German factories suffer in August. VW is preparing to scrap non-essential spending as it battles with the emissions scandal. VW boss: “This won’t be painless”. Non-essential VW investment in doubt. Institute of Directors demand early EU vote…
America’s trade gap has hit a five-month high, in another sign that global economic growth may be weakening.
US imports rose by 1.2% in August, fuelled by a 3% increased in purchases from China.
But exports shrank by 2%, to their lowest point since October 2012. That indicates weakness in key markets such as emerging nations and Europe. It could also reflect the impact of the stronger US dollar, which has gained against other currencies.
This drove the US Trade Deficit up to $48.33bn in August, up from $41.81bn a year ago.
The VW scandal hasn’t hurt the UK auto industry yet – car sales hit an all-time high in September, according to new data today.
Petrol-powered cars saw the strongest demand; suggesting some consumers might be more wary about diesel now.
Volkswagen boss: Painful changes are ahead
Workers at Volkswagen have been warned to expect painful changes as the German carmaker tackles the emissions scandal.
New CEO Matthias Müller told staff that non-essential investments will be delayed or abandoned as it wrestles with the crisis.
Müller told today’s meeting in Wolfsburg that:
“Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear”.
“Therefore we are putting all planned investments under review. What is not urgently needed will be scrapped or delayed”.
“And therefore we will adjust our efficiency programme. I will be very open: this won’t be painless.”
Muller’s warning came after works council boss Bernd Osterloh predicted that bonus payments to workers are now at risk too.
Our Katie Allen confirms that Britain’s directors do not march on an empty stomach, or an environmentally friendly one….
Update: IoD delegates have now plonked themselves outside in the sun — making a nice photo for visiting tourists.
Delegates at the Institute of Directors’ conference are tucking into their legendary lunchboxes — a chance to refuel after a morning discussing weighty topics like Europe and migration.
There’s an astonishing amount of packaging on display too — here’s a photo of just one box:
Perhaps Britain’s new tax on plastic bags should be extended? £10 per plastic lid might cover it….
Here’s a couple of photos of Volkswagen staff arriving in Wolfsburg, where they were briefed on the emissions crisis today:
Brewing firm SABMiller has turned down an ‘informal offer’ from rival Anheuser-Busch InBev, according to a Bloomberg newsflash.
That’s sent SAB’s shares down 3%, to the bottom of the FTSE 100 (budge up, Glencore!).
This come three weeks after AB INBev, which brews Stella Artois and Budweiser, approached SAB, whose brands including Grolsch and Peroni.
Any deal would be huge, creating a new company worth perhaps $250bn (£160bn).
AB InBev has just a week to make a firm bid or walk away, so it’s not Last Orders in this story, yet.
The works council boss at Volkswagen, Bernd Osterloh, has told staff that the company will have to review all its investments following the emissions crisis.
He also predicted that their pay packets will suffer too.
Osterloh gave the warning at today’s staff meeting in Wolfsburg (see earlier post)
Reuters has the story:
All investments at Volkswagen will be placed under review, the carmaker’s top labour representative said on Tuesday, as the embattled German group grapples with the fallout of its diesel emissions scandal.
“We will need to call into question with great resolve everything that is not economical,” Bernd Osterloh, head of VW’s works council told more than 20,000 workers at a staff gathering in Wolfsburg, Germany.
The scandal is not yet having consequences for jobs at VW, which employs 60,000 people at its main factory, but will impact earnings at the core autos division as well as bonus payments to workers, Osterloh said.
VW: eight million cars sold in EU with cheat software
Volkswagen has revealed that it sold eight million cars with defective emissions testing software across Europe.
It made the admission in a letter to German MPs, dated last Friday.
That’s the bulk of the 11 million cars affected, including almost 500,000 in the US.
We already know that 1.2m cars sold in the UK contained software to beat emission tests, plus 2.8m in Germany.
Looks like Lord Lawson got the last blow in:
They’re still arguing…
Lawson and Mandelson on Europe
Back at the IoD conference, Nigel Lawson and Peter Mandelson are having a brisk exchange of views over Britain’s membership of the EU (Lord M is pro, Lord L is con).
Katie Allen is impartial, and tweeting the key points from the Albert Hall:
Mining shares are leading the fallers in London this morning.
The 1.8% drop in German factory orders in August isn’t helping the mood.
Investors are concerned that falling demand from emerging markets could increase the raw materials glut, which has already driven commodity price down to multi-year lows.
The Institute of Directors’ chief is also rebuking UK politicians for playing the migrants card:
Business leaders demand early EU referendum
Over at London’s Royal Albert Hall, business leaders are gathering for the annual Institute of Directors convention.
The 2,000 or so delegates will be hearing first from IoD head Simon Walker. As we reported this morning, Walker will use his speech to warn prime minister David Cameron that waiting till 2017 to hold the referendum on EU membership risks turning it into a confidence vote in the government.
He wants the referendum brought forward to 2016.
Walker will tell the audience that:
“By 2017 this government will have implemented spending cuts that, while necessary, will not be popular. The third year of an election cycle is a difficult time for any administration. There is a real possibility that a 2017 referendum would be a short-term judgment on the government: a chance to whack the political elite.”
Next up, just after 10am is a debate on Britain’s EU membership between former Labour business secretary Lord Mandelson and former chancellor Lord Lawson, who last week announced he will lead a Conservative party campaign to leave the EU.
Also making an appearance, is chief executive of Lloyds Banking Group, Antonio Horta-Osorio, just a day after chancellor George Osborne announced the sale of the taxpayers’ remaining stake in the bailed out bank. The bank boss is talking on a panel under the banner “The future of banking: How to win back trust in a changing world.”
Alongside its trailing of Walker’s EU referendum thoughts, the IoD is also using its convention to adds its thoughts to the never-ending UK productivity puzzle debate.
Policymakers are looking at the puzzle all wrong, according to the business group’s new report, Balancing UK Productivity and Agility. It wants more focus on “agility” to ensure “new ideas and technologies spread throughout the economy as quickly as possible”.
It warns factors that have driven productivity gains in the past, such as large firms realising economies of scale and developing deep specialisations in certain areas, are no longer relevant for the UK and “it would be foolish to try to recreate them”.
IoD chief economist James Sproule explains:
“In pursuing the nirvana of steadily-rising productivity, one has to bear in mind how our economy is changing, how people choose to work, and what future economic success will look like.
We need to ask if too close a focus on productivity numbers without considering wider factors could pose a long-term risk to the economy and prosperity.”
His report echoes scepticism over how much can be gleaned from current productivity data and what many economists see as a narrow focus on mere output per hour measures.
Back in the UK, house prices dipped by 0.9% last month, according to mortgage lender Halifax.
But that’s little relief to those hoping to get a house (or buy a bigger one. Prices are up around 8.9% year-on-year. On a quarter-on-quarter basis, they’ve been gaining since the start of 2013.
Interesting…. Jonathan Portes, one of the UK’s better known economists, has left his post as director of the National Institute of Economic and Social Research thinktank.
There doesn’t appear to be an official announcement, but NIESR has updated its website to show that Dame Frances Cairncross is now ‘interim director’.
Portes (who’s staying at NIESR as a research fellow until April) is known for using his statistical nous to fact-checking erroneous claims in the papers, especially over the impact of fiscal policy on poorer households.
But he also raised hackles among right wingers for his comments on austerity; they claimed loudly that Portes (once PM Gordon Brown’s chief economist) was too partisan for an independent thinktank:
Those spats culminated in an epic row with historian Niall Ferguson over an article in the Financial Times, which spawned an 16-page adjudication – and no clear winner (although the FT cleared itself of any failings, of course)
Over in Wolfsburg, thousands of Volkswagen employees are meeting at company HQ to hear from their new CEO.
Matthias Müller will brief staff on the ongoing emissions scandal, as Volkswagen strives to find a solution after selling millions of vehicles containing ‘defeat devices’ to fool emissions tests.
Müller was appointed as CEO less than two weeks ago, after Martin Winterkorn stepped down following the revelations that VW engines contained illicit software to hide how much noxious gases they produced.
It emerged last night that the probe into the VW scandal centres on two top engineers. Ulrich Hackenberg, Audi’s chief engineer, and Wolfgang Hatz, developer of Porsche’s Formula One and Le Mans racing engines, were among the engineers suspended last week, according to the WSJ.
European stock markets are being dragged down by the news that German factory orders slid in August.
The main indices are all in the red in early trading, with Germany’s DAX shedding almost 0.5%.
Investors may also be anxious about the eurozone, after Brussels warned Spain last night that i’s 2016 budget isn’t good enough, and needs more spending cuts.
Conner Campbell of SpreadEx explains:
A huge miss in German factory orders (complete with a downward revision for last month’s figure) seems to have taken the edge off of the Eurozone, following a Eurogroup meeting yesterday that hinted at more trouble for the currency union going forwards.
European Commissioner Pierre Moscovici warned that Spain will miss its headline targets in 2015 and 2016, providing yet another bearish note from the country that already includes a 21 month low manufacturing figure, a 9 month low services PMI, a separatist victory in Catalonia AND an impending general election in September.
German economy minister: Global demand is ‘less reliable’
Here’s Associated Press’s early take on the decline in German factory orders:
German factory orders dropped for the second consecutive month in August, led by a drop in demand from countries outside the eurozone and lower demand at home.
The Economy Ministry said Tuesday that orders were down 1.8% in seasonally adjusted terms compared with the previous month. That followed a 2.2% drop in July.
Orders from other countries in the euro area were up 2.5%, following a smaller gain in July. However, demand from inside Germany was off 2.6% percent and orders from outside the eurozone dropped 3.7%.
The Economy Ministry noted that demand from countries beyond the euro area appears to be “less reliable at present.”
Germany has Europe’s biggest economy and is one of the world’s biggest exporters.
This chart confirms that German industrial orders have tailed off in the last couple of months, after a decent start to the year.
The red line shows the total (or Insgesamt), while the blue line shows domestic orders (Inland) and the yellow line shows overseas orders (Ausland).
German factories suffer sliding orders
German factory orders fell unexpectedly in August, fuelling fears that Europe’s largest economy is being hit by slowing global growth.
Industrial orders slid by 1.8%, according to the economy ministry, dashing expectations of a 0.5% rise.
The decline was mainly due to falling demand from outside the eurozone, according to the ministry (which also attribute some of the decline to holidays). Orders from non-euro countries slid by 3.7%, while domestic orders shrank by 2.6%.
This is before the Volkswagen emissions scandal struck, hurting confidence in German industry.
July’s industrial orders has been revised down too, from -1.4% to -2.2%; again, driven by a decline in overseas demand.
It’s a worrying sign, suggesting ripples from the emerging market slowdown are now lapping against the eurozone.
The Agenda: Stimulus hopes keep markets buoyant
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a relaxed mood in the markets this morning, as investors become increasingly convinced that central banks won’t be able to tighten monetary policy anytime soon.
European stock markets are expected to inch higher after the Dow Jones industrial average jumped by 304 points overnight.
Last Friday’s disappointing US jobs report has probably helped to kick the first American interest rate rise into 2016.
Jasper Lawler of CMC Markets explains:
The weaker than expected US jobs report significantly reduces the chance of a rate hike this year from the Federal Reserve.
Europe and China could also be on the verge of adding stimulus with deflation and low growth possibly enough motivation for the respective central banks to intervene before the end of 2015.
Over in Japan, the Nikkei has closed 1% higher, as traders in Tokyo anticipate more stimulus from their own central bank.
Also coming up….
The bosses of Britain’s top companies will be gathering at the Institute of Director’s annual bash in London. They’ll be discussing Europe and the refugee crisis (among other topics).
Six former City brokers are going on trial over allegation that they rigged the benchmark Libor interest rate.
And in the City, we’ll be looking at results from budget airline easyJet and pastry purveyor Greggs…..
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