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Global markets tumble as concerns about peak earnings add to trade war tensions

UK manufacturing reported new orders falling at the fastest pace in three years this week. Investment plans were torn apart and amid falling optimism thanks to the stuttering Brexit negotiations.

The Confederation of British Industry’s industrial sector survey found a balance of 6% of companies reporting lower orders in the quarter to October, down from a -1% balance in the previous survey as both domestic business and export orders both fell. Analysts had forecast another -1% reading. Worryingly, a balance of 4% of manufacturers expected new orders to fall over the coming quarter. Investment intentions – an important leading indicator – fell significantly for the year ahead, making it harder for companies to grow. A balance of 19% of companies in the manufacturing sector said they were going to cut back on spending on plant & machinery, the sharpest drop since July 2009.

Tom Crotty, chair of the CBI manufacturing council, said: “These figures are concerning and must not be taken lightly.”

He also said that manufacturers will be "deeply concerned" with the government’s proposals for an immigration system after Brexit that "risks worsening skills shortages”.

In Europe, economic news was also poor. Business activity fell faster than expected in the Eurozone in October. The IHS Markit purchasing managers index for the manufacturing sector dropped to 52.1 from 53.2, more severe than the dip to 53.0 that analysts had expected. The services PMI reading also surprised with a fall from 54.7 to 53.3, just above the long-term average.

The European Central Bank kept its interest rates unchanged on Thursday and said it would continue with its QE programme only until the end of the year, when it would stop. Markets took the news in their stride – many economies are withdrawing the emergency stimulus put in place during the financial crisis. But some analysts say that the asset purchasing programme could be extended if the economy runs into more trouble. China, for example, has introduced tax cuts for households and is currently mulling adjustments to VAT and further tax reductions to boost the economy after it reported it recently reports its worst GDP in a decade.

In the US, the number of Americans filing for unemployment benefits increased by more than expected last week, according to figures from the Labor Department. Initial jobless claims rose by 5,000 to 215,000, just above expectations for a rise to 214,000.

Meanwhile, the four-week moving average was unchanged from the previous week's unrevised level of 211,750. This is seen as a more reliable data point because it smooths out sharp fluctuations in the more volatile weekly figures.

UK mortgage lending fell again in September, another sign that the housing market is struggling. Gross mortgage lending was £21.5bn in September, down 1.2 per cent from the same time last year, according to UK Finance.

The number of mortgages approved by banks in September was 9.1 per cent lower year-on-year.

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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