And here’s what you need to know:
Our full story on the day’s trade fears is here:
Dow Jones closes 251 points down amid trade war fears
After a momentous day on the international trade front, the Dow Jones industrial average closed the session 251 points down as investors sold off shares in manufacturers and corporations with global reach. Other US index were also lower, with the S&P 500 falling for the fourth time in five days.
The tariff issue had “cast a pall over the animal spirits,” explained Libby Cantrill, managing director and the head of public policy for PIMCO, on Bloomberg TV.
Some investors expressed concerns that trade tariffs could interrupt synchronized global growth.
“The hard thing about protectionism, the hard thing about tariffs and quotas, is that you can almost think of it as it’s a slow moving disease, but it’s deadly,” Kristina Hooper, Invesco’s chief global market strategist, told Bloomberg.
“When I look at protectionism, I don’t believe the market truly can price it in at this point because there’s still so many potential iterations. But right now it’s certainly moving further to the extremes when it comes to protectionism and that can be very problematic.”
That’s code for expect trouble ahead.
Thanks for reading – we’re going to wrap up this blog now. US jobs report on Friday – stay tuned.
South of the border, Mexico’s ministry of economy has also issued a statement, saying it “deeply regrets and disapproves” the US decision to impose tariffs on imports of steel and aluminum from Mexico as of 1 June but reiterated “its openness to a constructive dialogue with the US”.
The statement read in part: “In response to the decision of the United States to impose tariffs, Mexico will adopt equivalent measures on a variety of products, including flat steel (hot and cold foil, including coated and tubes and pipes), lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, cranberries, various cheeses, and other products, up to an amount comparable to damage caused by the United States’ action.
“This measure will be in force for as long as the US government maintains the imposed tariffs.”
Updated
Freeland concluded her remarks saying: “I want to be very clear about one thing: Americans remain our partners, friends, and allies. This is not about the American people. We have to believe that at some point their common sense will prevail. But we see no sign of that in this action today by the US administration.”
Updated
Canadian officials said they would impose tariffs against up to C$16.6bn worth of imports of steel, aluminium, whiskey, orange juice and other products from the US. “We are imposing dollar for dollar tariffs,” said Chrystia Freeland, Canada’s foreign affairs minister. The tariffs are expected to take effect on 1 July.
The tariffs violate Nafta and WTO trade rules, added Freeland, who said that Canada plans to launch dispute settlement proceedings under Nafta Chapter 20 and the WTO.
Updated
Canada’s foreign minister Chrystia Freeland says Canada will impose retaliatory measures against US steel, aluminium and other products – but subject to a 15-day consultation.
Freeland also said Canada would continue to defend “free, open rule-based trade” but would also challenge US tariffs under both the North American Free Trade Agreement and the Word trade Organisation.
Updated
Trudeau said the tariffs will harm industries and workers on both sides of the Canada-US border.
“They are an affront to the long-standing security partnership between Canada and the United States, and in particular an affront to the thousands of Canadians who have fought and died alongside their US comrades in arms. The ties of commerce, friendship and in many cases family between Americans and Canadians are undiminished. We are confident that shared values, geography and common interest will ultimately overcome protectionism.”
Justin Trudeau calls tariffs 'totally unacceptable'
Canada’s prime minister Justin Trudeau has hit back strongly at the imposition of tariffs, calling them “ totally unacceptable” at a news conference.
Updated
French President Emmanuel Macron said the United States’ decision to impose tariffs on European metals exports is illegal and a mistake.
The French leader said he would talk to President Donald Trump on the subject later on Thursday
Canada’s prime minister Trudeau and Mexico’s president Enrique Peña Nieto have reportedly spoken and agreed to co-ordinate retaliation efforts...
A formal complaint by the EU at the WTO in Geneva is expected tomorrow, Friday.
In joint statement the French minister and German finance minister, Bruno la Marie and Peter Altamira, said they regretted the “unilateral decision” taken by the White House and backed the European Commission’s retaliatory response.
Updated
Canadian prime minister Justin Trudeau is expected to speak at 1.30pm ET. In the meantime, we have Kathleen Wynne, the premier of Ontario, who has called Trump a “bully”, describing him as a “man who simply does not seem to get that his bluster and his bullying are costing real people real jobs”.
Donald Trump is a bully. The only way to deal with a bully is stand up and push back. And that’s exactly what we need to do. Ontario is urging a swift and sharp response. We need to hit Trump where it hurts – in his wallet.
— Kathleen Wynne (@Kathleen_Wynne) May 31, 2018
The conservative business network backed by the wealthy industrialist brothers Charles and David Koch has also come out in opposition to the tariffs. Freedom Partners Chamber of Commerce and Americans for Prosperity warned there would be a tax increase on all Americans and would undermine the nation’s economy and low unemployment rates.
Republican: 'tariffs are hitting the wrong target'
Now for the reaction from Washington…
Kevin Brady, the Texas Republican chairman of the House Ways and Means Committee, has said the Trump administration is “hitting the wrong target” and officials will need to provide answers to Congress about the damage to US businesses.
“When it comes to unfairly traded steel and aluminum, Mexico, Canada and Europe are not the problem – China is. These tariffs are hitting the wrong target.”
Brady urged the administration to exempt allies from the new import tariffs. And he warned that administration officials “will need to come to Capitol Hill to provide answers about the indiscriminate harm these tariffs are causing our local businesses”.
Updated
Continuing the denunciations of the US decision, Germany’s foreign minister Heiko Maas says the European Union “is ready to react accordingly with counter measure”.
Europe prepares to hit back and Mexico to target US goods
As Europe prepares to hit back with tariffs on a list of US exports worth €6.4 billion ($7.5 billion), Mexico’s economy ministry has said it will target several US goods in response, including some steel and pipe products, lamps, berries, grapes, apples, cold cuts, pork chops and various cheese products “up to an amount comparable to the level of damage” linked to the US tariffs. Canada is also expected to impose retaliatory measures, details of which are expected soon.
Adam Marshall, Director General of the British Chambers of Commerce (BCC), called the US move “hugely disappointing” and warned that the tariffs “will hurt companies and communities in many areas of the UK, as well as their customers in the US”.
“The UK government must reach out to and support the many supply chain businesses that face becoming the ‘collateral damage’ of the Trump administration’s protectionist push. British ministers must also work hand in hand with the EU to avoid any further escalation, and to find a long-term solution.”
But he also warned that the US decision to impose punitive tariffs should serve as a reminder that self-interest looms large in trade negotiations.
“Ministers should reflect on this carefully before they pursue any future trade deal between the UK and the USA.”
More from Boffey:
Manfred Weber, the leader of the European People’s Party, the largest group in the European Parliament, and a key ally of the German chancellor, warned that treating the EU as the “enemy” would lead to US consumers hurting too.
He said: “Europe does not want a trade conflict. We believe in a fair trade regime from which everybody benefits. We have tried everything to make dialogue and mutual understanding prevail. If President Trump decides to treat Europe as an enemy, we will have no choice but to defend European industry, European jobs, European interests.”
But he warned his party would not accept “this highly regrettable decision without reacting. This will have consequences for the American people too. In a trade conflict there are only losers.”
The situation, he added, “has to be a wake-up call for us Europeans.”
“With the US closing in on itself, we should be bridge-builders and reliable partners for the rest of the world. Europe now has to act with a clear message and remain united, calm and proportionate.”
Updated
Gareth Stace, director of UK Steel, called the US decision “a bad day for the steel sector, for international relations and for free trade.”
He said it is vital that the EU and US continue discussions to find a way through the current impasse and reach an agreement that works for all parties.
But he called on the EU to forge ahead with safeguard action.
And from the Guardian’s political correspondent Jessica Elgot:
A UK government spokesman said they were “deeply disappointed” by the outcome.
“The UK and other European Union countries are close allies of the US and should be permanently and fully exempted from the American measures on steel and aluminium,” the spokesman said.
“We have made clear to the US government at the highest levels the importance of UK steel and aluminium to its businesses and defence projects. We will continue to work closely with the EU and US Administration to achieve a permanent exemption, and to ensure that UK workers are protected and safeguarded.”
May will raise the tariffs with Trump directly when the pair meet at the G7 in Canada next week, where the issue is likely to figure prominently. May has personally lobbied the US president repeatedly in recent weeks and months.
Updated
The Guardian’s Daniel Boffey from Brussels:
Brussels has been preparing a retaliatory hit on an array of US goods, both industrial and agricultural, ranging from Harley Davidson motorbikes to blue jeans and American bourbon. Ambassadors from the 28 member states were in immediate communication with the European Commission following the announcement from the Trump administration. Speaking at a conference in Brussels, Juncker said the EU would launch retaliatory action “in the coming hours”. “This is a bad day for world trade,” Juncker. “It’s totally unacceptable that a country is imposing unilateral measures when it comes to world trade. What they can do, we are able to do.”
Updated
Susan Danger, chief executive of the American Chamber of Commerce to the EU (AmCham EU), said the White House did not have any justification for imposing the tariffs.
“American companies in Europe oppose the US government’s decision to impose tariffs on EU imports of steel and aluminium. We urge the US government to revisit its plans and the EU to take a balanced approach in responding to these measures. We are very concerned by the damage a tit-for-tat dispute would cause to the transatlantic economy and its impact on jobs, investment and security across the Atlantic.”
Mexico’s Undersecretary of Foreign Trade, Juan Carlos Baker, tweeted:
Mexico decisively rejects any unilateral, protectionist measure that distorts trade.
— Juan Carlos Baker (@JCBakerMX) May 31, 2018
Ramón Beltrán, the president of Mexico’s National Chamber of the Aluminium Industry, told ‘Aristegui En Vivo’: “Nobody will win [the trade war that is beginning]. The US will lose.”
“Frankly, we do not like this at all,” Beltrán added.
Beltrán claimed the US move was designed to pressure Mexico over NAFTA negotiations. “[But] we shouldn’t contaminate one thing with the other.”
Mexico’s Secretariat of Economy said it “profoundly regretted” the US move and announced it would hit back with tariffs on products including including grapes, apples, pork legs and shoulders, blueberries, some cheeses as well as flat steel.
“Mexico has repeatedly made clear that these kinds of measures based on national security are neither appropriate nor justified,” the secretariat said in a statement.
The former Belgian prime minister, and leader of the liberals in the European Parliament, Guy Verhofstadt, said: “Unfortunately, these steps weaken the transatlantic alliance. Instead of imposing punitive tariffs on their closest allies, the US and EU should work together to tackle China’s unfair trading practices.”
He continued: “As with Brexit, what is most important now is unity within the EU. If we are united, we will have a strong position to face this wave of protectionism, which will benefit no one. The EU has proven to be a strong and reliable global trading partner. In recent months, the EU secured major free trade deals with partners like Canada, Japan and Mexico. This shows what we can achieve when Europe speaks with one voice. We need to continue in this spirit and work with partners around the globe to preserve the rules-based multilateral trading system.”
In his statement, EU commission president Juncker said:
“I am concerned by this decision. The EU believes these unilateral US tariffs are unjustified and at odds with World Trade Organisation rules. This is protectionism, pure and simple. Over the past months we have continuously engaged with the US at all possible levels to jointly address the problem of overcapacity in the steel sector. Overcapacity remains at the heart of the problem and the EU is not the source of but on the contrary equally hurt by it.
Markets are down
US equities fell on the news, with the Dow Jones industrial average dropping 250 points. Mexican stocks also fell, while the Mexican peso and Canadian dollar hit their lows of the day against the dollar after news of US tariffs broke.
Updated
Author and historian Simon Schama has also weighed in, posting on Twitter that “Europe now has to show some real spine or else it will just become Trump’s doormat”.
After the sabotage of the Iran deal; Europe now has to show some real spine or else it will just become Trump's doormat https://t.co/KX1j31hY5m
— Simon Schama (@simon_schama) May 31, 2018
Updated
The president of the European commission, Jean-Claude Juncker, has issued a statement and commented on Twitter: “It’s a bad day for world trade. US leaves us no choice but to proceed with a WTO dispute settlement case and the imposition of additional duties on a number of US imports. We will defend the EU’s interests, in full compliance with international trade law.”
It’s a bad day for world trade. US leaves us no choice but to proceed with a WTO dispute settlement case and the imposition of additional duties on a number of US imports. We will defend the EU’s interests, in full compliance with international trade law. https://t.co/J3wPW5Ew7K pic.twitter.com/aDlOWcSgRv
— Jean-Claude Juncker (@JunckerEU) May 31, 2018
Updated
Summary: US tariff move outweighs positive mood over Italy
Markets have edged into negative territory despite earlier rises on hopes of a resolution to the Italian political crisis.
The moves came as the US imposed steel and aluminium tariffs on the EU, Mexico and Canada. Investors are also fretting about other geopolitical problems, including Friday’s vote of no confidence in Spain, the continuing concerns about North Korea and Iran, the prospect of a trade war between the US and China.
Italy’s FTSE MIB is currently down 0.13%, while Spain’s Ibex is 0.2% lower and Germany’s Dax is down 0.75%. France’s Cac has managed to edge up 0.03% while the FTSE 100 is 0.18% higher. On Wall Street, the Dow Jones Industrial Average is down 145 points or 0.62%.
On the economic front, eurozone inflation came in higher than forecast in May.
UK consumer credit rebounded in April, as the City regulator ordered a clampdown on high cost credit.
In the US, consumer spending and weekly jobless claims both came in better than expected.
Finally, the Bank of England has appointed academic Jonathan Haskel to its rate setting monetary policy committee, the only man on a shortlist of five candidates.
Updated
US imposes steel and aluminium tariffs
US commerce secretary Wilbur Ross has confirmed that it will impose steel and aluminium tariffs on the EU, Canada and Mexico from midnight tonight.
The tariffs will be 25% for steel and 10% for aluminium. Amid fears of a trade war, Ross said if any party retaliated that did not rule out further negotiations.
He said talks with the EU had made progress, but not enough to continue an exemption from tariffs, which was due to expire tomorrow.
Updated
Wall Street opens lower
While European markets are still just about holding onto gains in the hope that Italy can come up with a plausible government after the recent turmoil, Wall Street has opened lower on worries about trade wars.
With the US set to impose tariffs on steel and aluminium from the EU, Canada and Mexico, the Dow Jones Industrial Average is down 112 points or 0.4%. The S&P 500 opened 0.28% lower and the Nasdaq Composite has lost 0.08%.
Here’s our story on the appointment of the only man on a five person shortlist to the Bank of England’s monetary policy committee:
The Bank of England interest rate setting committee, which has only one woman among its nine members, will continue to be male-dominated after the Treasury opted to appoint the only man from a shortlist of five candidates.
In a move that immediately sparked protests from women’s groups, the chancellor, Philip Hammond, said Jonathan Haskel, an Imperial College economist, would join the Bank’s governor, Mark Carney, on the monetary policy committee (MPC) for a three-year term starting in September, when he will succeed the outgoing Ian McCafferty.
The Treasury said four women were on the shortlist, but an internal panel made up of two women and one man chose Haskel as the best candidate.
Clare Lombardelli, first female chief economic adviser to the Treasury, chaired the panel. She was joined by the former MPC member Kate Barker and Richard Hughes, the Treasury’s director of fiscal policy.
A Women’s Equality party (WEP) spokeswoman said the appointment of Haskel sent the wrong message- about the Treasury’s commitment to improving diversity in important areas of public life. “It suggests that even if they had an all-female shortlist, they would probably still appoint a man,” she said.
The full report is here:
Shares in troubled Deutsche Bank are down around 5% following reports that US authorities have put its business in the country on a list of troubled institutions.
The Fed designated Deutsche Bank's U.S. business as 'troubled,' in a rare censure that pushed the bank to reduce risk-taking https://t.co/HkAS7QaDob
— The Wall Street Journal (@WSJ) May 31, 2018
US jobless claims and consumer spending better than expected
More signs of the strength of the US economy.
Weekly jobless claims fell by more than expected, down 13,000 to a seasonally adjusted 221,000. Analysts had forecast a fall to 228,000. The jobless rate at 3.9% is a near seventeen and a half year low and close to the Federal Reserve’s target of 3.8% by the end of the year.
The news comes ahead of Friday’s non-farm payroll report, where economists expect around 188,000 jobs to have been created in May.
Meanwhile US consumer spending rose by a higher than expected 0.6% last month, the biggest increase in five months. The forecast was for a 0.4% increase.
Back in Italy:
Lega rushes to cancel signs it was ever in favour of exiting the Euro: “Stop the Euro” sign disappears from headquarters wall.
— Gustavo Baratta 🇪🇺🇮🇹 (@gusbaratta) May 31, 2018
(>70% of Italians would vote to stay in €, polls say)
HT @carloalberto https://t.co/SYVqkjLHGH
Meanwhile over in Spain, the no confidence debate is taking place. Our latest report:
The future of the Spanish prime minister, Mariano Rajoy, is hanging in the balance as parliament prepares to debate a motion of no-confidence tabled after his Partido Popular (People’s party) was found to have profited from a huge kickbacks-for-contracts scheme.
A defiant Rajoy addressed MPs early on Thursday, accusing the opposition Partido Socialista Obrero Español (Spanish Socialist Workers’ party) of opportunism and reminding the PSOE of its corruption scandals.
“With what moral authority are you speaking? Are you perhaps Mother Teresa of Calcutta?” he asked. “There have been corrupt people in the PP, but the PP is not a corrupt party.”
The no-confidence vote, scheduled to take place on Friday, is likely to be very close. The PSOE needs the support of 176 of the 350 MPs in congress of deputies. The votes of the five MPs of the Partido Nacionalista Vasco (Basque Nationalist party) will prove decisive, with the PNV saying it would meet and hear what the PSOE leader, Pedro Sánchez, had to say before announcing its decision.
Sánchez called for “democratic regeneration” as he sought the backing of MPs, saying: “Resign, Mr Rajoy. Your time is up.”
The full story is here:
With European markets drifting - but mainly still managing to stay in positive territory - Wall Street is expected to open marginally lower. There is an eerie sense of calm after all the ructions caused by the Italian political crisis, with investors hoping a new government can be formed after all without the need for another election campaign. Craig Erlam, senior market analyst at Oanda, said:
Not too long ago, a coalition government in Italy consisting of two eurosceptic populist parties was a feared and unlikely prospect that many believed would majorly concern investors. While much of this remains true, it is also currently viewed as the least unattractive and feasible outcome for markets, with the other alternative being fresh elections and the possibility that the parties are given an even stronger and potentially less euro-friendly mandate.
Italy’s President, Sergio Mattarella, may have believed he was acting in the best interest of the country when he rejected to populists choice of Finance Minister but the reality is that in doing so, he has given both parties more ammunition with which to attack the euro. Mattarella has already been accused of acting on behalf of Germany and others while Brussels has been accused of interference, it all feeds very well into the eurosceptics message that the country no longer even has control over its domestic politics.
Should the country move straight on to another election, both Five Star Movement and Lega will look to take advantage of any fury linked to perceived meddling and could significantly add to their numbers. All of a sudden, the worst case scenario prior to the election looks tolerable compared to what could come from another. With both parties now in discussions again, there is a hope that the political impasse can be resolved which is helping to lift sentiment in the near-term. That said, a positive outcome now poses many further risks in the long-term.
While Italian assets have bore the brunt of the pain from the latest period of political instability and uncertainty, there has been a negative impact on the wider markets including the euro which dropped to a 10-month low against the dollar. While we’re still far away from the days of the debt crisis and the risk of a breakup, a second election was being portrayed as a vote on the euro which seems drastic and probably overhyped but it certainly hit the single currency.
Markets are still managing to hold onto their gains - just - on hopes that the Italian political crisis can be resolved before too long. Here is our latest report on the developments:
The leader of the Italian far-right party the League, Matteo Salvini, cancelled political rallies to return to Rome early on Thursday, in what was seen as a sign that a weeks-long political impasse that has left the country without a fully-functioning government for months might soon be coming to an end.
Salvini was heading back to the capital to meet with his coalition partner, Luigi Di Maio, the 31-year-old head of the anti-establishment Five Star Movement, after the Italian president gave the pair more time to form a government.
Italian press reports indicated that any agreement to form a new populist government involving the League, formerly known as the Lega Nord, and M5S would include the nomination – again – of Giuseppe Conte, a formerly obscure law professor, to serve as prime minister.
But the two populists, Di Maio and Salvini, were expected to back down on their earlier insistence that the 81-year-old Eurosceptic Paolo Savona, who had called Italy’s adoption of the euro a “historic mistake”, serve as finance minister.
There were also small indications that the populists would try to assure markets that they were not planning any big moves to try to hasten an Italian exit out of the euro, a fear that roiled markets this week.
The full story is here:
Bank of England shortlist was four women, one man
Given the controversy over the comments from male executives making excuses for why there are now women on their boards, the fact that the new member of the Bank of England’s MPC is male hardly helps matters.
Worse - the shortlist for the appointment included four women and one man. And the man was given the job. From the Treasury release:
The release also says:
The Treasury is committed to appointing a diverse range of people to public appointments, including at the Bank of England. The Treasury continues to work to attract the broadest range of suitable applicants for posts. As part of this recruitment process, the Chief Economic Advisor at the Treasury and chair of the interview panel contacted 87 potential applicants to inform them of the vacancy, of whom 44 were women.
Bank of England put Jonathan Haskel on the MPC,
— Adam Parsons (@AdamParsons1) May 31, 2018
* 27 applicants in total
* Shortlist was Haskel and, er, four women... pic.twitter.com/4T04l6RfnF
Could Haskel also be hawkish? David Owen, chief european financial economist at Jefferies, says:
His expertise will also be invaluable when it comes to assessing how much spare capacity there is in the UK economy, as well as trend GDP growth, both key when looking at monetary policy.
Jonathan Haskel’s recent book “Capitalism Without Capital: The Rise of the Intangible Economy” highlights the growing use of things that we cannot really measure accurately in the production process in the UK. Everything being equal, this would suggest that labour productivity is stronger than official estimates suggest and like Ian McCafferty (who leaves the BoE in August) will vote for a rate rise when he joins the MPC.
New member appointed to #BOE #MPC; replaces Ian #McCafferty from 1 Sep. Will be interesting to see if changes voting balance on MPC given McCafferty has been repeatedly at hawkish end. Jonathan #Haskel appointed to Bank of England’s MPC https://t.co/jcPV94ss6r via @financialtimes
— Howard Archer (@HowardArcherUK) May 31, 2018
New member for Bank of England's rate setting committee
The government has appointed Jonathan Haskel, a professor of economics at Imperial College Business School, as the newest member of the Bank of England’s rate setting Monetary Policy Committee.
Haskel will serve a three year term as an external member and will start on 1 September, when Ian McCafferty’s term ends.
In his Imperial College profile, Haskel says:
My main research interests are productivity, innovation, intangible investment and growth. I currently study (a) how much firms investment in “intangible” or “knowledge” assets, such as software, R&D and new business processes (b) how much such investment contributes to economic growth as whole and (c) what public policy implications there might be, especially for science policy. This work uses a mix of data at the levels of company, individual, industry and whole economy.
Updated
ECB should be careful what it wishes for - ING Bank
Economist Bert Colijn at ING Bank said the eurozone inflation figure puts the European Central Bank in an awkward position:
As this jump in inflation just thinly masks underlying core weakness and uncertainty about the economy is high, it is unlikely to convince the ECB to normalise policy more quickly....
[The] core inflation reading is still below where we would expect it to be with the improving labour market and increased selling prices indicated in business surveys. And, as selling price expectations have been weakening in the recent soft patch of economic data, it does not seem like we are at the start of a marked increase in inflation.
The understatement of recent months was also helped by a weakening euro, which dampened some of the effects from the higher oil price. Petrol prices jumped significantly in May, on the back of an oil price of around $80 per barrel for most of the month and a weakening euro.
Be careful what you wish for, ECB. After years of pushing for inflation to return to just under 2%, it could not have come at a more difficult time. Eurozone financial market turmoil has returned because of Italian politics this week and it is very difficult to see how the Italian political situation is going to play out. Economic data has been weakening over the past months, and the ECB is eager to determine whether this is just a soft patch. Finally, the US seems on the brink of announcing tariffs on European steel and aluminium, which clouds the exports outlook and could have an additional inflationary impact if the trade conflict gets out of hand.
The ECB therefore now has to decide whether it will provide certainty straight away by announcing an extension to QE or take a “wait and see” approach at the June meeting. Then it could just hint at an extension while taking another six weeks to see how the political situation in Italy and the trade conflict with the US play out, and take in more economic data.
Updated
Eurozone inflation higher than forecast in May
Eurozone inflation rose by more than expected in May, partly due to the recent surge in oil prices.
The increase towards the European Central Bank’s target comes as it wants to run down its stimulus programme, but faces the prospect of market turbulence disturbing its plans.
The cost of living in the 19 eurozone countries rose from 1.2% in April to 1.9% in May, according to an initial estimate from Eurostat, higher than the forecasts of around 1.6%.
Energy prices rose by 6.1% compared to 2.6% in April, while food was 2.6% higher, uup from 2.4%.
Excluding energy and food prices, inflation rose from 1.1% to 1.3%.
Meanwhile unemployment in the eurozone fell from 8.6% in March to 8.5% in April.
Updated
A UK interest rate rise in August is by no means a done deal, says ING Bank economist James Smith. Commenting on the credit figures, he says:
It’s not something markets or analysts typically spend much time looking at each month, but the unexpectedly sharp fall in consumer credit in March was probably a key factor in the Bank of England’s decision to keep rates on hold in May.
Admittedly the reasons for this sudden decline were fairly unclear, and the latest figures released today show that the amount of unsecured consumer credit supplied fully recovered in April, rising by £1.8 billion. This tentatively suggests that the fall was simply a blip, perhaps related to the wider economic slowdown in March (although it’s not entirely clear why the bad weather would have resulted in such a sharp change).
We still think this is a story worth keeping an eye on over the next couple of months. A net 39% of banks said they tightened up on credit availability in the first quarter according to a Bank of England survey. If credit growth were to slow further, it would no doubt be a bad omen for growth - particularly as, of what little spending there has been over the past year, much of it appears to have been financed by borrowing.
Meanwhile consumers continue to remain cautious. While household incomes are no longer being squeezed quite as much as before, shoppers are now being confronted with higher petrol prices, and the latest confidence surveys suggest individuals remain pessimistic about the economic situation overall.
These cracks forming in the retail sector remain a big risk to the Bank of England outlook. While we are inclined to think policymakers have a preference to hike rates again in August if economic data allows (particularly given the better wage growth trend), this is certainly not a done deal.
As one committee member said recently, the cost of waiting a bit longer before hiking rates is relatively low.
Is Sir Dave Ramsden of the Bank of England around to explain how an extra £1.8 billion of unsecured lending in April is "weak credit growth" please?
— Shaun Richards (@notayesmansecon) May 31, 2018
The independent economist is referring to remarks made earlier this month at at select committee hearing, when Sir Dave said there was a risk households were spending less than the Bank had expected - as reported by the Financial Times (£).
UK consumer credit surges in April
Speaking of credit, there has been a spike in borrowing by UK consumers in April after a slowdown the previous month blamed on the snowy weather.
Consumer credit lending rose by a higher than expected £1.832bn, the biggest increase since November 2016, compared to an increase of just £425m in March. Economists polled by Reuters had expected a rise of £1.3bn.
The number of mortgages approved slipped from 62,802 in March to 62,455, less than the expected 63,000. Net mortgage lending rose by £3.894bn.
Here’s our story on the Financial Conduct Authority clamping down on high cost credit:
The City watchdog is planning a price cap for rent-to-own retailers as part of a crackdown on high-cost credit and overdrafts to save consumers more than £200m a year.
Although stopping short of capping charges on overdrafts, the Financial Conduct Authority outlined a series of measures on Thursday amid growing calls to protect vulnerable consumers.
The changes, the result of an 18-month review by the regulator, come as the Bank of England becomes increasingly concerned about rapid growth in personal borrowing, which is returning to levels unseen since the financial crisis. The Hollywood actor Michael Sheen, debt charities and the Labour party have applied significant pressure on the regulator to act.
The FCA said it would consider introducing a price cap for the rent-to-own sector, which includes firms such as BrightHouse, from as early as April next year, although it warned it would need to consult on the measure with the industry first.
The full report is here:
More positive news for Italy:
"We are looking to buy short-term Italian bonds now," Atsushi Tachibana, CIO of Japan's $707 billion insurance fund Kampo, tells Reuters pic.twitter.com/jEZPrAVAYF
— Mike Dolan (@reutersMikeD) May 31, 2018
Germany’s Dax has dipped into the red but other European markets are holding up as investors await the latest developments in the Italian political crisis. Connor Campbell, financial analyst at Spreadex, said:
Further steps in the right direction in regards to Italy avoiding another snap election – even if it does result in the Five Star Movement and League parties forming a Eurosceptic government – allowed the European markets to hold steady on Thursday.
Rising 0.4% the euro managed to put a bit more distance between it and the 10 month lows it struck against the dollar on Tuesday night, the single currency climbing back towards $1.17 after the bell. Against the pound it was a bit more sluggish; however, flat at just under €1.14, it is trading at the top end of its recent bracket.
The Eurozone indices, meanwhile, were broadly positive as well. Though the DAX dipped into the red, the CAC and FTSE MIB both continued to rise, the latter especially expressing its relief that things – for now, at least – appear to be calming down.
It’ll be interesting to see what role the Eurozone’s May inflation reading plays in the day’s trading. The surge in oil prices means analysts are expecting a sharp month-on-month jump, from 1.2% to 1.6%; that could give the euro a bit more room to breathe, but only if investors are willing to overlook the fact that the increase isn’t really due to anything going on in the Eurozone.
Italian bond yields - which soared on Tuesday as the price fell on political concerns - continue to fall back.
The two year yield is now down at 0.9% as calm returns - for the moment at least. Two days ago the yield hit 2.84%.
Australian shares ended the month on a positive note, helped by the hopes for a solution to the Italian crisis and a rise in mining shares on the back of higher commodity prices.
The S&P/AX index rose 0.5% on the day, helping it to a similar increase for the month as a whole.
Markets are likely to remain volatile, says Neil Wilson, chief market analyst for Markets.com:
European equities are firmer in early trade and yesterday’s rebound for stocks may well hold if we see the two populists form a government, though longer term any such government faces a clash with the EU/ECB. They may also face a considerable backlash from bond markets again – calm for the moment – if they push ahead with plans to increase debt-to-GDP...
Reports this morning suggest Paolo Savona could become foreign minister in a Lega-M5S government, a move that could be palatable for all the sides. In the near term the avoidance of snap elections would be positive for risk, but longer-term concerns remain. It does look as though the main risk being priced in earlier this week when bonds and stocks sold off sharply was the threat of another election that could have been framed in a more anit-EU light. Again we must reiterate that stock and bond markets will remain volatile and highly sensitive to the political situation in Rome.
Added to this we have the prospect of a no-confidence vote in Spanish prime minister Mariano Rajoy, a move that would likely bring down the centre-right government. The debate, which starts today, adds to investor concerns that Europe is in a very rocky patch politically at the moment.
European markets open higher
It is indeed a positive start for European markets, albeit a slightly tentative one given all the geopolitical tensions at the moment.
With hopes of a resolution to the Italian political impasse, the country’s FTSE MIB is up 0.38%, while Germany’s Dax is 0.12% better and France’s Cac has climbed 0.18%. In the UK, the FTSE 100 is up 0.19%. Economist Paul Donovan at UBS said:
We are not back to normal, but markets have reacquainted themselves with what normal might look like. Italian bond yields fell and the euro recovered yesterday. A consensus is forming that there will not be elections in Italy until September at the earliest. Italian President Mattarella is waiting to see if the two anti-parties can in fact form a coalition.
Updated
French inflation higher than expected
Ahead of the eurozone inflation figure we have had an update from France. Reuters reports:
French inflation rose in May to its highest level since August 2012, according to data from the INSEE national statistics agency, adding to a raft of strong inflation readings across the euro zone as the European Central Bank considers whether or not to tighten its monetary policy.
French consumer prices rose from April due partly to higher energy and food prices. The year-on-year inflation rate came in at 2.3 percent, according to EU-harmonised data from INSEE, above a forecast for an inflation reading of 2.0 percent according to a Reuters poll.
Earlier this week, data had also shown inflation in Germany, the euro zone’s biggest economy, surging more than expected in May to its highest level in more than a year, while data also showed inflation picking up in Spain.
Germany’s May inflation of 2.2 percent also surpassed the European Central Bank’s (ECB) target of just under 2 percent for the euro zone as a whole.
ING Bank economist James Smith says the UK credit numbers could be interesting:
After last month's collapse, worth watching #UK credit numbers today. March fall may have been a blip, but if we don't get a rebound it would raise further questions over the spending outlook $GBP pic.twitter.com/8noDu8i324
— James Smith (@SmithEconomics) May 31, 2018
Here’s more on the Financial Conduct Authority’s clampdown on high cost credit. FCA chief executive Andrew Bailey said:
High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.
The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
Here is the full FCA announcement.
Eurozone inflation is expected to move sharply higher, partly due to the recent surge in oil prices. UniCredit economists said:
We expect headline inflation to rebound strongly in May, from 1.2% to 1.8% year on year. We see two main drivers: a rebound in core inflation and a jump in energy prices. Core inflation probably reversed its April drop and rose to 1.1% year on year from 0.7%. This would reflect normalization in the price of holiday-sensitive items, with the April reading having been distorted to the downside by the early timing of Easter. Surging oil prices are likely to push energy prices up strongly, adding 0.3 percentage points to headline inflation .
Agenda: Investors await Spanish and Italian political developments
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Optimism that the Italian political crisis can be resolved without new elections is expected to see markets continue their revival today. The 5 Star and Lega parties are making renewed efforts to form a coalition, which has eased fears that a new vote could give a mandate for the country to leave the euro - Italexit or Quitaly, take your pick.
So Italian bond yields have fallen back from their highs earlier in the week, while European markets are expected to make a positive start. CMC Markets UK’s opening forecasts show
- The FTSE 100 up 3 points
- Germany’s Dax 20 points higher
- France’s Cac climbing 8 points
- Italy’s FTSE MIB up 50 points.
CMC’s chief market analyst Michael Hewson said:
[Market] optimism was reinforced by a call from the Five Star movement for Paolo Savona to withdraw his candidacy for the position of finance minister. This would appear to be at odds with the position of the League and its leader Matteo Salvini, whose pick Savona is. The differences of opinion between the two parties certainly don’t bode well for any future relationship in government, if Salvini does change his mind about Savona and put someone else forward as finance minister...
Even though investors have significant concerns about the recent steep rise in Italian borrowing costs it should be noted they still remain well below their long-term averages prior to the financial crisis, when they were on average in and around the 4% level for most of the noughties. This means that while Italian borrowing costs now are high relative to the last few years, they still remain low by historical standards.
Still, investors would be right to be cautious. Italy is not the only potential problem in the eurozone, with Spain’s prime minister Rajoy facing a no confidence vote on Friday.
On the same day, the EU’s temporary exemption from the US steel and aluminium tariffs is due to expire although developments could come as soon as today, while there are also the continuing concerns about a trade war between the US and China, as well the situation in North Korea.
It’s set to be a busier day all round, with news already that the UK regulator the Financial Conduct Authority is clamping down on high cost credit.
Meanwhile Nationwide’s latest house price index has shown weaker than expected growth in May, with prices up 2.4%, down from a 2.6% increase in April and below the expected figure of 3%. Jonathan Samuels, chief executive of property lender, Octane Capital, said:
Tight supply and subdued demand are the key contributors to the ongoing limbo gripping the UK property market. A lethargic economy populated by cautious and squeezed consumers has created a property market lacking both momentum and direction.
And on the corporate front, the chief executive of train and bus business FirstGroup is leaving with immediate effect. As the company reported a poor set of results, Tim O’Toole said:
The time is right for me to step aside. Today’s results clear the way for the new approach sought by our Chairman and the Board.
Investors will also be watching out for European inflation figures after Wednesday’s higher than expected consumer price index from Germany.
Agenda:
9.30 BST UK mortgage lending
10.00 BST Eurozone consumer price index
13.30 BST US weekly jobs claims
Updated
