Introduction: German factory orders sink
Good morning and welcome to our continued coverage of business, the global economy and financial markets.
Germany’s manufacturing sector is a European power, so a surprise drop in factory orders this morning has fueled concerns about the economic outlook.
German factory orders fell 2.7% in April, according to new figures, destroying hopes of a 0.3% rise after a 4.7% drop in March.
This is the third consecutive monthly drop in factory orders. In annual terms, factory orders were 6.2% lower than a year earlier.
The war in Ukraine, supply chain problems, the blockade of China by Covid-19 and rising energy prices are affecting Europe’s largest economy.
The German statistical office says:
“The increase in uncertainty caused by the Russian invasion of Ukraine continues to cause weak demand, especially from abroad.
However, companies still have well-stocked order books. ”
AU! #Germany April factory orders grow -2.7% in April, a third consecutive drop, mainly driven by a decline in overseas orders. This brought the annual figure down by 6.2%. Economists had forecast a monthly gain of 0.3%. The economy is facing uncertainty that increases energy costs and supply limits. pic.twitter.com/KpFQf8oJIb
– Holger Zschaepitz (@Schuldensuehner) June 7, 2022
Avatrade’s Naeem Aslam says the figures confirm that “economic conditions are becoming disastrous” for the eurozone’s largest economy.
Markets are also nervous after Australia’s central bank announced today its biggest rise in interest rates in 22 years as it tries to cope with inflation.
The Reserve Bank of Australia raised its cash rate target by 50 basis points to 0.85% after energy pressures and supply chain problems pushed prices up. He also indicated that further rises will follow, the latest signal that central banks are taking seriously to crush inflationary pressures.
Australia’s consumer price inflation rate was 5.1% in the March quarter, lower than in many other countries, but too high for the RBA.
RBA Governor Philip Lowe said inflation in Australia has risen significantly, adding:
Although inflation is lower than in most other advanced economies, it is higher than previously expected.
The council hopes to take further steps in the process of normalizing monetary conditions in Australia over the coming months.
The Australian stock market fell 1.5% and we expect a weak start in Europe.
Later today we will do a health check of the eurozone construction companies, the UK service company and the World Bank’s assessment of the global economy.
The agenda
- 8.30 am BST: PMI report on construction in the euro area in May
- 9.30am BST: PMI report from the UK services sector in May
- 10.15am BST: The Business, Energy and Industrial Strategy Committee launches an investigation into the UK semiconductor industry.
- 10.30am BST: South Africa’s first quarter GDP report
- 1:30 p.m. BST: April U.S. Trade Report
- Afternoon: World Bank Global Economic Outlook Report
Construction activity in the eurozone falls as demand weakens and costs rise
Construction activity in the eurozone has fallen for the first time in nine months, another sign that the European economy is weakening.
S&P Global’s eurozone construction PMI, which monitors sector activity, has fallen into shrinking territory as supply chain problems due to the Ukrainian war caused shortages of raw materials and higher prices.
The index fell from 50.4 in April to 49.2 in May, showing that the sector fell last month, for the first time since last August.
Housing construction, commercial work and civil engineering activity fell last month, with new orders falling as well.
Here are the key points:
- The fastest production reductions and new orders since February 2021
- Price and supply chain pressures are reduced, but remain broadly marked
- Business confidence weakens to a minimum of 19 months
Usamah Bhatti, S&P Global Market Intelligence Economist, adds:
Block construction companies were increasingly pessimistic about next year’s activity outlook, with confidence at its lowest level since October 2020.
Nationally, German companies saw the sharpest drop in production for nine months, while Italian builders noted a new expansion in May, which was, however, the slowest in the current growth sequence. of 16 months. Companies in France experienced a slight increase, which was the fastest since January. ”
PwC fined £ 5 million for construction audits
Photography: Andy Rain / EPA
PricewaterhouseCoopers fined nearly £ 5 million ($ 6.22 million) for poor audits of two UK construction companies
PwC will pay £ 3m for failures in its Galliford Try audits and £ 1.96m for a review by Kier Group Plc, the Financial Reporting Council said on Tuesday.
It was also ordered to report on its most modern audits considering long-term contracts, the FRC said, while the regulator continues its crackdown on the Big Four auditors.
Claudia Mortimore, deputy executive director of the FRC, says the breaches “relate to a lack of proper audit of revenue recognized under specific complex long-term contracts.”
PwC said:
We regret that some aspects of our work were not of the required standard. ”
The firm added that it had invested in improving the quality of the audit since the audits of Kier and Galliford Try.
Julia Kollewe
JD Sports and Elite Sports, along with Rangers Football Club, violated competition law by setting prices for some Rangers clothing to keep them high at the expense of fans, according to the Rangers Football Club. the British competition.
The Competition and Markets Authority (CMA), which has been investigating the matter since December 2020, said Elite and JD sports retailers set retail prices for a number of replica kits. the Rangers brand and other clothing products from September 2018 to at least July 2019..
Rangers FC also took part in the alleged collusion, fixing the retail price of replica short-sleeved t-shirts for adult homes from September 2018 until at least mid-November of that year. The three companies allegedly collided to prevent JD from lowering the sale price of the T-shirt at the Gers Elite online store, the watchdog said.
More here.
The expected changes in the British pound over a period of a week and a month have risen today, Reuters notes, reflecting the greater political uncertainty about the future of Boris Johnson.
Frederique Carrier, Head of Investment Strategy for the British Isles and Asia at RBC Wealth Management, says:
“The Prime Minister has survived the censure vote, but the number of Conservative MPs who voted against him is large enough to further weaken his position.”
“This is unlikely to be the end of the turmoil and the victory is not clear enough to draw a line in recent months.”
This morning is the story of two acquisitions in the city.
Biffa, the waste management company, has received a possible takeover bid from the subsidiaries of private equity firm Energy Capital Partners (ECP), worth £ 1.36 billion or £ 445 per share.
Shares of Biffa, based in High Wycombe, have risen 30% to 420p, leading to increases in the FTSE 250 index.
But the fashion chain Ted Baker’s hopes of being acquired have suffered once and for all. His preferred suitor has decided not to make a takeover bid, news that has lowered his shares by 20%.
Ted Baker went on sale in April and said last month that he had chosen a preferred bidder to carry out the process.
Full story: The UK spending bubble burst due to the cost of living crisis
British consumers cut spending sharply last month as rising cost of living hit budgets hard.
Retail sales fell at an annual rate of 1.1% in May, worse than the 0.3% drop in April, and the worst since January last year.
This is according to the latest industry data from the British Retail Consortium and KPMG, which add to the pressure on the pound.
BRC executive director Helen Dickinson said sales were falling again “as the cost of living crisis tightened consumer demand.”
“It is clear that the post – pandemic spending bubble has burst, with retailers facing tougher business conditions, a drop in consumer confidence and rising inflation affecting consumers’ purchasing power.
Supply chain problems, such as rising raw material and transportation costs, a tight labor market, and higher energy bills, are forcing retailers to raise their prices, contributing to higher inflation.
Dickinson added that the most important items, such as furniture and electronics, were the most successful, as “shoppers reconsidered major purchases during this difficult time.”
Sales figures did not adjust for inflation, so the fall in sales “masked a much larger drop in volumes once inflation is taken into account.”
However, retailers got an increase in the platinum jubilee as there was a sharp increase in the influx of consumers on the main streets during the long festive weekend.
Investors are focusing on the UK’s economic problems as the cost of living crisis affects growth, says Bloomberg:
The pound fell against the dollar in the European session, erasing on Monday a knee bounce driven by Prime Minister Boris Johnson that won a vote of confidence in its leadership. A slowdown in impending growth keeps long-term measures of sterling sentiment close to the lowest levels since 2020, while political turmoil will continue even after the vote.
The battle for the leadership of the Conservative Party comes amid a cost-of-living crisis that threatens to plunge the economy into a recession.
This is increasing pressure on the Bank of England to support growth and curb higher inflation in four decades, while keeping pace with the Federal Reserve and other global partners – a process that free traders will be watching closely. up close.
A sigh of relief for UK investors following Boris Johnson’s leadership victory may be temporary, as attention is focused on the worsening economy and the pound https://t.co / rwwjQJbwLc
– Bloomberg (@business) June 7, 2022
There is little good news ahead to lift the pound, warns OANDA analyst Jeffrey Halley:
The UK has a post-jubilee railway …