And finally.... European stock markets mostly ended the day higher, although Spain was dragged down by worries over how Catalonia’s push for independence may develop.
In London, the FTSE 100 closed 66 points higher at 7,438, a rise of 0.9%. Germany’s DAX gained 0.6% and France’s CAC rose by 0.4%.
But Spain’s IBEX had a bad day, losing 1.2% following Sunday’s violent clashes over the disputed Catalan referendum.
David Madden of CMC Markets explains:
The Spanish stock market is suffering after the violent images and footage that were broadcasted around the world yesterday of the Catalonian independence referendum. The use of force by police officers shocked viewers around the globe, and the heightened tensions in the region have prompted investors to cash in their positions.
Opinion polls in advance of the referendum suggested that the pro-independence side were in a minority, but I suspect Madrid’s actions will drive up calls for independence. The political uncertainty is weighing on their stock market, and until the situation is solved, traders will be wary.
And that’s all for today. Thanks for reading and commenting. GW
Dennis de Jong, managing director at UFX.com, reckons the tensions gripping Britain’s Conservative Party have helped to drag the pound down today.
He writes:
“It has not been a Monday to remember for the pound, and the remainder of the week poses further challenges to the UK currency.
“This morning’s underwhelming manufacturing PMI reading could well spur a sell off, while Theresa May’s premiership is coming under increasing scrutiny, and that’s likely to leave the pound losing further ground.
That scrutiny has been fuelled by foreign secretary Boris Johnson, with a series of interviews and speeches in recent days that have challenged May over Brexit.
Yesterday, the PM was even asked whether Johnson was ‘unsackable’, following claims that he was actually trying to get the boot -- either to bolster support for a future leadership challenge, or simply because he’s struggling to make ends meet on his ministerial salary (a mere £140,000....).
The US economy appears to be romping ahead, if today’s ISM factory survey is any guide.
Capital Economics explain:
The rise in the ISM manufacturing index to a 13-year high of 60.8 in September, from 58.8, is the latest illustration of the benefit to the manufacturing sector from the weaker dollar and strong global demand.
The index is now, at face value, consistent with GDP growth surging above 5% annualised in the second half of this year.
Greece aims for chunky 3.5% surplus
Over in Greece the government has tabled its first draft of the 2018 budget, in which its projects a primary surplus target of 3.5%.
Helena Smith reports from Athens.
Presenting the draft before the House, alternative finance minister George Chouliarakis called it the last budget Greece would experience under international supervision.
Chouliarakis declared:
“It is clear that this will be the last budget under a [bailout] program”.
The draft, which is expected to be voted on this December, foresees the debt-stricken country not only achieving a primary surplus of 3.5% next year (high by any standards) but a GDP growth rate of 2.4%.
Athens’ leftist-led government has said it want to make a “clean exit” with the country’s return to markets its third international bailout programme expires next August. Greece’s has been shored up to the tune of more than €300bn since its near economic collapse in 2010.
#Greece News: Greek Budget for 2018 Foresees Growth of 2.4%, Primary Surplus of 3.5% https://t.co/dxMcG1uyQQ pic.twitter.com/Z5zuSw3IyD
— Corfu Κέρκυρα (@_Corfu) October 2, 2017
Mexico’s factories also had a good September.
Activity grew at the fastest rate in 16 months, sending the Mexico manufacturing PMI up to 52.8 last month, from 52.2 in August.
The jump in US factory growth is helping to keep Wall Street at record highs today.
The Dow Jones industrial average has gained 74 points, or 0.3%, to 22,479. The rally is led by Intel, Procter & Gamble and Goldman Sachs, who have all gained 1%.
This chart from Danske Bank shows how US manufacturing has strengthened in recent months (according to ISM, anyway).
🇺🇸#US #ISM manufacturing at the highest level since May 2004 and also much higher than #Markit #PMI (and hard data for that matter) $EURUSD pic.twitter.com/gV9uq9vj9i
— Danske Bank Research (@Danske_Research) October 2, 2017
ISM: US manufacturing hits 13-year high
Wow! America’s factory sector has posted its fastest growth in 13 years.
The Institute for Supply Management’s manufacturing activity index jumped to 60.8 in September, from 58.8 in August. Any reading over 50 shows growth.
This is the fastest acceleration in 13 years, and it suggests that the US economy ended the last quarter strongly.
ISM index consistent with strong US GDP growth pic.twitter.com/lTFsYk3hr5
— Johnny Bo Jakobsen (@jbjakobsen) October 2, 2017
Firms reported that new orders accelerated last month, encouraging them to take on more staff and boost production. But.... companies also experienced a big jump in material costs (as we also saw in the UK earlier).
ISM: Monster growth in New Orders, Production, Employment, Supplier Deliveries, and Pricing. So freaking strong.
— Stephen Guilfoyle (@Sarge986) October 2, 2017
ISM manufacturing prices paid at highest level since 2011 pic.twitter.com/2LDvEb2GUR
— Luke Kawa (@LJKawa) October 2, 2017
This upbeat message is backed up by Markit’s rival US PMI index, released a few minutes ago. It also rose last month, but to a more modest 53.1.
US manufacturing sector growing according to latest PMI. Although reading of 53.1 means roughly 0% change in the hard output data. pic.twitter.com/PPy41tS9MD
— Rupert Seggins (@Rupert_Seggins) October 2, 2017
Updated
Canada’s manufacturing sector has posted another month of solid manufacturing growth.
The Canadian factory PMI has risen to 55.0, up from 54.6 in August. Factory bosses reported that output and new business growth both jumped in September, with job creation also up.
Brazil’s manufacturing survey is out....and it shows that the sector expanded a little in September.
The Brazilian factory PMU came in at 50.9, matching August’s level, which indicates slow but steady growth.
Sterling has just hit a three-week low against the dollar, down 1%, or 1.3 cents at $1.3265.
The pound has also shed 0.5% against the euro, to €1.128, as this morning’s factory slowdown continues to weigh.
Lukman Otunuga, research analyst at FXTM, says:
Sterling got off to a rough start during Monday’s trading session after weaker than expected data from Britain’s manufacturing sector, suggested that the economy could be losing momentum.
It’s turning into the worst day for the pound since early June - after the last general election.
As the Tory conference gets underway sterling falls 1% vs dollar, biggest fall in 4 months (day after UK election)https://t.co/B9PvyPIVsO
— Jamie McGeever (@ReutersJamie) October 2, 2017
Updated
Uber’s UK boss, Jo Bertram, has stepped down to do something “new and exciting” instead – as the ride-hailing firm fights to retain its licence to operate in London. More here.
Uber's UK boss quits as worldwide chief flies in for London licence talks https://t.co/CvpJcqaVHz
— Guardian Tech (@guardiantech) October 2, 2017
£10bn Help to Buy funding boosts housebuilders
It’s Conservative Party conference week! And chancellor Phillip Hammond has tried to excite delegates in Manchester by extending the Help to Buy scheme.
Hammond announced that the government will provide an extra £10bn to the scheme, which lets people get a loan from the government to help buy a newly build house.
This will let the scheme run until 2021, Hammond said, meaning it can help an estimated 130,000 more homebuyers over the next few years.
.@PhilipHammondUK: I can announce an extra £10bn in funding to Help to Buy to provide loans under the scheme through to 2021 #CPC17
— CCHQ Press Office (@CCHQPress) October 2, 2017
Marvellous stuff! Except, some experts reckon Help to Buy is a deeply flawed idea that pumps up house prices rather than tackling problems with supply. After all, if you don’t build more houses, you’ll simply have more people chasing the ones on the market.
Sam Bowman, Executive Director of the Adam Smith Institute, gave the scheme a serious hoofing, saying:
“Reviving Help to Buy is like throwing petrol onto a bonfire.
The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don’t qualify for the Help to Buy subsidy.
Shares in Britain’s biggest housebuilders have jumped this morning, with Persimmon gaining 3.7% and Barratt up 3.5%. City traders have worker out that Hammond’s new cash injection will boost their profits.....
Updated
Pound takes a dip
Sterling has made a poor start to October, falling almost one cent against the US dollar to $1.3296.
The slowdown in UK factory growth last month didn’t help the pound, as it has stirred concerns over the health of the wider economy.
Connor Campbell of SpreadEx says:
The market never appreciates signs of a slowdown, especially when they are likely linked to the thick fog of uncertainty still surrounding Brexit.
Tomorrow we get a healthcheck on Britain’s construction sector, followed by the big one - the services PMI - on Wednesday.
Kathleen Brooks of City Index suspects that these surveys may be underwhelming.
We expect the rest of the surveys to also show signs of moderation as the UK economy enters a period of slow cooling rather than falling off a cliff.
There is another factor, though. The US dollar is strengthening, on rumours that the next head of the US Federal Reserve could be Kevin Warsh. He’s seen as more hawkish than Janet Yellen, the current Fed chair, so could raise interest rates more aggressively.
Nicholas Megaw of the Financial Times makes a good point about the PMI -- UK firms aren’t receiving enough support from the weak pound.
He writes:
This month’s survey showed less benefit from the pound, with fewer firms reporting a boost to overseas demand while more reported an increase in cost inflation.
Input price inflation hit a six-month high, with higher commodity prices and supply chain pressures also driving up costs.
The weak pound is pushing up costs for UK manufacturers without boosting demand as much as they'd hoped https://t.co/d1rfSl6wnf pic.twitter.com/bYd8bdhG0o
— fastFT (@fastFT) October 2, 2017
News story: Slowdown in UK manufacturing as weak pound raises cost
Here’s our economics correspondent Richard Partington on today’s UK factory survey:
Britain’s manufacturers slowed the pace of output in September amid a rise in production costs linked to the weak pound.
The Markit/Cips UK manufacturing PMI barometer of factory sentiment showed activity fell to 55.9 last month from 56.9 in August, as the cost of goods used in the production process increased to a six-month high.
Although the reading was below City expectations, the figure is still above the 50 mark that separates expansion from contraction. But the survey of purchasing executives in more than 600 industrial companies points to weaker growth in the UK economy.
Rob Dobson, the director at IHS Markit, which compiles the survey, said: “Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy.”
While the report showed gains in new orders to be slower than in the prior month, companies reported that demand remained solid in both domestic and overseas markets. But the rising cost of commodities, and the weak pound pushing up the price of other raw materials, damaged optimism in the industrial sector.
Scotiabank’s Alan Clarke said the figures were disappointing but far from a weak reading on the UK economy. “In the big scheme of things, this is reasonably in keeping with what we have seen over the past year,” he said.
Slowdown in UK manufacturing as weak pound raises costs https://t.co/YUap0ix9cv
— Richard Partington (@RJPartington) October 2, 2017
Updated
Over at Luton airport, passengers who hoped to fly with Monarch Airlines today have been scrambling to find alternative flights - or going home disappointed.
One was Mark Henson, 50, from Dover. He arrived at the airport at 4am for the same flight to Portugal, and was told it had been cancelled.
He told Press Association:
“We got told to go home: ‘We can’t help you so you may as well go home.’
“He told me I wouldn’t be be able to get a flight.”
Mr Henson was able to book two seats on a flight on Monday evening but said it was a “scandal” that prices on other airlines were so high. He accused companies of “money-making” out of “somebody else’s misery”.
The slowdown in factory growth may be partly due to Brexit uncertainty.
Bosses will be reluctant to buy expensive new machinery until they know what trading conditions they will face from 2019.
Shannon Murphy, assistant head of risk underwriting at Euler Hermes, says firms needs clarity:
“Manufacturers across a range of sectors, particularly steel and oil and gas, are cashing in on sterling’s fall in the last year while the UK continues to reap the benefits of the Single Market. However, businesses are not committing to long term investments and the flip side of the weaker pound is that increased input costs are weighing down on margins.
“The promise of a transition deal has provided reassurance, but manufacturers are calling for negotiations to progress quickly on trade and EU workers’ rights to settle the nerves on the availability of qualified overseas employees and new investment.”
We shouldn’t be too gloomy about UK manufacturing.
The sector has now racked up 14 months of growth in a row, having shrunk immediately after last year’s EU referendum.
Although PMI output index dropped back, still consistent with strong pick-up in quarterly growth in official manufacturing output in Q3. pic.twitter.com/0Opk277UU9
— Capital Economics (@CapEconUK) October 2, 2017
Ms Lee Hopley, chief economist at EEF, says UK factories are struggling to meet orders because they’ve failed to invest in new equipment:
Emerging problems in the supply chain, signalled by lengthening lead times, are likely related to the subdued investment performance of the past few quarters.
Companies will only satisfy some of their capacity needs through additional recruitment which needs to be complemented with higher capital spend on productivity enhancing investment. With the demand outlook holding up, government action in the forthcoming Budget to spur companies to commit to investment in the UK will be a priority.”
Worryingly, some UK factories are struggling to deliver their orders in time due to supply shortages, according to the PMI report.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, explains:
“The biggest news this month is the fall in the productivity of manufacturing supply chains as suppliers lost the fight to keep on top of promised delivery times and their performance weakened to the greatest extent for six-and-a-half years.
The blame lay squarely at the feet of capacity constraints and some commodity shortages in food, but also other materials such as plastics and steel.
British factories will probably be forced to pass their higher raw material costs onto consumers, which could push UK inflation even higher.
Mike Rigby, Head of Manufacturing at Barclays, warns:
With cost pressures remaining elevated and margins being increasingly squeezed, it’s only a matter of time before manufacturers raise prices which will likely impact the domestic demand that has been fuelling growth in the sector.”
The drop in the UK factory PMI in September suggests Britain’s economy is losing momentum, warns Rob Dobson, Director at IHS Markit.
He says:
“The latest PMI survey showed a modest deceleration in the rates of expansion in UK manufacturing production and new orders. Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy.
Exports remain a bright spot, however, still rising at one of the strongest rates over the past six-and-a-half years.
Dobson also warns that rising commodity prices and the weak pound will continue to drive import costs up. That will “dent profitability and potentially disrupt production schedules in coming months”.
UK factory growth slows as price pressures rise
Just in: UK factory growth slowed last month, as Britain failed to match the eurozone’s strong performance.
The UK’s factory PMI , which measures activity across the sector, fell to 55.9 in September, from August’s 56.7.
That is weaker than the City expected, and shows that the sector expanded at a more modest rate.
#UK manufacturing #PMI softens slightly to 55.9, missing consensus expectation of 56.2 according to #Bloomberg @markets pic.twitter.com/SlHHQLrOiz
— Marc Brütsch (@MarcBruetsch) October 2, 2017
Encouragingly, the survey found the new exports remained solid.
Data firm Markit says:
Growth of new export business remained among the best registered over the past six-and-a-half years. There were reports of increased sales to Europe, the USA, China and Brazil.
Some firms also mentioned an ongoing boost from the historical weakness of sterling, although this was less prominent as a factor than earlier in the year
But firms were also hit by higher costs, with input price inflation hitting its highest rate since March.
That’s due to rising commodity prices and the knock-on impact of the pound’s fall last year (which is still rippling through the economy).
Reaction to follow....
Updated
Eurozone factory PMI hits 6.5 year high
Breaking! The eurozone’s manufacturing sector has posted its best month since early 2011.
That’s according to data firm Markit, whose euro area factory PMI has jumped to 58.1, the highest in six and a half years.
That’s up from August’s 57.4, and shows that the sector grew strongly (any reading over 50 shows an expansion).
Factory bosses reported that new orders piled in last month, mainly from overseas customers. That encouraged them to take on new staff, at the fastest rate since Markit started tracking the sector two decade ago.
The recovery was pretty broad-based too, with Germany and the Netherlands recording the strongest growth. Encouragingly, Greek factories also reported growth, at the fastest rate in almost a decade.
Chris Williamson, chief business economist at IHS Markit, reckons the recovery could continue for some time....
The eurozone manufacturing boom kicked into an even higher gear in September.....
“Surging order book growth has encouraged manufacturers to take on extra staff at a rate never previously seen in the 20-year history of the PMI survey. Despite this expansion of capacity, backlogs of incomplete work built up at a faster rate, suggesting that the hiring upturn has plenty more room to run.
Spanish stock market falls after Catalonia chaos
Over in Madrid, shares have fallen following yesterday’s referendum in Catalonia, and the violent clashes between Spanish police and those trying to take part.
Catalonian president Carles Puigdemont has indicated that the region could declare independence after Sunday’s poll, even though the vote had already been declared illegal by Spain’s constitutional court.
Catalan officials say 90% of votes were cast in favour of independence, although the turnout was only 42.3% [it might have been higher if Spanish police hadn’t disrupted the vote, dragged people out by the hair and fired rubber bullet at crowds protecting poling stations].
With the next step uncertain, bank shares led the selloff in Spain - knocking almost 1% off the IBEX index.
Spanish government bonds have also been hit, pushing the gap between Spain’s borrowing costs and Germany’s close to a four-month high.
Spanish Gov bonds took a hit on Mon morning in the wake of Sund’s disputed independence vote in Catalonia @fastFT https://t.co/iDwJgX0Gqr pic.twitter.com/hZFtMRz7az
— ACEMAXX ANALYTICS (@acemaxx) October 2, 2017
Unions blast government over Monarch's collapse
The Unite union has accused Theresa May’s government of ‘sitting on its hands’ and allowing Monarch to fail.
Monarch needed help due to terror attacks in Egypt and Tunisia, which encouraged more rivals to compete on its Spanish roots. The “decimation” of the tourist trade in Turkey was another crucial factor.
But Unite argues that Monarch could have kept flying if ministers had given it a ‘bridging loan’, to cover the cost of restructuring its business.
After all, Angela Merkel provided Air Berlin with credit lines in August when it fell into insolvency, preventing its collapse.
Had German gov't not approved loan to keep #AirBerlin flying, there could have been similar repatriation effort needed as for #Monarch.
— Victoria Bryan (@vl_bryan) October 2, 2017
National officer Oliver Richardson says Britain should learn from Germany’s example:
Continuing uncertainty surrounding Brexit and the ability of UK airlines to fly freely in Europe after the UK has left the EU undoubtedly hindered Monarch getting the investment it needed to restructure and survive.
“This uncertainty, combined with the apparent unwillingness of the Government to assist at commercial rates and at a profit to the taxpayer, has left thousands of jobs at a great British airline hanging by a thread.
“Now is not the time for Government ministers to wash their hands of a problem they have contributed to.
“Ministers need to act fast by intervening in a similar way as their German counterparts did with Air Berlin and help secure a future for Monarch.”
Monarch’s unhappy demise is good news for its rivals, including Ryanair, which is going through its own crisis right now (having cancelled flights due to a lack of pilots).
Shares in easyJet have jumped by 5% at the start of trading, while BA’s parent company, IAG, are up 2%. Ryanair’s share are up over 3%.
U.K. airline shares open sharply higher after #MonarchAir put under administration pic.twitter.com/rGsTFqhaav
— Peter Hoskins (@PeterHoskinsTV) October 2, 2017
Passengers arriving at Gatwick to be told all @Monarch flights cancelled, after it ceased trading at midnight. Most going home in taxis @LBC pic.twitter.com/fwl0Kcol7S
— Rachael Venables (@rachaelvenables) October 2, 2017
Following Monarch’s collapse at 4am, the Civil Aviation Authority is now conducting the “biggest ever peacetime repatriation” in UK history.
Two flights from Ibiza have already landed this morning, at Gatwick and Birmingham, but that still leaves over 100,000 people abroad.
We are securing over 30 aircraft to fly 110,000 people back to the UK at no cost to them. #Monarch pic.twitter.com/kS1S5kN51p
— UK CAA (@UK_CAA) October 2, 2017
Anyone who arrives at a UK airport hoping to fly with Monarch Airlines will be disappointed today:
Here’s our Q&A on what they should do:
Hard Brexit would cost UK manufacturing £17bn/year
UK manufacturers fear they could lose £17bn per year in European sales if Britain leaves the EU under a ‘Hard Brexit’.
That’s according to a new report from top law firm Baker McKenzie, which examines the implications of Britain defaulting to World Trade Organisation rules.
It found that Britain’s Automotive, Technology, Healthcare and Consumer Goods businesses would all suffer if new tariffs were imposed.
Crucially, those four sectors export almost half their products to the UK; while the UK accounts for just 9% of exports from the EU. That implies Britain would suffer more than the UK under a ‘Hard Brexit’ scenario.
But can’t Britain just export more to China, the US, Korea, etc?...
....Yes, but this report reckons that UK exports to five key markets need to increase by 60% to offset ‘hard Brexit’ EU export loss.
Baker McKenzie Trade partner Jenny Revis says:
“These figures indicate the extent to which the UK’s key manufacturing sectors are likely to be hit by the impact of a hard Brexit.
You can understand why there is now mounting pressure for the UK to negotiate new customs arrangements for post Brexit trade with the EU and for companies to work with their industry groups to help shape future trading relations with the EU.”
The report also questions whether German car makers, for example, would push chancellor Angela Merkel to give the UK a good Brexit deal (as some commentators claim).
While Britain does buy a lot of German cars -- Britain is simply a less important market to Europe than Europe is to Britain, as this chart shows:
This may give Brussels the upper hand in the ongoing Brexit negotiations, warns Ross Denton of Baker McKenzie:
“We have heard a lot about how much Europe exports to the UK, for example, in the automotive sector.
“That may be true in numerical terms, but when you look at this as a percentage of their trade, you can clearly see that the EU exports a lot more broadly, to a whole host of other markets, and consequently, it is far less dependant on the UK as a market than the UK is on it. This will have significant implications for upcoming negotiations.”
The agenda: UK factory report
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover how Britain’s factories performed last month, as data firm IHS Markit publishes its health check on manufacturers across the globe.
Economists expect the UK factory PMI to drop to 56.2, from last month’s 56.9. That would indicate that growth slowed a little but remains solid (anything over 50 shows growth).
Konstantinos Anthis of ADS Securities says the figures could hit sterling.
The pound will be making headlines as well as the PMI figures from all 3 sectors of the domestic economy are pending for release over the next few days.
Today the release of the Manufacturing figures will set the stage and analysts are expecting a softer reading which could dampen expectations for a stronger pound in October. The British currency saw a strong performance during September following renewed bullishness from the Bank of England that suggested that a higher interest rate policy might be needed to arrest the rallying inflation.
A flurry of PMIs from across the world will also show how the global economy fared in September.
The other big news this morning is that Britain’s fifth-biggest airline, Monarch, has collapsed overnight leaving 110,000 holidaymakers stranded overseas. It’s the biggest collapse of a UK airline ever, according to the Civil Aviation Authority, and means 300,000 bookings have also been cancelled.
The UK is now scrambling to arrange new flight to get people home.
The CAA chief executive, Andrew Haines, says:
“We are putting together, at very short notice and for a period of two weeks, what is effectively one of the UK’s largest airlines to manage this task. The scale and challenge of this operation means that some disruption is inevitable. We ask customers to bear with us as we work around the clock to bring everyone home.”
European traders will also be watching events in Spain closely, following the disturbing scenes of violence in Catalonia yesterday
Here’s the agenda:
-
9am BST: Eurozone manufacturing PMI for September
-
9.30am BST: UK manufacturing PMI for September
-
10am BST: Eurozone unemployment report for August
-
2.30pm BST: Canadian manufacturing PMI for September
-
3pm BST: US manufacturing PMI for September
