German factory orders unexpectedly plunge; pound under pressure – business live

The UK’s political instability is not good for the pound, writes Derek Halpenny of Japanese bank Mitsubishi UFJ.

The stance of the PM and his supporters is that a victory is a victory and that it is time to “draw a line” and “move on”. That could prove difficult to do. Two bi-elections on 23rd June are likely to reveal huge swings in favour of Labour and the Lib Dems while the conclusions of an enquiry into whether Johnson lied to parliament and an enquiry into the government’s handling of covid are likely to come after the summer recess.

With 41% of sitting MPs now wishing him to go the outlook does not look good and a divided party is not favourable for getting policies through parliament. The difficult economic outlook that lies ahead will be far more difficult to get through with a PM that lacks support. Difficult policies like altering the framework of the Northern Ireland Protocol that is integral to the relationship with the EU and the Withdrawal Agreement points to further divisions down the road.

We already have GBP forecasts that indicate underperformance and weaker GBP/USD levels than the current spot level through Q3 and the outcome of last night’s vote is consistent with our bearish GBP view.

Eurozone construction activity has fallen for the first time in nine months, another sign that Europe’s economy is weakening.

S&P Global’s eurozone construction PMI, which tracks activity in the sector, has fallen into contraction territory, as supply chain problems due to the Ukraine war led to raw material shortages and higher prices.

The index dropped from 50.4 in April to 49.2 in May, showing the sector shrank last month, for the first time since last August.

Homebuilding, commercial work and civil engineering activity all fell last month, with new orders dropping too.

Here’s the key points:

• Fastest reductions in output and new orders since February 2021
• Price and supply-chain pressures ease, but remain marked overall
• Business confidence weakens to 19-month low

Usamah Bhatti, economist at S&P Global Market Intelligence, adds:

Construction firms in the bloc were increasingly pessimistic regarding the outlook for activity over the coming year, with confidence at its lowest level since October 2020.

At the national level, German firms reported the strongest decline in output for nine months, while Italian constructors signalled a further expansion in May that was nonetheless the softest in the current 16-month growth sequence. Businesses in France saw a mild increase that was the fastest since January.”

PricewaterhouseCoopers has been fined almost £5 million pounds ($6.22 million) for conducting poor audits of two UK construction companies

PwC will pay £3m for failings in its audits of Galliford Try, and £1.96 million over a review of Kier Group Plc, the Financial Reporting Council said Tuesday.

It was also ordered to report on its most modern audits that considered long-term contracts, the FRC said, as the regulator continues its crack down on the Big Four auditors.

Claudia Mortimore, the FRC’s deputy executive counsel, says the breaches “concern failures to properly audit revenue recognised under specific complex long-term contracts,”.

PwC said:

We are sorry that aspects of our work were not of the required standard,”

The firm added that it had invested in improving audit quality since the audits of Kier and Galliford Try.

Julia Kollewe

JD Sports and Elite Sports, along with Rangers Football Club, broke competition law by fixing the prices of some Rangers-branded clothing to keep them high at the expense of fans, Britain’s competition watchdog has found.

The Competition and Markets Authority (CMA), which has been investigating the matter since December 2020, said sports retailers Elite and JD fixed the retail prices of a number of Rangers-branded replica kits and other clothing products from September 2018 until at least July 2019.

Rangers FC also took part in the alleged collusion, by fixing the retail price of adult home short-sleeved replica shirts from September 2018 until at least mid-November of that year. All three companies allegedly colluded to stop JD undercutting the retail price of the shirt on Elite’s Gers Online store, the watchdog said.

More here.

British consumers cut back sharply on spending last month as the rising cost of living hit budgets hard.

Retail sales fell at an annual rate of 1.1 per cent in May, worse than the 0.3% drop in April, and the worst since January last year.

That’s according to the latest industry data from the British Retail Consortium and KPMG, which adds to the pressure on the pound.

BRC chief executive Helen Dickinson said sales fell again “as the cost of living crunch squeezed consumer demand”.

“It is clear the post-pandemic spending bubble has burst, with retailers facing tougher trading conditions, falling consumer confidence, and soaring inflation impacting consumers spending power.

Supply chain issues including rising commodity and transport costs, a tight labour market and higher energy bills are forcing retailers to increase their prices, contributing to wider inflation.

Dickinson added that big-ticket items, such as furniture and electronics, took the biggest hit as “shoppers reconsidered major purchases during this difficult time”.

The sales figures were not adjusted for inflation, so the drop in sales “masked a much larger drop in volumes once inflation is accounted for”.

However, retailers did get a platinum jubilee lift, as there was a sharp increase in consumer footfall on the high streets during the long bank holiday weekend.

The pound touched its lowest level in over two weeks this morning, as a strengthening dollar, weakening economy, and political uncertainty all weigh on sterling.

Sterling dropped 0.7% in early London trading to around $1.243, its lowest level since May 20 at $1.2433.

It’s also lost half a eurocent against the euro to €1.167.

The pound had a good day on Monday, but the narrowness of Boris Johnson’s win in last night’s no-confidence vote may be hurting the currency today.

Investors are also anxious about the UK’s economic outlook, with a recession looming and inflation heading towards 10%.

Retail sales dipped last month, new figures show, as consumers tightened their belts amid the cost-of-living crisis.Like-for-like sales were down 1.5% for May compared with the same month a year earlier.

Victoria Scholar, head of investment at interactive investor, says sterling is under pressure after last night’s vote.

The pound held onto gains after the result of the confidence vote was announced, trading higher against the US dollar but has since lost ground this morning with $1.24 the next support level to watch.

The currency is suffering amid a lack of international investor confidence in the UK both economically and politically with criticism of Johnson’s leadership expected to continue and the potential for government legislation to be blocked by members of his own party.

Given that markets hate uncertainty more than anything, the fact that sterling rallied on Monday morning after the no confidence vote was triggered speaks to Johnson’s lack of popularity among investors.

However it is worth noting that some of the gains for GBP-USD were driven by a softer US dollar and although there was an initial spike, cable pared gains during the session as markets began to realise that firstly Johnson may win the vote and secondly the alternative may not be much better.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Germany’s manufacturing sector is a European powerhouse, so a surprise drop in factory orders this morning has fuelled worries over the economic outloook.

German factory orders fell by 2.7% in April, new figures show, dashing hopes of a 0.3% rise after a 4.7% tumble in March.

It’s the third consecutive monthly fall in factory orders. On an annual basis, factory orders were 6.2% lower than a year before.

The war in Ukraine, supply chain problems, China’s Covid-19 lockdowns and the surge in energy prices are all hitting Europe’s largest economy.

Germany’s statistics office says:

“The increased uncertainty caused by the Russian invasion of Ukraine continues to lead to weak demand, especially from abroad.

However, companies still have well filled order books.”

Naeem Aslam of Avatrade says the figures confirm that “economic conditions are becoming dire” for the eurozone’s largest economy.

Markets are also edgy after Australia’s central bank announced its largest interest rate rise in 22 years earlier today, as it tries to tackle inflation.

The Reserve Bank of Australia lifted its cash rate target by 50 basis points to 0.85%, after the energy squeeze and supply chain problems pushed up prices. It also signalled further rises will follow, the latest sign that central bankers are serious about squashing inflationary pressures.

Australia’s consumer price inflation rate was 5.1% for the March quarter – lower than many other countries – but too high for the RBA.

RBA governor, Philip Lowe said inflation in Australia has increased significantly, adding:

While inflation is lower than in most other advanced economies, it is higher than earlier expected.

The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.

Australia’s stock market fell 1.5%, and we’re expecting a weak start in Europe.

Later today we’ll get a healthcheck on eurozone construction firms, UK services company, and the World Bank’s assessment of the global economy.

The agenda

• 8.30am BST: Eurozone construction PMI report for May
• 9.30am BST: UK services sector PMI report for May
• 10.15am BST: The Business, Energy and Industrial Strategy Committee starts an inquiry into the UK’s semiconductor industry.
• 10.30am BST: South Africa’s Q1 GDP report
• 1.30pm BST: US trade report for April
• Afternoon: World Bank’s “Global Economic Prospects” report