Not So Fast

A manufacturing worker halts services' progress

Image source: Luis Molinero, LifetimeStock, DenisNata, gcarnero - Shutterstock

What's going on?

The latest survey of European business activity showed the region’s manufacturing sector continuing to decline – and that sickness is now spreading…

What does this mean?

Activity in Europe’s manufacturing sector fell in November for the tenth straight month as the region’s factories continued to struggle with slow growth and a prolonged US-China trade war. And with a spat over European Union (EU) subsidies for local planemaker Airbus raising the possibility of new US tariffs on European goods, things may get worse before they get better.

And data on Wednesday highlighted another worrying development: prolonged weakness in manufacturing is now spreading to other parts of the economy, with services activity on track for its weakest quarterly growth in five years. While the UK might be leaving the EU, it too had little to celebrate – separate figures showed the country’s own services sector once again shrinking as political uncertainty weighs on spending.

Why should I care?

For markets: To ECB or not to ECB.

The European Central Bank holds its first meeting under new president Christine Lagarde next week. Wednesday’s weak business activity data will be one factor for the Bank to consider when deciding whether to embark on economy-boosting measures. Even lower interest rates or even louder calls for European governments to cut taxes and hike spending could give the region’s stock markets a boost…

The bigger picture: A double-edged sword.

A shrinking UK services sector – representing around 80% of the country’s economy – doesn’t bode well for domestically exposed stocks. Larger British companies should fare better, considering they make more of their money overseas. But that blessing can sometimes be a curse. A poll showing a firm lead for the country’s Conservative party ahead of next week’s general election caused the British pound to rally on Wednesday – and that hurt UK multinational companies’ stocks, which now face the prospect of lower earnings when converted into their home currency.

Originally posted as part of the Finimize daily email.

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