Closing summary
Time for a recap.
Worries over a potential trade war have weighed on market today, as factories report that America’s recent move towards protectionism is hurting.
Asian stock markets tumbled by around 2% overnight, triggering a selloff in Europe.
Britain’s FTSE 100 has just closed, down 89 points or nearly 1.2%. The French CAC shed 0.9%.
The losses came after Donald Trump claimed that Europe was as bad as China when it came to trade. That has fuelled concerns that the US could impose tariffs on EU car imports.
Europe has already fired a warning shot to Washington, saying it would impose retaliatory tariffs on $300bn of US sales into the EU.
The US commerce secretary, Wilbur Ross, has defended the White House’s actions, insisting that the global trade system needed to be reformed.
Ross also declared that the recent stock market volatility wouldn’t force the administration to change its policies.
Wanna find out? https://t.co/zCiKwXezYf
— WorldFirst (@World_First) July 2, 2018
David Madden of CMC Markets explainsays :
The ongoing trade standoff between the US and China has triggered a wave of selling, as traders are fearful the tarifffs could hurt economic growth and bring about a slowdown.
There are already signs that the prospect of a trade war is hurting growth.
European factory growth slowed last month, with many bosses blaming uncertainty over tariffs for a drop in confidence.
Data firm Markit reported that output and new order growth eased in June, while business optimism hit the lowest level this year.
Trump’s tariffs on steel and aluminium, and the prospect of action on Chinese imports, is also having an effect on American manufacturing.
US factory bosses have reported a drop in confidence, and a big jump in input prices, as they await the president’s next move.
Back in the UK, UBS have warned that the pound could slide against the euro in the coming weeks, as the Brexit negotiations come to the boil.
The US stock market is recovering some ground, but the Dow is still down 100 points (0.45%) today.
ISM have also reported that every commodity got more expensive for US factories last month.
That suggests that firms were scrambling to lay their hands on raw materials before a trade war breaks out.
Commodities up in price vs. commodities down in price, according to US manufacturers https://t.co/hOC15QG9so pic.twitter.com/7AYxiUHVlG
— Joe Weisenthal (@TheStalwart) July 2, 2018
Updated
EU: Trump risks 'tax' on US citizens
Here’s our Brussels correspondent Jennifer Rankin on Europe’s threat to retaliate against America if Trump delivers on his threat to impose 20% tariffs on EU car imports.
Donald Trump will put a “tax on the American people” if he goes ahead with a threat to hit European carmakers with punitive tariffs, the European Unionhas warned.
In a hard-hitting paper, the European commission said Trump’s tariffs would be “self-defeating and would weaken the US economy”, estimating that almost $300bn (£228bn) worth of US goods could be hit by countermeasures.
The warning comes in the commission’s first detailed response to the US department of commerce following Trump’s threat to hit imports of European cars with tariffs.
“The European Union is possibly as bad as China, only smaller,” the US president told Fox News on Sunday. “They send a Mercedes in, we can’t send our cars in,” he claimed.
The EU imposes a 10% tariff on US-built cars, while the US levies a 2.5% tariff on cars assembled in Europe and a 25% tariff on European-built vans and pick-up trucks.
More here:
ISM: US factory bosses are 'overwhelmingly' concerned about tariffs
The US Institute of Supply Management has also reported that tariffs are having a negative effect on American factories.
ISM’s survey of US manufacturing found that factories are finding it harder to get supplies delivered on time. That suggests that recent curbs on steel and aluminium imports are already having an effect (echoing what Markit reported a few minute earlier)
Timothy Fiore, chairman of the ISM Business Survey Committee, says that trade war fears are weighing on the sector.
He says:
“Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue.
Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.”
Manufacturers say business is good, except for Trump's damn trade war. "Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business,” ISM says.
— Rex Nutting (@RexNutting) July 2, 2018
Despite these concerns, ISM reports that American manufacturing grew at the fastest pace in four months in June.
US factory optimism hit by tariffs
Newsflash: American factories are also feeling the impact of Donald Trump’s trade dispute.
Data firm Markit has just reported that US manufacturing growth hit a four-month low last month. New order growth slowed to the lowest rate since November 2017, which American factory bosses blamed on recent tariffs.
US purchasing managers also reported that input prices kept climbing last month. This was due to “greater global demand for inputs and the effects of recent tariffs”, Markit says.
This pulled the US manufacturing PMI down to 55.4 in June, down from 56.4 in May (so showing slower growth).
US manufacturing PMI survey points to Trump's tariffs raising the cost of inputs (parts, materials, etc) required by factories - while supply chain delays also hit a record high
— Richard Partington (@RJPartington) July 2, 2018
Markit US manufacturing:
— Ed Bradford (@Fullcarry) July 2, 2018
"Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.”
Donald Trump has argued that US manufacturing will benefit from his actions, as companies will be encouraged to seek domestic alternatives to imported goods (once they incur an extra tariffs).
But Chris Williamson, chief business economist at IHS Markit, says tariffs are having a negative effect on the sector:
Business optimism about the year ahead also fell to the lowest since January, with survey respondents worried in particular about the potential impact of trade wars and tariffs.
“Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.”
Wall Street drops in early trading
DING DING: Wall Street has joined the global selloff at the start of trading in New York.
The Dow Jones industrial average has dropped by 180 points, or 0.75%, at the open to 24,085 points. The broader S&P 500 is also down around 0.7%.
US traders are concerned that the trade dispute between the US and Europe appears to be deepening, with president Trump claiming that the EU was “as bad as China”.
The big concern is that Trump may decide to impose tariffs on imports of cars from Europe (as he threatened last month).
The news that the EU has threatened to retaliate with tariffs on $300bn of US imports suggests that tit-for-tat tariffs could hurt economic growth.
Updated
Wilbur Ross: Stock selloff won't shake Trump
The US commerce secretary has insisted that market volatility won’t deter Donald Trump from shaking up the global trade system.
In an interview with CNBC, Wilbur Ross said the US president was determined to push through changes - even if it creates uncertainty that drags stock markets down.
Ross argued that the US economy is in good shape, with strong capital expenditure and employment growth - and more jobs available than unemployed people to fill them.
All these claims that the sky is falling are at least premature and probably inaccurate.
Q: But, the markets have fallen in recent weeks as the trade disputes have gathered pace....
Ross suggests the White House isn’t concerned -- especially as US stocks have risen so sharply since Trump won the 2016 presidential election.
The stock market hates uncertainty, business hates uncertainty, everyone hates uncertainty.
The worst fear is the first of the unknown. But in the end arithmetic prevails, facts prevail, and fears are either realised or they go away.
Q: What if the stock market fell 20% from its highs (the definition of a Bear Market)?
Ross is adamant that there’s no “bright line level” that would force a change of policy.
The president is trying to fix long-term problems that should have been dealt with a long time ago.
Obviously there will be some pushing and tugging as we try to deal with very serious problems. There will be some hiccups along the way.
Ross also played down reports that Trump might yank America out of the WTO. He argues that the WTO itself understands that some reforms are needed, so it’s “premature” to talk about withdrawing from the whole agreement.
Updated
Over in Athens the Bank of Greece has released its much-awaited monetary policy report on the state of the economy following last month’s key debt-relief package.
The report - handed to the Greek parliament this morning - says the agreement reached with euro zone creditors on June 21 offers debt sustainability in the medium term but over the longer term only further reforms and more relief would guarantee it continued.
The warning echoed similar concerns expressed by the International Monetary Fund last week.
But while the Bank insisted that Greece should take stock of a precautionary credit line once it exits its last international rescue programme in August, it also said the debt relief deal would facilitate the country’s return to the capital markets from which it has been excluded for the best part of a decade.
Accessing markets again would be “the last and decisive indication that the Greek economy had surpassed the crisis,” it said.
Prime Minister Alexis Tsipras’ leftist-led coalition is bitterly against agreeing to a credit line that would be perceived to compromise the country’s ‘clean exit’ from bailout oversight.
In the report, the Bank of Greece governor, Yiannis Stournaras, said he foresaw growth rates of 2% and 2.3% for this year and next.
UBS: Pound will lose ground against the euro
The pound is flat against the euro today, at €1.13, meaning one euro is worth around 88.5p.
But Brexit uncertainty is still swirling, as Theresa May tries to devise a customs deal which her cabinet can support (and which the EU will accept).
UBS Global Wealth Management have advised clients to buy the euro against the pound, predicting that sterling will slide in the weeks ahead - especially if negotiations with Brussels fail to make progress.
Dean Turner, their UK economist, explains:
“We’ve long been advocates that economics not politics should drive markets. However, the current stalemate between the UK and Europe on a Brexit deal cannot be overlooked. In the near future, it is not just events in Threadneedle Street that will matter. Downing Street will be equally important in the minds of markets.
“Businesses have been fairly resilient in the face of Brexit uncertainty, but they may not stand for much more. If the negotiations drag on we expect confidence in a transition deal to wane. This poses a tangible risk to the economy.
“We expect there to be a drag on sterling in the coming months as the Brexit back and forth continues.”
There’s no sign of a big breakthrough yet. Instead, Brussels officials say they’re unimpressed by the UK’s latest efforts to maintain close ties to the EU while also restricting migration. More here:
Worries over trade wars are pushing many currencies down today, as traders seek the safety of the US dollar.
The pound is down half a cent against the dollar at $1.315, while the euro has lost a similar amount to trade around $1.163.
Emerging market currencies are also suffering; the Indian rupee hit its lowest level since 2013 against the dollar today.
It’s been a bad year for many emerging market currencies; the rupee, the ruble and the yuan are all down in 2018 (the Turkish lira and the Argentinian peso have really slumped, but partly for non trade-war reasons....)
Select Developing Market Currencies, YTD Performance: {@TheTerminal Chart Link: https://t.co/M3rVekNOcm } pic.twitter.com/2iCFYmSc1X
— Michael McDonough (@M_McDonough) July 2, 2018
Over in California, Tesla’s employees should have enjoyed a good night’s sleep after finally hitting their production targets.
The electric carmaker succeeded in churning out 5,000 of its Model 3 model last week, after a major push which saw founder Elon Musk spend his birthday on the production line.
It was all worth it, though, as Musk told staff that :
“We did it! What an incredible job by an amazing team.”
Musk also tweeted about his jubilation....
7000 cars, 7 days
— Elon Musk (@elonmusk) July 1, 2018
♥️ Tesla Team ♥️
...and found himself gently teased by the European boss of Ford:
7000 cars, circa 4 hours. ❤️Ford Team❤️ https://t.co/FZSclsFoS0
— Steven Armstrong (@StevenArmstrong) July 1, 2018
Ford do have rather a headstart in car production, of course...
Updated
Copper price hits three-month low
The price of copper has hit its lowest level since late March, as investors fear that tariffs are hurting economic growth.
Reuters has the details:
Benchmark copper was down 0.5% at $6,585 a tonne at 1040 GMT from an earlier $6,550 a tonne, its lowest since March 26.
Prices of the metal used widely in power and construction have tumbled 10 percent since June 7.
“Investors are taking risk off the table because of trade tensions, which threaten Chinese exports to the United State sand also their profit margins,” said SP Angel analyst John Meyer. “Industrial metals rely on China.”
The selloff is partly due to this morning’s factory data, showing that Chinese factories suffered a drop in export orders last month.
The US stock market is expected to drop when trading begins in three and a half hours, following the lead from Asia and Europe.
The Dow Jones Industrial Average is being called down 167 points, or 0.7% while the S&P 400 is expected to drop 16 points or 0.5%.
Back the markets, shares continue to be buffeted by trade war worries.
The main European indices are all in the red, after Donald Trump and the EU both raised the ante in their ongoing tariff dispute. This follows those heavy losses in Asia, where major markets lost over 2%
Here’s the damage:
- Britain’s FTSE 100: down 77 points, or 1%, at 7,558
- French CAC: down 53 points or 1% at 5,270
- German DAX: down 55 points or 0.5% at 12,250
Fiona Cincotta of City Index says markets are also suffering from the news that Canada has slapped tariffs on US imports (in retaliation for Donald Trump’s earlier actions).
She explains:
From Sunday Canada started imposing trade tariffs on $12.6 billion worth of American goods including iron, orange juice and whiskey in response to the US tariffs on Canadian steel and aluminium which were introduced on 22 June.
America’s northern neighbour joins the ranks of the EU and Mexico, both of which have also hit back against US import tariffs with tariffs of their own, with Mexico penalising imports of US pork, steel, cheese and apples and the EU levying duties on whiskey, motorcycles and orange juice.
Amid the trade whirlwind investors are now increasingly looking for stocks that will be the least effected by the tariff tit-for-tat although it is difficult to say what these stocks may be given that Donald Trump has already said he intends to respond with another set of trade tariffs in response to his trade partners’ reaction.
Finally, some good news. Unemployment across the eurozone is its lowest since the financial crisis began a decade ago.
The euro-area jobless rate was 8.4% in May, statistics body Eurostat reports, matching April’s figure. It’s the lowest reading since December 2008.
In the wider EU, unemployment was a healthier 7.0% - the best since August 2008, shortly before the collapse of Lehman Brothers triggered a global downturn.
Encouragingly, unemployment has fallen in every eurozone country in the last 12 months. But there are still wide disparities in the region.
Eurostat says:
Among the Member States, the lowest unemployment rates in May 2018 were recorded in the Czech Republic (2.3%) and Germany (3.4%). The highest unemployment rates were observed in Greece (20.1% in March 2018) and Spain (15.8%).
May 2018: euro area #unemployment stable at 8.4%, EU28 at 7.0% #Eurostat https://t.co/uOGsCz79S7 pic.twitter.com/AqIsbzjjET
— EU_Eurostat (@EU_Eurostat) July 2, 2018
Experts: Trade war fears are hurting European factories
Economists are concerned by this morning’s factory growth figures from the UK and the eurozone.
Jeremy Thomson-Cook, chief economist at WorldFirst says there is weakness at the heart of the UK’s manufacturing sector:
Growth is lower as manufacturing business rely on backlogs and inventory building to keep machines working, something that cannot continue for too much longer.
Similarly, businesses are passing on higher costs to customers but there will be a limit as to how much those customers can or will take. Risks for the sector remain in everything from the weakness of sterling, the threat of trade tariffs and more difficult international trade terms, Brexit and those higher input prices from commodity markets.
The trend in UK manufacturing is one of weakness and this figure confirms that fact.”
PMIs show the evidence of global slowdown.
— Daniel Lacalle (@dlacalle_IA) July 2, 2018
Manufacturing PMI June 2018
China 51.0 vs 51.5 in January
Eurozone 54.9 vs 59.6 in Jan
Japan 53.0 vs 54.8 in Jan
Ms Lee Hopley, chief economist at manufacturing group EEF, is concerned that factory growth slowed across Europe last month:
With the rest of the EU being a dominant source of growth over the past year this slowdown, in part driven by fears about global trade tensions, could be a further signal of more weakness to come.”
Lee McDarby, Corporate IP Managing Director at moneycorp, thinks Brexit is making companies too nervous to invest right now:
“In normal times we would expect the weak pound, especially against the Dollar, to have translated into higher manufacturing growth. These are not normal times, however.
The weakness of sterling is reflective of investor concern about Brexit and the strength of the UK economy and it could be that these same concerns are holding back manufacturers from investing in growth
Newsflash: factory growth in Britain remained steady last month, but bosses are getting gloomier.
Markit’s UK manufacturing PMI has come in at 54.4 this morning, slightly up on May’s 54.3 (reminder, any reading over 50 shows growth).
But the survey also found that new order growth remained subdued, meaning companies relied on existing business and inventory building to keep their staff busy.
Markit says:
Although the rate of increase in new business edged up to a three-month high, it remained among the weakest registered over the past year- and-a-half.
Business optimism also dropped last month, to a seven-month low, Markit adds.
Some firms expressed concerns about input price increases, possible future trade tariffs, the exchange rate and Brexit uncertainty.
Updated
Eurozone factory growth hits 18-month low
Newsflash: eurozone factory growth has slowed to an 18-month low - another sign that trade war fears are hurting the economy.
Data firm Markit reports that output and new order growth at European firms has slowed this year, and that factory bosses are more pessimistic about future business.
This has dragged Markit’s eurozone manufacturing PMI, which tracks activity in the sector, down to 54.9 from 55.5 in May.
That’s the weakest reading since the start of 2017, and closer to the 50-point mark that shows stagnation.
According to Markit, factory production grew at the slowest pace since November 2016 while new business growth was the weakest since August 2016.
This pulled business optimism down to its lowest level in over two-and-a-half years.
The survey also found that France is lagging behind other eurozone nations:
Chris Williamson, chief business economist at IHS Markit, is particularly concerned that exports orders remain subdued:
The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline. The survey reveals mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses.
Not surprisingly, business expectations for future production deteriorated in June to the lowest November 2015.
Updated
City economist Paul Donovan of UBS isn’t impressed by Trump’s claim that Europe is “as bad as China” when it comes to trade.
He says:
US President Trump sounded upset about Europeans selling Americans things Americans want to buy.
The Financial Times reports the EU is threatening to tax a fifth of US exports if the US imposes taxes on consumption of EU autos and auto parts. That would be a trade war. US carmakers are lobbying against the proposed US taxes, showing that tariffs are an outdated concept.
July has started in a “troubled mood”, says Connor Campbell of City firm SpreadEx, as he watches the main European markets slide into the red.
Campbell blames the trade war fears that are rippling through trading floors today:
Trump kicked off July by targeting the EU, not China, saying that the region was ‘possibly as bad’ as Beijing in how it treats the US, ‘just smaller’.
This has sent the President’s previous threat of tariffs on EU car imports back to the top of investors’ ‘To Fear’ lists, with the added spice of a report from the Financial Times suggesting the European Union could respond in kind with tariffs of $300 billion on US products.
Financial stocks are also having a bad morning.
The Stoxx 600 banks index, which tracks Europe’s largest banks, has dropped by 1.9% in the first few minutes of trading.
FTSE stumbles into July
Britain’s FTSE 100 has fallen by 72 points, or almost 1%, at the start of trading.
That takes the blue-chip index of top shares down to 7574 points.
Mining companies are leading the selloff, with Rio Tinto and BHP Billiton both down over 2%.
That reflects the fact that demand for iron ore, coal, nickel, copper and oil will all fall if Europe and America hit each other with tit-for-tat tariffs.
Other European markets have also opened in the red, with the German DAX shedding 1.3% at the open.
Konstantinos Anthis, Head of Research at trading firm ADSS, says
Investors are worried about the stalemate in discussions within Angela Merkel’s Germany coalition government and Trump’s intention to slap China with more tariffs.
Chinese exports drop again as trade war looms
In a worrying sign, Chinese factories are suffering from falling export orders.
Data firm Caixin has reported that new export sales at Chinese manufacturing firms shrank last month, for the third month in a row. That may be a signal that Trump’s tariffs are already hurting global trade.
Caixin also flagged up that Chinese factories are shedding jobs, as some don’t have enough work lined up.
Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, explains:
The index for new export orders fell to a low for the year so far and remained in contraction territory, pointing to a grim export situation amid escalating trade disputes between China and the U.S., which led to weak demand across the manufacturing sector.
Asian stock markets are a sea of red today, as traders fret about the prospect of a global trade war.
Every major share index is in the red, and many emerging market currencies are sliding against the US dollar again.
Donald Trump’s claim yesterday that Europe was treating the US unfairly has helped to drive markets down.
Bad, bad day across Asia. Horrible start to the second half. pic.twitter.com/8Qw3yTlue0
— David Ingles (@DavidInglesTV) July 2, 2018
Jasper Lawler of London Capital Group says Europe’s threat to impose fresh tariffs on American goods has also alarmed investors:
A ramping up of trade war headlines over the weekend, such as a strong warning of retaliation from the EU and a potential currency war with China (US), will ensure that the fear of an all out global trade war is central in trader’s mind, as the session begins on Monday.
The agenda: Trump blasts Europe; EU threatens retaliation
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The second half of the financial year is beginning where the first half left off, with rising anxiety over a trade war.
Overnight, Donald Trump has launched a fresh attack on the European Union, claiming it treated the US very badly and was “possibly as bad as China, just smaller”.
Speaking on Fox News, the US president declared:
“Look what they do to our farmers, they don’t want our farm products. In all fairness they have their farmers so they want to protect their farmers.
“But we don’t protect ours and they protect theirs.”
Trump’s comments raise the prospect that the US could impose further tariffs on EU imports - possibly on car imports (something he threatened last month).
Europe isn’t taking Trump’s sledging lying down, though.
According to the Financial Times, the EU has threatened to retaliate with tariffs on up to $300bn of US products, if the US does indeed penalise EU carmakers.
The threat of retaliatory tariffs on US imports into Europe came in a written submission to the US Department of Commerce, outlining how the bloc would respond to Trump’s threats.
The FT’s Jim Brunsden explains:
Brussels said that an American investigation into whether foreign cars and parts posed a national security risk could plunge the global economy into a full-on trade war, harming employment in the US’s auto sector, which accounts for more than 4m jobs.
In a sign of the EU’s exasperation at Mr Trump’s confrontational trade policy, which has already stoked tensions over steel and aluminium, the document said the move “could result in yet another disregard of international law” by the US. It said imposing the car tariffs would not be accepted by the international community and would “damage further the reputation” of the US.
Monday’s FT: Trump car tariffs threaten to spark full-scale trade war, warns Brussels #tomorrowspaperstoday pic.twitter.com/g8igoU29jc
— Helen Miller (@MsHelicat) July 1, 2018
This has already sparked a selloff in Asia, where Japan’s Nikkei and China’s CSI 300 index have both shed 2%.
European markets are set for losses at the open too, with the FTSE 100 called down 50 points.
#FTSE100 called to open -50pts at 7585 pic.twitter.com/frN3hoeXuQ
— Mike van Dulken (@Accendo_Mike) July 2, 2018
Also coming up today
Data firm Markit is publishing its latest Purchasing Manager Index (PMI) reports, showing how manufacturing companies across the world fared last month. They’ll show whether the threat of a global trade war has hurt factories.
And in Germany, Angela Merkel is still locked in battle with her CSU coalition over migration. Last night, the country’s interior minister reportedly announced his intention to resign - a move that could bring down the Chancellor’s increasingly shaky coalition.
Merkel and Horst Seehofer are due to hold fresh talks this afternoon, so the great survivor of European politics could yet see off another crisis.
Here’s the agenda:
- 9am BST: Eurozone manufacturing PMI for June
- 9.30am BST: UK manufacturing PMI for June
- 10am BST: Eurozone unemployment figures for May
- 3pm BST: US manufacturing PMI for June
Updated
