Don’t mention the trade war
The biggest excitement yesterday came while Europe was asleep. White House trade advisor Peter Navarro said the Chinese trade deal was “over” and then, a couple of hours later, said it was not over at all. It got things moving in an unhelpful sort of way.
The reported end of the Chinese trade deal rattled investors, sending equities lower and the US dollar and Japanese yen higher. Its hasty resurrection reversed that move, hurting the yen more than dollar and making it the weakest performer among the major currencies, down by an average of 0.5%. Whatever the concerns of investors about the resurgence of the tragic Covid-19 pandemic, they are clearly still sensitive to the risks posed by Trump’s trade war with China.
That sensitivity does not as yet extend to trade disputes between the States and Europe. However, the lack of accord between Brussels and the White House, coupled with an election looming and increasingly desperate for a political win, it is not inconceivable that the US president could start a fight with Brussels in the next couple of months.
The CBI’s monthly Industrial Trends Survey found UK manufacturing output falling in June to its lowest level since the measure began in 1975. The decline in production was matched by falling orders but the drop there in June was less severe than the previous month.
The negative balance for output – the difference between firms reporting a rise and those reporting a fall – widened from -54% to -57% while export orders worsened from -55% to a record -79%. Total orders improved slightly from -62% to -58%. Yet industry remains optimistic: “Firms are again hoping [the significant fall in demand] will ease somewhat in the next three months.”
The Bank of England will also be hoping that things improve in coming months. Governor Andrew Bailey told Sky News that the government could have gone bust if the bank had not stepped in to provide working capital. He said “we basically had a pretty near meltdown of some of the core financial markets.” Curiously, despite those two chunks of bad news the pound had a successful day, losing out only by a nose to the Swedish krona. It strengthened by an average of 0.3%, beating the euro by a tenth of a cent and taking three quarters of a cent off the US dollar.
Here comes the recovery
A handful of soft (i.e. subjective) ecostats yesterday and overnight gave an impression that the global economy has begun to dig itself out of its hole. The Chicago Fed’s National Activity Index suggested that growth “increased substantially in May” and Euroland consumer confidence picked up from -18.8 to -14.7, a second monthly improvement.
There was more good news overnight from the provisional purchasing managers’ index readings. Markit’s composite PMI pointed to a return to growth of Australian private sector output with a near-doubling from 28.1 to 52.6. France delivered positive above-50 readings for both manufacturing and services. Germany’s composite PMI was still in the contraction zone at 45.8 but it was 13½ points higher on the month. Japan was the weakest link at 37.9 and even that level represented a ten-point improvement.
Analysts expect Britain to deliver provisional manufacturing and services PMIs of 45 and 40. The equivalent US measures are pencilled in at 48 and 46.5. Other numbers today cover South African business confidence and unemployment, US new home sales and the Richmond Fed’s manufacturing index. Tonight the Reserve Bank of New Zealand is expected to leave the Official Cash Rate unchanged at 0.25%.