop, as traders digest this morning’s PMI data.
The pound has now shed 0.7 of a cent against the US dollar, to $1.2955, wiping out Friday’s rally.
FXTM research analyst Lukman Otunuga says traders have been reassessing the odds of a UK interest rate rise soon (for the umpteenth time):
The UK’s manufacturing sector activity reading fell to 54.3 in June, marking its slowest pace of growth in three months.
This disappointing report has dealt another blow to sentiment and is likely to add to the horrible cocktail of soft economic releases which is slowly illustrating the impact of Brexit.
This chart shows how City economists had expected British factory activity to have been much stronger in June.
Many had expected a PMI in the 56-ish region, not as low as 54.3.
Big miss on the UK Manufacturing PMI. Nobody saw it that low. pic.twitter.com/0cUVPvk8dQ
— Guy Foster (@Brewin_Guy) July 3, 2017
Updated
Although UK manufacturing is obviously important, it only makes up around 10% of Britain’s economy.
On Wednesday, we find out how the dominant service sector fared in June. This morning’s disappointing factory data may be a sign that service companies also struggled, says Andy Bruce of Reuters:
UK manufacturing PMI drops 2 points in June.
— Andy Bruce (@BruceReuters) July 3, 2017
Falls that big are followed up by a drop in the services PMI 66% of the time.
Howard Archer, Chief Economic Advisor to the EY ITEM Club, says the slowdown in UK factory expansion last month is “disappointing”, particularly as export growth slowed.
“The survey indicates that not only did output slow in June, but the sector is entering the third quarter with reduced momentum with new orders at an 11-month low. This was primarily due to weaker domestic demand, but it is disappointing to see that export orders slowed.
Furthermore, the slowdown in manufacturing activity is reported across all sectors – consumer, intermediate and investment goods. Backlogs of work fell in June which also points to weaker activity going forward. Additionally, confidence among manufacturers dipped to a seven-month low in June, although it was still decent, and employment growth slowed.
Mike Rigby, Head of Manufacturing at Barclays, agrees:
“The foot unexpectedly came off the accelerator last month suggesting that manufacturers’ attention was in part drawn to grappling with the uncertainty from both the general election and the start of Brexit negotiations.
Encouragingly, production levels are still in positive territory but growth slowed to its lowest rate for three months and most disappointingly, given the weakness in sterling, was the slowdown in new export business.
However, manufacturers have traded through challenging conditions many times before and in spite of this weaker performance, it is still the eleventh consecutive month of increasing output.”
Eurozone unemployment at eight-year low
In another boost for Europe, the jobless rate across the eurozone remains at its lowest level since the financial crisis began.
Unemployment in the single currency region was 9.3% in May, matching April’s figure, and the lowest since March 2009.
Across the wider EU, the jobless rate came in at 7.8%, the lowest since December 2008.
The Czech Republic and Germany enjoyed the lowest unemployment rate, below 4% while Greece and Spain still suffered the highest.
May 2017: euro area unemployment rate stable at 9.3%, EU at 7.8% #Eurostat https://t.co/0MhJKFEcWw pic.twitter.com/TOeKgGa3YQ
— EU_Eurostat (@EU_Eurostat) July 3, 2017
UK factory growth slows: What the experts say
City experts are disappointed to see that Britain’s manufacturing growth has dipped to a three-month low in June:
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, says political anxiety is hurting the sector:
“Manufacturing activity showed signs of slowing this month, as fears that the sector would feel the impact of both the election and the start of Brexit talks materialised.
“While the sector remained in growth, a softening of new orders suggested some hesitancy from the UK to commit to new projects, which will be a worry as the domestic market has been the main driver of growth in the past two months. Apart from some orders from the US and Western Europe, exports fared little better as a continuing weak, but stable pound began to lose some of its allure.
But Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, argues that factories can ride out the storm.
“The PMI figures show a drop in confidence this month as manufacturers grappled with the general election result and uncertainty arising from our negotiations to exit the EU.
“But manufacturers are resilient. They have a keen eye on margins and are taking steps to future-proof their business. Many are stockpiling and investing to win contracts, while others are boosting their export order books.
Jeremy Cook, chief economist at the international payments company, World First, blames Brexit uncertainty:
“The UK’s manufacturing sector is still growing but the pressures that have become almost de rigeur in UK economic data are still very much present.
New business growth has slowed which is limiting the increase in new employment in the sector, confidence has slipped to a 7 month low and while price pressures are easing, supply lines are becoming stretched and are therefore slowing, extending the time taken on projects.
Overall the UK manufacturing sector is an engine that is only able to fire on a few of its cylinders whilst the landscape on investment and trade remains so occluded by Brexit and the inherent uncertainty of our negotiations.”
Rupert Harrison of BlackRock argues that the current divergence between Europe and the UK could simplify the Brexit talks (although perhaps not to Britain’s advantage...)
While rest of the EU outperforms the UK economy it will make Brexit negotiations easier- EU can claim costs for UK. Reversal would be tricky https://t.co/OnPyXEd0Zd
— Rupert Harrison (@rbrharrison) July 3, 2017
It’s not all bad news for the UK. Factory growth over the last quarter is the strongest since 2014, despite the slowdown in June.
Ave UK manufacturing #PMI output index in Q2 was highest for 3 years & signals production rising 0.5%, but growth slowed in June pic.twitter.com/z4sjOeLPPj
— Chris Williamson (@WilliamsonChris) July 3, 2017
Pound hit by UK factory weakness
Sterling has fallen by half a cent, following the news that UK factory growth was weaker than expected last month.
The pound is now trading at $1.297, away from the six-week highs struck last week.
UK factory growth hits three-month low
Breaking: Britain’s manufacturing growth slowed last month, as UK factories failed to keep pace with their rivals across the channel.
The UK manufacturing PMI has dropped to 54.3 in June, well below expectations of a reading of 56.5. This is the slowest growth in three months.
Any reading over 50 shows growth, so this is the latest signal that Britain’s economy is slowing this year.
Firms reported that production and new orders did grow in June, but at a slower rate than in May.
Demand from domestic and export markets both slowed - denting hopes that the weak pound will boost UK exports.
In another disappointment, May’s reading has also been revised down to 56.3 from 56.7.
Rob Dobson, Senior Economist at IHS Markit, says the data dampens hopes that the UK economy is bouncing back, after growing by just 0.2% in January-March.
He explains:
“New business rose at the weakest pace for nearly a year and growth was down sharply from April’s near three-year high. This slowdown was largely centred on the domestic market, where increased business uncertainty appears to have led to some delays in placing new contracts.
“Export orders remained disappointingly lacklustre despite the ongoing competitiveness boost of the weak sterling exchange rate.
Updated
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Stand by your desks! UK manufacturing PMI is due at 9:30 am Fingers crossed... #GBP #BoE
— Shaun Richards (@notayesmansecon) July 3, 2017
Eurozone manufacturing hits new six-year high
It’s official -- the eurozone’s factory sector is growing at its fastest rate in over six years.
The boom in Germany, and solid expansion in France, Italy and Spain have all helped to deliver the fastest expansion since 2011.
This pushed Markit’s eurozone manufacturing PMI up to the giddy heights of 57.4 in June, up from May’s 57.0, beating City forecasts.
Firms reported a strong pick-up in new orders, which led to a surge in activity and another strong month of job creation.
The expansion was broad-based too, with every country reporting faster factory growth in June.
Germany, Austria and the Netherlands were especially strong, while Greece’s return to growth was a welcome sign.
These PMIs are ‘soft’ economic data, based on interviews with thousands of factory bosses across Europe. They may indicate that underlying growth is strengthening.
Chris Williamson, Chief Business Economist at IHS Markit, explains:
“Eurozone manufacturing growth gained further momentum in June, rounding off the best quarter for just over six years. At current levels, the PMI is indicative of factory output growing at an annual rate of some 5%, which in turn indicates the goods- producing sector will have made a strong positive contribution to second quarter economic growth.
“Exports continue to play a major role in driving the expansion, increasing in recent months at rates not seen for six years, buoyed in part by the weak euro. But it’s also clear that factories are benefitting from ongoing strong demand from domestic customers.
Williamson also believes that the European recovery has legs, and will continued through 2017:
“There’s no sign of the impressive performance ending any time soon. Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand. As such, the manufacturing sector is clearly in expansion mode and looks poised for continued robust growth in coming months.”
More reaction to follow....
Newsflash: Eurozone manufacturing growth has hit a new six-year high.
Details to follow....
More good news! Greece’s factory sector has returned to growth for the first time since last summer.
Do not adjust your sets: Greek manufacturing PMI is in *growth* again. First time in nearly a year. Overall eurozone at April 2011-high pic.twitter.com/aL7kZ7FcO1
— Mehreen (@MehreenKhn) July 3, 2017
German factory growth hits highest since 2011
Boom! German factory growth has hit a 74-month high.
Germany’s manufacturing PMI, which measures activity across the sector has risen to 59.6 in June, up from 59.5 in May.
That shows the fastest growth in over six years, showing that the eurozone’s largest economy is strengthening.
The strong performance was driven by the biggest surge in new orders since 2011, data firm Markit reports.
Trevor Balchin, senior economist at IHS Markit, called it “another impressive performance”, and one that suggests Germany’s growth is picking up pace.
He adds:
“Although output growth held broadly steady and job creation eased slightly since May, the expansion in new orders accelerated further. Suppliers remained under intense pressure with input delivery times lengthening to the greatest extent since April 2011.
“Input price inflation slowed for the second month running to the weakest since November 2016, but remained stronger than the 21-year survey trend level. Output prices increased at the sharpest rate since February.”
France’s factories have posted another month of solid growth too, as demand and business confidence rose.
The French manufacturing PMI has jumped to 54.8 in June, from 53.8 in May - that shows a faster expansion, but not quite as pacy as expected.
*FRANCE JUNE MANUFACTURING PMI RISES TO 54.8; PRELIM. 55
— World First (@World_First) July 3, 2017
Alex Gill, economist at IHS Markit, reports that firms took on more staff as their piles of unfinished work mounted up.
He adds:
“A strong degree of business optimism was also a key feature of the latest survey, perhaps buoyed by reduced political uncertainty following the conclusion to June’s legislative elections and robust economic conditions in the Eurozone.”
Just in...Italy’s factory sector picked up last month, thanks to a surge of new orders.
Italian Manufacturing PMI: 55.2 vs exp 55.3; prev 55.1
— Sigma Squawk (@SigmaSquawk) July 3, 2017
A strong end to the quarter with a pickup seen in output & exports pic.twitter.com/cNtX3AMqMj
Markets boosted by Chinese PMI report
European stock markets are rallying this morning, helped by the pickup in Chinese factory growth last month.
The main indices have all risen in early trading. London’s FTSE 100 has jumped by 42 points, or 0.6%, to 7355.
Mining companies are leading the rally, thanks to the jump in metals prices this morning. Glencore has gained 2.2%, Anglo American are up 2.1% and Antofagasta is 1.5% higher.
Connor Campbell of SpreadEx says:
It’s manufacturing Monday, and with China’s Caixin PMI just about climbing out of contraction territory the European indices got off to a strong start.
Having neared 2 month lows last Friday there was plenty of room for the FTSE to bounce back this morning and bounce back it did, rising more than half a percent to sit just below 7350. The thrust of the UK index’s growth stemmed from the commodity sector, itself boosted by the latest 0.5% jump from Brent Crude, the black stuff now trading at $49 per barrel for the first time in around a month.
Spanish PMI falls, but still strong
Breaking: Spain’s factory data has missed forecasts, but still shows solid expansion.
The Spanish manufacturing PMI has come in at 54.7, down from May’s 55.4.
Spanish factory bosses reported that output, new orders and employment all rose last June, but not as quickly as the previous month.
Firms reported that their backlog of work stacked up, even though they kept hiring staff.
And the good news for consumers is that raw material inflation is slowing.
Andrew Harker, senior economist at IHS Markit said:
“June saw a continuation of the recent strong performance of the Spanish manufacturing sector, with growth remaining elevated. The first half of the year has been impressive, with no real sign among the latest data that rates of expansion are running out of steam heading into the second half.
“One thing that is on the wane is inflation, with both input costs and output prices rising at the weakest rates since late-2016. This should help firms maintain competitive pricing, enabling them to take advantage of improving customer demand.”
Spanish manuf PMI headline index down but sill no sign of cooling. Output, new orders up; employment at near-record high.
— Frederik Ducrozet (@fwred) July 3, 2017
The Russian PMI is a worry.
Growth in Russia’s manufacturing sector almost fizzled out last month, with its PMI dropping to an 11-month low of 50.3, from May’s 52.4.
Markit reports that new business from abroad continued to shrink, forcing Russian factory bosses to lay off staff at the second-fastest rate since last September.
Nordic PMIs sparkle
Norway’s manufacturing base just posted its strongest growth in five years, according to its PMI report:
🇳🇴#Norway
— Kristoffer Lomholt (@lomholt10) July 3, 2017
Manufacturing #PMI reaching the highest level since March 2012 => fine details => points to further acceleration in manufacturing! pic.twitter.com/XzwVxbOhwD
Sweden factories also accelerated last month, with a PMI of 62.4 -- a level showing robust growth.
tEconomics: #Sweden Swedbank Manufacturing PMI at 62.4 https://t.co/dWPLvAZMek pic.twitter.com/DnA8UikulB
— Value's Vector (@pulpmarkets) July 3, 2017
$SEK: Swedish PMI better than expected, helped not only by a robust macro momentum in Europe, but also by delayed krona weakness pic.twitter.com/oP3b3TSkkV
— Martin Enlund (@enlundm) July 3, 2017
Other Asian countries have followed China’s lead, and reported manufacturing growth last month.
Reuters has the details:
Factory Purchasing Managers’ Indexes for South Korea, Japan,Taiwan Vietnam and India all remained above the 50-mark that separates contraction from expansion on a monthly basis.
And all of these indexes, except for Japan and India, rose from the previous month, indicating an acceleration in expansion.
Metal prices have jumped this morning, following the news that Chinese factories returned to growth last month. Aluminium and copper are both rallying.
$DBB BASE METALS: Aluminum Extends Rally as China PMI Beats Estimates$HG_F #copper #aluminium pic.twitter.com/y18QSVk94v
— Christian Fromhertz (@cfromhertz) July 3, 2017
Chinese factory growth recovers, but worries remain
China got PMI Day off to a decent start, by reporting its fastest factory growth in three months.
The Caixin/Markit Manufacturing Purchasing Managers’ index rose to 50.4 in June, better than expected. That’s up from May’s 49.6 - which was the worst reading in 11 months.
Any PMI over 50 signals growth, so it’s an encouraging sign for China’s manufacturing sector after some tricky months.
The details are a bit mixed, though. Chinese companies reported that their production levels rose last month, and new orders also picked up.
But with demand still muted, they cut their workforce levels again and also ran down their inventories, as optimism over the business outlook hit its lowest level of 2017.
Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, is concerned that Chinese factories could struggle later this year.
“The manufacturing sector recovered slightly in June, but based on the inventory trends and confidence around future output, the June reading was more like a temporary rebound, with an economic downtrend likely to be confirmed later.”
Updated
The agenda: UK and eurozone factory reports
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We’re getting a healthcheck on the world’s factories today, as data firms release their monthly Purchasing Managers Index reports.
This flurry of data will show how manufacturers – from China’s Pearl River Delta to Germany’s Mittelstand and the US Rust Belt – fared in June, hopefully giving a new insight into the health of the global economy.
Happy PMI day!
— Darts (@Macroandchill) July 3, 2017
Economists expect another strong month from Europe, as its recovery continue. The eurozone manufacturing PMI is tipped to hit 57.3, a level that shows the strongest growth since the debt crisis began.
The British data could show a slowdown, though - with the UK manufacturing PMI forecast to fall to 56.3, from 56.7.
The UK report will be closely scrutinised for signs that June’s general election, and the resulting hung parliament, has hit industry.
Royal Bank of Canada explain:
With more hawkish noises coming from certain quarters of the Bank of England’s Monetary Policy Committee in recent days, markets are likely to be especially sensitive to the PMI surveys this month.
As they were conducted mid-month in June, it should be expected that the results incorporate businesses’ views about the impact of the indecisive general election result on 8 June.
The Chinese data is already out, showing that growth hit a three-month high (more on this shortly).
We also get new eurozone unemployment figures this morning; they may show that the jobless rate remains at its lowest level since the financial crisis, at 9.3%.
Looking ahead, highlights include Eurozone, UK and US mfg PMIs, US ISM and construction spending.
— RANsquawk (@RANsquawk) July 3, 2017
European stock markets are expected to open higher, after being rattled last week by confusing signals from the world’s central bankers about the path of monetary policy.
And this afternoon, the Financial Stability Board, which monitors the state of the global financial system, will talk about its work for the G20 on financial stability. The FSB is chaired by Bank of England governor Mark Carney.
The agenda:
- 8.15am BST: Spanish manufacturing PMI
- 8.45am BST: Italian manufacturing PMI
- 8.50am BST: French manufacturing PMI
- 8.55am BST: German manufacturing PMI
- 9am BST: Eurozone manufacturing PMI
- 9.30am BST: UK manufacturing PMI
- 10am: Eurozone unemployment for May.
- 1pm: FSB publishes report to G20 about financial stability reforms
- 2.45pm-3pm: Two US manufacturing PMI reports
Updated
