Factories from Europe to Asia reel under US-China trade war

Bloomberg

Manufacturing across vast parts of Europe and Asia remain deeply mired in a crisis that took another turn for the worse over the weekend.
One day after the US and China enacted new tariffs on each other’s imports, factories from Germany and Italy to Japan, South Korea and Taiwan sent a gloomy reminder that they are suffering badly from increased global trade hostility. Purchasing managers’ indexes for all those countries, as well as the 19-nation euro area, signal a contraction in activity.
The global growth outlook is already the lowest since the financial crisis a decade ago, and central banks have started to cut interest rates to underpin domestic momentum. With no end to the US-China trade war in sight and the risk of a disorderly Brexit increasingly weighing on European sentiment, pressure may mount on policy makers to do more.
ECB President Mario Draghi has held out the prospect of lower interest rates and renewed asset purchases for Europe as soon as this month. Federal Reserve Chairman Jerome Powell may shed light on his intentions in a speech on Friday — after the publication of key gauges for manufacturing and the labour market.
In Asia, Japan, South Korea and Taiwan have been hit hardest by trade tensions, a cooling technology boom and slowing demand in line with a weaker global economy. China’s official manufacturing index dropped further below 50, signalling contraction, with sub-gauges showing that domestic and new overseas orders contracted.
The outlook for corporate earnings has clouded in emerging markets. Analysts have cut the average profit estimate for the benchmark MSCI Emerging Markets Index for a sixth successive week, the longest streak in four years.
In Europe, manufacturers including Germany’s Daimler, Italy’s Pirelli and France’s Renault are among those that have cut their forecasts. Factory activity in the region has shrunk for seven months, with the latest update showing order books contracted and companies shed jobs in a sign that they have excess capacity. The headline measure for the UK dropped to the lowest since 2012.
“A marked deterioration in optimism about the year ahead suggests companies are expecting worse to come,” said Chris Williamson, chief business economist at IHS Markit.
Developments in US-China trade relations remain the dominant driver of sentiment. Higher US tariffs on roughly $110 billion in Chinese imports took effect on Sunday, as did Beijing’s retaliatory duties on US goods.