Closing summary
Global stocks have enjoyed a good start to the week, building on the gains of the past month, amid relief that tensions between the US and China haven’t worsened. The US president said on Friday night he would end preferential treatment for Hong Kong in trade and travel in retaliation for Beijing’s new security law for the former British colony -- but stopped short of outlining immediate measures.
China has reportedly asked state-owned firms to halt purchases of soybeans and pork from the US, but so far markets have shrugged this off.
Optimism was also boosted by final readings for closely-watched manufacturing surveys. They showed declines eased in the US, UK and the eurozone in May after production hit record lows in April because of Covid-19 shutdowns. In China, production unexpectedly returned to growth for the first time since January.
The dollar has weakened as protests spread across the US after the killing of George Floyd in police custody. Gold and silver prices have rallied amid safe-haven buying.
- UK’s FTSE 100 index up 1.2% at 6,148
- France’s CAC up 1.39% at 4,760
- Italy’s FTSE MiB up 1.6% at 18,485
- Dow Jones up 0.15% at 25,421
- Nasdaq up 0.35% at 9,522
- S&P 500 up 0.12% at 3,047
Thank you for reading. We’ll be back tomorrow.
Updated
US ISM Mfg Index bounced a bit in May, rising to 43.1 from April's 39.9, but today's print still shows the sector in a deep recession: https://t.co/GLQQmPRaeW A similiar profile is found in today's revision to the Mfg PMI: https://t.co/FR7P9yaKoc pic.twitter.com/jvNgQNw7PW
— James Picerno (@jpicerno) June 1, 2020
US ISM manufacturing decline eases; US stocks turn positive
Back to the US, where the more closely watched Institute of Supply Management’s manufacturing PMI for May is out. It’s come in at 43.1 versus 41.5 in April, indicating that while manufacturing is shrinking, the decline has eased slightly.
US stocks have turned positive, with the Nasdaq now up 0.14% and the S&P 500 and Dow Jones flat.
An earlier announcement from the UK’s financial watchdog might spell good news for small businesses.
Several UK insurers have admitted they are liable to pay company owners under business interruption insurance policies after the City regulator challenged them to prove in court that their policies did not apply to the coronavirus pandemic, my colleague Jasper Jolly reports.
The Financial Conduct Authority is seeking court clarification on whether insurers’ policies allow them to refuse business claims related to the coronavirus pandemic. The hearing is scheduled for late July.
The majority of small businesses were not covered for the pandemic, as their policies mainly related to property damage, the regulator believes.
However, after the regulator asked 56 insurers for information on 1 May, an undisclosed number quickly gave in and said they would pay out, after previously insisting they were not liable.
You can read the full story here.
May's IHS Markit US Manufacturing PMI revealed another downturn in business conditions for the sector. Production continued to fall sharply amid a further reduction in demand.
— IHS Markit PMI™ (@IHSMarkitPMI) June 1, 2020
Read more: https://t.co/9a270EYj7A pic.twitter.com/olQ3DwJAz4
The US manufacturing PMI survey from IHS Markit is out. It recorded 39.8 in May, up from 36.1 in April, signalling the second-biggest decline in production since April 2009.
The decline is similar to those measured over here Markit recorded 39.4 in its eurozone survey, and 40.7 in the UK.
US Manufacturing PMI pic.twitter.com/TWgiJEuIt5
— 𝕮𝖍𝖎 🛢️ (@chigrl) June 1, 2020
Wall Street falls amid protests, China tensions
The opening bell has rung on Wall Street and stocks have opened lower.
- Dow Jones down 97 points, or 0.38%, at 25,286
- Nasdaq down 27.5 points, or 0.29%, at 9,462
- S&P 500 down 11.5 points, or 0.38%, at 3,032
Updated
Ikea has reopened 19 stores in England and Northern Ireland and large queues formed, for example in Warrington, where are line of more than 1,000 people – physically distanced – filled the car park, and at Wembley in London.
Restaurants in Soho in central London are asking for temporary pedestrianisation of areas around them so they can offer alfresco dining with physical distancing once they are allowed to reopen in July, my colleagues Sarah Butler and Ed Cumming report. In Liverpool, some areas will also be semi-pedestrianised to help welcome outdoor diners.
The UK is taking inspiration form Lithuania’s capital, Vilnius, which has announced plans to turn the city into a vast open-air cafe and San Francisco, where restaurants are being encouraged to take over parking bays, pavements and streets.
My colleague Joanna Partridge reports from Norwich:
After eleven weeks closed, Norwich’s outdoor market is reawakening, with traders arranging their goods outside their stalls and customers returning to the city centre.
Markets in England are permitted to reopen from today, provided social distancing rules are followed, and a couple of council enforcement officers patrolled on foot to ensure people were keeping their distance and the one-way system inside the market was being observed.
Trade was steady on the first morning, and stall owners selling goods deemed non-essential such as clothing and fresh flowers were keen to get back to business. The market is one of the oldest and largest in England -” it’s lovely to have it back,” said Liz Johnson, out buying fish, fruit and vegetables with her husband Tim, “it’s our first proper day out since mid-March”.
A trickle of shoppers bought fresh flowers at Ponds Flowers stall during the morning- “We’re at the bottom rung of the ladder, building back up,” said Kevin Howes who works on the flower stall.
Updated
Lunchtime summary
Time for a round-up of today’s news.
Global stock markets are rallying on relief that there hasn’t been an escalation in tensions between the US and China, and amid further easing of Covid-19 lockdowns. While Donald Trump said he would strip Hong Kong of its special status in response to Beijing’s decision to impose a new controversial security law on the semi-autonomous territory, he didn’t outline any specific measures on Friday night.
A surprise expansion in Chinese manufacturing in May according to the Caixin PMI survey added to the optimism. Hong Kong’s Hang Seng index rallied 3.4% and China’s CSI 300 rose 2.7%.
In London, the FTSE 100 index is 1% ahead at 6,138 while European shares are also up: France’s CAC has gained 1.1% and Italy’s FTSE MiB has added 0.8%. Markets in Germany, Denmark, Switzerland and Norway are closed for the Whitsun holiday.
However, tensions could rise as China has asked its state-owned agricultural firms to halt purchases of soybeans and pork from the US, according to Bloomberg and Reuters, unnamed citing sources. And China’s foreign ministry spokesman said any US attempts to harm Chinese interests would be met with firm countermeasures.
US stock futures were negative, pointing to stock falls on Wall Street when it opens later, but then turned positive.
Declines in the UK and eurozone manufacturing sectors eased in May from April’s record lows, as expected, but economists warned of a “new normal” as global demand was likely to stay weak for some time.
The dollar has weakened to its lowest level since mid-March as protests against police brutality after the killing of an unarmed black man, George Floyd, escalated, with fires burning outside the White House. Sterling hit a three-week high of $1.2425 against the dollar, as lockdown restrictions were relaxed in England, despite high Covid-19 infection and death rates.
Gold and silver prices are rising, amid some safe-haven buying. Spot gold rose as much as 1% and now is 0.36% ahead at $1,732 an ounce. Silver touched a three-month high and is now up 1.5% at $18.10 an ounce.
In corporate news, the budget fashion retailer Primark said it would reopen all its 153 stores in England on 15 June.
Ted Baker, another fashion brand, announced an emergency £105m fundraising to get the business through the coronavirus pandemic. Its founder Ray Kelvin’s 35% shareholding will be diluted after he backed the share sale.
Updated
Times are tough for carmakers (and most other companies), although car showrooms are allowed to re-open in England from today. Experts are expecting a brief surge in sales after dealerships were closed for 10 weeks, but warn that this could fade quickly as a firm bounceback in consumer demand looks unlikely.
In France, new car sales plunged 50.3% in May from a year earlier, following an 89% slump in April and a 72% decline in March, new industry figures show. Some 96,310 cars were registered in May.
Sweden’s truckmaker Scania plans major job cuts and estimates it may have 5,000 more staff than it needs because of the coronavirus crisis, Reuters reports.
Scania is owned by Germany’s Traton, in which Volkswagen has an 89.7% stake. Scania’s chief executive Henrik Henriksson said today that up to 1,000 office jobs at its headquarters in Södertalje near Stockholm are under review. The Swedish truckmaker employs 51,000 people around the world.
It said it also had too many staff in global sales and services because of a sharp fall in demand that is likely to persist for some time.
Henriksson said:
Our assessment is that it will take long before market demand reaches pre-crisis levels and we therefore need to adapt the organisation to the new situation.
These will be company-wide measures and formal notices of redundancies are not excluded.
Updated
The rally on stock markets has lost some steam. Traders have been relieved at Donald Trump’s response to China’s new security law for Hong Kong on Friday. He said he would end Hong Kong’s special status in travel and trade, but stopped short of calling for an immediate end to the former British colony’s privileges.
Today, China warned that it would adopt countermeasures. Its foreign ministry spokesman Zhao Lijian told reporters, according to Reuters:
The announced measures severely interfere with China’s internal affairs, damage US-China relations, and will harm both sides. China is firmly opposed to this. Any words or actions by the US that harm China’s interests will meet with China’s firm counterattack.
According to Bloomberg, Chinese officials told the state-owned trading companies Cofco and Sinograin to halt imports of some farm goods, which could lead to rising tensions between China and the US.
Here are the latest moves in stock markets:
- UK’s FTSE 100 up 1.04% at 6,139
- France’s CAC 40 up 1% at 4,742
- Italy’s FTSE MiB up 0.68% at 18,320
Updated
The UK’s manufacturing PMI reading for May, at 40.7, was slightly better than that for the eurozone, at 39.4.
But the main surprise today was Chinese factories’ return to growth to last month, for the first time since January. The country’s Caixin manufacturing PMI improved to 50.7 in May from April’s 49.4, above the 50 mark that separates expansion from contraction.
So the story is that countries’ factories are slowly cranking back into gear, but will have to adjust to new work practices as physical distance rules remain in place because of the Covid-19 pandemic. Economists are warning of a “new normal” with demand set to remain weak for some time.
🇬🇧 UK Manufacturing #PMI rises to 40.7 in May (April: 32.6) to signal a further sharp downturn, but the pace of contraction eases from April's record. Output, new orders and employment all fell sharply again amid #COVID-19 restrictions. Read more: https://t.co/ety9bOTOmZ pic.twitter.com/dcI0JrUAXM
— IHS Markit PMI™ (@IHSMarkitPMI) June 1, 2020
The worst of the factory downturn may be behind us, said Rob Dobson, director at Markit.
Those who typically see the glass half empty will note that the UK manufacturing sector remained mired in its deepest downturn in recent memory. Output, new orders and employment fell sharply again in May as restrictions to combat the spread of COVID-19 caused further widespread disruptions to economic activity, demand and global supply chains.
However, the glass-half-full perspective is one where the rate of contraction has eased considerably since April, meaning – absent a resurgence of infections – the worst of the production downturn may be behind us. Pressure on manufacturers should ease further as lockdown restrictions are loosened, customers return to work and global activity restarts.
However, changes to working practices, uncertainty about how long the COVID-19 restrictions may be in place for, weak demand and Brexit worries all suggest the UK is set for a drawn-out economic recovery. This will make the “new normal” one of the toughest recovery environments many manufacturers will ever have to face.
Updated
Markit, which compiles the survey, said pockets of growth at UK factories were generally linked to healthcare-related or PPE products. Some firms also noted that inflows of new business showed signs of restarting as clients began the process of reopening and the lockdown restrictions implemented both in the UK and overseas are gradually easing.
UK manufacturing PMI shows sharp fall in May
The UK manufacturing PMI has come in at 40.7 in May, little changed from the flash estimate of 40.6, and up from April’s record trough of 32.6.
Output, new orders and employment shrank at some of the fastest rates during the 28-year survey history, albeit less sharply than the records set in April. The output sub-index rose to 35.0 from April’s 16.3.
Purchasing managers report marked slowdown in #UK #manufacturing contraction in May from April record drop but decline still considerable. PMI up to 40.7 (flash 40.6; 32.6 in April). Output, new orders & jobs all fell at among the sharpest ever rates while less than in April
— Howard Archer (@HowardArcherUK) June 1, 2020
Updated
The euro is also getting a lift from expectations of further stimulus from the European Central Bank on Thursday. It is expected to raise its asset buying programme by €500bn to €1.25 trillion.
While stock markets are pushing higher on economic optimism as coronavirus lockdowns are eased further, the dollar has weakened amid widespread protests against police brutality in the US after the killing of George Floyd. The euro has been boosted by the final manufacturing PMI readings.
It's a turbulent day on forex markets. The #Euro gains half a percentage point against the #USD, after Eurozone's manifacturing #PMIs (#EURUSD = 1.115). The dollar is also falling against the #pound, with the #GPBUSD above 1.24 (+0.56%) @JuliaKollewe
— BP PRIME UK (@bpprimeuk) June 1, 2020
Chris Williamson, chief business economist at Markit, said:
While we are still set to see unprecedented falls in industrial production and GDP in the second quarter, the survey brings hope that the goods producing sector may at least see some stabilisation – and even potentially a return to growth – in the third quarter.
Whether growth can achieve any serious momentum remains highly uncertain, however, as demand – both domestically and in export markets – looks set to remain subdued by social distancing measures, high unemployment and falling corporate profits for some time to come.
He noted that headcounts continue to be cut at a rate not seen since the height of the global financial crisis in 2009 as firms scale back capacity in line with weak demand.
Prices charged for goods are meanwhile also still falling at a pace not exceeded over the past decade as manufacturers offer discounts to help clear warehouses of unsold stock. The labour market and profits could therefore deteriorate further in coming months, holding any recovery in check.
Germany recorded the lowest PMI of all countries, followed by Spain. Italy was the best-performing country, posting a smaller contraction than others at 45.4 (the 50 mark divides contraction from expansion).
Eurozone manufacturing slump eases in May
In the eurozone as a whole, factory activity shrank at a slower rate in May than in April, when coronavirus lockdowns brought economies to a virtual standstill.
The final reading for the manufacturing PMI came in at 39.4 in May, little changed from the flash estimate of 39.5, and compared with April’s record low of 33.4.
Purchasing managers report #Eurozone #manufacturing contraction slowed notably in May although still considerable amid some easing of #coronavirus restrictions; PMI up to 39.3 (flash: 39.4; 33.4 in April). Output & new orders contracted at notably slower rates but still severe
— Howard Archer (@HowardArcherUK) June 1, 2020
Germany’s final reading for the manufacturing PMI in May is 36.4, worse than expected, and up only slightly from April’s 11-year low of 34.5. It signals deep contraction.
Phil Smith, principal economist at IHS Markit, said:
The latest data show that business continues to be severely disrupted by the COVID-19 crisis. Even though more factories have started to resume operations after the loosening of restrictions, weak underlying demand is still a limiting factor, as evidenced by the survey’s measure of new orders rebounding far less than that of output in May.
Manufacturing production was already down 7-8% from a peak in late-2017 even before the onset of the pandemic, and now that figure looks to be in the region of 25-30%. With production as far as it is below capacity and manufacturers not expecting a full recovery anytime soon, factory job losses have continued to accelerate, led by another round of staff cuts in the particularly ravaged investment goods sector.
The French manufacturing PMI rose to 40.6 in May (slightly up from the preliminary reading of 40.3), compared with 31.5 in April.
Eliot Kerr, an economist at IHS Markit, which compiled the survey, said:
Despite some French manufacturers beginning to resume normal operations in May, output continued to decline following April’s record contraction. Although the rate of decline eased, the further reduction in activity highlights the challenges that the economy faces in its recovery from this crisis.
Firms are now presented with an environment of subdued demand, as clients remain hesitant to place orders amid uncertainty over the removal of restrictions and the potential for further outbreaks.
The Italian factory PMI is also stronger than expected at 45.4 in May, bouncing back from a record low of 31.1 in April, but still showing a contraction in manufacturing.
🇮🇹 Italy's manufacturing downturn softens in May, as the PMI bounces back to 45.4 from April's record low (31.1). Many factories returned to work, but cuts to workforces remained substantial amid weak demand. Read more: https://t.co/SprrE4eKYT pic.twitter.com/aw1tvOTne4
— IHS Markit PMI™ (@IHSMarkitPMI) June 1, 2020
The final reading for Spain’s manufacturing PMI for May is out. At 38.3, it’s slightly better than previously thought, but still indicates a sharp contraction, being far below the 50 mark that separates contraction from expansion.
Paul Smith, economics director at IHS Markit, which compiled the survey, said:
Spain’s manufacturing sector remained mired in a deep downturn during May as the difficulties related to the COVID-19 pandemic continued to weigh on goods producers.
Whilst there were reports of factories coming back online in response to the slight easing of lockdown restrictions, low demand, constraints on economic activity and difficulties in sourcing inputs inevitably weighed on production.
Indeed, anecdotal evidence pointed to plants operating at well below capacity with firms easily able to cope with current workloads and subsequently in many instances looking to reduce staffing numbers.
Such decisions were in part driven by ongoing pessimism about the future, with sentiment remaining deep inside negative territory as worries persist about the longer-term impacts of the pandemic on incomes and consumption.
Spain May manufacturing PMI 38.3 vs 37.8 expected https://t.co/PlaKurNKBq | https://t.co/VOmsi4fwOp #forex #trading pic.twitter.com/C9js3VTDg5
— Forex Desk (@ForexDesk_org) June 1, 2020
Updated
UK and European stocks rally
Stock markets are rallying, as Covid-19 lockdown restrictions are eased further and traders shrug off the rioting in the US. The FTSE 100 index in London is trading 1.4% higher at 6,162. France’s CAC 40 is 1.7% ahead, Italy’s FTSE MiB is up 1.4% and Spain’s Ibex opened 2% higher. Germany is closed for the Whitsun holiday.
In the UK, English primary schools have reopened for some younger children for the first time since the lockdown began 10 weeks ago, although many parents planned to keep their children at home. Car showrooms and outdoor markets are also allowed to open again from today, and up to six people can meet outside in England, at a 2m distance.
Updated
Another fashion brand, Ted Baker, has unveiled plans to raise £95m by selling shares, after slumping to a pretax loss of nearly £80m in the year to January. Its share price fell almost 7% on the news.
Ted Baker was already struggling before the coronavirus crisis struck. The firm has been embroiled in an accounting scandal and its founder and former chief executive Ray Kelvin resigned after allegations of “forced hugs” at the company. He has denied allegations of misconduct.
Updated
In corporate news, the fashion retailer Primark is preparing to reopen all its 153 stores in England on 15 June, according to its owner Associated British Foods.
Since the UK’s coronavirus lockdown was imposed on 23 March, all non-essential shops have been shut, apart from supermarkets, pharmacies and some other essential stores. All shops will be allowed to open again from the middle of the month under the easing of lockdown restrictions. Car showrooms and outdoor markets can reopen today.
Primark is installing hand sanitiser stations and perspex screens at tills and handing out face masks and gloves to staff in preparation for the reopening of stores in England.
Primark is currently trading from 112 stores across Europe and the US, equivalent to 34% of its selling space. It previously warned that it was losing £650m in sales for every month all its stores were closed.
Updated
Gold and silver continue to climb this morning after Friday’s gains, as investors seek refuge in safe-haven assets. Spot gold is trading at $1,741 an ounce, up 0.9%. Silver rose 2.7% to $18.31 an ounce.
Introduction: Asian markets rise
Good morning and welcome to our rolling coverage of the world economy, the financial markets, eurozone and business.
Markets were buoyed by economic optimism last week as lockdowns around the world were eased, despite fears of a potential second wave of Covid-19 infections. On Wall Street, the S&P 500 is now back above 3,000, and the FTSE 100 index in London ended the week above the 6,000 level.
Asian markets are up today, with Hong Kong’s Hang Seng rising 3.5% and China’s CSI 300 advancing 2.7%, despite widespread protests against police brutality and the killing of George Floyd in the US. The FTSE 100 is being called about 60 points higher.
Tensions between the US and China over Hong Kong rose last week as Beijing approved plans for a new security law to tighten its grip on the semi-autonomous territory. Donald Trump responded by announcing that he would end preferential treatment for Hong Kong in trade and travel, but traders are relieved that the phase one of the US trade deal with China appears to be intact.
China’s factories unexpectedly returned to growth last month for the first time since January, as lockdown measures were eased. The Caixin manufacturing purchasing managers’ index (PMI) for May rose to 50.7 in May from April’s 49.4, above the 50 mark that separates expansion from contraction.
However, surveys for China’s trading partners in Asia showed sharp declines in factory output. Japan’s factory activity shrank at the fastest pace since 2009 in May and South Korea also saw the worst manufacturing slump in more than a decade.
Many European markets are closed for the Whit Monday holiday, but even so the final readings for the manufacturing PMI surveys compiled by IHS Markit will be released this morning, followed by the UK’s PMI.
Flash readings showed that the UK and eurozone manufacturing sectors continued to shrink at a fast pace in May and recovered only slightly after the coronovirus lockdown measures brought economies to an effective standstill in April. You can find our latest monthly analysis of how the coronavirus crisis has hit the UK’s economic outlook here.
Marc Ostwald, chief economist and global strategist at investment firm ADM Investor Services International, says:
A new month begins with markets still riding on a wave of hope that lockdown easing will lead to a ‘strong’ recovery, an eternal hope of a vaccine being found, and more ‘stimulus’ (monetary & fiscal) measures, specifically from the European Central Bank this week.
The negatives remain all too visible - dire levels of job losses and very high levels of job insecurity, still little visibility on the economic outlook, a sharp rise in US (and many others) political tensions with China, and rising levels of social unrest, above all in the US and Hong Kong.
Over here, Brexit talks between the UK and the EU resume this week.
Finally, the Atlantic hurricane season officially starts today (more on this later), and India’s monsoon season also gets under way.
The Agenda
- 8:15am-8:55am BST: Spain/Italy/France/Germany Manufacturing PMI Final (May)
- 9:00am BST: Eurozone Manufacturing PMI Final (May) (Forecast: 39.5)
- 9:30am BST: UK Manufacturing PMI final (May) (Forecast: 40.7)
- 2:45pm BST: US Markit Manufacturing PMI Final (May) (Forecast: 39.8)
- 3pm BST: US ISM Manufacturing PMI (May) (Forecast: 43)
Updated
