And finally, here’s our news story about Dimon’s blast at left-wing politics:
Goodnight! GW
Britain’s FTSE 100 has closed down 16 points at 7,401, ending a five-day run of gains.
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The IMF is also highlighting the perils of corruption today, saying curbing such practices could raise $1 trillion in extra taxes.....
Governments could save $1tn in taxes by curbing corruption, new IMF research says. https://t.co/8qasArVYsR pic.twitter.com/HgCLcSVU2S
— Holger Zschaepitz (@Schuldensuehner) April 4, 2019
A decade after the sub-prime crisis, the International Monetary Fund has issued a new warning about the American housing market.
In a report, the Fund says a growing number of homes in the US and China are teetering on the brink of a price slump; such a crash could drag their economies into recession.
My colleague Phillip Inman explains:
Using the latest evidence from global housing markets, the Washington-based organisation said there was a clear increase in the risk of a housing price collapse in both countries after years of ultra-low interest rates and loose lending by financial institutions.
Ahead of its annual meeting next week, the IMF’s research showed a strong connection between falling house prices and declines in activity across the economy between 1990 and 2017, illustrating the power of housing markets to trigger wider slumps in GDP growth.
More here:
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Rating agency Moody’s reckons America will avoid a recession over the next two years, but growth will weaken....
MOODY'S: "We do not expect a recession this year or next. We do, however, expect the US economy to slow toward the end of 2019, resulting in an average of 2.5% growth for the whole year, and for growth to moderate further to 1.7% in 2020."
— James Pethokoukis (@JimPethokoukis) April 4, 2019
Concern over Germany’s economy is weighing on the euro, reports Marc-André Fongern of MAF Global Fore:
@graemewearden Europe is watching Germany with an anxious eye today. The engine sputters. Investors we spoke with over the last couple of months are preparing for more negative views, which is one of the main reasons why the EUR can't build momentum.
— Marc-André Fongern (@Fongern_FX) April 4, 2019
The number of Americans signing on for unemployment benefit has hit a new 49-year low, suggesting the labour market remains solid despite slowdown fears.
The initial jobless claims figures has fallen to just 202,000 for last week, down from 203,000, to the lowest since the end of 1969.
Chart of the Day! The US initial jobless claims fell to 202K last week, the lowest level since 1969. More importantly, it means jobless claims have not bottomed yet, meaning a #recession signal has NOT been given. pic.twitter.com/o4YWaFB4VG
— jeroen blokland (@jsblokland) April 4, 2019
Putting Jamie Dimon’s musings on political science aside, investors will be interested to hear that he predicts more market volatility.
He has said the extreme volatility seen in the last few months of 2018 may be “a harbinger of things to come”.
Dimon says there are good reasons for stocks to have fallen in October-December, including Germany’s slowdown, Brexit, and the US–China trade wars. But the scale of the correction – markets fell 20% in a few months – feels like an over-reaction, partly due to steep drops in liquidity.
He writes:
In good markets, liquidity is essentially high and is almost at the same level today as it was before the crisis. But when markets became volatile in the last several years, liquidity dropped much further and faster than it did before the crisis. It is important to remember that this happened in good times.
Therefore, it is reasonable to expect that what we have been experiencing is now the new normal of liquidity – and that we should be prepared for it to be even worse in truly difficult times.
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Dimon: Socialism isn't the answer
Jamie Dimon (net worth: $1,300,000,000) also isn’t a fan of socialism.
In today’s letter to shareholders, the JP Morgan chief says capitalism has its faults – it needs a “strong safety net”, and it shouldn’t allow companies to avoid regulation.
He writes:
Many countries are called social democracies, and they successfully combine market economies with strong social safety nets. This is completely different from traditional socialism. In a traditional socialist system, the government controls the means of production and decides what to produce and in what quantities, and, often, how and where the citizens work rather than leaving those decisions in the hands of the private sector.
When governments control companies, economic assets (companies, lenders and so on) over time are used to further political interests – leading to inefficient companies and markets, enormous favoritism and corruption.
Support for democratic socialist policies appears to be on the rise in America – with politicians such as Bernie Sanders and Alexandria Ocasio-Cortez arguing for a new approach to address America’s ills.
Dimon isn’t convinced, saying:
As Margaret Thatcher said, “The problem with socialism is that eventually you run out of other people’s money.”
Socialism inevitably produces stagnation, corruption and often worse – such as authoritarian government officials who often have an increasing ability to interfere with both the economy and individual lives – which they frequently do to maintain power. This would be as much a disaster for our country as it has been in the other places it’s been tried.
Critics might point out that the problem with Mrs T’s brand of capitalism is that you run out of other people’s assets to privatise.
I also don’t remember Wall Street hailing the merits of capitalism when the financial crisis struck a decade ago – perhaps they were too busy queuing up for massive bailouts from the US government... (JP Morgan took $25bn of TARP rescue funds, but later claimed it didn’t need it anyway).
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Jamie Dimon: America needs to show leadership
One of Wall Street’s most senior bankers has called for America to play a more responsible role in world affairs, and to provide more leadership.
In an annual letter to shareholders, Jamie Dimon warns that one of the biggest uncertainties in the world today is America’s role on the world stage.
In a barely disguised criticism of Donald Trump’s criticism of Nato and the WTO, Dimon writes:
A more secure and more prosperous world is also good for the long-term security and prosperity of the United States. And America’s role in building that more secure world has been and will likely continue to be indispensable.
While there are many legitimate complaints about international organizations (the North Atlantic Treaty Organization, the World Trade Organization and the United Nations), the world is better off with these institutions. America should engage and exercise its power and influence cautiously and judiciously. We should all understand that global laws, standards and norms will be established whether or not our nation participates in setting them. It is certain that we will be happier with the evolution of global standards if we help craft and implement them. We should not abdicate this role. To the contrary, it is critical that America help develop the best global standards in trade, immigration, corporate governance and many other important issues.
Dimon also makes a pitch to other chief executives, saying they should “take a stand” to help make the world a better place.
At JPMorgan Chase, we are strengthening our public policy teams to take our advocacy and ideas to the next level....
It’s not enough just for companies to meet the letter and the spirit of the law. They can also aggressively work to improve society.
Fine words, of course. But as the FT’s Katie Martin flags up, this zeal didn’t deter JP Morgan from helping Saudi Arabia sell bonds shortly after the shocking murder of Jamal Khashoggi.
— Katie Martin (@katie_martin_fx) April 4, 2019
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Despite all the gloomy talk today, Germany’s stock market has now shaken off its losses, and is up slightly on the day.
That’s thanks to carmakers – BMW, Volkswagen and Daimler are among the top risers this morning, helped by hopes of a breakthrough in the US–China trade talks.
However, industrial groups are weakening, with Thyssenkrupp (whose blast furnace you can see at the top of this blog) down 1.7%.
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There’s some speculation that Donald Trump could announce plans for a summit with China’s president Xi later today.
Trump is due to meet vice premier Liu He at the White House at around 4.30pm East Coast time. If the talks between Liu and US officials have gone well, Trump may conclude that a trade deal is close.
The Wall Street Journal reports:
An announcement of a summit date is “likely” to come while Trump meets with the Chinese leader’s special envoy, Vice Premier Liu He, at the White House on Thursday, according to an administration official, but discussions remain fluid and those plans could change.
This afternoon, Pres meets again with Chinese Vice Premier Liu He, back in DC for another round of US/China trade talks. Progress in the talks could be enough for @POTUS to announce a date for a meeting with Pres Xi Jinping. Pres last met with Liu in February. pic.twitter.com/AM9Tu1sXzC
— Mark Knoller (@markknoller) April 4, 2019
The fall in German factory orders in February shows Europe’s largest economy is suffering from increased uncertainty and slowing global growth, say analysts at Oxford Economics.
They’ve crunched today’s report (showing orders down 4.2% month-on-month, and 8.4% year-on-year), and concluded that this “horrendous” report bodes badly for growth prospects.
They say:
Overall, today’s report is clearly negative and represents a clear threat to the short-term outlook for German industry until global growth remerges from the present weakness and the Brexit saga reaches a conclusion.
At face value, tomorrow’s industrial production data is likely to disappoint our and the market’s expectations of a moderate rise. If it does, a revision of our Q1 GDP growth forecast from 0.5% to 0.3% is likely.
They also produced these charts, showing how domestic orders for German factory goods held up well, for overseas demand was weak.
Here’s our news story on the latest drop in UK car sales:
Back in the City, shares in Saga – the over-50s insurance and travel specialist – have slumped by a third after a disappointing profits warning.
Much of the company’s problem stem from its insurance arm. Retail broking profits slumped by 19.1% in 2018, hit by tough competition.
But its holidays arm is also taking a hit, with travel bookings to Europe this year were down 8% from a year earlier.
CEO Lance Batchelor says:
Brexit is putting a clear dampener on customers’ willingness to commit to holidays in 2019.
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In another blow to eurozone spirits, Bloomberg is reporting that the Italian government plans to slash its growth forecast for 2019, from 1% to 0.1%.
The slide in German factory orders continues to worry economists and investors. Here’s some more reaction:
In #Germany, can’t be worse!Depressed manufacturing outlook.
— Sabrina Khanniche (@skhanniche) April 4, 2019
-Factory orders plunged y/y by the most since late 2009.
-Foreign demand is behind the drop (lowest since 2015).
Key to rebalance growth drivers from exports (uncertainty) to domestic demand and #Germany can do it. pic.twitter.com/RJNaVG1Jih
In case you missed it earlier.
— DSinden Pepperstone (@DS_Pepperstone) April 4, 2019
German factory orders data for February missed forecast by a country mile and fell by as much -8.40% in the YoY measure.
The chart below (from Trading Economics) shows the monthly data versus manufacturing PMIs.
Hmmmm pic.twitter.com/iDdJwe87yh
Wow - German Factory Orders plunge 8.4% Y/Y. The estimate was for a decline of just 3.1%.
— Eric Basmajian (@EPBResearch) April 4, 2019
Germany is not bottoming. pic.twitter.com/IC5JIwdWTw
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Tesla shares hit by delivery woes
Speaking of cars.... Tesla’s shares have slumped 7% in pre-market trading in New York, after its latest delivery figures missed expectations.
Tesla revealed last night it had only shipped 63,000 new cars in the first quarter of 2019, compared with 90,700 in Q1 2018. It blamed a backlog in getting cars to customers in Europe and China, and admitted that earnings will be below expectations.
Analysts had expected Tesla to ship around 76,000 vehicles, so this is a blow to hopes that Elon Musk’s firm can crack the mass market.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, is concerned that customers are shifting to its new, cheaper, Model 3:
Lower deliveries were expected this quarter, since export of Model 3s to China and Europe meant more vehicles would inevitably finish the quarter in transit. However, the actual number is worse than the market had hoped for, particularly for the more premium Model S and Model X.
Our concern is that demand for Tesla’s premium models has been permanently affected by the cut in subsidies in the US and that sales are being potentially cannibalised by the cheaper Model 3. With the $35,000 Model 3 variant only just hitting the market, the potential for Tesla to undercut its own products is only growing. In theory premium sales could be offset by high volume, low margin Model 3 sales, but Model 3 production has increased only slightly quarter-on-quarter – hardly the ramp up in production some had been expecting.
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Among the major car makers, Ford sales were down 18.5% in March year-on-year.
BMW sales fell 4%, Honda lost 15%, and Toyota fell 17%.
Vauxhall bucked the trend with 2% growth, while Volkswagen sales rose 1%.
Sue Robinson, director of the National Franchised Dealers Association (NFDA), also blames UK political uncertainty for the drop in car sales last month:
The new car market declined -3.4% in March reflecting continued political uncertainty. Whilst there is demand for new cars, consumer decisions are being delayed due to Brexit.
We call on the government to produce a deal with the EU that protects motor retailing, a crucial industry for the UK economy.
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UK car sales fall
Newsflash: UK car sales fell by 3.4% last month.
Industry body the SMMT blames Brexit uncertainty, and ongoing concerns about diesel cars, for the decline.
It says 458,054 new cars were registered in March, compared with 474,069 a year earlier.
Drivers continued to shun diesel-powered vehicles: registrations slumped by 21.4%, while petrol sales rose by 5.1%. Electric and hybrid sales rose by 7.6%
The SMMT’s chief executive, Mike Hawes, says political uncertainty is hurting the car industry:
March is a key barometer for the new car market, so this fall is of clear concern. While manufacturers continue to invest in exciting models and cutting-edge tech, for the UK to reap the full benefits of these advances, we need a strong market that encourages the adoption of new technology.
That means supportive policies, not least on vehicle taxation and incentives, to give buyers the confidence to invest in the new car that best meets their driving needs. Above all, we urgently need an end to the political and economic uncertainty by removing permanently the threat of a ‘no deal’ Brexit and agreeing a future relationship that avoids any additional friction that would increase costs and hence prices.
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Here’s Associated Press’s take:
German factory orders dropped sharply in February, erasing hopes of an industrial rebound in Europe’s largest economy as concerns over Brexit and international trade conflicts grow.
The Federal Statistical Office reported Thursday industrial orders dropped 4.2% in February, following a revised 2.1% drop in January from December, according to seasonally and calendar adjusted figures.
ING economist Carsten Brzeski said it had seemed that a trend of decreasing orders had ended at the end of 2018, but the “sharp drop in new orders clearly undermines latest tentative signs of a rebound in global activity in the first quarter”.
Domestic orders dropped 1.6% in February, while foreign orders fell 6%. Of the foreign orders, those from inside the eurozone dropped 2.9% and those outside dropped 7.9%.
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#FactoryOrders in #Germany for February "Terrible; a mini-review of the horror-show in 2008" @ClausVistesen #PantheonMacro
— Pantheon Macro (@PantheonMacro) April 4, 2019
Germany’s economy ministry has warned that:
In the coming months, a subdued industrial economy is to be expected, especially because of a lack of foreign demand.
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European stock markets have opened lower, as the drop in German factory orders disappoints traders.
Naeem Aslam, of Think Markets, says policymakers need to take action:
European markets are trading lower due to the dreadful economic reading out of Germany. The factory order data plunged during the month of February, it fell 4.2% m/m while the estimates were for a 0.3% increase.
The European Central bank really needs to wake up. It needs to start paying attention to these feeble economic reading.
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The slump in German factory orders in February was “simply awful”, bemoans Carsten Brzeski of Dutch bank ING.
He blames “Brexit woes and continued global uncertainties” for the 7.9% tumble in orders from non-eurozone companies in February.
In a note titled “no green shoots”, he says:
Devastating new orders data just undermined any hopes for an industrial rebound....
While it looked as if the trend of order book deflation in the German industry had come to a halt at the end of last year, it now looks as if the halt was simply a mere pause before the next landslide. Remember that new orders dropped by more than 1% month-on-month on average every single month in the first half of 2018 and then increased by a monthly average of 0.2% between August 2018 and January 2019.
Today’s sharp drop in new orders clearly undermines latest tentative signs of a rebound in global activity in the first quarter of 2019. Maybe February was simply too early to feel the rebound. This is the positive reading. The negative reading is that the German industry should prepare for more bad news.
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Economist Fred Ducrozet of Swiss bank Pictet has dug into the data, to show how German factories have suffered from global trade conflicts:
Yes, German new orders and IP series are volatile. Yes, the manufacturing sector has been hit by a series of shocks (cars; Rhine; you name it). But the main reason is that Germany remains over-exposed to global trade - see the trend in 'core orders'. pic.twitter.com/mF4DJmyDBd
— Frederik Ducrozet (@fwred) April 4, 2019
This is also evident in the boom-burst pattern in foreign orders, back to their 2016 levels. Domestic demand has gone through a soft patch, but nothing dramatic. pic.twitter.com/h8mph5lB08
— Frederik Ducrozet (@fwred) April 4, 2019
The sharp fall in German factory orders has alarmed the City.
*GERMAN FEB. FACTORY ORDERS FALL 4.2% M/M; EST 0.3% INCREASE -BBG #EURUSD ... Morale has absolutely plummeted.
— Marc-André Fongern (@Fongern_FX) April 4, 2019
Analyst Nour E. Al-Hammoury fears that Germany’s economy could be dropping into recession:
German Factory Orders -4.2%
— Nour E. Al-Hammoury (@NourHammoury) April 4, 2019
1- 4th monthly decline in a row
2- biggest monthly decline since 2017
3- Longest decline since 2009 #Recession #Germany #EU
Introduction: German factory orders slide again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A shock fall in German industrial orders has reinforced concerns that Europe’s largest economy is struggling, in the face of global trade tensions and the Brexit crisis.
German factory orders slumped by 4.2% in February, compared with January, new data from the country’s economic ministry shows.
That’s the worst monthly fall in two years, dashing hopes of a small rebound, and follows a 2.1% decline in January.
On an annual basis, factory orders were a painful 8.4% lower, suggesting that Germany’s industrial heartland has weakened over the last year.
The ministry says orders from beyond the eurozone were particularly poor:
Domestic orders decreased by 1.6% and foreign orders fell by 6.0% in February 2019 on the previous month.
New orders from the euro area were down 2.9%, and new orders from other countries decreased 7.9% compared to January 2019.
#Manufacturing in February 2019: New orders -4.2% seasonally adjusted on the previous month. https://t.co/ks7CI2OYuz pic.twitter.com/sn95MJIU9D
— Destatis news (@destatis_news) April 4, 2019
Orders for capital goods (heavy duty machinery) slumped by 6% month-on-month, a sign that companies around the world were reluctant to sign off expensive projects in the current climate. Consumer goods orders fell by 3.5%.
Germany is already teetering on the brink of recession, having not posted any economic growth in the second half of 2018.
Economists had hoped that its manufacturing sector had turned the corner, but such a sharp decline in new orders suggests that production could be weak for the next couple of months.
Ouch! More disappointing data from the German economy today. Factory orders fell 4.2% m/m in Feb., with expectations for a 0.3% increase
— Maciej Onoszko (@maciejonoszko) April 4, 2019
This bad news comes as US and Chinese officials keep negotiating a possible trade war truce in Washington. President Donald Trump is expected to meet with Chinese Vice Premier Liu He later today.
Investors and industrialists alike will be hoping for a breakthrough that lifts the tariffs imposed on exports last year.
White House says President Trump will meet with Chinese Vice Premier Liu He at 4:30p on Thurs. A trade deal imminent? pic.twitter.com/7HP2t7Tua6
— Tim Stenovec (@timsteno) April 4, 2019
The International Monetary Fund will highlight more problems in the world economy later today, when it releases its Global Financial Stability report.
The agenda
- 9am BST: UK new car registrations for March
- 1.30pm BST: US initial jobless claims
- 2pm BST: IMF releases its Global Financial Stability Report
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