Euro zone economy remains weak but green shoots emerging: PMIs By Reuters


© Reuters. Worker moves Audi R8 car body in German car manufacturer’s plant in Neckarsulm

By Jonathan Cable

LONDON (Reuters) – Euro zone business activity remained lacklustre at the start of the year, a survey showed a day after the European Central Bank said the manufacturing sector remained a drag on the economy, but there were some glimmers of hope for policymakers.

ECB rate-setters did not make any policy change on Thursday, standing by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal.

Still, the slowdown in euro zone economic activity has probably bottomed out, according to a Reuters poll last week, which showed while the outlook for growth and inflation remained lukewarm the chances of a recession have faded. [ECILT/EU]

That outlook was somewhat supported by IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, which held at 50.9 in January but missed the median prediction in a Reuters poll for 51.2.

Anything above 50 indicates growth.

“The unchanged reading for the euro zone’s Composite PMI in January leaves it still consistent with fairly slow GDP growth,” said Jack Allen-Reynolds at Capital Economics.

Following Friday’s PMI, the euro continued to languish near a seven-week low after the ECB’s more dovish tone at Thursday’s meeting than some had expected.

An earlier PMI from Germany, Europe’s largest economy, showed the private sector gained momentum as growth in services activity picked up and the pullback in manufacturing eased.

French activity expanded at a weaker pace as nationwide strikes weighed and IHS Markit cautioned growth outside of Germany and France slowed to a six-and-a-half year low.

Britain’s performance bettered the euro zone’s for the first time since December 2018, a separate PMI showed, the strongest evidence yet of a post-election boost to the economy that could deter the Bank of England from cutting interest rates next week. [GB/PMIS]

The euro zone’s headline index was bogged down by a still struggling factory industry. The manufacturing PMI marked the 12th month below the break-even mark, registering 47.8 – albeit an improvement on December’s 46.3 and well above the Reuters poll’s 46.8.

An index measuring output, which feeds into the composite PMI, rose to 47.5 from 46.1, its highest since August.

While most forward-looking indicators in the manufacturing PMI remained in negative territory, they were moving in the right direction. The new orders, employment, backlogs of work and quantity of purchases indexes were all still sub-50 but did rise.

“With manufacturing showing early signs of recovery and the service sector continuing to grow, chances of a recession are receding further,” said Bert Colijn at ING.

However, the PMI for the bloc’s dominant services industry weakened to 52.2 from 52.8, confounding expectations for no change.

And possibly of concern to policymakers, demand weakened suggesting there won’t be a significant turnaround anytime soon. The services new business index fell to 51.5 from 52.1.

But optimism about the year ahead bounced. The composite future output index climbed to 61.2 from 59.4, its highest reading since September 2018.

Consumer confidence remained unchanged in January from December, official flash figures released on Thursday showed.



U.S. economy to coast, no big boost expected from trade deal: Reuters poll By Reuters



By Rahul Karunakar

BENGALURU (Reuters) – The initial trade deal between Washington and Beijing is unlikely to provide a significant boost to the U.S. economy and will only reduce the downside risk or at best help activity moderately, a Reuters poll showed.

While financial markets were optimistic in the run-up to and after the trade agreement – with U.S. stocks hitting all-time highs last week – the growth and inflation outlook in the latest poll was little changed from the previous few months.

The Jan. 16-22 Reuters poll of over 100 economists – taken as business leaders gathered at the World Economic Forum in Davos to be greeted by the IMF cutting its global growth forecasts again – showed a significant pickup in the U.S. economy was not on the cards.

“The recent Phase 1 deal between the U.S. and China suggests decreasing odds of an escalation to a full-blown trade war. However, the deal so far is not comprehensive enough to significantly boost economic momentum,” said Janwillem Acket, chief economist at Julius Baer.

That was also clear from predictions for the Federal Reserve to remain on the sidelines this year and on expectations the next likely move would be a cut rather than a hike.

“It is almost a one-way bet on the Fed right now, that either they are on hold or they are easing this year. I mean there is virtually no chance of tightening,” said Jim O’Sullivan, chief U.S. macro strategist at TD Securities.

Reuters polls over the past couple of years have repeatedly pointed to the U.S.-China trade war as the prominent downside risk for the American economy and warned it would bring the next recession closer.

Now, despite a signed trade agreement, albeit a partial one, the chances of a U.S. recession were similar to predictions in recent months – around 20-25% in the next 12 months and about 30-35% in the next two years.

“Recession odds, which we peg at roughly one-in-four in 2020, will wax and wane with developments on the trade war front,” said Sal Guatieri, senior economist at BMO.

“While recent progress is encouraging, we remain skeptical that a broad accord can be reached this year as complex issues, such as state industry subsidies and forced technology transfers, still need to be resolved.”

All 53 respondents polled said the latest deal would either “reduce the downside risk to the U.S. economy” or “help U.S. economic growth moderately.” Not a single economist said it would “significantly boost growth.”

Reuters poll graphic on the U.S. economic outlook https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-ECONOMY-POLL/0H001QXXSBK3/index.html?eikon=true

The U.S. economy will coast with annualized growth expected to have barely moved from the latest reported rate of 2.1% at the end of the forecast horizon – the second quarter of 2021.

“The growth slowdown has probably troughed, but we do not anticipate a V-shaped recovery,” noted Kevin Loane, senior economist at Fathom Consulting.

While the schism in forecasters’ views was clear, with 28 respondents saying the risks to their growth forecasts were skewed more to the upside and 22 seeing downside risks, most economists agreed any significant boost was unlikely.

That was largely attributed to several other events which could prove disrupting – including a period of uncertainty in the lead-up to the U.S. presidential election in November.

“Our views for 2020 are upbeat but cautious. A rebound from last year’s global manufacturing and trade slump is likely, but businesses will be hesitant to invest amid a host of ongoing uncertainties,” said James Sweeney, chief economist at Credit Suisse (SIX:).

With little change expected in the inflation outlook compared to recent months, all 105 economists polled forecast the Fed would keep rates unchanged at 1.50-1.75% when it meets Jan. 28-29.

The Fed was forecast to extend that pause through to the end of 2021 at least, with the probability of a rate cut this year seen at 30%.

While there was a clear sense of near-term optimism among economists compared with last year, nearly 75% of respondents forecast growth to be below the latest reported rate of 2.1% by mid-2021, up from around 60% in December.

“The (trade) deal may encourage some business investment in the near-term, but the deal is only a temporary and unstable equilibrium. It is very likely to break down, and that would undermine confidence again. So any boost to economic growth will be short-lived,” said Philip Marey, senior U.S. strategist at Rabobank.

Reuters poll graphic on U.S. recession probability https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-ECONOMY-POLL/0H001PBJD5BF/index.html?eikon=true

(Additional reporting, polling and analysis by Indradip Ghosh, Sumanto Mondal and Nagamani Lingappa; Editing by Ross Finley and Andrea Ricci)



China’s Economy Grew 6% in Fourth Quarter as Demand Stabilized By Bloomberg



(Bloomberg) — China’s economy stabilized last quarter after slowing to the weakest pace in almost three decades, as rising demand and easing trade tensions supported sentiment.

  • Gross domestic product rose 6% in the final quarter of 2019 from a year earlier, the same as in the previous three-month period and the median estimate

Key Insights

  • The world’s second-largest economy expanded by 6.1% in 2019, slower than 6.6% the previous year
  • Industrial output rose 6.9% in December from the same period the previous year, versus the median forecast of 5.9%
  • Retail sales rose 8% versus an estimate of 7.9%
  • Fixed-asset investment rose 5.4% in the year, versus an estimate of 5.2%
  • The signing of the phase-one trade deal this week combined with recovering global demand have improved the outlook for Chinese factories and exporters in 2020. However, it remains to be seen whether that carries over into a sustained recovery, with increased investment and consumption domestically
  • Policy makers have signaled they are prioritizing economic stability in 2020, with stimulus to be kept basically unchanged
  • “The pace of slowdown should moderate, supported by a cyclical bottoming in the first half of 2020,” JPMorgan Chase (NYSE:) & Co. economists including Zhu Haibin wrote in a note. Yet the growth momentum will likely soften in the second half, because the implementation of the phase-one deal could be “bumpy” and the chances for further agreement are slim, he said.

Get More

  • The surveyed jobless rate stood at 5.2% at the end of 2019
  • China had 14.65 million newborns in the year, compared with 15.23 million in 2018
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



As China seeks to spark night economy, on-demand chauffeurs for drunk drivers see surge By Reuters



By Colin Qian and Thomas Peter

BEIJING (Reuters) – It was freezing and the streets were slick as substitute driver Liu Pengfei bade farewell to his mother, wife and son before riding into Beijing on his tiny scooter.

Liu, 33, and his fellow drivers make their living getting drunk people safely home. And with Beijing urging restaurants, entertainment venues and public transportation to extend hours in a bid to boost consumption, Liu’s clients on DiDi Chuxing, China’s biggest ride-hailing service platform, have multiplied.

“My orders after midnight have grown a lot, and a third more of my customers are asking me to drive them to the next entertainment spot instead of going home,” Liu said. “(Our) business makes the most money in the later half of the night.”

His rates triple after midnight.

The high payoff has lured Liu to travel 20km (12 miles) from his home in nearby Hebei province daily. He earned 12,000 yuan ($1,742) a month on average last year. In some months, he raked in nearly 19,000 yuan, more than two times the average Beijing salary.

He and other drivers hang around night spots – less than 100 meters (100 yards) away, 12 men at a table were gorging on meat and downing beer – and when hired, use their clients’ own cars to drive them home.

The drivers check their phones as they wait, ready for their first customer of the night to contact them through a mobile app.

It is too soon to say whether extending opening hours of malls, creating food streets, and putting on late-night cultural performances will boost China’s consumption, with the economy still languishing at near 30-year lows. But on-demand drivers seem to be one early beneficiary.

Data from DiDi shows night-time orders for drivers increased 20% in Beijing’s central business district last year compared with a year earlier. In other cities like Dongguan, Changsha and Zhengzhou, orders jumped even more, as much as 50%.

Liu said he sees his business as promising, and plans to stick with it for the next few years.

But, inevitably, family life suffers.

“Some weekends, my son would hug my leg when I leave, crying and asking me to play with him,” Liu said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



China’s economy expanded by 6.1% in 2019 By Investing.com


© Reuters.

By Cornelia Zou

Investing.com- China’s economy grew 6.1% in 2019, the lowest rate of growth since 1990, according to gross domestic product (GDP) growth data released by the National Bureau of Statistics Friday morning.

The rate is lower than the expected 6.2% but still within the 6% to 6.5% target the central government had set in early 2019. The world’s second-largest economy grew 6.6% in 2018.

Growth in the fourth quarter of 2019 came in at 6%, unchanged from the previous quarter.

Industrial output rose 6.9% in December year on year versus the median forecast of 5.9%; and retail sales rose 8%, also higher than the estimated 7.9%

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Drag from Trump’s trade wars continues to ripple through U.S. economy


WASHINGTON (Reuters) – As U.S. President Donald Trump and Chinese Vice Premier Liu He prepare to sign a “Phase 1” trade deal, new data show that the costs of Trump’s trade wars are proving more widespread, deeper and longer-lasting than previously believed.

FILE PHOTO: U.S. President Donald Trump, U.S. Secretary of State Mike Pompeo, U.S. President Donald Trump’s national security adviser John Bolton and Chinese President Xi Jinping attend a working dinner after the G20 leaders summit in Buenos Aires, Argentina December 1, 2018. REUTERS/Kevin Lamarque/File Photo

Research from the U.S. Federal Reserve and other top economists shows that U.S. tariffs on Chinese industrial components and materials, which largely won’t be lifted by the deal, are proving especially damaging to American manufacturing competitiveness and jobs.

The White House has scheduled a signing ceremony on Wednesday for what Trump is touting as “the greatest and biggest” trade deal ever made, with China expected to pledge to boost purchases of American exports by $200 billion over two years, including $80 billion more in manufactured goods, $32 billion more in farm products and $50 billion more in energy.

China also has promised to open its financial services market, improve protections for intellectual property and forbid the forced transfer of technology to Chinese companies. But Beijing has a history of pledging reforms that don’t happen, and many consider the purchase targets unrealistic.

The deal caps years of U.S. tensions with China that boiled over into a trade war 18 months ago, as Trump slapped new duties on $370 billion worth of goods from China. Beijing hit back with retaliatory tariffs on over $100 billion worth of U.S. exports.

The trade war’s most immediate effect has been a drag on global economic output. The World Bank last week marked down its global growth forecasts here for 2020 and 2021 because of a slower-than-expected recovery in trade.

Early predictions that Trump’s tariffs could spark a U.S. recession have proven unfounded, in part because of the consumer-driven nature of the American economy. The Trump administration’s 2017 tax cut package and three Fed interest rate cuts in 2019 also helped stimulate activity.

The U.S. tariffs on China targeted industrial goods, components, semiconductors and machinery. Major tariffs on consumer goods such as cellphones, laptop computers and toys were scheduled to go into effect last month, but the Phase 1 deal suspended them indefinitely.

Trade wars were a key factor in a broad slowdown of U.S. manufacturing activity last year. U.S. manufacturing output fell in seven of 11 months, with an annualized 3.3% drop in the second quarter, the largest since the second quarter of 2009, when the economy was in recession, according to data compiled by the U.S. central bank.

Aluminum, electric lighting, furniture, semiconductors and steel mills saw the most benefit from tariff protections, while companies that stamp, forge and otherwise process steel and aluminum into components and end-products suffered the most from higher input costs.

U.S. companies have paid $46 billion in tariffs since Trump, who has adopted an “America First” trade policy to revitalize the manufacturing sector, started restructuring relationships with Washington’s major trading partners.

Tariffs that will remain on goods from China after the Phase 1 trade deal are a big problem for the U.S. economy going forward, said Mary Lovely, a trade economist at Syracuse University in New York state.

“You’re taxing things that our businesses need to be competitive, and yet you’re saying the point of this is to support manufacturing,” Lovely said of Trump’s tariff actions. “But it does seem very clear now that the data is pointing in that direction, that these (tariffs) are having a negative effect on manufacturing.”

NET JOB LOSS

A new Fed paper here released on Dec. 23 analyzes the effect of all new tariffs imposed in 2018 and 2019, including global steel and aluminum duties, on the industries that are most exposed to the tariffs and those that benefit the most from them. It estimates that the tariffs caused more manufacturing job losses than were gained during those years.

“For manufacturing employment, a small boost from the import protection effects of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs,” Fed researchers Aaron Flaaen and Justin Pierce wrote.

U.S. tariffs on bicycles and components from China have prompted Arnold Kamler, chairman and chief executive officer of Kent International, an importer of Chinese-made bicycles sold at Walmart Inc and other big retailers, to lay off nearly 50 employees and shelve plans to start building bikes at home.

Trump’s tariffs on steel and other goods from China have cost the firm many millions of dollars, Kamler told Reuters, adding that these are not addressed in the Phase 1 deal.

RAIL TRAFFIC, EXPORTS DROP

As 2019 drew to a close, freight rail traffic, a key leading indicator of manufacturing, slowed dramatically. Total car loadings recently hit a record low, and were down by more than 30% from last year’s levels for the weeks beginning Dec. 30 and Jan. 6, according to the American Association of Railroads.

(GRAPHIC: Freight rail traffic has plunged in the trade war – here)

The less-volatile three-month average of the annual change is off by nearly 10%, a freight rail slowdown surpassed just one other time since the last financial crisis – during the 2015-2016 shale oil bust.

The manufacturing recession has been accompanied by a slowdown in U.S. goods exports, which have fallen 1% from 2018 levels due in part to retaliatory tariffs on U.S. goods.

Another study www.nber.org/papers/w26611 released last week by researchers from the Fed, the U.S. Census Bureau and the University of Michigan found that manufacturing firms paying the tariffs saw a bigger drop in exports, demonstrating that import duties play a role in exports.

Higher supply chain costs have cut exports by about 2% for products greatly exposed to tariffs on inputs, compared to exporters with no such exposure.

The study also found that Trump’s tariffs are affecting a wide swath of U.S. companies, with nearly a third now paying them on some 46.5% of their purchases.

These firms employ 32% of all private, non-farm employees in the country. Companies are trying to move supply chains out of China to avoid the tariffs, but this has proven costly, according to a poll taken by Cowen and Co. Doing so “can be complicated, expensive and disruptive to the business,” the company’s analysts said.

SLOW BOUNCEBACK

The deal being signed on Wednesday suspends Trump’s plans to levy tariffs in December on $156 billion in Chinese consumer goods, including cellphones, laptop computers and toys. It also halves the tariff rate to 7.5% on a $120 billion list of Chinese imports, from Bluetooth headphones and flat panel televisions to footwear.

But it leaves in place 25% tariffs on a $250 billion list of Chinese machinery and industrial components, including auto parts, semiconductors, printed circuit boards, furniture and lighting products.

Even if Trump’s remaining China tariffs go away in the coming months with a “Phase 2” agreement, U.S. exports may not recover.

American firms hit with Mexican and Canadian tariffs that ended last year are finding the market for their products doesn’t open back up after the trade war ends, noted Daniel Anthony, vice president of The Trade Partnership, a consultancy that recently crunched the data from the U.S. Commerce Department.

(See chart of exports hit with retaliatory tariffs here here

Mexico and Canada put retaliatory tariffs on more than $15 billion worth of U.S. goods, including bourbon whiskey, ketchup and apples after Trump slapped duties on their steel and aluminum exports.

Slideshow (2 Images)

Buyers of these U.S. goods may have found new suppliers overseas or at home, decided they didn’t need the product, or found demand for their product dried up, Anthony said.

As Trump prepares to sign the long-awaited deal with China, economists are likely to question whether the outcome was worth the cost.

“Was the hammer that was used really worth what we got out of it? Frankly, it looks like pretty small potatoes,” said Loverly, of Syracuse.

Reporting by David Lawder, Andrea Shalal, Howard Schneider and Heather Timmons; Editing by Heather Timmons, Dan Burns and Paul Simao



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How the World’s Fastest-Growing Economy Plunged Into Stagflation By Bloomberg



(Bloomberg) — Just two years ago, Prime Minister Narendra Modi was helming an economy expanding 8%, spurring optimism India was on a path to become a major global growth driver.

Now, stagflation looms as the economy grinds toward its slowest expansion in more than a decade and inflation spikes above the central bank’s target, driven by higher food prices. Social unrest against a restrictive new citizenship law is yet another challenge.

And there’s few good options to deal with the slowdown. Dwindling government revenue and an already-stretched budget limit scope for fiscal support, while the shock 7.35% surge in inflation in December and the threat of higher oil prices mean the door for further interest rate cuts is closing.

So what went wrong? At the heart of India’s problems is a slump in consumption following a combination of policy missteps, from the unprecedented decision to ban high-value cash notes at the end of 2016, to the chaotic implementation of a unified goods and services tax the following year. That was followed shortly after by a credit crunch, which triggered a crisis among shadow lenders — a key provider of small loans to hundreds of millions of consumers and businesses.

Volatile Oil

Consumption makes up about 60% of gross domestic product, and spending has slumped as businesses shed jobs and put off investment plans. Consumer sentiment remains in the doldrums and the recent volatility in oil prices could be a further drag on spending. Economic growth in the fiscal year through March 31 is set to slow to an estimated 5%, the weakest pace in more than a decade.

“The recovery is likely to be very gradual and a stagflation scenario is likely,” said Teresa John, an economist at Nirmal Bang Equities Pvt in Mumbai.

The central bank’s five interest-rate cuts last year and billions of dollars of liquidity pumped into financial markets have done little to spur lending. That’s because banks are already saddled with one of the worst stressed-asset ratios in the world and are neither lending much nor transmitting rate cuts to borrowers.

What Bloomberg’s Economists Say

India’s recovery is still sputtering. Our GDP tracker shows growth slamming into reverse in November after a pickup in October, adjusted for year-earlier base effects. This cautions against any premature withdrawal of policy support. Our view is that the government and the central bank need to step up stimulus.

Click here to read the full report.

Abhishek Gupta, India economist

The government has taken steps to revive the economy, but they aren’t bearing fruit yet. Finance Minister Nirmala Sitharaman gave companies $20 billion worth of tax cuts, merged weak state-run banks with stronger ones and eased foreign investment rules. The government will also sell state assets in its biggest privatization drive in more than a decade.

“We are really extremely close to a point where we could be dipping into a major recession,” Abhijit Banerjee, winner of the Nobel prize for economics last year, said this month in Mumbai. “The critical problem in the Indian economy is demand. You definitely want to stimulate demand,” he said, urging authorities to abandon their inflation and budget deficit targets.

There are some early signs that the economy may be bottoming out. The latest high-frequency indicators, such as the purchasing managers indexes for manufacturing and services, show activity is picking up. Industrial production and capital expenditure also improved late last year.

Economists are forecasting a rebound in growth to 6.2% in the fiscal year through March 2021, although much will depend on how quickly global demand and domestic spending recovers.

Nouriel Roubini, a New York University professor and well-known economic doomsayer, told delegates at a Mumbai conference last week that he doesn’t see evidence yet that the “slowdown is going to give way to a significant pick-up in growth in this financial year.” He added that policy makers’ attention “should have been concentrated on the economy and is instead distracted by political things.”



U.K. Economy Unexpectedly Shrinks Amid BOE Rate-Cut Debate By Bloomberg



(Bloomberg) — Sign up to our Brexit Bulletin, follow us @Brexit and subscribe to our podcast.

The U.K. economy unexpectedly shrank ahead of the general election, casting doubt over whether there was any growth at all in the fourth quarter.

The figures will add to concerns at the Bank of England, where officials are debating whether further stimulus might be needed if economic weakness persists.

Gross domestic product fell in November, the Office for National Statistics said Monday. Economists had expected unchanged output. It means growth of 0.1% to 0.2% was needed in December to prevent the economy contracting in the fourth quarter.

Markets have stepped up bets on an interest-rate reduction sooner rather than later after BOE Governor Mark Carney said there is plenty of room to act if necessary and policy makers Silvana Tenreyro and Gertjan Vlieghe warned they could join colleagues calling for cheaper borrowing costs. The is heading for its fifth day of decline.

The latest growth figures reflect caution in the run-up to the December election, with the dominant services industry contracting 0.3% — the biggest decline since early 2018.

Overall economic growth of 0.6% from a year earlier was the weakest since mid-2012.

Surveys taken after the election suggest Prime Minister Boris Johnson’s emphatic victory delivered a sharp boost to confidence. The question is whether that momentum can be maintained.

Britain is due to leave the European Union at the end of the month, and many doubt Johnson can deliver on his pledge to strike a trade deal with the bloc by the end of the year. If he fails, Britain will once again be facing a disruptive cliff-edge Brexit.

Upward revisions to recent months mean the economy expanded 0.1% between September and November, slightly better than expected though still the weakest performance since July.

Manufacturing output fell 1.7% in November, partly reflecting car factories shutting down to avoid supply disruptions around the now-postponed Oct. 31 Brexit deadline. Auto output alone fell more than 6%. Construction output rose 1.9%, rebounding from a weak October.

The trade deficit narrowed sharply in November as imports plunged almost 12%. The gap halved to 5.3 billion pounds, and trade with non-EU countries recorded a surplus for the first time since records began in 1998. However, the improvement was driven by flows of unspecified goods, which include non-monetary gold.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Confidence rises in UK economy after election, but will it last? By Reuters



By Andy Bruce

LONDON (Reuters) – Prime Minister Boris Johnson’s emphatic election win last month has led to a burst of optimism among British businesses and consumers, according to some early signals from the economy.

Johnson’s success in securing a large parliamentary majority, which ended a period of deadlock in Westminster, means Britain is on course to leave the European Union on Jan. 31 and start an 11-month, no-change transition period.

It also ended the prospect of a shift to the left in British politics. The opposition Labour Party had proposed nationalizing key industries, taking stakes in many other companies and more state intervention.

However, some economists are skeptical about whether the pickup in confidence will translate into a meaningful boost to growth, which has lost momentum since the Brexit referendum in 2016 and slowed to a crawl in late 2019.

Some businesses worry that Johnson’s refusal to contemplate asking for an extension to the Brexit transition period – even if Britain has not sealed a new trade deal with the EU before the end of 2020 – risks creating another “cliff edge.”

Below are some of the early signals that show an improvement in optimism after the Dec. 12 election.

CFOs CHEER UP

Accountants Deloitte said on Friday that 53% of chief financial officers were more optimistic about their companies’ prospects than three months previously, the highest share since records started in 2008.

(GRAPHIC: Business confidence among CFOs hits record high – https://fingfx.thomsonreuters.com/gfx/polling/1/652/648/deloitte.png)

The Deloitte survey was conducted entirely after the election and chimed with the business expectations component of the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) – a closely watched gauge of British business – which hit its highest level in December since September 2018.

The PMI was up markedly from a preliminary reading for the month that was based only on responses before the election, indicating a clear improvement in sentiment after the vote.

Nonetheless, the overall picture of the economy from the PMI remained consistent with no growth in the fourth quarter.

(GRAPHIC: Decisive election result cheers UK businesses – https://fingfx.thomsonreuters.com/gfx/polling/1/648/644/final%20flash.png)

CONSUMERS MORE CONFIDENT

The public became much more upbeat about the prospects for Britain’s economy after the election, according to a survey commissioned by payment card company Barclaycard.

The proportion of people who said they were confident about the economy’s future rose 10 points to 41%, the highest since March 2017, according to the survey of 2,000 people conducted by Longitude Research from Dec. 17 to 19.

However, in recent years analysts have doubted how much consumer confidence in the economy really matters.

Britons have been among the most downbeat about their country’s economic prospects of all European Union countries, according to European Commission data, but their spending has continued to power the economy.

Conversely, while the Barclaycard survey showed an increase in optimism among consumers, the British Retail Consortium reported dismal Christmas trading for major store chains.

(GRAPHIC: UK consumer mood brightens in December – Barclaycard – https://fingfx.thomsonreuters.com/gfx/polling/1/653/649/barclaycard.png)

JOBS BOOST?

British employers increased hiring of permanent staff from job agencies last month for the first time in a year, a survey from the Recruitment and Employment Confederation (REC) showed, another sign of higher business confidence.

The survey was conducted Dec. 5 to Dec. 17, straddling the election result.

“With a new government in place and the path ahead looking more predictable, some businesses have decided that they have waited long enough,” REC chief executive Neil Carberry said.

(GRAPHIC: Election jobs boost? – https://fingfx.thomsonreuters.com/gfx/polling/1/654/650/C.png)



China cuts banks’ reserve ratios again, frees up $115 billion to spur economy By Reuters


© Reuters. A clerk arranges bundles of 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei

BEIJING (Reuters) – China’s central bank said on Wednesday it was cutting the amount of cash that all banks must hold as reserves, releasing around 800 billion yuan ($114.91 billion) in funds to shore up the slowing economy.

The People’s Bank of China (PBOC) said on its website it will cut banks’ reserve requirement ratio (RRR) by 50 basis points, effective Jan. 6. The move would bring the level for big banks down to 12.5%.

The PBOC has now cut RRR eight times since early 2018 to free up more funds for banks to lend as economic growth slows to the weakest pace in nearly 30 years.

Many investors had expected Beijing to announce more support measures soon. While recent data has shown signs of improvement, and Beijing and Washington have agreed to de-escalate their long trade war, analysts are unsure if either will prove sustainable and forecast growth will cool further this year.

“The RRR cut will help boost investor confidence and support the economy, which is gradually steadying,” said Wen Bin, an economist at Minsheng Bank in Beijing, who also expects another cut in China’s new loan prime rate (LPR) this month.

Premier Li Keqiang raised expectations of an imminent RRR cut in a speech in late December, saying authorities were considering more measures to lower financing costs for smaller companies, including broad-based and “targeted” RRR reductions aimed at helping more vulnerable parts of the economy.

Freeing up more liquidity now would also reduce the risks of a credit crunch ahead of the long Lunar New Year holidays later this month, when demand for cash surges. Record debt defaults and problems at some smaller banks have already added to strains on China’s financial system.

The PBOC said it expects total liquidity in the banking system to remain stable ahead of the Lunar New Year.

Of the latest funds released, small and medium banks would receive roughly 120 billion yuan, the central bank said, stressing that it should be used to fund small, local businesses.

The PBOC said lower reserve requirements will reduce banks’ annual funding costs by 15 billion yuan, which could reduce pressure on their profit margins from recent interest rate reforms. Last week, it said existing floating-rate loans will be switched to the new benchmark rate starting from Jan. 1 as part of a broader effort to lower financing costs.

Analysts at Nomura had forecast the PBOC would deliver a system-wide 50 bps cut in the RRR before the holidays, together with an added reduction for some smaller banks.

Analysts say the U.S-China Phase one trade deal, expected to be signed this month, will relieve only some of the pressure weighing on the Chinese economy, which has also been weighed down by sluggish domestic and global demand, slowing investment and weakening business confidence.

China plans to set a lower economic growth target of around 6% in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said. Growth has cooled from 6.8% in 2017 to 6% in the third quarter of 2019, the slowest since the early 1990s.

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Smaller, private firms have been particularly hard hit as regulators clamped down on riskier types of financing and debt.

Despite Beijing’s urging, commercial banks have been reluctant to lend to such firms as they are considered bigger credit risks than state-owned firms.

In recent months, China has also started to make modest cuts in major policy lending rates to lower corporate financing costs, with more expected in the new year.

Tang Jianwei, a senior economist at Bank of Communications in Shanghai, expects two to three RRR cuts this year and a further 25-30 bps reduction in the loan prime rate.

But officials have repeatedly pledged not to resort to “flood-like” stimulus like that in past economic downturns, which left a mountain of debt and stoked fears of property market bubbles.