Introduction: China accuses US of ‘seriously violating’ trade truce
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Trade war tensions are on the rise again, as relations between China and the US deteriorate.
Beijing has hit back this morning against Washington, accusing the US of “seriously violating” the trade truce which the two powers agreed in Zurich last month.
China’s commerce ministry also promised to take forceful measures to safeguard its interests, rejecting a claim from Donald Trump last week that China has ‘totally violated’ its trade agreement with the US.
In a statement, the ministry said:
“The U.S. government has unilaterally and repeatedly provoked new economic and trade frictions, exacerbating uncertainty and instability in bilateral economic and trade relations.”
Beijing accused the US of unilaterally introducing new discriminatory restrictions, including new guidelines on AI chip export controls, curbs on chip design software sales to China and the revocation of Chinese student visas, Bloomberg reports.
Stock markets across the Asia-Pacific region have dropped today, as investors fret that the détente between the two sides is fraying.
Last Friday, the US president – perhaps stung by jibes that Trump Always Chickens Out – declared that China “HAS TOTALLY VIOLATED ITS AGREEMENT WITH US.”, raising fears that the trade war will continue to rattle the global economy.
This latest uncertainty is hurting the US dollar. It has slipped against a basket of currencies, with the pound up almost half a cent at $1.35, and the euro gaining a third of a cent to $1.138.
The legality of Trump’s trade war was also thown into doubt last week, when a US federal court ruled that his “liberation day” tariff plan is illegal, only for a federal appeals court to temporarily reinstate the tariffs while the case progresses.
The agenda
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9am BST: Eurozone manufacturing PMI for May
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9.30am BST: UK manufacturing PMI for May
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9.30am BST: Bank of England mortgage approvals and credit conditions data
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3pm BST: US manufacturing PMI for May
Key events
Monzo’s highest paid director pockets £12m
Lauren Almeida
The highest paid director at Monzo made £12m last year, the bank’s latest accounts show.
Monzo, the digital bank best known for its coral pink debit cards, has become one of the most popular and fastest growing banks in the UK. Its success has also meant its top paid director has seen their total compensation package rise to £12m in its financial year ended in March, compared with £1.7m last year. Just over £11m of the package this year came from share-based payments.
It makes the director, who was not named in the report but is thought to be its chief executive TS Anil, among the best paid in the banking sector. Last year the boss of Lloyds Bank, Charlie Nunn, took home a total package of £5.6m, while the chief executive of Barclays, C.S. Venkatakrishnan, was paid a package worth £8.7m, excluding the impact of share price appreciation.
At digital rival Starling Bank, its latest annual report showed its top paid director’s package was worth £1.7m.
Monzo, which has been led by Anil since 2020, also reported a bumper set of numbers for its 2025 financial year. Its revenue grew by 48% to surpass £1bn for the first time, and pre-tax profit more than quadrupled to £60.5m. The bank now has 12.2m customers, up 25% compared with last year.
UK mortgage approvals fall after stamp duty changes
UK mortgage approvals have fallen again, as the end of a tax break on stamp duty cooled demand.
Net mortgage approvals for house purchases, decreased for the fourth consecutive month in April, falling by 3,100 to 60,500, according to data from the Bank of England.
The drop follows a rush to agree house sales earlier this year, before changes to stamp duty at the start of April which pushed up the cost of buying a new home in England and Northern Ireland.
The BoE’s data also shows that net borrowing of mortgage debt decreased sharply by £13.7bn to -£800m in April. This followed an increase in net borrowing by £9.7bn to £13.0bn in March.
Simon Gammon, managing partner at Knight Frank Finance, says:
“There was a significant drop in net borrowing in April because so many deals were squeezed through in March to beat the stamp duty deadline. Approvals for house purchase are a much better barometer of the health of the market as they reflect buyer intent at an earlier phase.
“On that front, the market looks solid but unspectacular. Approvals are tracking about 10% below the 2019 average and are unlikely to improve markedly without further, sustained falls in mortgage rates. That looks unlikely at the moment – hotter-than-expected inflation figures published earlier this month prompted a repricing among the high street’s larger lenders. Leading fixed rates are now only a whisker below 4%.
“Whether that proves to be a sustained move higher will depend on a combination of domestic UK inflation data and the day-to-day whipsawing of US trade policy.”
Today’s UK PMI report (see 9.52am) also shows that business confidence at British factories remained ‘subdued’ last month.
Manufacturers continued to raise concerns that turbulent trade conditions, the weak economic outlook and rising cost burdens will make market conditions tough during the year ahead.
Only 49% of firms surveyed expect production volumes to grow over the next 12 months, compared to 13% expecting a contraction.
Confidence levels at small-scale producers fell to a near-record low.
UK factory contracts again amid trade tensions
Britain’s factory sector may have “turned a corner” last month, despite another fall in manufacturing output and new orders.
The latest survey of purchasing managers at UK manufacturers found that the sector contracted again in May, but not by as much as initially feared.
S&P Global’s PMI index has risen to 46.4 in May, a three-month high, up from 45.4 in April and above the earlier flash estimate of 45.1.
Any reading below 50 shows a fall in activity, and the PMI report shows operating performance has deteriorated for the past eight months.
Total new business volumes decreased for the eighth month running, amid reports of a general reluctance among clients to commit to new contracts.
The report says:
Weak global market conditions, trade uncertainty, low customer confidence and cost pressures resulting from recent increases to UK employer NICs and minimum wages also contributed to clients’ reluctance to spend. That said, a recent bout of good weather did boost sales at some manufacturers.
The survey reports “some tentative signs” that the sector may have turned a corner; indices monitoring trends in output and new business rose for the second month in a row.
Rob Dobson, director at S&P Global Market Intelligence, explains:
“May PMI data indicate that UK manufacturing faces major challenges, including turbulent market conditions, trade uncertainties, low client confidence and rising tax-related wage costs. Downturns in output, new orders and new export business have continued, and business optimism has stayed subdued by the historical standards of the survey.
“Smaller manufacturers are experiencing the sharpest pinch, registering the steepest retrenchments in output and demand and seeing their confidence slump to a near record low. Job losses are also rising across manufacturing, with the rate of decline in employment gathering pace.
“There are some signs of manufacturing turning a corner though. PMI indices tracking output and new orders have moved higher in each of the past two months, suggesting the downturn is easing, and came in better than the earlier flash estimates for May. That said, trading conditions remain turbulent both at home and abroad, making either a return to stabilisation or a sink back into deeper contraction likely during the coming months.”
Euro hits five-week high as trade tensions hurt dollar
The euro has now hit its highest level against the US dollar since late April, as trade war jitters hit the foreign exchange markets.
The single currency hit $1.1436 this morning, a five-week high, up almost a cent.
Derek Halpenny, FX expert at MUFG bank, reports that increased tensions between the US and China are weighing on the dollar.
The flip-flopping on trade policy looks set to continue and it appears the uncertainty this creates does not bother President Trump at all. That is likely to give investors the reason to renew selling of the US dollar.
The DXY index is back below the 99-level today and within 1% of the intra-day low on 21st April. Certainly if the Trump-Xi meeting goes badly or if it doesn’t take place at all, that low-point for the dollar could well be breached this week, taking us to levels not seen since March 2022.
Salzgitter, Germany’s second-biggest steelmaker, has warned that Washington’s tariff policy was dealing a severe blow to European industry, Reuters reports.
Reacting to Donald Trump’s plan to double steel import levies to 50%, Gunnar Groebler, Salzgitter’s CEO, says:
“An increase in steel import duties in the USA to 50% should prompt the EU Commission to accelerate its efforts to implement the measures under the Steel and Metals Action Plan.”
Defence company shares rise as UK launches strategic review
Shares in UK-listed weapons makers are rising this morning, as the UK launches its new defence review.
Babcock, who are one of the Ministry of Defence’s largest contractors, are leading the FTSE 100 risers, up 3.8%.
BAE Systems, which makes combat vehicles, artillery systems, missile launchers, fighter jets and submarines, are up 1%.
Defence technology company Qinetiq (+3%) are leading the risers on the smaller FTSE 250 index.
Prime minister Keir Starmer is launching the review today. It calls for the UK to move to “war-fighting readiness” to deter Russian aggression in Europe and to increase its stockpiles of arms and support equipment, to make Britain ready to fight a war in Europe or the Atlantic.
Dr Alexander Gilder, associate professor of International Law and Security at the University of Reading, explains:
“The Strategic Defence Review’s expected recommendation that the UK ready its armed forces for warfighting will allow the UK to play a key leadership role in NATO.
“It is plausible that, were there to be peace in Ukraine in the short term, Russia could be capable of mounting small incursions into other neighbouring states. For instance, Narva in eastern Estonia has been much discussed in recent years. This would trigger Article 5 and require NATO to be prepared to defend its member state.
“The Government’s investment in AI and drones is a direct result of these technologies being used prolifically in the Ukraine war. The Russian Air Force has played a small role. Similarly, in any future conflict, the UK would not want to risk much more expensive fighter jets and their pilots unless necessary.
“The UK and its allies are seeking to show Russia that they are capable of rapid military action in the event a NATO member is invaded. Increased naval power is an important part of this. Long-range weapons are expected to feature heavily in any modern conflict between global powers as they seek to destroy each other’s logistics.”
European markets join selloff
European stock markets have dropped in early trading, as investors assess the latest trade war developments.
Germany’s DAX has dropped by 0.25%, while France’s CAC index is down by almost 0.5%.
The mood is downbeat in London, too, where the FTSE 100 index is down 23 points, ro 0.27%, at 8748 points, following those earlier losses in Asia.
Investors are trimming their risk exposure amid the renewed flare-up in U.S.-China tensions, reports Stephen Innes, managing partner at SPI Asset Management, adding:
What started as posturing is now veering dangerously close to a breakdown in the fragile truce announced on May 12.
Beijing’s counteraccusation highlights new U.S. measures on AI chip export controls, expanded restrictions on tech sales, and the abrupt cancellation of several Chinese student visas. The tit-for-tat narrative has sharpened, and with both sides digging in, the political tone is growing more adversarial by the hour. This isn’t just diplomatic shadowboxing anymore—it’s bleeding into market sentiment.
UK house prices rise in May
Trade war fears don’t seem to have hurt the UK housing market last month.
Lender Nationwide has reported that the average house price rose by 0.5% duing May, reversing most of the 0.6% fall recorded in April.
This lifted annual house price inflation to 3.5%, with the average property now costing £273,427.
Robert Gardner, Nationwide’s chief economist, says:
“Despite wider economic uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive.
“Unemployment remains low, earnings are rising at a healthy pace (even after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little if Bank Rate is lowered further in the coming quarters as we, and most other analysts, expect.
According to lender, @AskNationwide House Prices edged up by 0.5% in May, after a fall in April 2025, to £273,427. Activity has picked up after the initial lull post stamp duty, buoyed by downward rate adjustments in response to Trump’s tariffs but as this threat diminished so… pic.twitter.com/h7c1aDcyOc
— Emma Fildes (@emmafildes) June 2, 2025
Treasury Secretary Scott Bessent suggested yesterday that the US and China were in dispute over critical minerals.
Bessent told CBS’s “Face the Nation”:
“What China is doing is they are holding back products that are essential for the industrial supply chains of India, of Europe. And that is not what a reliable partner does.”
Share prices in China have weakened today, pulling the CSI 300 share index down by 0.5%.
Hong Kong’s Hang Seng index has slid by 1.5%.
In Japan, the Topix share index has lost 0.9%.
Jim Reid, market strategist at Deutsche Bank, points out that “it’s hard to see past trade at the moment,” adding:
It is really hard to keep up or predict what’s going to happen on trade at the moment, and that’s before we factor in the full ramifications from the court ruling last Thursday night, and then subsequent brief stay of execution for them on appeal.
For now it seems likely that the tariff uncertainty will linger for a long time ahead even if we’re still likely past the peak aggressiveness of US policy.
Introduction: China accuses US of ‘seriously violating’ trade truce
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Trade war tensions are on the rise again, as relations between China and the US deteriorate.
Beijing has hit back this morning against Washington, accusing the US of “seriously violating” the trade truce which the two powers agreed in Zurich last month.
China’s commerce ministry also promised to take forceful measures to safeguard its interests, rejecting a claim from Donald Trump last week that China has ‘totally violated’ its trade agreement with the US.
In a statement, the ministry said:
“The U.S. government has unilaterally and repeatedly provoked new economic and trade frictions, exacerbating uncertainty and instability in bilateral economic and trade relations.”
Beijing accused the US of unilaterally introducing new discriminatory restrictions, including new guidelines on AI chip export controls, curbs on chip design software sales to China and the revocation of Chinese student visas, Bloomberg reports.
Stock markets across the Asia-Pacific region have dropped today, as investors fret that the détente between the two sides is fraying.
Last Friday, the US president – perhaps stung by jibes that Trump Always Chickens Out – declared that China “HAS TOTALLY VIOLATED ITS AGREEMENT WITH US.”, raising fears that the trade war will continue to rattle the global economy.
This latest uncertainty is hurting the US dollar. It has slipped against a basket of currencies, with the pound up almost half a cent at $1.35, and the euro gaining a third of a cent to $1.138.
The legality of Trump’s trade war was also thown into doubt last week, when a US federal court ruled that his “liberation day” tariff plan is illegal, only for a federal appeals court to temporarily reinstate the tariffs while the case progresses.
The agenda
-
9am BST: Eurozone manufacturing PMI for May
-
9.30am BST: UK manufacturing PMI for May
-
9.30am BST: Bank of England mortgage approvals and credit conditions data
-
3pm BST: US manufacturing PMI for May
