Graeme Wearden 

Hong Kong falls into recession; Trump blasts the Fed – business live

Rolling coverage of the latest economic and financial news, as Hong Kong’s economy tumbles into recession
  
  

A pro-democracy protester throws a fire bottle towards riot police during a rally against police brutality in Hong Kong, China, 27 October 2019
A pro-democracy protester throws a fire bottle towards riot police during a rally against police brutality in Hong Kong, China, 27 October 2019 Photograph: Lynn Bo Bo/EPA

Finally, the FTSE 100 index had ended a rough day, solidly in the red.

The blue-chip index lost 82 points, or 1.1%, to close at 7,248.

Royal Dutch Shell was the top faller, down 4% after reporting a 15% drop in profits this morning.

Trade war fears also hit equities, while multinational stocks suffered from a stronger pound.

Here’s our news story on Hong Kong’s slide into recession:

Stocks are falling deeper into the red on Wall Street, following Donald Trump’s attack on the Fed.

The Dow has now lost 164 points, or 0.6%, to 27,011, as traders fret about the US-China trade war.

Hong Kong’s lurch into recession hasn’t improved the mood either.

Michael Hewson of CMC Markets thinks today’s grim manufacturing data from Chicago may have prompted Trump’s blast.

Trump blasts Federal Reserve (again)

Donald Trump has unleashed another attack on America’s central bank, a day after it cut interest rates for the third time this year.

The president has repeated some familiar claims -- the Federal Reserve was too quick to raise interest rates in recent years, and too slow to cut them (despite his chivvying).

He also blames the Fed’s tight monetary policy for the slowdown in US manufacturing -- although his own trade war with China is probably a bigger factor....

The Fed cut rates to a range of 1.5%-1.75% yesterday. Trump, though, argues they should be below Germany and Japan -- so effectively below zero.

There’s relief for Northern Ireland today -- US aerospace manufacturer Spirit Aerosystems has bought the historic Short Brothers factory from Bombardier, saving thousands of jobs.

Ouch! The manufacturing sector in Chicago suffered a dramatic contraction this month.

The Purchasing Managers Index in the Chicago region has tumbled to 43.2 in October from 47.1 in September, a level that suggests output and activity crumbled.

I guess this is partly due to the strike by General Motors staff this month, which ultimately won workers pay rises and protected their healthcare provision.

Over in New York, stocks have dipped at the start of trading, despite Donald Trump’s attempts to bolster trade deal hopes.

The Dow Jones industrial average has dropped by 62 points, or 0.2%, to 27,124.

The S&P 500 has dipped by 4 points, or 0.14%, to 3,042, away from last night’s record closing high, while the Nasdaq is flat.

Facebook (+4%) and Apple (+1.6%) are rallying, though, after posting strong financial results last night.

Newsflash: President Trump has just announced that he will sign a ‘phase one’ trade deal with President Xi soon.

That follows Bloomberg’s claim that Beijing doesn’t believe it will sign a comprehensive agreement.

More GDP data: Canada’s economy expanded by 0.1% in August, lifted by a pick-up in manufacturing.

That follows no growth in July, but is weaker than the 0.2% rebound expected by economists.

Video: Why Hong Kong citizens are protesting

The protests in Hong Kong began against a bill that would have allowed Hong Kong citizens to be extradited to mainland China, or scores of other countries where there’s currently no extradition treaty.

Critics of the bill, which was abandoned last month, feared it could allow any citizen to be arrested and swept out of the City state to face charges.

But as protestors in this video explained, the demonstrations became about other issues too - including police brutality, and attempts to undermine the “one country, two systems” formula created when Britain handed Hong Kong over in 1997.

Many of the protesters are young people, also angry about economic issues such as unaffordable property and income inequality.

But some older people are on the streets too, trying to protect the younger generation. One, called Uncle Wong, told us his story here:

Reuters is reporting that Hong Kong police have fired tear gas to try to break up anti-government protests in the densely populated district of Mong Kok on the Kowloon peninsula today.

Demonstrations were expected on Hong Kong island to coincide with Halloween celebrations.

Some protestors are wearing masks, to challenge an anti-mask ban brought in by the Hong Kong authorities earlier this month.

AP has more details:

Organizers are calling on supporters of the protest movement to take part in a “masquerade” that will put to the test a recent government ban on masks at public gatherings aimed at quelling the increasingly violent protests now in their fifth month.

Digital fliers circulated online called on people to wear masks depicting Hong Kong Chief Executive Carrie Lam and Chinese President Xi Jinping and other senior officials.

They also said people could wear a mask and dress in red for the march, which was set to begin at a large park and proceed to the Lan Kwai Fong bar and nightclub district.

Estee Lauder hit by Hong Kong protests

Just in: the protests in Hong Kong have helped to force make-up and fragrance firm Estee Lauder to cut its profit forecasts.

Estee Lauder has told shareholders that net sales in Hong Kong fell in the last quarter.

It blamed “events impacting key shopping areas” in recent months; namely, the widespread protests that forced shop closures and kept tourists away.

This took the shine off an 11% increase in total net sales, to $3.9bn.

Estee Lauder also warns that it faces various social, economic and political risks, including “cContinued challenges in Hong Kong impacting key shopping areas”.

It also cites Brexit, and the US-China trade wars, in a list of various “geopolitical tensions, regulatory matters, global security issues, currency volatility and economic challenges” that could hit consumer spending.

The company now expects 2020 adjusted profit between $5.85 and $5.93 per share compared with its prior range of $5.90 to $5.98.

Finally, some good news. Italy’s economy has returned to growth, with a 0.1% increase in GDP in the last quarter.

AP: How Hong Kong retailers and tourism industry are suffering

Associated Press have written about the impact of Hong Kong’s recession on the tourism industry:

Kong’s main tourist strip, Ashfaqur Rahman’s tailor shop usually is a mainstay for tourists dropping in to peruse neatly stacked rolls of fabric and get measured for custom-made suits.

Not anymore.

Business has dried up since anti-government protests began in early June in the Asian financial center.

On Thursday, the government said Hong Kong’s economy shrank 3.2% in July-September from the previous quarter, pushing the city into a technical recession.

That makes two straight quarters of contraction since the economy contracted 0.5% in April-June on a quarterly basis.

The once-common lines of Chinese shoppers outside Hong Kong’s glittering luxury stores are gone. Jewelry stores have no customers and related businesses like transportation are languishing.

Rahman said his monthly sales have tumbled 80% from an average of 200,000 Hong Kong dollars ($25,500) in better times.

His shop is tucked away in a passage off Nathan Road in the Tsim Sha Tsui district, which teems with posh hotels and upscale jewelry and fashion boutiques, set against the stunning backdrop of Victoria Harbor.

But on recent weekends the neighborhood has become a protest battle zone, with black-clad demonstrators clashing late into the night with riot police unleashing tear gas and water cannons.

“This is the worst we’ve seen,” said Rahman, a Bangladeshi immigrant who opened the shop 14 years ago. His sales now barely cover the rent and he and his business partner are dipping into their own pockets to pay the salaries of their five staff. He’s not sure they’ll be able to carry on if there’s no resolution to the increasingly violent protests.

Tommy Wu, a Hong Kong-based economist with Oxford Economics, says:

“Much of the pressure is now coming from the political unrest.

The trade war itself would cause Hong Kong’s GDP growth to slow but not a contraction, while the political unrest could.”

CNN: Hong Kong economy even weaker than feared

Hong Kong’s economy looks to be in even worse shape than feared, says CNN.

It blames months of protests that forced shops to close, paralyzed public transportation and scared off tourists, saying:

Hong Kong plunged into recession in the third quarter, according to official data released Thursday. The economy shrank 3.2% during the three months to September, compared to the previous quarter.

That’s a sharp slowdown from the 0.5% contraction recorded in the second quarter, and much worse than economists had expected.

With no immediate resolution to the city’s political crisis on the cards, Hong Kong’s first recession in a decade could extend into the new year.....

As a major trading hub, Hong Kong was already hurting from the US-China trade war and China’s slowing growth. Five months of mass demonstrations is now pushing the city toward an economic crisis.

More here: Hong Kong’s first recession in a decade could be even worse than feared

Eurozone grows by 0.2%

Newsflash: the eurozone grew by 0.2% in the third quarter of this year.

That’s stronger than the 0.1% growth expected, but still a weak performance. It matches the 0.2% growth recorded in the April-June quarter.

The wider European Union grew by 0.3% in July-September, according to statistics body Eurostat.

That may be a sign that Britain’s economy returned to growth in the last quarter (we’ll find out next month, when UK GDP is released).

Capital Economics has predicted that Hong Kong’s economy will continue to shrink in the current quarter, but probably at a slower rate.

It told clients:

“Any recovery will be constrained by weak business investment, however, as the city’s political crisis has done lasting damage to its reputation as a stable and autonomous financial hub.

China Casts Doubts Long-Term Trade Deal Possible With Trump

In another blow to Hong Kong - and the rest of the global economy - China apparently doesn’t believe it can agree a trade deal with Donald Trump.

Bloomberg has the story:

Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a “phase one” agreement, Bloomberg News reported.

In private conversations with visitors to Beijing and other interlocutors in recent weeks, Chinese officials have warned they won’t budge on the thorniest issues, according to people familiar with the matter. They remain concerned about President Donald Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks.

This has worried investors, sending stocks down across the globe. A protracted trade war is bad news for growth, at a time when most advanced economies are slowing.

In London, the FTSE 100 has lost 0.8%, or 60 points, dragged down by mining stocks and Royal Dutch Shell (following its slump in profits this morning).

Updated

AFP: Protests and trade war trigger recession

Hong Kong’s economy has also been hurt by the ongoing trade war between the US and China.

Here’s the AFP newswire’s take:

Hong Kong on Thursday confirmed it had plunged into its first recession since the global financial crisis as months of seething pro-democracy protests and the US-China trade war exact a heavy toll on the financial hub.

The semi-autonomous Chinese city has been upended by nearly five months of huge, often violent, pro-democracy demonstrations with little end in sight as Beijing and city leaders adopt a hardline approach.

Clashes between protesters hurling bricks and petrol bombs at police wielding tear gas and rubber bullets have become a weekly occurrence, hammering the city’s once-solid reputation for stability and safety.

The unrest has hit the city’s tourist and entertainment industries hard, compounding economic woes that were already being caused by the global trade war.

Figures released by the government on Thursday showed gross domestic product plunged 3.2% in the third quarter compared with the previous period, when it saw a 0.4% drop.

That means the city is experiencing a technical recession, with two back-to-back periods of contraction.

It is the first time the city has witnessed a recession since early 2009 at the height of the financial crisis.

Hong Kong’s economy was already facing strong headwinds at the start of 2019 as it was hit by the US-China trade war, battering a city that is hugely reliant on the world’s two largest economies.

The Financial Times points out that several economists predict the recession could intensify in the next few quarters:

Iris Pang, an economist at ING, an investment bank, forecast that the economy would shrink in all four quarters next year.

Updated

Why Hong Kong is in recession

Hong Kong’s slump into recession has been driven by a sharp slide in retail sales and tourism.

The sight of riot police clashing with demonstrators, tear gassings, and masked protestors throwing petrol bombs has led to a hefty fall in tourist visits.

Shops have been forced to close, dragging retail sales down. Businesses have reined in investment plans and hunkered down, leading to a drop in activity.

The protests began against an extradition bill to mainland China, which has now been withdrawn, but have now turned into a wider pro-democracy movement.

Hong Kong’s embattled leader Carrie Lam warned on Tuesday that growth could be negative for 2019 as a whole, and pledged to “tackle the violence head on”.

Hong-Kong based economist Carlos Casanova fears the region’s economic problems will drag on into next year:

The slump in Hong Kong’s economy in the last quarter is much worse than expected, says Bloomberg’s Tracy Alloway:

Hong Kong falls into recession

Newsflash: Hong Kong has fallen into recession for the first time in a decade, as the ongoing pro-democracy protests hurt the economy.

Hong Kong’s economy shrank by 3.2% in the third quarter of 2019, according to new figures from the Census and Statistics Department. That’s an extremely sharp contraction, and follows a 0.4% drop in GDP in April-June.

Hong Kong’s government says the economy has entered a technical recession, and that the “severe impact” of “social incidents” this year caused this deterioration.

It also predict that private spending and investor sentiment will continue to be affected by the increasingly violent clashes between demonstrators and police.

As this chart shows, this is Hong Kong’s first recession since the financial crisis a decade ago.

More to follow.....

Updated

Oil giant Shell has also been hurt by the global slowdown, and the drop in crude prices.

My colleague Jillian Ambrose explains:

Royal Dutch Shell has reported a 15% slump in profits for the last quarter amid lower oil market prices and a weaker global economy.

The fossil fuel giant made $4.8bn (£3.65bn) in the last three months compared with $5.6bn in the same period last year and warned that it might miss its targets to reduce debt and pay back shareholders...

Oil analysts expect company profits to be weaker across the industry for the last quarter after global oil prices fell to an average of $62 a barrel in the last quarter, from more than $75 a barrel a year ago, due to worries over whether a sluggish global economy might hit oil demand.

Shell’s chief executive, Ben Van Beurden, said weak macroeconomic conditions and a challenging outlook for the global economy and oil market prices “would inevitably create uncertainty” about the pace of Shell’s financial goals.

The details of today’s PMI reports from China are pretty worrying, says economist Trinh Nguyen.

She points out that orders and employment levels have fallen across manufacturers and service sector companies this month.

This latest decline in China’s factory activity shows that the trade war is “biting” and hitting exports, says Neil Wilson of Markets.com.

So if negotiations between Beijing and Washington stumble again, it could cause greater economic problems and alarm the markets.

Wilson writes:

We hearing slightly less optimistic noises on the trade war front. US demands for China to buy set levels of agricultural products are threatening to derail trade negotiations.

China doesn’t want to commit to what the US wants and this could prove problematic to finalising the phase one agreement. Crossing the wires now the China foreign ministry has hit back at comments made by US Secretary of State Mike Pompeo, who launched a pretty fiery attack on Communist China in a speech.

Failure to get the phase one deal over the line would be negative for risk appetite and raise expectations for the Fed to ease again.

Updated

Chinese factories also reported that they’re cutting staffing levels.

Growth across China’s service sector companies has also weakened this month, in another worrying sign.

The non-manufacturing PMI, which monitors the health of services firms, dropped to 52.8 from 53.7 in September.

That’s indicates a slowdown, and is closer to the 50-point mark showing stagnation.

China: China's factory activity falls again

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

There are signs of economic weakness in China this morning, and Europe may soon add to the Halloween gloom.

Chines factory activity shrank for the sixth straight month in October, new official figures show.

The official Chinese Purchasing Managers Survey for the manufacturing industry, released overnight, fell to just 49.3, from 49.8. This is the sixth month running in which the factory PMI has slipped below the 50-point mark.

It’s another sign that China’s economy has weakened, after more than a year of trade conflict.

As Stephen Innes of Axitrader puts it:

The data was horrible as trade tensions, and a slow recovery in domestic demand continued to weigh on the manufacturing sector.

Last night, the US Federal Reserve cited the US-China trade war as a key risk to America’s economic expansion, as it cut interest rates for the third time this year.

This pushed Wall Street to fresh record highs at the close of trading, as we blogged last night:

We also learned yesterday that America’s economy slowed slightly in the last quarter, to an annualised rate of 1.9% (or almost 0.5% quarter-on-quarter).

Europe would love such a performance, though. Eurozone growth data, due this morning, may show that growth slowed to just 0.1% in July-September, from 0.2% in April-June.

Although France grew by 0.3%, there are fears that a German recession and a stagnating Italian economy is holding the eurozone back. We find out at 10am.

The markets are expected to be calm this morning, as investors digest last night’s Fed cut, and strong results from two tech giants.

Apple posted record revenues for the last quarter, raking in $64bn, driven by strong demand for the iPhone and for wearable technology.

Facebook also best forecasts, with revenues surging 29%. Despite steady criticism of the social media giant, it grew its monthly used base by 1.65% to 2.45 billion.

In the City, Lloyds Banking Group has taken yet another PPI provision of £1.8bn, and oil giant Shell has posted a 15% drop in profits due to the lower crude price (more on both stories shortly...)

The agenda

  • 10am GMT: Eurozone inflation for October
  • 10am GMT: Eurozone third-quarter GDP (first estimate)
  • 11am GMT: Italian third-quarter GDP
  • 12.30pm GMT: Canadian GDP report for August
 

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