Trump tariff threat to trade overshadows new year in Chinese factories
Good morning and happy new year! Welcome to our first business live blog of 2025, covering business, economics and financial markets as ever.
It’s a new year, but likely a familiar feeling for many as investors and executives around the world contemplate the impending start of another term in the White House for Donald Trump.
Chinese factory data published on Thursday suggest that the prospect of a renewed trade war will harm them. Factory activity in the world’s second-largest economy continued to expand during December, according to data company Caixin’s purchasing managers’ index (PMI). However, the index, at 50.5 points, came in lower than the 51.7 expected by economists polled by Reuters.
The weak manufacturing data appeared to contribute to a sell-off on Chinese stock markets. The Shanghai Stock Exchange composite index dropped by 2.7% on Thursday, while Hong Kong’s Hang Seng index fell by 2.1%. Japan’s Nikkei also fell by 1%.
China’s yuan also hit its lowest in more than a year against the US dollar in offshore trading. The yuan fell to a 14-month low of 7.31 for every dollar.
The trade outlook played a role in the drop in the manufacturing PMI. Business confidence dropped to the lowest since September amid “concerns about the outlooks for growth and trade, especially amidst the US tariffs threat”, according to Caixin.
Wang Zhe, senior economist at Caixin Insight Group, said:
Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade. The corresponding indicator was in contractionary territory for the fourth time in the past five months.
Business optimism weakened. Concerns among surveyed companies focused on the economic recovery outlook and the trade conflict between China and the US. Future output expectations continued to grow, but the gauge dropped by more than three points from November.
Meanwhile, the Financial Times’s annual survey of economists around the world has also flagged concerns that Trump’s protectionism will dent growth. The survey of 220 economists found that the president-elect’s policies are expected to slow growth and spur inflation.
The agenda
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9am GMT: Eurozone manufacturing purchasing managers’ index (PMI) (December final reading; previous: 45.2 points; consensus: 45.2 points)
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9:30am GMT: UK manufacturing PMI (December final reading; prev.: 48; consensus: 47.3)
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1:30pm GMT: US initial jobless claims (week ending 28 December; prev.: 219,000; cons.: 224,000)
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2:45pm GMT: US manufacturing PMI (December final reading; prev.: 49.7; consensus: 48.3)
Key events
‘Winter chill’ for British manufacturers as output falls
And across the Channel: Britain’s manufacturing sector also reported declining output.
The UK manufacturing purchasing managers’ index (PMI) fell to an 11-month low of 47.0 in December, down from 48.0 in November and below the earlier flash estimate of 47.3, according to S&P Global. The PMI has remained below its neutral mark of 50.0 – signalling deterioration – in each of the past three months.
There was a downturn at big companies but – in a worrying sign for the government – it was deepest among small and mid-sized companies.
Rob Dobson, a director at S&P Global Market Intelligence, said:
Manufacturers are facing an increasingly downbeat backdrop. Business sentiment is now at its lowest for two years, as the new government’s rhetoric and announced policy changes dampen confidence and raise costs at UK factories and their clients alike. SMEs are being especially hard hit during the latest downturn.
This is sending a winter chill through the labour market. December saw the sharpest cuts to staffing levels since February. Some companies are acting now to restructure operations in advance of the rises in employer national insurance and minimum wage levels in 2025.
Europe’s manufacturers reported a further drop in activity in December, according to the final reading of the purchasing managers’ index (PMI).
The index dropped to 45.1 in December, down from 45.2 in November and a three-month low, according to data company S&P Global. That was well below the 50 mark that indicates growth in the sector.
There was significant regional variation. Here’s what S&P Global had to say:
Countries located in the south continued to outperform, with Spain and Greece showing stronger improvements in manufacturing sector conditions. Expansions here were more than offset, however, by the big-three of Germany, France and Italy, which all posted deteriorations once again. Most notable was France, which saw its manufacturing PMI sink to its lowest level since May 2020.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey, said:
Even in December, the manufacturing sector is not delivering any holiday cheer. It is the same old story – downward. New orders have dropped even more than in the previous two months, crushing any hopes for a quick recovery. This view is backed by the accelerated decline in order backlogs.
Coventry Building Society has completed the purchase of the Co-operative Bank, after a £780m deal agreed with its former hedge fund owners.
The new owners will hope to firmly end the era of turmoil for the Co-op Bank following an accounting scandal that left a £1.5bn black hole. Its reputation also suffered when the bank’s former chair Paul Flowers, a former Labour councillor and Methodist church minister nicknamed the “Crystal Methodist”, pleaded guilty to possession of cocaine, crystal meth and ketamine in 2014.
Coventry, the UK’s second-largest building society, has left the way open for the end of the Co-op Bank brand. The bank split off from the wider Co-op group after the accounting scandal.
European gas prices rise after Ukraine ends Russian pipeline deal
European gas prices have risen as traders wait to see if Ukraine’s move to cut off Russian gas will prompt a quicker drawdown of stores.
Bloomberg News reported that benchmark front-month European gas prices rose as much as 4.3% to €51 a megawatt-hour, the highest since October 2023.
A deal to pipe Russian gas through a Ukrainian pipeline had survived through three years of war between the two countries. However, Ukraine’s president, Volodymyr Zelenskyy, said in a post on social media that the country had inflicted “one of Moscow’s biggest defeats” by finally cutting off sales.
Russia’s Gazprom said it had stopped sending gas at 5am GMT on Wednesday.
The effects of the cut-off on prices are not immediately clear because Europe has scrambled to replace its supply of gas, including via imports from the US. Since Russia’s invasion of Ukraine in February 2022, the share of Russian gas on the European market has dropped from about 35% to about 8%, as European countries sought to diversify supplies.
Henry Allen, a strategist at Deutsche Bank, said:
Now it’s worth bearing in mind that prices are still well beneath their levels seen throughout the entirety of 2022, but European gas storage ended 2024 at its lowest year-end level in three years, and the recent increase in prices is set to add further to inflationary pressures.
UK house prices rise at fastest rate in two years
Mark Sweney
House prices rose for a fourth consecutive month in December, ending 2024 on a “strong footing” with the cost of an average home hitting £269,426, according to Nationwide.
The building society’s monthly tracker found prices rose 0.7% in December on the previous month, with the annual increase in the value of a typical UK home up 4.7%.
Robert Gardner, Nationwide’s chief economist, said that despite the strong end to the year, the price of an average home still remained below the all-time high set in summer 2022. He said:
Mortgage market activity and house prices proved surprisingly resilient in 2024 given the ongoing affordability challenges facing potential buyers.
It was encouraging that activity levels in the housing market increased over the course of 2024 with the number of mortgages approved for house purchase each month rising above pre-pandemic levels towards the end of the year.
It’s a more positive start to the new year on Europe’s stock markets than in Asia.
Here are the opening snaps via Reuters:
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EUROPE’S STOXX 600 UP 0.1%
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BRITAIN’S FTSE 100 FLAT, GERMAN DAX UP 0.2%
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FRANCE’S CAC 40 FLAT; SPAIN’S IBEX UP 0.3%
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EURO STOXX INDEX UP 0.1%; EURO ZONE BLUE CHIPS UP 0.1%
Trump tariff threat to trade overshadows new year in Chinese factories
Good morning and happy new year! Welcome to our first business live blog of 2025, covering business, economics and financial markets as ever.
It’s a new year, but likely a familiar feeling for many as investors and executives around the world contemplate the impending start of another term in the White House for Donald Trump.
Chinese factory data published on Thursday suggest that the prospect of a renewed trade war will harm them. Factory activity in the world’s second-largest economy continued to expand during December, according to data company Caixin’s purchasing managers’ index (PMI). However, the index, at 50.5 points, came in lower than the 51.7 expected by economists polled by Reuters.
The weak manufacturing data appeared to contribute to a sell-off on Chinese stock markets. The Shanghai Stock Exchange composite index dropped by 2.7% on Thursday, while Hong Kong’s Hang Seng index fell by 2.1%. Japan’s Nikkei also fell by 1%.
China’s yuan also hit its lowest in more than a year against the US dollar in offshore trading. The yuan fell to a 14-month low of 7.31 for every dollar.
The trade outlook played a role in the drop in the manufacturing PMI. Business confidence dropped to the lowest since September amid “concerns about the outlooks for growth and trade, especially amidst the US tariffs threat”, according to Caixin.
Wang Zhe, senior economist at Caixin Insight Group, said:
Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade. The corresponding indicator was in contractionary territory for the fourth time in the past five months.
Business optimism weakened. Concerns among surveyed companies focused on the economic recovery outlook and the trade conflict between China and the US. Future output expectations continued to grow, but the gauge dropped by more than three points from November.
Meanwhile, the Financial Times’s annual survey of economists around the world has also flagged concerns that Trump’s protectionism will dent growth. The survey of 220 economists found that the president-elect’s policies are expected to slow growth and spur inflation.
The agenda
-
9am GMT: Eurozone manufacturing purchasing managers’ index (PMI) (December final reading; previous: 45.2 points; consensus: 45.2 points)
-
9:30am GMT: UK manufacturing PMI (December final reading; prev.: 48; consensus: 47.3)
-
1:30pm GMT: US initial jobless claims (week ending 28 December; prev.: 219,000; cons.: 224,000)
-
2:45pm GMT: US manufacturing PMI (December final reading; prev.: 49.7; consensus: 48.3)
