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Services and construction sectors disappoint

Economic headlines were dominated by the escalating tensions and trade tariff announcements between the US and China. China said it would impose 25% tariffs on 106 US goods including soybeans, orange juice and aircraft as a response to the US intention to impose tariffs on 1,300 Chinese products, also at 25%. Tensions appeared to ease later in the week until President Trump reacted to China’s retaliatory tariffs in aggressive fashion, asking his administration to find an extra $100billion of tariffs on Chinese imports. The move provoked a response from China in which it said it did not want a trade war, but would not back down from fighting one. The tone has worried markets and appears on the face of it to reduce the chances of any negotiated settlement, although talk of a trade war is still premature; neither country is implementing the tariffs immediately; the date for the Chinese tariffs is still to be determined and will likely be driven by the effective date of the US sanctions. Meanwhile the US has laid out the schedule for the consultation on its planned measures.

They will be consulted upon until a hearing at the US International Trade Commission on 15th May following which there will be a further week for post-hearing rebuttal comments. In other words, tariffs have not yet been imposed and there will be a lot of talks to try to come to an arrangement in the meantime.

A key measure of the dominant UK services sector dropped to its lowest level since after the EU referendum in March, according to a survey by IHS Markit.

The service sector purchasing managers’ index (PMI) fell to 51.7 in March from 54.5 in February. The fall was blamed to a large degree on snow and generally bad weather during the month, which hit retail among other parts of the sector. Employment intentions and new orders were also weak, however, suggesting a weak patch for the sector.

Also taking a hit was the UK construction sector, which fell from 51.4 to 47 in March (any reading below 50 suggests the sector is contracting). Again, heavy snow and freezing weather were blamed for much of the fall.

Meanwhile Britain’s manufacturing sector maintained its recent upwards momentum in March with higher output but, worryingly, a slowing rate of growth in new orders. The IHS Markit purchasing managers’ index hit 55.1 in March, up from 55 in February and beating expectations.

The manufacturing sector has been performing well recently, assisted by a resurgent European economy and the weaker pound. A spokesman for IHS Markit said the combination of higher output with weaker orders suggested a “softer patch” approaching in the coming months, although firms are reporting solid inflows of new work and business optimism is high, with more than half of companies expecting to expand over the next year. 

However, ominous news from the Eurozone area emerged as the headline purchasing managers’ index for the Eurozone showed three successive months of slowing growth. The PMI for the single currency zone fell to 56.6 from 58.6 in February.

Company managers talked of a “broad growth slowdown across all nations and manufacturing sub-sectors”, said IHS Markit, which compiled the survey. The March drop was the largest since June 2011. However, it should be noted that Eurozone factories reported their strongest month in two decades in December amid a period of excellent growth towards the end of last year, so some slowdown was thought by many to be inevitable.


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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

 

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