Global factory growth hits 21-month high; FTSE 100 hits three-month low – as it happened

London stocks are suffering as sterling rises against the US dollar, pushing Apple’s value above the entire FTSE 100

And finally, the FTSE 100 index has closed at its lowest point since mid-May.

After a rather painful session, the blue-chip index ended 101 points lower at 5,862.

dreadful day for the FTSE
Lloyds at 27p
Rolls Royce collapso pic.twitter.com/sBB6jIYEFk

The FTSE 100 is set to finish deep in the red as a mixture of a firmer pound and a poor performance from banking and energy stocks has hurt the index. Diageo, GlaxoSmithKline, AstraZeneca, Ashtead and Unilever all derive a large portion of their revenue from overseas, so the push higher in the pound usually hits the stocks. The declines in Royal Dutch Shell, BP, HSBC and Lloyds are weighing on the British benchmark too. Mining stocks such as Fresnillo, Glencore, Anglo American and BHP Group are some of the best performers on the FTSE 100. The well-received manufacturing data from China overnight has lifted metal prices and in turn the mining companies.

Continental European equity markets are mostly in the red too, but the DAX 30 is showing a small gain as the German government now predicts the economy will shrink by 5.8% in 2020, which was an improvement on their previous prediction of a 6.3% fall in output.

Related: Coronavirus live news: Russia cases exceed 1m; Poland bans direct flights from 44 countries

It’s official: global factories have posted their fastest growth in almost two years.

That’s according to JP Morgan, which has crunched all the new purchasing manager surveys from across Asia, Europe and the US published earlier today. It’s conclusion – activity in August expanded at the most rapid pace since November 2018.

August saw manufacturing output increase for the second month running, following a five-month sequence of decline. Production rose across the three sub-sectors covered by the survey. Growth accelerated to a 16-month high at consumer goods producers and to 30- and 23-month peaks in the intermediate and investment goods categories respectively.

China, the US, Germany, the UK, India and Brazil were some of the larger industrial nations to register expansions of output during August. Mexico, the Philippines, Vietnam and Japan saw the steepest rates of contraction.

The global manufacturing sector saw a stronger recovery in August, as the Global Manufacturing #PMI reached its highest in 21 months (51.8; July: 50.6). Output and new orders rose at faster rates, while export demand near-stabilised. More here: https://t.co/qxzcqxNw1A pic.twitter.com/aUasR3IWxx

“The recovery in the global manufacturing sector gathered further pace in August, with rates of expansion in output and new orders the steepest since mid-2018. The upturn should strengthen further in the short term if lockdowns and other restrictions in place to combat the COVID-19 pandemic are eased further as expected.

Business optimism and the orders-to-inventory ratio also point to further near-term gains. The labour market remains in the doldrums and could face prolonged weakness as companies restructure in light of the current normal.”

Here’s a graphic example of how the FTSE 100 has underperformed against the US stock market this year.

While the FTSE is down 20% since the start of January, the S&P 500 index of American firms is up over 8%, while the tech-focused Nasdaq 100 is up a blistering 40%.

Make #FTSE great again……. pic.twitter.com/9rauoM3SY7

#FTSE sector weightings, couple this with a stronger £ and explains a lot about the index’s underperformance pic.twitter.com/L3LbMpEEJi

European stock markets are clawing their way back, in late trading.

The Stoxx 600 (which covers the 600 largest companies in Europe) is now down just 0.15%.

A group of protesters are demonstrating outside the Lloyd’s insurance market this afternoon, demanding that it stops supporting industries which cause the climate emergency.

Related: Lloyd’s of London reopens building for first time since March

“Lloyd’s needs to act on the science, follow other leading insurers and stop providing the insurance cover that supports and enables climate destroying coal and tar sands projects.

Lloyd’s has both a moral imperative and a long-term self-interest to act as society’s risk manager and stop being a stain on the European insurance industry.”

Some reaction to the stronger-than-expected ISM US factory report:

ISM Manufacturing rises to 56, its highest level in 19 months. pic.twitter.com/l7DKu8TZsX

Manufacturing’s back: US mfg activity continued to rebound in Aug via ISM Mfg PMI, which picked up to 56.0 — a moderately strong pace that marks the strongest expansion since Nov 2018. Notably, the growth trend is well above the pre-pandemic level: https://t.co/XT8ljx2HMu
1/2 pic.twitter.com/muGGzWaZ8q

New orders in both the Markit and ISM manufacturing data are quite encouraging. Augurs well for future prints.

Shares in Tesla have fallen in early trading, after it outlined plans to sell another $5bn of stock.

They’re down 4% at $479.28, hand back a little of Monday’s 12% surge.

Boom! A second measure of US factories is even stronger than Markit’s version (see earlier post).

The Institute for Supply Management reports shows that American manufacturers posted their fastest growth in 19 months in August.

US ISM manufacturing PMI (August): 56 vs 54.5 expected, prior 54.2

The mfg ISM defied expectations, registering a gain vs. July w/orders & production constructively stronger. Keep in mind these figures simply measure rate of change vs. the amnt of activity which remains depressed. Note that employment continued to contract. pic.twitter.com/uZNfToyb7u

Brazil, one of the countries worst hit by the Covid-19 pandemic, has just suffered its worst slump on record.

The magnitude of the slump in activity across the economy in the second quarter was huge: industry fell 12.3%, services 9.7%, fixed investment 15.4%, household consumption 12.5% and government spending 8.8%.

Household consumption, which accounts for two-thirds of all economic activity in Brazil, was a particularly heavy drag, IBGE said.

Brazil’s economy shrinks 9.7% in Q2, and is now the size it was back in 2009. A lost decade … and counting. Economy is now 15% smaller than its peak in Q1 2014. It will take years to get back to that level. https://t.co/9NKI9gRo5g pic.twitter.com/I200H0rkFK

Just in: America’s manufacturing sector continued to recover from the Covid-19 pandemic last month, new data shows.

Data firm Markit’s US manufacturing PMI has jumped to 53.1 in April, up from 50.9 in July. That shows that activity rose at a faster rate.

U.S. IHS MARKIT AUGUST FINAL MANUFACTURING PMI AT 53.1 (VS FLASH 53.6)

NEW ORDERS INDEX FOR AUGUST AT 54.1 VS FLASH READING 54.3 VS FINAL JULY 51.3

IHS MARKIT U.S. MANUFACTURING PMI AND NEW ORDERS INDEX BOTH AT HIGHEST SINCE JANUARY 2019 ON FINAL BASIS$USD

Here’s my colleague Mark Sweney on Apple’s rollicking stock market surge:

As Apple’s share rally has continued, reaching an all-time record of $2.2tn on Monday, London’s blue-chip companies, from Shell to HSBC, have lost a fifth of their combined value this year.

The most valuable company in the FTSE 100, Dove and Marmite maker Unilever, is worth £115bn, close to one 20th of the market cap of Apple. In total the FTSE 100 is valued at £1.5tn.

Related: Apple’s $2tn-plus value overtakes the entire FTSE 100

While European stocks suffer losses, the US Nasdaq index has hit yet another record high.

The Nasdaq has gained 37 points, or 0.2%, in early trading to 11,812 points for the first time ever.

European stock markets are heading into the red now, with the Stoxx 600 down 0.8%.

London is leading the rout, with the FTSE down over 2% or 132 points at 5,830. That’s its lowest level since 18 May, as the stronger pound (and Covid-19 worries) hit stocks.

European indices pulling lower:#FTSE 5837.57 -2.11%#DAX 12887.04 -0.45%#CAC 4910.7 -0.74%#AEX 549.02 -0.03%#MIB 19510.29 -0.63%#IBEX 6924.2 -0.65%#OMX 1763.355 -0.17%#STOXX 3257.2 -0.47%

IATA, which represents the airline industry, has reported that passenger demand remained desperately weak in July – particularly for international flights.

Total revenue passenger kilometres (RPKs), a broad measure of demand, were nearly 80% lower than a year ago — with international travel down over 90%.

“The trend is still very weak. We’re up from the April low, but not very much.” – Brian Pearce Down 80% YoY

A little less than expected in the forecast.
//
Ouch pic.twitter.com/uzjpHuUVS5

International struggled MUCH more than domestic. And even among the domestic markets recovery varies wildly.

“These differences are largely related to success in controlling virus spread.” – Pearce #PaxEx #AvGeek pic.twitter.com/w52nTn2wVl

Back on Wall Street, Tesla is looking to feed the huge appetite for its shares – by selling some more.

Tesla told the SEC this morning it plans to issue around $5bn of fresh stock, just a day after its 5-for-1 stock split took effect.

*TESLA TO SELL UP TO $5BN IN STOCK

*BANKS TO SELL SHARES FROM TIME TO TIME BASED ON TESLA’S INSTRUCTIONShttps://t.co/KKPBsCqAI9$TSLA$TSLAQ pic.twitter.com/CK3Un0G9Ka

On Monday alone, the stock rose 12.6 per cent, seemingly on the fact of a 5-for-1 stock split. In market cap terms, that’s a $51bn move — or an entire General Motors, plus some change.

In 2019, General Motors shipped 7.7m cars. Tesla? Just over 360,000. In the past 12 months, GM has recorded $8.3bn of ebitda versus $3.5bn for Tesla.

Tesla is nuts, will it ever crash? https://t.co/AOqM9isOWa

The stronger pound (weaker dollar) is pushing the FTSE 100 back towards the lows we saw following the Covid-19 crash this spring.

Dollar collapse is killing the FTSE – approaching July lows and potential move back to next Fib level around 5850 and then to 5650 pic.twitter.com/OgdHMxtFKx

Time for a quick recap

Factories across the globe have reported a pick-up in activity last month as Covid-19 restrictions eased.

The Eurozone registered its first annual CPI inflation since year 2016. This also helped to boost mkts as it might probably foster more monetary stimulus fron the @ecb pic.twitter.com/KIfcPBtyrf

The UK’s Eat Out to Help Out scheme wrapped up last night, after allowing millions of Britons to enjoy a half-price meal.

“The last full week of the ‘Eat Out to Help Out’ scheme led to the most positive footfall result of any week so far with increases in all three destination types from the week before, and year on year declines that were the most modest since the start of the lock down.

Not only did the week as a whole yield far more positive results those previously but, given the situation we find ourselves in and the much cooler weather this year, the Bank Holiday weekend proved to be a remarkable success for retail destinations.”

Hungarian airline Wizz Air have slumped to the bottom of the FTSE 250 leaderboard, after ditching plans to get more planes into service again.

Wizz has scrapped plans to run at 80% capacity next quarter, up from 60%, after Hungary reimposed a ban on overseas visitors following a jump in Covid-19 cases in parts of Europe.

The Hungarian carrier will hold at its current 60% level for the period ending in December if stricter measures continue, including in its home country, it said Tuesday in a statement. Further reductions are possible and Wizz could park some of its fleet over winter to save cash, it said.

The setback comes just weeks after Wizz said it would ramp up flights, taking advantage of Europe’s lowest cost base among carriers to grab share. Where other carriers have trimmed their fleets, Wizz has signaled its intention to keep growing, targeting a 20-jet base at London Gatwick airport in the next year.

Here’s our news story on the pick-up in UK mortgage approvals in July….

Related: UK mortgage demand nears pre-Covid level amid stamp duty cut

“The ‘cash only’ element of this spike supporting property investment as second or rental properties is symbolic of a more enduring lift in the market, as the effects of lockdown come to bear on people’s long-term planning and realisation.

It will be interesting to see how the housebuilding and construction dynamics of the industry are affected by this in the coming months.”

AstraZeneca has expanded an agreement with Oxford Biomedica to scale up production of its potential Covid-19 vaccine, as the race continues to find an effective prevention for the deadly virus.

Under the supply agreement, the Oxford-based cell and gene therapy firm said it would produce tens of millions of doses of AstraZeneca’s potential vaccine, AZD1222, for 18 months, which could be extended by a further 18 months into 2023.

Related: AstraZeneca expands Covid-19 vaccine deal as final trials begin

Over in Berlin, the government has predicted that the Covid-19 slump won’t be as deep as feared.

Germany now expects its GDP to shrink by 5.8% during 2020. That would still be the worst since the end of the second world war, but an improvement on the previous forecast of a 6.3% slump.

“Overall, we can say that at least for now, we are dealing with a V-shaped development.”

Back in the markets, the pound continues to rise….and stocks continues to fall.

Sterling is now up three quarters of a cent against the increasingly unloved dollar, at $1.344 – the highest since last December.

Unemployment across Europe has risen, in another sign of the economic damage caused by Covid-19.

The number of persons unemployed across the European Union by 336,000 in July, statistics body Eurostat reports. It rose by 344,000 within the euro area alone.

Euro area #unemployment up to 7.9% in July 2020 (7.7% in June). EU up to 7.2% https://t.co/uoinT7AHjm pic.twitter.com/QPgXxzhKEe

Eurozone #unemployment at 7.9% in July from 7.7% in June – still well below the levels seen in the sovereign debt crisis

ING economist Carsten Brzeski reckons Germany’s temporary VAT cut, to stimulate its economy, helped push inflation negative.

German VAT cut and reversal of base effects from changed sales dates are hard to tackle with money press…#ECB https://t.co/rQ8OYmwEW6

Economists had expected eurozone inflation to drop last month, but it wasn’t forecast to actually turn negative:

OOPS! #Eurozone inflation falls into NEGATIVE territory in August. CPI dropped from 0.4% in July to -0.2% YoY in Aug vs +0.2 YoY expected. The #deflation was mainly driven by falling energy prices, which plummeted by almost 8%. Core CPI +0.4% YoY vs +0.8% YoY expected. pic.twitter.com/BpMaqHyAJb

Crumbs: The eurozone has fallen back into deflation, as the Covid-19 pandemic hits demand and pushes down energy prices.

Consumer prices in the euro area dropped by 0.2% year-on-year in August, new data from statistics body Eurostat show.

Euro area #inflation down to -0.2% in August 2020: food +1.7%, services +0.7%, other goods -0.1%, energy -7.8% – flash estimate https://t.co/MA7NFEKqz6 pic.twitter.com/qsgRJlxdbA

This is massive.
Euro area core inflation collapsed to 0.4% YoY in August, below its previous low of 0.6% (in January 2015).
No way the ECB can ignore this. https://t.co/09Ah87X6J0 pic.twitter.com/aWXSm7Y04H

Core goods inflation collapsed to -0.1% due to the postponed start of summer sales (FR, IT) but services inflation declined too, to an all-time low of 0.7%. pic.twitter.com/TYwkQtMyFB

So, deflation has arrived in the eurozone, but everyone is still in their jobs thanks to short-time working schemes…seems like a sustainable plan, not!

The UK property market has also strengthened, as more people jumped onto the housing ladder or shimmied up and down it.

Mortgage approvals jumped to 66,300 in July, new Bank of England figures show, up from below 40,000 in June.

Today’s Bank of England mortgage approval for house purchase data confirms the spike in activity reported by Rightmove (& Zoopla but not on chart).

The gap between the sales agreed and mortgage approval data suggests that cash only buyers are a big part of the current bounce. pic.twitter.com/O1dy5BkR2L

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says the threat of a no-deal Brexit at the end of the year is also hurting UK manufacturing, despite today’s strong-looking PMI report.

“It seems the sector may be experiencing a ‘V’ shaped recovery with the fastest rate of growth in the manufacturing sector since May 2014.

However, amidst this positivity the elephant in the room remains the poor employment figures. The drop in job numbers in August makes this feel more of a rebalancing strategy than real recovery.

Rob Dobson, director at IHS Markit, fears that unemployment across UK manufacturing will surge this autumn – even though factories are growing again.

He warns:

Companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as COVID-19 restrictions continue to be relaxed. Backlogs of work fell at an increased rate, hinting at spare capacity, and the labour market remains worryingly weak, with job losses registered for the seventh straight month. The downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply.

Given the fragility of demand and uncertain outlook, both in terms of COVID-19 and Brexit, policymakers may struggle to prevent a ‘surge-then-slump’ scenario from developing.”

UK factories have now been cutting jobs for seven months in a row, Markit reports — with the pace accelerating strongly in August:

Manufacturing employment declined at one of the steepest rates during the past 11 years, with reductions seen across the consumer, intermediate and investment goods industries.

Small, medium and large-sized firms also implemented similarly marked cuts to staff headcounts. Stocks of purchases and finished goods both fell further, as companies looked to control costs and complete business delayed by the lockdown. Input inventories fell despite a modest increase in purchasing activity

Here’s one for the history books – Apple is now worth more than every company in the FTSE 100, combined!

After rallying (yet again) yesterday, the world’s most valuable company is now worth over $2.1 trillion, an all-time record.

Apple is now bigger than the combined market cap of the entire FTSE 100.

Here’s our “it’s gonna happen” piece from a couple of weeks back: https://t.co/jbxWtpuzcw pic.twitter.com/Gz3VC9IWPb

I have never seen such numbers in my life. $ZM. pic.twitter.com/bYjI2MAwpG

Some of the moves in US shares are striking. Apple rose over 3% to $129 after splitting, whilst Tesla shares rocketed 13% on its busiest day ever. Stock splits shouldn’t make a difference, except this time they have. Tesla is up 74% for the month.

Zoom rose almost 23% in after-hours trade after it reported a 355% rise in revenues to $663.5m for the July quarter, smashing forecasts for around $500m. Zoom has proved to be a Covid winner of epic proportions – but shouldn’t we all be going back to the office by now? The UK significantly lags Europe and others in ‘getting back to work’ statistics – this has a huge implication for productivity and for the wider economy.

We also have confirmation that UK factories strengthened last month – but this hasn’t prevented them cutting more staff.

The UK manufacturing PMI has come in at 55.2, showing strong growth, up from 53.3 in July, following the relaxation of lockdown measures.

Manufacturing production rose at the fastest pace since May 2014, reflecting solid expansions across the consumer, intermediate and investment goods sub-sectors. The steepest growth was registered in the intermediate goods category, whereas investment goods producers saw the lowest pace of growth.

The main factors driving production and new orders higher have been the re-opening of manufacturers and their clients following lockdowns and a loosening of other restrictions in place to combat COVID-19.

This has not supported a similar recovery or stabilisation in demand for staff, however, with job losses recorded for the seventh successive month.

UK Markit Manufacturing PMI August Final Report – Markithttps://t.co/9U1XAFUnUx pic.twitter.com/fxutUG30jG

The latest PMI surveys from Europe are in…and they show that Germany and Italy’s factories strengthened last month, but Spain and France struggled.

The German manufacturing PMI rose to its highest level in almost two years, as activity picked up after Covid-19 restrictions were lifted. Italy also posted its strongest growth since summer 2018.

Germany’s manufacturing sector continued to make up for lost ground in August, with the Manufacturing PMI ⬆️ to a 22-month high of 52.2 (July: 51.0). Stronger output growth was supported by a revival in export sales. Read more: https://t.co/9aCKi4xWlC pic.twitter.com/BuCar1sdcf

The French manufacturing sector lost some momentum in August, with the #PMI dipping to 49.8 (July: 52.4) to signal a fractional decline in operation conditions, amid the slowest rise in production for 3 months. Read more: https://t.co/7zp7AtSeiP pic.twitter.com/Yw5Bl9n4jB

Italy’s Manufacturing #PMI strengthened to 53.1 in August (July: 51.9), the highest since June 2018. Domestic client demand improved, but export orders remained a drag on the sector. Factory production growth soared to quickest in 2.5 years. https://t.co/kfn4QtjUd6 pic.twitter.com/9F2cnD9scn

Spanish manufacturers reported a slower rise in output in August, after having returned to solid growth during July. The Manufacturing #PMI fell to 49.9 (Jul: 53.5) amid a lack of increasing demand. Read more: https://t.co/PVYneXMU2O pic.twitter.com/ULcC1CUId2

Britain’s stock market isn’t joining in the party this morning.

The FTSE 100 has hit a one-month low of 5916 points in early trading (down 47 points or 0.75%). That’s its lowest level since the start of August.

Related: Push to get staff back to offices amid warning of UK’s ‘ghost towns’

European stock markets are rallying this morning, helped by the pick-up in growth at China’s factories.

The Europe-wide Stoxx 600 index has gained 0.3%, recovering some of Monday’s losses, on optimism for the global economic outlook.

Here’s some reaction to this morning’s manufacturing PMI reports:

#China Markit manufacturing PMI 53.1 (was 52.8). Also, new export orders above 50 (50.7, was 48.3) for the first time this year. So there is demand out there…. pic.twitter.com/1zYc2ewFEY

The IHS Markit India Manufacturing PMI increased to 52 in August 2020 from 46 in the previous month, beating market consensus of 48.2. Output and new orders expanded at the fastest paces since February. Business confidence remained optimistic. pic.twitter.com/u3jhJpiu7n

Manufacturing #PMI now staging a recovery across #Asia. Among key tech economies, mainland #China and #Taiwan PMI are now decisively above the 50 mark. #SouthKorea still catching up. pic.twitter.com/jRPZNsjsHK

In the currency markets, the pound has hit its highest level of the year against the US dollar.

Sterling sprang, gazelle-like, over the $1.34 mark this morning, for the first time since December 2019.

Related: Wall Street shares rise after Fed announces soft approach to inflation

India’s factories have returned to growth for the first time in five months, bolstering optimism this morning.

The upturn was led by an improvement in customer demand as client businesses reopened, after lockdown restrictions eased amid the coronavirus disease 2019 (COVID-19). Output and new orders expanded at the fastest paces since February. Meanwhile, job cuts continued into August, extending the current sequence of decline to five months.

India manufacturing PMI returns to expansion zone in August.

Read more: https://t.co/BkSjTHpnNM pic.twitter.com/TtPBGYl46s

Over in South Korea, factory output continued to fall last month, but at a slower rate.

Related: South Korea re-imposes some coronavirus restrictions after spike in new cases

The latest Manufacturing PMI reading was the highest since February and pointed to only a modest deterioration in overall business conditions.

Subdued global economic conditions due to the COVID-19 pandemic continued to hold back customer spending in August, but there were a number of reports citing a boost to demand from the return to work among clients in the US and Europe

Manufacturers in South #Korea continued to signal an overall downturn in business conditions during August, according to #PMI data, but the rate of decline continued to ease in comparison to that seen through Q2. https://t.co/E7daRJOOre pic.twitter.com/XEaKMzra7c

Although today’s PMI report is strong, there is one small cloud – China’s factory bosses are less optimistic than a month ago…..

Caixin says:

Although firms generally expect output to rise over the next year, the degree of optimism edged down to a three-month low in August.

While many companies anticipate global economic conditions to improve further, many expressed concerns over how long the pandemic would impact operations and customer demand.

Reuters has further evidence that China’s manufacturing is strengthening:

A mirror factory in the Chinese city of Yiwu, which supplies to retail giants such as Walmart and Home Depot, has been inundated with new business beyond the factory’s current operating capacity, with the management sending the entire sales team down to factory floors, a 23-year-old salesman at the company told Reuters.

“We laid off workers when the pandemic first started but now, with this many orders, we cannot find enough people,” said the salesman, adding that the firm was having issues booking shipments as finished goods piled up at their warehouses.

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

“Overall, the post-epidemic economic recovery in the manufacturing sector continued. Supply and demand expanded with the pickup in overseas demand. Backlogs of work continued to increase. Both quantity of purchases and stocks of purchased items also grew. Companies’ future output expectations remained strong, reflecting a positive outlook for the manufacturing sector for the year ahead. Employment remained an important focus.

An expansion of employment relies on long-term improvement in the economy. Macroeconomic policy supports are essential, especially when there are still many uncertainties in domestic and overseas economies. Relevant policies should not be significantly tightened.”

European Opening Calls:#FTSE 5950 -0.24%#DAX 13016 +0.54%#CAC 4969 +0.45%#AEX 552 +0.49%#MIB 19739 +0.53%#IBEX 7023 +0.76%#OMX 1775 +0.48%#STOXX 3292 +0.58%#IGOpeningCall

FTSE back from holiday.

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