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.
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.
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%.
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