The strong pound has pulled Britain’s stock market into the red.
The FTSE 100 index of blue-chip shares has just closed 75 points lower at 7,128, down over 1%.
Just in: Donald Trump has denied that America’s economy is struggling (despite today’s weak PMI report)… but taken another swipe at the Fed for not cutting interest rates faster.
He won’t be pleased to hear that two Fed policymakers – Kansas City Federal Reserve President Esther Georgeand Philadelphia President Patrick Harker – have told CNBC they don’t see the case for additional interest rate cuts following the central’s bank quarter-point cut in July. More here.
Time for a quick recap.
- The pound has rallied after Angela Merkel denied setting the UK a 30-day deadline to solve the Irish border problem.
America’s yield curve has inverted again – a sign that bond investors are concerned to hear that US factory output is shrinking.
The yield on 10-year Treasuries is now 1.59%, compared to 1.6% for two-year Treasuries.
Typically the longer-dated debt would trade at a higher yield, giving a better rate of return to make up for the risk of lending for longer.
Newsflash: America’s factory sector is shrinking for the first time in almost a decade – a sign that the trade war with China may be hurting.
Data firm Markit has just reported that its US manufacturing PMI has fallen to 44.9, down from 50.4 in July.
This is the first time since September 2009 that this PMI has dropped below 50.0 – the point that separates expansion from contraction.
Photograph: Markit
US factory bosses reported that new business fell, only a little, but at the fastest rate in a decade. Exports also fell, at the fastest rate since August 2009.
This is going to fuel concerns that the US economy is slowing.
Markit also found that service sector growth also dipped, pulling the overall US Composite Output Index down to 50.9, a three-month low.
Tim Moore, economics associate director at IHS Markit, explains what it means:
August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%.
The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.
Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009.
Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.”
The pound has just jumped, after Angela Merkel played down the suggestion she’s set Britain a new 30-day deadline to solve Brexit.
Yesterday, when meeting Boris Johnson, the chancellor said the conundrum of the Irish backstop could possibly be solved within 30 days.
But speaking in the Netherlands today, Merkel denied this was a new, hard deadline of mid-September.
She said her comments were was merely “an allegory for being able to do it in a short period of time”.
It would be better to say one can achieve that by October 31.
This has pushed sterling up by a whole cent against the US dollar, to $1.225.
I’m not sure this is a major development, though. Brussels hasn’t shifted from its position that a hard border in Ireland must be avoided. The backstop is an insurance plan against that — Johnson needs to come up with a better idea quickly.
Ding ding! The New York stock market has opened a little higher, as investors await news from the Jackson Hole central banking symposium tomorrow.
Here’s the opening prices:
- Dow: up 87 points or 0.35% at 26,290 points
- S&P 500: up 8.68 points or 0.3% at 2,933 points
- Nasdaq: up 82 points or 0.27% at 8,042 points
Barely a day goes by without Donald Trump undermining the Federal Reserve’s independence… and he’s just done it again.
The president is still fuming that Germany sold over €800m of 30-year bunds at a negative interest rate on Wednesday (meaning investors won’t get any return at all).
This, Trump feels, is further evidence that US interest rates are too high and should be cut.
But.. it’s not clear that German’s record low bond yields are a reason to celebrate. They reflect concern that Europe’s economy is weak, with low growth and inflation, and the prospect of a new bond-buying programme from the ECB soon.
Another retail survey has been released, which backs up the CBI’s gloomy assessment of the sector.
The latest IMRG Capgemini eRetail Sales Index shows that online spending fell by 5.7% in July, compared with June. This dragged the annual increase in web spending down to just 4.4% – much weaker than the 10% averaged over the last five years.
This slowdown came despite the hot weather in July (which might have encouraged online purchases of summer clothes and kit), and Amazon’s Prime Day – copied by many other retailers who offered their own sales.
Andy Mulcahy, strategy and insight director, IMRG, said:
Online sales growth had been subdued throughout the first half of 2019, but in June there seemed to be a bit of a bounce-back that hinted toward growth picking up again.
However, there is now evidence that the June performance was artificially inflated by heavy discounting to stimulate sales activity, and it seems likely that some of that volume was pulled forward from July.
Source
Adam Samson (@adamsamson)
Akane Otani (@akaneotani)
Bloomberg Markets (@markets)
