And finally (this time!), here’s
(and that really is all for today)
Nasdaw ends day in correction
DING DING. Wall Street has closed for the night, with heavy losses as the tech selloff intensified.
The Nasdaq index ended the day down over 4%, which puts the tech index into an official correction -- down over 10% since its record peak just a week ago.
Tesla ended the day down more than a fifth (21%) today, extending its recent slump down to $330 per shares. A heavy blow to any investors who bought in after its stock split, to $500 each, barely a week ago.
Here’s Reuters’ take:
US. stocks closed lower for a third straight session on Tuesday as heavyweight technology names extended their sell-off, while Tesla suffered its biggest daily percentage drop after the stock was passed over for inclusion in the S&P 500.
Each of the 11 major S&P sectors were lower, led by declines in technology and energy. Reports on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks added to investor nervousness.
Technology once again dragged indexes lower with a drop of more than 3%, the third straight decline and worst three-day performance for the sector since mid-March. Even with the recent drop, the sector remains the best performer on the year.
“Things got expensive, they ran up, they got very concentrated and people got really giddy,” said Willie Delwiche, investment strategist at Baird in Milwaukee. “Everyone is all loaded up on one side, it doesn’t take much of a ripple to knock some apples off the cart.”
Unofficially the Dow Jones Industrial Average fell 631.89 points, or 2.25%, to 27,501.42, the S&P 500 lost 95.11 points, or 2.78%, to 3,331.85 and the Nasdaq Composite dropped 465.44 points, or 4.11%, to 10,847.69.
The pound continued to shed value after City traders went home today.
With the US dollar in demand by nervous investors, sterling has slipped below the $1.30 mark tonight, for the first time since early August. That’s a loss of 1.8 cents today, a hefty decline.
It’s also down over 1% against the euro tonight, at €1.102.
Nasdaq near correction territory
With an hour to go, the Wall Street is sinking back to its earlier lows.
The Nasdaq Composite index is now down 3.8% or 434 points at 10,878, with Tesla down over 19%.
This means the tech-focused index has lost nearly 10% of its value since its record peak just last week, which was followed by the slump on Thursday.
Hello again. If you’re looking for the latest on the stock market moves, here’s our US business editor Dominic Rushe:
The US tech sell-off on Wall Street extended to a third day on Tuesday, with electric carmaker Tesla among the biggest fallers suffering its worst day in nearly six months.
The tech-heavy Nasdaq stock market dropped close to 3% in morning trading, following similar falls on Thursday and Friday. Wall Street was closed on Monday for the Labor Day holiday.
Shares in Tesla fell 17% on Tuesday, while Apple was down 4% and Amazon down 3%.
Tesla, with Elon Musk as chief executive, has been one of the biggest winners of recent stock market rallies as investors have piled into tech firms during the pandemic. The company’s share price surged 74.1% in August alone and is up about 400% this year. The rise has made Tesla more valuable than some of the world’s largest automakers, including Toyota and Volkswagen.
The sharp sell-off came after S&P Global, the company behind the S&P 500 index of top US companies, passed over Tesla for inclusion in the index – a move that had been expected to give Tesla’s share price another boost as index-fund investors added the stock to their portfolios. Etsy, the online marketplace for homemade products was a winner, gaining a place in the index.
Time for a recap
Sterling has dropped by over a cent today, to $1.304. It’s also lost 0.8 of a eurocent against the euro to €1.105, the lowest in over two weeks.
The pound slid after the government told parliament that its plans to override parts of the Northern Ireland protocol would breach international law ‘in a very specific and limited way”.
The latest tensions come as negotiations between the UK and EU over a trade deal resume. Saxo Bank warned that the markets are still too complacent about the risks that a deal won’t happen.
Technology shares have fallen again on Wall Street, causing wobbles on other markets too.
The world’s largest company, Apple, is down another 4% today while Amazon is currently 3% lower.
Tesla has has suffered the most, currently down 15% amid disappointment that it’s not one of the companies joining the S&P 500 this time.
Fellow electric vehicle-maker Nikola, though, has surged 40% after forming a partnership with General Motors to get its Badger trucks to market.
This has knocked almost 3% off the Nasdaq so far today, while the Dow Jones industrial average is currently down 460 points or 1.6% and the broader S&P 500 is 2% lower.
That still leaves the Nasdaq up 22% for this year, with the S&P 500 3% higher despite the Covid-109 crisis.
Fears over the health of the global economy have also hit the oil price today, with Brent crude dropping back to $40 per barrel for the first time since June.
European markets have fallen too, with the Stoxx 600 index of top companies in the region dropping by 1.1% today. The UK’s FTSE 100 only lost 0.1%, though, with the weak pound helping multinationals.
Here’s some more of today’s stories:
That’s probably all for today. We’ll be back tomorrow... GW
After a late pick-up, Britain’s blue-chip stock index ended the day roughly where it began.
The FTSE 100 has closed 7 points lower at 5930, having been over 1% down this afternoon after Wall Street opened in the red.
But there are some notable moves. Some multinational companies rallied, as the weaker pound makes overseas earnings more valuable. Drinks firm Diageo, for example, rose by 4%.
Fashion chain JD Sports jumped by almost 10%, after reporting stronger-than-expected sales thanks to rising demand from young people since the lockdown lifted.
But oil companies were hit by the sharp fall in crude prices this afternoon, with Royal Dutch Shell and BP both losing 3%.
European markets also ended in the red, with France’s CAC down 1.6%. Germany’s DAX lost 0.9%, as investors digested the news that exports jumped by 4.5% in July.
David Madden, analyst at CMC Markets says the falls on Wall Street and rising tensions between the Trump administration and China has hurt confidence.
The weakness that we saw in big US tech names last week, is still in play, and that is driving sentiment over here.
The FTSE 100 hasn’t lost as much ground as the indices in mainland Europe thanks to the fall in the pound. Sterling is under pressure again over worries a trade agreement between the UK and the EU will not be agreed upon by mid-October, and that could pave the way for WTO trading rules come 2021. Sterling’s fall has given a little help to the likes of Diageo, Imperial Brands and Ashtead as they all earn a large portion of their revenue outside of the UK, so a softer pound helps them.
President Trump has suggested ‘decoupling’ from China as a way of reducing the US’s dependency on the country. It wasn’t a full-on attack on the nation, but it adds to the frosty relations that have been brewing in recent months, which is a factor in the wider bearish sentiment seen today.
Pound trading at one-month low
The pound seems to have stabilised, for now at least, at $1.303 vs the US dollar.
That’s a drop of around 1% today, down from $1.3166 last night. It’s the pound’s lowest level in about month
Sterling remained at these lows after Northern Ireland Secretary Brandon Lewis told MPs that the government’s new customs rules for Northern Ireland do breach parts of the Brexit withdrawal agreement.
My colleague Lisa O’Carroll explains:
The government has admitted that its plan to reinterpret the special Brexit arrangements for Northern Ireland will break international law.
The Northern Ireland secretary, Brandon Lewis, astonished backbenchers when he told the House of Commons: “Yes, this does break international law in a very specific and limited way. We’re taking the powers to disapply the EU law concept of direct effect … in a certain very tightly defined circumstance.”
Today’s drop in technology stocks follows intriguing reports that Japanese technology investor SoftBank has been making huge bets on US technology firms using options contracts.
The Financial Times said it was unmasking SoftBank as the “Nasdaq Whale” last Friday, reporting that it had bought billions of dollars’ worth of US equity derivatives.
Those trades in call options (which give the right to buy a share at a fixed price) could have driven up the wider market. That’s because the counterparties would hedge themselves by buying the underlying equity, just in case the options came good (thus driving more interest in call options).
Softbank’s shares slumped over 7% on Monday, and lost another 0.7% today.
Brent crude falls through $40 per barrel
Global oil prices have slumped below $40 a barrel for the first time in over ten weeks as the spread of the coronavirus raises fresh concerns over the world’s oil demand forecasts.
The price of Brent crude has tumbled by more than 10% from five months highs of $46.50 a barrel at the end of August to $39.83/barrel on Tuesday afternoon, after five consecutive days of trading losses. It’s now down 5.4% today alone.
The rising number of Covid-19 cases around the world, and particularly in the US and India, has reignited concerns among oil traders over whether the gradual recovery in oil demand will stall as major economies are forced to reinforce lockdown measures to tackle the spread of the virus.
Paola Rodriguez-Masiu, a senior oil markets analyst at Rystad Energy, said the end of the summer driving season in the US, and further deterioration of relations between Washington DC and Beijing, has brought “additional chills to the market”.
Every sector of the US stock market has dropped this morning.
Energy stocks are the worst performer, tracking the slump in oil. That’s followed by financial stocks, miners, technology and consumer goods makers.
As Apple, Amazon, Microsoft, Alphabet and Facebook are the biggest companies on Wall Street, their fluctuations moves the wider market, as this heat chart shows:
Electric truck maker Nikola is bucking today’s selloff, with its shares surging 40% after it teamed up with General Motors.
The two firms have formed a strategic partnership, under which GM takes an 11% stake in Nikola, valued at $2bn.
Under the partnership, GM will manufacturer the Nikola Badger -- its fully-electric and hydrogen fuel cell electric pickup truck aimed at consumers.
GM will also supply hydrogen fuel cells to Nikola for its Class 7 and Class 8 semi trucks.
That’s a boost to both companies (and possibly contributing to Tesla’s slide).
GM boss Mary Barra has told CNBC that the electric truck business is a ‘huge growth opportunity”. GM shares are up 7% in early trading.
Tesla is on track for its worst day since March, during the global market slump, points out Investing.com.
Tesla’s share price has been on an extraordinary ride this year.
As you can see, it started the year with steady gains, only to slide in February as the Covid-19 pandemic send global markets tumbling.
By mid-March, shares were at the equivalent of $70 (once you adjust for the new 5-1 stock split), but they then recovered to their previous highs in June.
They then surged dramatically through the summer, as investors piled into the technology sector.
Some said it was unsustainable, others argued that the pandemic meant that tech companies (who offer the prospect of rising cash flow and sales) were a sensible choice - especially in an era of weak growth and record low borrowing costs.
CORRECTION: The Nasdaq is at its lowest level in three weeks, not months as I daftly wrote a few minutes ago.
Sorry for that typo (now fixed below, if you refresh).
Tesla stock slides 18%
Tesla’s stock has slumped by 18% at the start of trading, adding to last week’s slump.
Investors are unhappy that the self-driving electric carmaker has not been added to the S&P 500 (with Etsy, seller of homemade items and craft supplies favoured instead).
Had Tesla been included, then index trackers would have had to buy its shares (this is said to be one of the factors behind its recent huge gains).
Tesla is trading at $341.72 per share today, down from $418 on Friday night. That’s a staggering 30% below their record high (it hit $500 a week ago, just after its 5-1 stock split).
Shares in Elon Musk’s company had been rising like one of his rockets this year, amid the surge into technology stocks. Even after today’s fall, it’s still up 300% this year.
Tesla’s shares could also be under pressure because it has just raised $5bn through an offering of new stock.
Tech stocks drag Nasdaq down
America’s Big Tech companies are caught up in the selloff.
Apple has dropped by 4.8% to $115 per share, some way below the $125 at which the stock split a week ago.
Amazon has lost 3.6%, Microsoft has shed 3.3%, Facebook is down 3.1% and Alphabet (Google) is off 2.8%.
These companies had all surged this year, leading some analysts to predict a correction.
Today’s selloff has pulled the Nasdaq down to a three-week low [corrected], but it’s still up over 20% this year.
Wall Street slides at the open
As feared, the US stock market has opened sharply lower.
The three main indices are all in the red in early trading, with tech stocks leading the selloff (extending the losses last week)
- Dow Jones industrial average: down 464 points or 1.65% at 27,668
- S&P 500: down 67 points or 2% at 3,359
- Nasdaq Composite: down 364 points or 3.2% at 10,948
Missed this earlier, sorry. Europe’s statistics body has revised its growth forecasts for the last quarter up a little.
It now says GDP across the eurozone shrank by 11.8%, up from the initial estimate of 12.1%. That’s still the worst quarter on record.
Eurostat’s report also shows how some European countries suffered much sharper recessions than others. The biggest declines in GDP were recorded in Spain (-18.5%), followed by Croatia (-14.9%), Hungary (-14.5%), Greece (-14.0%), Portugal (-13.9%) and France (-13.8%).
The lowest declines of GDP were observed in Finland (-4.5%), Lithuania (-5.5%) and Estonia (-5.6%), followed by Ireland (-6.1%), Latvia (-6.5%) and Denmark (-6.9%).
According to the Office for National Statistics, the UK economy shrank by 20.4% in April-June. We find out on Friday morning how it performed in July.
Foreign exchange trading firm BP Prime fears the pound could hit parity against the euro for the first time, if Britain doesn’t agree a trade deal with the EU.
Sterling dropped as low as €1.06 during the market crash in March, which was its lowest since the financial crisis in 2008 (when it nudged €1.02).
In another sign of market jitters, Wall Street’s VIX volatility index (or ‘fear index’) has jumped this morning.
VIX had fallen steadily through July and August, before popping last Thursday when the technology sector tumbled.
Stocks and oil fall as risks grow
All Europe’s stock markets are in the red today, hit by worries about Covid-19, Brexit, and the US election.
Sterling’s weakness means London stocks are less affected.
The FTSE 100 is only down 0.75% at present, while Paris’s CAC has lost 1.8% amid rising cases in France.
Investors are getting more risk-averse, meaning they’re selling shares, and moving into safe assets like bonds and the US dollar (helping to weaken the pound).
The oil price has also fallen sharply, with Brent crude down 3.4% at $40.60 per barrel - the lowest since the end of June.
Fawad Razaqzada, market analyst with ThinkMarkets, explains:
As well as selling of US technology shares, oil prices, the pound and cryptos have also come under pressure. This morning saw European indices gave back some of the gains made yesterday in the absence of US markets. US index futures have declined ahead of the open following the long break, with tech stocks seen tumbling at the open. The risk-off tone has helped to push the dollar higher across the board, which has even weighed on gold.
The cagey sentiment is a reflection of rising new Covid-19 infection rates across Europe, renewed concerns over Brexit, valuation concerns and waning impact of past stimulus measures. Then there are many other concerns that include, for example, US-China tensions which notched up a gear after Donald Trump said he is going to “end” US reliance on China, as well as political uncertainty ahead of the US presidential election.
A handy Tesla chart....
Back in the markets, Wall Street is expected to open in the red after being closed for Labor Day on Monday.
Technology stocks are facing further losses, on top of last Thursday’s rout.
Electric self-driving car maker Tesla’s shares are down 15% in pre-market trading, after it wasn’t included in the S&P 500 index yesterday.
Many traders had expected Tesla to join the index, after it satisfied the requirement of four quarterly profits in a row. Instead, e-commerce site Etsy, automatic test equipment maker Teradyne and pharmaceutical firm Catalent made the cut.
Apple shares are down 5% in pre-market, with Amazon facing a 4% slide.
As such, the Nasdaq index is on track to open 3% lower.
Craig Erlam, senior market analyst at OANDA Europe, says it could be a choppy day:
The recovery late Friday may have been short-lived, with the sector coming under heavy pressure across Europe and the big US names that have propelled US indices back into record territory coming in for a difficult session.
Of course, put in perspective, most of these stocks haven’t even hit one month lows yet so there’s arguably plenty of room below.
Over in the House of Commons, Northern Ireland secretary Brandon Lewis has told MPs that the government is committed to implementing the Northern Ireland protocol.
But, Lewis also said the government is committed to allowing unfettered access for trade from Northern Ireland to Britain, and that it intends to legislate how the protocol will operate [through the upcoming internal market bill].
Our Politics Live blog has full details, including MP’s concerns over the resignation of Jonathan Jones:
After a choppy morning, the pound has now hit its lowest level in nearly four weeks against the US dollar.
It’s firmly lower against the euro too, with the resignation of the UK’s top legal civil servant adding to market jitters about Brexit.
- Pound/dollar: down 1.2 cents or 0.9% at $1.3044, its lowest level since 12 August
- Pound/euro: down 0.8 eurocents or 0.75% at €1.105, its lowest level since 20 August.
Not major falls, but its notable that sterling has dropped steadily in the last few days, as these charts show:
The drop in the pound is supporting the FTSE 100 (as it boosts the value of multinational companies), so it’s only down 22 points at 5914 points.
But the smaller FTSE 250 index, which contains more UK-focused companies, has dropped by almost 0.9% this morning.
The sofa and home furnishings retailer ScS has reported strong sales, as Brits are sprucing up their homes in the wake of the Covid-19 pandemic.
Understandable, given people have been spending A LOT more time at home.
While some companies have begun to bring staff back into their offices this month, many people continue to work from home. Orders at ScS rocketed 92% post lockdown, between 24 May and 25 July.
Like-for-like orders are up 51% in the six weeks to 5 September – equivalent to £19m of extra revenue, beating the firm’s expectations.
Covid-19 jitters hit some stocks
Shares in UK companies who have suffered badly from the pandemic are among the fallers on the London stock market this morning, as traders fret about a recent pick-up in Covid-19 cases.
Jet engine maker Rolls-Royce, whose sales and servicing revenue has been hit by flight groundings, are down 4.2%.
Gambling firm GVC Holdings, which owns Ladbrokes Coral, are down 4.3%. Its betting takings fell during the lockdown, so will be hoping for an uninterrupted football and racing season.
Whitbread has dropped by 4%. Its Premier Inns hotels saw a drop in revenues as tourism and business meetings dried up this year.
Sterling is suffering from a battering of negative press reports about the Brexit talks, writes Neil Wilson of Markets.com -- and we can probably expect more in the coming days.
Entirely as we thought might happen this week, the pound has found itself at the mercy of negative reporting around Brexit. GBPUSD dropped sharply to hit its lowest since August 25th, extending losses after a weak open to test support under 1.3060 amid reports that the head of the UK government’s legal department has quit over Boris Johnson’s plans to rewrite the withdrawal agreement.
Whilst we should caution that this indicates disharmony, it is also possibly an overreaction by the market to a negative headline, and does not necessarily make a deal with the EU less likely than it was before.
Nonetheless it highlights the brinkmanship pursued by Johnson’s government in the talks – even suggesting that Britain could unilaterally rewrite the withdrawal agreement has raised the EU’s hackles and clearly raises the stakes as the two sides commence the 8th round of official talks today. Expect more negative headlines, more risk and more volatility. A positive surprise seems increasingly unlikely, but for this reason would be all the more dramatic should it emerge and produce a sharp reversal for GBP.
Saxo: Markets too complacent about no-deal risks
Saxo’s John Hardy also sent this chart over, showing how the pound is currently still trading above its ‘200 day moving average’ against the US dollar despite this week’s losses.
It’s the flattish light-blue line, at around $1.275, or four cents above today’s price.
Hardy reckons sterling could drop back to that level, “if the market finally starts to price in proper no-deal risk from these negotiations rather than complacently assuming that Boris Johnson is merely posturing here”.
Sterling is slowly waking up to the risk of another cycle of “no deal” fears, says John Hardy of Saxo Bank, as it falls for the fifth day in a row.
He suspects that some investors are too complacent about the crunch negotiations because they suspect the two sides will compromise in the end.
Boris Johnson has taken a hyper-aggressive turn in drawing up possible plans to renege on the very terms that made the Brexit deal possible in the first place, and vowing that October 15 is a negotiation deadline.
But don’t take my word for it - Bloomberg’s normally very balanced John Authers calls Boris Johnson’s moves “crazy” and “downright stupid”.
In reaction to this latest turn, sterling is beginning to absorb the implications but pricing still looks complacent here relative to the risks, perhaps as all of the previous “cliff edge” situations were avoided and the market believes this one will be too, fairly or not.
Pound extends losses
Update, the pound’s now below $1.31 for the first time in a fortnight, having shed a whole cent today as it drops to $1.306.
The selloff picked up pace, after the Financial Times reported that the head of the UK’s government legal department has quit, over suggestions that Boris Johnson is trying to row back on parts of last year’s Brexit deal relating to Northern Ireland.
The FT says:
Two Whitehall officials with knowledge of the situation told the Financial Times that the Treasury solicitor and permanent secretary of the Government Legal Department was leaving his position due to a dispute with Downing Street over its plans to challenge parts of the Brexit withdrawal agreement.
Those close to Sir Jonathan Jones said he was “very unhappy” about the decision to overwrite parts of the Northern Ireland protocol, part of the 2019 withdrawal agreement, with new powers in the UK internal market bill.
Brexit jitters have just pushed the pound down to $1.31 for the first time since 25th August.
It’s down half a cent against the US dollar today (and four cents in the last week), as penultimate round of Brexit negotiations start in London.
This volatility is likely to intensify as we head towards the European Council meeting on 15 October - which Boris Johnson has set as the deadline for a deal.
Nigel Green, the CEO of financial advisers deVere Group, predicts a no-deal crisis would send sterling sliding to $1.20 (compared with $1.50 before the 2016 referendum).
Fears over a no-deal Brexit are weighing hard on the pound this week, dragging Sterling lower against many major rivals.
“Widely regarded as a Brexit bellwether, the pound will be hit by significant volatility fuelled by politics.
“The brinkmanship between the UK and EU has been ratcheted up as the negotiators meet in London for the eighth and penultimate round of talks.
The mixer maker Fever-Tree has also managed to ride out the Covid-19 storm pretty well.
Sales to pubs and bars have obviously fallen sharply, but more people have been mixing drinks at home – “ seeking out long mixed drinks as an everyday affordable treat”. It launched a new Sparkling Pink Grapefruit mixer to pair with tequila to create a Paloma cocktail.
The firm said it didn’t furlough anyone and hired 20 people in the first half. Revenues are down 11% from last year. It grabbed more market share by volume, and remains the market leader by value, controlling 37.6% of the market.
The car parts and bike chain Halfords has benefited from staycations and the bike boom since the Covid-19 crisis.
Sales of electric bikes and scooters rocketed 230% year-on-year in the 20 weeks to 21 August.
The firm expects to make profits of £35m to £40m in its first half, but warned that profits could be “significantly lower” in the second half, as the boost from cycling and staycations fades during the winter months.
JD Sports boosted by younger shoppers
JD Sports shares rose 7% this morning, even though the sports retailer warned that the boost in sales after shops reopened following the Covid-19 lockdown was “short lived” and that attracting customers into major shopping malls remained a big challenge.
Sales since reopening are up 20% on last year, as JD’s teenage and twenty-something customers were keen to get back to the high street or shop online.
Profits before tax fell to £41.5m in the first half from £129.9m, partly due to costs related to making its shops safe. For the full year, JD expects to make a profit of “at least” £265m.
FTSE 100 dragged down by construction blues
In the City, the blue-chip FTSE 100 has dipped into the red this morning, despite the boost from the weaker pound.
Housebuilders are dragging the index down, with Persimmon shedding 4% and Barratt down 3.8%.
Building merchant operator Travis Perkins may be to blame. It reported that revenues fell 20% in the first half of this year, pushing it into a loss of £113m (from a £12m profit a year ago).
Travis Perkins, which sells paint, pipes, bricks and cement to builders, has already closed 165 stores, with the loss of 2,500 staff, or 9% of the workforce.
Today, though, it has announced that the demerger of its Wickes DIY chain is on hold “until markets become more stable and predictable”. Travis Perkins shares, which are on the FTSE 250 index, are down 6.5%.
Pound hits two-week low
Brexit worries are continuing to weigh on the pound this morning, as crunch UK-EU negotiations begin in London.
Sterling has dropped another 0.2% against the US dollar to $1.314, its lowest in two weeks. It’s now fallen for five days in a row, amid growing fears of a no-deal Brexit.
The pound’s also dropped against the euro, to €1.111.
Overnight, leaked diplomatic cables seen by the Guardian show that Brussels’ trust in Boris Johnson has fallen sharply; EU official suspect the UK is resisting reaching a compromise on key issue - fisheries, state aid and dispute resolution - until the last moment in order to achieve a last-minute “trade off”.
Easyjet blasts government over quarantine changes
Meanwhile in the UK, budget airline easyJet is fuming, loudly, over the government’s handling of the pandemic.
Easyjet told shareholders this morning that the UK’s “constantly evolving” travel restrictions were having a negative impact on consumer confidence.
It is now scrapping some of its planned flights, in response to seven Greek islands being removed from the ‘safe list’ last night. The airline will now operate “slightly less” than the 40% capacity it had been aiming for.
CEO Johan Lundgren didn’t hold back in his criticism of ministers, saying the airline industry needs a broad package of support:
“We know our customers are as frustrated as we are with the unpredictable travel and quarantine restrictions.
“We called on the Government to opt for a targeted, regionalised and more predictable and structured system of quarantine many weeks ago so customers could make travel plans with confidence.
Shares in easyJet have slumped 5% in early trading, near the bottom of the FTSE 250 leader board. More here:
The jump in German exports in July will sustain hopes of a V-shaped recovery, argues economist Carsten Brzeski of ING.
He writes that Germany’s export sector is ‘flourishing again’ - despite weaker demand from major trading partners such as France and the UK.
Next to hotels, restaurants and culture, which are still suffering from the effects of social distancing, the export sector is probably the most exposed to the crisis, suffering from the domestic lockdown measures as much as from lockdowns across the world and supply chain disruptions. Moreover, the export sector is also subject to structural changes in the global economy, be it more protectionism, a transition away from traditional manufacturing toward services, high tech or electric vehicles.
The different degrees of lockdowns as well as the uneven recovery across eurozone countries are also reflected in German export data, with the share of exports to France, Italy, Spain and the UK having dropped significantly in the second quarter. Just as an illustration: Germany exported more to the Netherlands than to France, and more to China than to the US.
Introduction: German exports on the rise
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
German exports have jumped, in the latest sign that the eurozone economy is emerging from its worst slump on record.
But with trade still far below pre-Covid levels, the road back to normality looks long and bumpy.
New figures released this morning show that sales of German-made goods jumped by 4.7% in July compared to June. That pick-up in global demand echoes the strong exports reported by China on Monday.
It’s a decent sign that Germany’s economy has returned to growth, after shrinking by around 10% in April-June.
However, better isn’t the same as good. Crucially, imports and exports at Europe’s manufacturing powerhouse are still 11% lower than a year ago, highlighting the subdued demand as the pandemic continues.
It’s also notable that imports only rose by 1.1% - meaning Germany’s trade surplus has swelled:
Here’s the details:
German exports, July 2020
- +4.7% on the previous month (calendar and seasonally adjusted)
- -11.0% on the same month a year earlier
German imports, July 2020
- +1.1% on the previous month (calendar and seasonally adjusted)
- -11.3% on the same month a year earlier
Interestingly, the report also shows that Germany’s trade with China has rebounded - while imports from the UK have slumped by a quarter (!) year-on-year in July due to the impact of Covid-19.
Germany’s statistics body, Destatis, explains:
The degree to which year-on-year exports were affected depended on the trading partner. Exports to the People’s Republic of China decreased by just 0.1% to €8.7bn in July 2020 compared with July 2019. Exports to the United States, which have been hit particularly hard by the coronavirus pandemic, dropped by 17.0% to €9.3bn. Compared with the same month last year, exports to the United Kingdom showed a decrease of 12.6% to €5.5bn in July 2020.
In July 2020, most imports came to Germany from the People’s Republic of China. Goods to the value of €10.3bn were imported from there, which was a 7.4% increase compared with July 2019. Imports from the United States fell by 14.8% to €5.2bn in July 2020. German imports from the United Kingdom were down 24.8% to €2.4bn.
Reaction to follow....
- 9am BST: Italian retail sales for July
- 10am BST: Updated eurozone GDP report for Q2 2020
- 10.30am BST: South African GDP for Q2 2020