Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
How healthy is the world economy? Fears of a global slowdown are building, as America’s pugnacious trade policies threaten to derail the long, slow, recovery from the financial crisis.
We saw yesterday that factory output in the UK and eurozone is shrinking, while American factories are growing at their slowest pace in a decade. This is now fuelling calls for US central bankers to slash interest rates before the economy suffers a recession.
A chorus of Wall Street economists are now predicting a sharp slowdown in America, as the impact of Donald Trump’s tariffs on Chinese imports reverberates. Morgan Stanley fears the US could slump by early 2020 unless the trade war calms down.
Trump’s latest threat – to impose levies on Mexican imports – has intensified concerns. As JP Morgan analysts put it:
“The latest developments this week are likely to have lasting damaging effects on business confidence. Growth concerns are unlikely to dissipate over the near term, and could in fact build further.”
After a turbulent May, analysts fears that the stock markets could remain volatile – with the risk of chunky losses in the months ahead.
John Higgins of Capital Economics predicts that the US S&P500 could slide by another 17% by the end of the year – on top of the 7% decline in recent weeks.
He warned clients:
We remain of the view that the bond market is simply running ahead of the stock market. We think that the equities will “catch up” in due course.
Admittedly, we aren’t explicitly forecasting another recession, just a significant economic slowdown. But our end-2019 forecast of 2,300 for the S&P 500 would only leave it 22% or so below its recent peak. This would be a much smaller drop than the declines seen around the two recessions of the 2000s.
Coming up today
The latest eurozone inflation figures are out this morning, and likely to show that the cost of living slowed last month. Great news for consumers, but a blow to the European Central Bank’s plans – ahead of its monetary policy meeting on Thursday.
A new healthcheck on Britain’s builders is likely to show limited growth last month. The UK construction PMI is tipped to inch up to 50.6, from 50.5 in April, barely above stagnation.
Overnight, we’ve learned that UK consumer spending fell at the fastest rate in at least 25 years last month – a worrying sign for the economy.
Plus, it’s stock market reshuffle day in Britain. Budget airline Easyjet looks likely to be ejected from the FTSE 100 to make room for sports fashion chain JD Sports.
But Marks & Spencer, another laggard, might avoid being kicked out, if the powers at FTSE Russell decide to add its ongoing £600m cash call to its market capitalisation.
- 9.30am BST: UK construction PMI for May
- 10am BST: Eurozone unemployment for April
- 10am BST: Eurozone inflation for May
- 2.55pm BST: US Federal Reserve chair Jerome Powell speaks in Chicago
- 3pm BST: US factory orders