German Finance Minister Christian Lindner warned Donald Trump against starting a trade war with the European Union if he returns to the White House because imposing tariffs would hurt both sides.

Lindner, who’s also head of the pro-business Free Democrats, called instead for transatlantic solidarity to stand up to China, which he said posed a potential risk to “the league of liberal democracies and free traders.”

“Every kind of trade conflict harms both sides,” he told Bloomberg TV in an interview in New York on Wednesday. “There won’t be success for anyone out of a trade controversy between the US and EU.”

Lindner’s comments reflect wide concerns in Europe about the impacts of a second Trump presidency. The Republican candidate has declared tariffs “beautiful” and called the word his favorite in the dictionary. That has added to tensions over the US Inflation Reduction Act, a package of measures designed to boost the economy with green subsidies for companies investing in the country.

Lindner is meeting with investors in New York and visited the United Nations headquarters. His next stop is Washington to join the annual meetings of the International Monetary Fund and World Bank.

The German finance minister — an ardent defender of Germany’s so-called debt brake — also said that he doubted the US can continue with its current fiscal policy for the foreseeable future. He said Brussels and Washington need to agree on a level playing field and a fair trade agreement, whoever wins the next election.

Source: The edge markets

The downtrend in private-sector activity in the euro-area extended into a second month with the region’s two top economies weighing on output and little sign of a recovery to come.

The composite Purchasing Managers’ Index by S&P Global inched up to 49.7 in October from 49.6 the previous month — holding just below the 50 threshold separating growth from contraction, data Thursday showed. The reading was exactly as predicted by analysts.

The results will do little to ease fears that the bloc is slipping back into stagnation after a strong start to 2024. Germany is the prime culprit as its industrial giants grapple with costlier energy and soft Chinese demand. While an uptick in its PMI measure gave hope that output can grow this quarter, France’s struggles worsened.

More broadly, a long-awaited rebound in consumption has so far failed to ignite.

“The eurozone is stuck in a bit of a rut,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said in a statement. “The ongoing slump in manufacturing is being mostly balanced out by small gains in the service sector,” he said, adding that “for now, it is not clear whether we will see a further deterioration or an improvement in the near future.”

The weakness has sounded alarm bells at the European Central Bank, which lowered interest rates for the third time this year last week, marking the first back-to-back cuts of the cycle. The danger is that sub-par expansion lets inflation settle below the 2% goal.

“The growth outlook has weakened quite clearly in the past few months, which could also increase disinflationary pressures,” ECB Governing Council member Olli Rehn said Tuesday in Washington. “We have to be mindful of — possibly also concerned about — the possibility of inflation undershooting.”

“The euro-area PMI survey for October suggests the risks to GDP growth will remain firmly to the downside in the final quarter of the year. With the disinflation process already well advanced, the weakness in activity may hasten the ECB’s move toward a neutral policy rate,” said David Powell, senior euro-area economist at Bloomberg.

More support for the economy is on the way from monetary policy, according to investors in money markets who began ramping up easing bets after the euro zone’s September PMI reading fell short of expectations. They’re now pricing a spate of cuts until the deposit rate reaches 2% in mid-2025, down from 3.25% currently.

Traders are going back and forth over whether the ECB will deliver a half-point reduction in December. But there were also signs of stubborn price pressures in S&P’s release.

“Inflation in the services sector seems likely to stay elevated, as costs and selling prices in October rose faster than the previous month,” de la Rubia said. “This is probably due to persistent wage pressure, which impacts service providers especially hard. All this backs the idea that the ECB is likely to cut key interest rates by just 25 basis points in December, rather than the 50 basis points some have been talking about.”

Germany, where carmakers including Volkswagen AG are retrenching, saw its PMI tick up, though it remained below 50. In France, the situation deteriorated with its composite reading slipping to 47.3 — below that of its larger neighbor.

Beyond those two countries, output increased at the fastest pace in four months, S&P Global said. It cautioned, however, that firms in the euro area increasingly looked to scale back staff numbers in October as employment fell for a third month and at the fastest pace since 2020.

Companies in the service sector “are seeing fewer new orders, and the backlog of work has been shrinking for six months,” de la Rubia said. “For the first time since early-2021, service-sector hiring has almost come to a halt. The real question is whether the combination of higher wages and lower inflation can revive consumer spending, which would give service providers a much-needed boost.”

PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

Elsewhere, the UK’s composite index fell more than anticipated to 51.7. A release due later is set to show the US reading down a touch, though still well above 50. 

Source: The edge markets

Eurozone October PMI

Germany October PMI

Source: AP