UK and US recoveries slow; eurozone ‘could fall back into recession’ – as it happened

Latest PMI surveys show growth slowed at UK companies this month, while eurozone service sector shrinks

That’s all for today. Here’s a reminder of the key points.

Britain’s private sector is slowing, as Covid-19 worries and restrictions hurting the service sector. The latest survey of purchasing managers showed that growth is weakening, after a very strong August.

Related: UK economic recovery loses momentum even before new Covid curbs

Related: Sunak scraps budget to focus on getting UK through a winter crisis

LATEST: Stocks are falling as the Fed warns the economy needs more stimulus. The dollar climbed https://t.co/eR0JyhoLa1

Related: Coronavirus pandemic has wiped out $3.5tn in work income, says ILO

Related: Upper Crust owner predicts sales down 86% as Covid hits travel

Related: Uncle Ben’s to get revamp after criticism over racial stereotyping

Our economics editor, Larry Elliott, has the latest on tomorrow’s shock mini-budget:

Rishi Sunak has scrapped this autumn’s budget before the announcement on Thursday of a revamped support package to protect jobs and the economy through a looming winter Covid-19 crisis.

Faced with the new threat to the economy caused by the tightening up of coronavirus restrictions this week the chancellor believes the priority is to see the UK through the coming months rather than make long-term tax and spend decisions.

Related: Sunak scraps budget to focus on getting UK through a winter crisis

Over in Washington, US central bank chief Jerome Powell has told lawmakers that the Federal Reserve and Congress must both “stay with it” to ensure the economic recovery continues.

Powell also insisted there is ‘no trade off’ between protecting the economy and public health, but warned that it would be very hard for the Fed to provide new lending support to very small US firms.

Jay Powell’s big theme at today’s subcommittee hearing is basically – I don’t want to become a soundbite for your political cause.

At one point he literally said: “Yeah, I have a strong desire not to play a role in your discussion.”

Chair Powell’s thesaurus for “I’m not going to answer that”:

– “I just want to make it clear that I do not have a judgement”
– “Your bailiwick”
– “These are decisions that are really not for the Fed”
– “I don’t want to give advice to Congress”

The European stock market rally faded slightly in late trading, as investors noted that stocks have dipped on Wall Street.

But London still ended the day higher, recovering some of the chunky losses on Monday. The FTSE 100 has closed 69 points higher at 5,899, a gain of 1.2%.

Autumn Budget off, crisis mini-Budget on (tomorrow) https://t.co/1FRnzvd9Mg

Kate Nicholls, chief executive for UKHospitality, hopes that tomorrow’s Winter Economy Plan includes support for the events and nighttime industries:

Fingers crossed for hospitality – particularly jobs at risk in events, banqueting, nightclubs and night time economy, weddings – pushing hard for additional support in light of significant restriction on capacity and demand. Nearly a million jobs in hospitality depend on furlough https://t.co/wfW4fTrqWn

Looks like a mini-Budget statement tomorrow, with Budget-proper now into next year… https://t.co/pM8QNSb8hh

Understand there will be no #budget this calendar year

Breaking! Chancellor Rishi Sunak has just announced that it will give new details of his his plan to protect UK jobs over the winter tomorrow.

In a typically eye-catching tweet, Sunak says he will update MPs on the “Winter Economy Plan” tomorrow.

As our response to coronavirus adapts, tomorrow afternoon I will update the House of Commons on our plans to continue protecting jobs through the winter. pic.twitter.com/eP6aqcocxd

BREAKING:@RishiSunak will now make an economy update statement tomorrow at around 1230. https://t.co/gwskUVMgdZ

The S&P 500 has now dipped into negative territory, down 0.4%, as Wall Street digests the slight slowdown in US growth this month.

Energy companies and tech firms are the biggest fallers, while industrial groups and banks are up.

“The U.S. presidential election is just weeks away and the tight race, combined with worries about fraud from postal voting, has sparked talk that whoever loses will contest the result, leading to a potentially prolonged period of uncertainty,”

Investors seem broadly satisfied with the US PMI survey for September, even though it shows a small dip in growth.

Here’s Matthew Miskin of John Hancock Investment Management…..

The US Sept. #PMI data not bad. Beat the consensus estimate on manufacturing 53.5 vs. 53.0, in-line for services 54.6 vs. 54.5.

The overall composite was 54.4 ticking down a bit from the August 54.6. Trend bears watching as it looks like acceleration phase is tapping out. https://t.co/lcYd9Ungi1

The US economic rebound continues to hold on to a moderate pace of growth in Sep via PMI survey data. Q4 could be rocky, but preliminary numbers for the wind-up to Q3 looks “solid”, reports IHS Markit: https://t.co/hKKfbKw7p8 pic.twitter.com/4FagZo4oaA

The Flash U.S. Composite Output Index posted 54.4 in September (August: 54.6) to signal a solid rise in private sector business activity. Total new orders increased for the second month running, while staff numbers rose further. Read more: https://t.co/NsJTWC0Yq8 pic.twitter.com/Yls6UqNjoz

Chad Moutray, chief economist at the National Association of Manufacturers, is cheered by the jump in America’s factory growth this month.

He says the sector has recovered from its worst slump since the financial crisis, after being forced to close during the pandemic.

@IHSMarkitPMI: The manufacturing sector continued to show signs of recovery in September. It notched the best reading since January 2019, bouncing back from springtime declines that were the worst since the Great Recession. pic.twitter.com/GtLIz9n9qu

Just in: Growth across America’s private sector slowed slightly this month, but is still running at a steady rate.

That’s according to data firm IHS Markit’s latest survey of purchasing managers.

“The question now turns to whether the economy’s strong performance can be sustained into the fourth quarter.

Covid-19 infection rates remain a major concern and social distancing measures continue to act as a dampener on the overall pace of expansion, notably in consumer-facing services. Uncertainty regarding the presidential election has also intensified, cooling business optimism about the year ahead.

US flash #PMI also showing signs of rolling over to suggest rebound has peaked

The New York stock exchange has opened cautiously higher, as investors brace to see how American companies are faring this month (the US flash PMI is imminent).

The Dow Jones industrial average has jumped by 169 points, or 0.6%, to 27,457. Nike has surged by 10% after posting stronger-than-expected results last night. Boeing, Johnson & Johnson and Caterpillar are also among the risers.

European stock markets are still holding their earlier gains, despite signs that the eurozone and UK economies are fading.

In London, the FTSE 100 is still 2% higher, up 120 points at 5950. Top risers include retailers such as JD Sports (+5%), jet engine maker Rolls-Royce (+4.6%), banks Barclays (+4%) and Natwest (+3.9%), and hotel operator Whitbread (+3.5%).

It should be of little surprise though despite analysts’ more upbeat expectations as Eurozone nations struggle to halt the resurgence of coronavirus cases and it is leading to a more circumspect consumer.

It seems a W shaped economic projection might be developing following the brief bounce in PMI numbers over the summer. What this means is that continued stimulus across the Eurozone will be hopefully forthcoming – or at least that’s what markets are placing their bets on.

Further restrictions imposed by Prime Minister Boris Johnson yesterday will likely see a similar trajectory as the Eurozone going forward as we expect to peak temporarily in the PMI numbers in the UK.

UK sandwich and coffee vendor SSP Group has given an insight into the economic damage of Covid-19.

Related: Upper Crust owner predicts sales down 86% as Covid hits travel

The economic fallout from the coronavirus pandemic has wiped out $3.5tn (£2.75tn) of earnings for millions of people around the world, according to the UN’s labour body.

The International Labour Organization (ILO) said income from work declined by an estimated 10.7% in the first three-quarters of 2020 compared with the same period in 2019.

Related: Coronavirus pandemic has wiped out $3.5tn in work income, says ILO

Just in: A review into a security breach at the Bank of England has concluded that the bank could have spotted the problem sooner.

Nine months ago, it emerged that some traders had enjoyed access to an audio feed of Mark Carney’s press conferences, potentially allowing them to profit from market-moving comments.

There is a non-negligible delay in any of the video broadcasts reaching screens and any audio-only stream – especially a low latency feed – would tend to be faster.

That is why the presence of an audio stream from the Bank’s Press Conferences, that was not provided by, or known to, the Bank, was a matter of such concern.

Related: Watchdog investigates Bank of England security breach

Our Review has indicated that there were occasions where, with the benefit of hindsight, this misuse by a third party supplier of the Bank’s audio feed could have been identified sooner by the Bank.

In late 2018, an external party made a specific allegation to the Bank with regards to Encoded Media’s use of its feed. This was not fully investigated because it was not considered possible in the Bank’s Press Conference environment. This was based on the Bank’s understanding of the facts, but it was incorrect.

Two major City banks have been forced to postpone plans to bring staff back to the office

After yesterday’s abrubt government u-turn on the issue, employees at HSBC and Goldman Sachs have been told to keep working from home where possible.

A memo sent to staff at HSBC informed them that the investment bank, based in London’s Canary Wharf financial district, was pausing its planned return of “phase one” teams to the office.

The bank said that its staff working in branches and those supporting customers in call centres would continue to go into work, although the majority of office-based staff will work from home.

Related: HSBC and Goldman Sachs delay plans for return to offices in England

The US stock market is on track to open higher, after ending a four-day losing run last night.

The S&P 500 is on track to open 0.4% higher, after jumping 1% on Tuesday.

BREAKING: Johnson & Johnson is starting its Phase 3 trial for its COVID-19 vaccine. https://t.co/H47oHh9l4k pic.twitter.com/oUzjlxNfQN

There is some debate about whether Tesla’s Battery Day announcements amount to incremental or revolutionary changes to battery technology, but two things are clear: Tesla has not suddenly acquired warp speed capability, but clearly the company has a roadmap to cheaper, longer life battery technology that it will make itself and will allow it to lead the EV field for a while longer. Panasonic and other suppliers were hit with Tesla planning to make its own battery.

Nevertheless, given all the anticipation around a potential game-changer in battery technology, investors were a little underwhelmed by the news. Tesla’s Frankfurt-listed shares declined 7% at the open, before paring losses a touch.

Related: Elon Musk says cheaper, more powerful electric vehicle batteries are 3 years off

The slowdown in UK growth this month highlights the need for fresh support for businesses, especially those worst hit by Covid-19 restrictions.

Ed Miliband MP, Shadow Business Secretary, has said today the government needs to act to avoid mass unemployment.

“We support the introduction of new restrictions to tackle this virus, but we cannot escape the massive economic challenge it creates. It is essential that public health measures go hand in hand with economic support, or we will see disaster for many businesses and workers.

“Businesses are already having to contribute to the costs of furlough, putting jobs at risk, and we are now perilously close to the furlough cliff-edge. Labour has outlined an alternative – the Job Recovery Scheme. This would enable businesses in key sectors to bring back staff on reduced hours with government backing wages for the rest of the working week, saving jobs and giving businesses the certainty they need.

Related: Rishi Sunak weighs up German-style wage subsidies to replace furlough scheme

The boss of supermarket chain Tesco has urged customers to resist panic buying, following the move towards tougher Covid-19 restrictions.

“The message would be one of reassurance. I think the UK saw how well the food industry managed last time, so there’s very good supplies of food.

“We just don’t want to see a return to unnecessary panic buying because that creates a tension in the supply chain that’s not necessary. And therefore we would just encourage customers to continue to buy as normal.”

TESCO CEO ON STOCKPILING AFTER NEW UK COVID CURBS SAYS WE CAN SEE THERE WILL BE SOME SMALL INCREASES IN STOCKBUILDING WITHIN HOMES – SKY NEWS

Related: Toilet roll sales rise by more than a fifth amid new UK Covid-19 restrictions

Jing Teow, senior economist at PwC, reckons Britain’s economy is going to experience a ‘kinked-V’ recovery, as companies adjust to the new Covid-19 restriction:

She writes:

Kallum Pickering of Berenberg bank has helpfully plotted today’s European PMI surveys together, showing that the UK outpaced Germany, France and the wider eurozone this month.

The rise in infections and the new restrictions which many countries are imposing to contain the spread of COVID-19 are taking a toll on service sectors across Europe. As a result, the balance of risks to our call for a 2.2% q-q gain in Eurozone GDP in Q4 is tilted heavily to the downside.

Six months ago, demand in the US plunged and many supply chains with China were disrupted. Now, the US is recovering robustly and Chinese problems have largely faded. This should underpin sustained gains in the production and international trade in goods.

While Brexit uncertainties are more acute than they were earlier this year, they are more familiar and less pronounced than in late 2019.

European stock markets have actually pushed higher since this morning’s worst-than-expected PMI surveys landed.

Britain’s FTSE 100 is now up 125 points, or over 2%, at 5954 points – meaning it’s recovered much of Monday’s slump. All the major European markets are solidly green too:

⚠️STOCKS IN EUROPE JUMP ACROSS THE CONTINENT AS DISMAL PMI DATA RENEWS STIMULUS HOPES

– STOXX 50 ⬆️1.8%
– DAX ⬆️1.7%
– FTSE 100 ⬆️2.2%
– CAC 40 ⬆️2%
-AEX ⬆️1.7%
– FTSE MIB ⬆️1.7%
– IBEX 35 ⬆️1.9%
– BIST 100 ⬆️0.7%

https://t.co/m3w95UBKOK$DAX $CAC $SPY $QQQ pic.twitter.com/siVXN7eGcc

Thomas Pugh of Capital Economics says the UK recovery has started to flatten – and there could be worse ahead.

The drop in the composite IHS Markit/CIPS Flash PMI from 59.1 in August to 55.7 in September (consensus 56.3) suggests that the recovery has already started to flatten out. And reinstating restrictions on business opening hours and encouraging people to work from home again could cause the recovery to stall completely in Q4.

But the big risk is that the government has to go further. For example, a two-week national lockdown could reduce the level of GDP by 5% and set back the economic recovery by a year.

While these latest figures paint a generally positive picture, the imposition of further restrictions this week and the significant probability that more will be added in the coming weeks, raises the odds that the rebound in growth will now slow. Even if tighter restrictions don’t have as big an impact on the economy as we saw in the spring, they may still have a negative effect on demand dynamics.

“The end of the furlough scheme is another big, imminent hurdle for the UK. A rise in unemployment could be a drag on economic growth. Add the effect of Brexit uncertainty into the mix, and the next few months may be very challenging.”

European PMIs supporting what the faster data indicators were showing that the summer rebound has lost momentum. Still very difficult to draw expansion/ contraction conclusions from the absolute PMI levels – so MoM changes the most insightful right now. pic.twitter.com/Sgil4P2Ek9

“No recovery in sight as long as the virus is spreading.” @ClausVistesen on Advance PMIs, #Eurozone, September #PantheonMacro

Duncan Brock, group director at CIPS, says Covid-19 restrictions at home and abroad “continued to suffocate the UK economy”.

Here’s his take on the drop in UK business activity growth to a three-month low:

The services sector saw another fall in overseas demand.

Businesses remained gloomy about future plans and turned instead towards shedding jobs at a distressing rate especially amongst those reliant on consumer footfall. With the announcement of more curbs on movement, it’s impossible to guess how these firms can continue for the rest of the year and the knock-on effects of job losses will be brutal.

The slowdown in UK business growth this month is partly due to weak consumer confidence, and the end of the government’s half-price meal deal, explains Markit’s Chris Williamson:

“The UK economy lost some of its bounce in September, as the initial rebound from Covid-19 lockdowns showed signs of fading.

“It was not surprising to see that the slowdown was especially acute in services, where the restaurant sector in particular saw demand fall sharply as the Eat Out to Help Out scheme was withdrawn. Demand for other consumer-facing services also stalled as companies struggled amid new measures introduced to fight rising infection rates and consumers often remained reluctant to spend.

Jobs continued to be cut at a fierce rate in September as firms sought to bring costs down amid weak demand, meaning unemployment is likely to soon start rising sharply from the current rate of 4.1%.

The indication from the survey that growth momentum is quickly lost when policy support is withdrawn underscores our concern over the path of the labour market once the furlough scheme ends next month, and raises fears that growth could fade further as we head into the winter months, especially as lockdown measures are tightened further.”

Newsflash: The UK’s economic recovery lost some momentum this month, even before the latest Covid-19 restrictions were announced.

That’s according to IHS Markit’s flash composite UK PMI, which tracks activity in the economy.

New business volumes across the private sector economy also increased at the weakest pace for three months in September.

Reports from survey respondents highlighted concerns that the speed of recovery in customer demand had already peaked, with subdued economic conditions at home and abroad acting as a brake on new project starts…

There is one ray of sunlight in today’s eurozone PMI reports: business expectations about the coming 12 months hit the highest since February.

That pick-up in confidence was seen in both manufacturing and services, in Germany, France and the rest of the euro area as a whole.

Optimism stemmed mainly from the belief that disruptions from COVID-19 will ease over the course of the coming year

Chris Williamson, chief business economist at IHS Markit, fears the eurozone could fall back into recession in the next three months.

The sharp slowdown in service sector activity this month is a worrying sign that Covid-19 is damaging growth again, he warns.

“The eurozone’s economic recovery stalled in September, as rising COVID-19 infections led to a renewed downturn of service sector activity across the region.

A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as face-to-face consumer businesses in particular have been hit by intensifying virus concerns.

Newsflash: the eurozone’s service sector has slumped into reverse this month, as rising Covid-19 cases undermine its recovery.

Data firm Markit’s latest survey of purchasing managers, just released, shows that business growth across the euro area is grinding to a halt.

Having rebounded sharply in July and, to a lesser extent, August from COVID-19 lockdowns during the second quarter, the PMI has since indicated a near stalling of the economy at the end of the third quarter as rising infection rates and ongoing social distancing measures curbed demand, notably for consumer-facing services.

Fears about the economic recovery haven’t prevented stocks rallying in London.

The FTSE 100 has jumped by 89 points, or 1.5%, in early trading, to 5921 – away from the two-week low seen on Monday.

Markets have generally stemmed the declines of recent trading sessions, although any relief could be short-lived given overarching concerns which have not gone away.

The potential for Covid-19 to wreak further economic damage was brought into sharp focus as the UK announced further restrictive measures. In the US, deteriorating relations with China and political distractions add to an economy which is still being hampered by the effects of the virus.

Germany’s private sector also slowed this month, with service sector output shrinking but factories strengthening.

Markit’s flash German PMI report shows that service sector activity hit a three-month low, while manufacturing is growing at the fastest pace in over two years.

With services business activity falling for the first time in three months, the recovery in the tertiary sector has possibly reached a ceiling thanks to ongoing social restrictions and still-high levels of uncertainty in the economy, including around job security.

In contrast, manufacturing is still rebounding strongly thanks to in part to improving export demand, with sharply rising levels of output and new orders helping to slow the rate of job losses in the sector.

September Flash PMI data indicated another rise in output at private sector firms in Germany, predominantly driven by a sharp increase in production at manufacturers. Service providers, meanwhile, saw activity fall for the first time since June. Read more: https://t.co/DKXkVkIBeF pic.twitter.com/XTV59jXXw3

The first European PMI survey for September is in…and it’s not good.

French business activity has hit a four-month low this month, as renewed disruption related to the coronavirus disease 2019 (COVID-19) pandemic hit its economy.

“The sharp rise in COVID-19 cases recorded across France during September helped to explain the first fall in business activity since May. August data had already pointed to a slowdown in the recovery but now the path towards pre-coronavirus levels of activity has gone into reverse.

The rise in case numbers has been accompanied by fresh restrictions, but has also caused hesitancy among businesses due to fears of a second round of temporary business closures. “For now, at least, firms remain optimistic towards the year ahead outlook, but should the current trajectory of infection rates persist, that confidence is likely be tested in the coming months.”

ECB’s Mersch: “nothing is pointing to a further deterioration”

French PMIs: “the path towards pre-coronavirus levels of
activity has gone into reverse” pic.twitter.com/zVzhy7Dh5A

German consumer confidence remains weak, according to the latest data from the GfK institute.

GfK’s forward-looking gauge of consumer morale, released this morning, hit –1.6 points for October, barely an improvement on the slump to -1.7 seen in September.

“Despite rising infection figures and the increasing fear of tighter restrictions caused by the pandemic, the consumer climate has stabilized. The extensive support packages for business and consumers are clearly suitable measures to help Germany emerge from the worst recession since the war,”

The further course of the infection rate in Germany and the situation in the labor market will decide whether the previous month’s downturn remains a flash in the pan and whether consumer mood is able to recover in the coming months.”

Up to now, retail sales and private consumption have experienced a strong rebound. The lifting of the lockdown measures and fiscal measures to sustain purchasing power are an important driver of the return of private consumption. Looking ahead, only a swift return of the labour market to pre-crisis levels would unleash potential pent-up demand.

However, given latest announcements of job shedding in the sectors hit most by the economic impact from lockdowns and social distancing and in sectors, in which Covid-19 is accelerating structural transitions, such a swift return looks increasingly unlikely.

#Germany: Gfk consumer confidence for Oct largely stalled at -1.6, well below the pre-crisis trend.

This may well be a case of “as good as it gets” in the short-run as rising contagion fears will put renewed pressure on Covid-19 & recession sensitive consumption components. pic.twitter.com/RUXzzY6lmm

Japan’s economy has suffered its eighth monthly contraction in a row, adding to anxiety over the recovery.

The au Jibun Bank Flash Japan Composite PMI, which tracks Japanese manufacturing and services, came in at 45.5 for September — still below the 50-point mark showing stagnation.

#JAPAN SEPT PRELIMINARY PMI MANUFACTURING: 47.3 V 47.2 PRIOR (17th straight contraction)
– PMI Services: 45.6 v 45.0 prior (8th straight contraction)
– PMI Composite: 45.5 v 45.2 prior (8th straight contraction)
*Link: https://t.co/PIKdEbTBIb pic.twitter.com/9e1m2MVupT

#Japan manufacturing PMI remains below the 50-threshold for 17th month in a row and thus Japan is the only G7 economy, still not seeing signs of recovery. Large car sector and strong yen is probably key. That said, Germany has managed to bounce back despite the same challenges pic.twitter.com/ljExAkmrm1

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

“We struggle to see how the economy can grow in the fourth quarter with escalating lockdown measures, fading stimulus and Brexit risks.”

Related: UK recession expected to continue until spring amid Covid-19 surge

Related: Coronavirus live news: UK restrictions could last six months; WHO reports record weekly rise in global cases

It seems to be a matter of degree rather than kind, but a couple of crucial variables are changing the prevailing narrative. One: fresh US fiscal support may not arrive before the US Presidential election. Two: Europe’s economic recovery is at risk from the latest wave of COVID-19 infections and lockdowns

The notion of a broad-based lift in global economic activity, that would crucially narrow the performance gap between the US economy versus that of the rest of the world, has been called into question. Not that such a thing can’t or won’t occur, but that instead, perhaps its timeline has been slightly pushed back.

#DXY Inverted head and shoulders(unreliable pattern) targets 96 on Dollar. Not good news for Gold. 94 over under level. pic.twitter.com/84v5tpTL3g

The $USD continues its ascent this AM sending the Euro and Sterling markedly lower ahead of flash PMIs. Investors bracing for impact of rising virus cases on the economic recovery in Europe

GBP -0.3% to $1.268
EUR -0.2% to $1.168

A full recovery is likely to come only when people are confident it is safe to re-engage in a broad range of activities

Related: US economy showing improvement but path ahead ‘uncertain’, says Fed chair

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