Graeme Wearden (until 2pm) and Nick Fletcher 

Markets recover but remain nervous over US-China trade dispute – as it happened

All the day’s economic and financial news, as investors worry that Donald Trump could trigger a full-blown trade war with China
  
  

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China, today.
Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China, today. Photograph: Aly Song/Reuters

European markets end mostly higher

The prospect of a trade war between the US and China has put markets under pressure this week, and although there was some recovery today, it was by no means convincing. As well as continuing uncertainty over the effect of the proposed tariffs, oil prices were volatile ahead of this week’s Opec meeting. Meanwhile the pound edged a little higher after the UK government won a key Brexit vote. The final scores showed:

  • The FTSE 100 finished up 23.55 points or 0.31% at 7627.40
  • Germany’s Dax added 0.14% to 12,695.16
  • France’s Cac closed down 0.34% at 5372.31
  • Italy’s FTSE MIB added 0.16% to 22,120.58
  • Spain’s Ibex ended up 0.34% to 9788.9

On Wall Street, the Dow Jones Industrial Average is currently down around 10 points or 0.05%.

On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

It’s been a pretty volatile day for stock markets, as well as crude. And the pound has not been left out.

From a low of $1.3149 against the dollar it hit a high of $1.3215 after the UK government won a key Brexit vote. It is currently at $1.3206, up 0.21%.

Our politics live blog has all the latest details on the government’s narrow success in seeing off a potential rebellion:

Updated

Oil edges higher ahead of Opec meeting as US crude stocks decline

Oil prices are edging higher ahead of the key Opec meeting which begins on Thursday and following a bigger than expected fall in US crude stocks.

The oil producers are expected to agree to increase output but the key question is by how much. Meanwhile evidence of rising demand came from the weekly US figures, which saw a 5.9m barrel decline, the biggest drop since mid-January. On the other hand there was a 3.3m barrel rise in gasoline stocks compared to expectations of a 1m fall.

Brent is currently up 0.19% at $75.22 a barrel. Joshua Mahony, market analyst at IG, said:

Crude oil is also in focus, with a whole raft of comments coming from OPEC member states ahead of Friday’s big production decision. Despite an initial rebuttal of a production increase proposed by Russia (via Saudi Arabia), we are seeing a gradual shift in tone which will likely see some form of rise in output come Friday.

For markets, the line in the sand seems to be the 1 million barrels a day level. Anything less than that will be seen as a compromise given the Saudi target is closer to 1.5 million barrels a day. We have seen the biggest drawdown in US crude inventories since January, but the impact has been offset by a rise in gasoline supply.

Here’s our first take on the David Drumm sentencing:

Back with the Anglo Irish case and former chief executive David Drumm has been sentenced to eight years in jail for his part in the fraud, but will serve six with mitigating circumstances taken into account.

Investor enthusiasm appears to be waning, with markets coming off their best levels. Connor Campbell, market analyst at Spreadex, said:

The Dow Jones, which at one point looked like it was going to reclaim 150 points, ended up starting the US session flat, the wrong side of 24700. There was little for the index to really work with on Wednesday, beyond the ever-looming threat of a full-blown trade war between the world’s two largest economies.

The Eurozone, which started the week poorly and then went downhill from there, saw its initial tame recovery gradually chipped away at until nothing was left. That means the DAX is back struggling to keep its head above 12700, while the CAC tumbled below 5400 after switching from a 0.3% rise to a 0.2% loss.

Only the FTSE remained in the green with any real substance, and even then its 0.6% increase was half of the growth posted at lunchtime. Though the UK index broadly just followed the direction of trading from around the Western world, sterling’s reversal of its initial losses also helped erase some of the FTSE’s gains. The pound rose 0.1% against the dollar and the euro – granted, not a lot in the context of its recent performance – as the government appeared to come to a compromise over the ‘meaningful vote’ issue, but couldn’t gain any more momentum thanks to Thursday’s impending Bank of England meeting.

US commerce secretary Wilbur Ross has been speaking about the trade dispute with China. He says President Trump’s strategy is to make it clear to China that continuing on its current path would be more painful that changing its behaviour.

Back with the bids for 21st Century Fox, and Neil Wilson at Markets.com says the market is now waiting for Comcast’s next move after Disney increased its offer:

As was expected, cash was added to the all-share offer as a sweetener and the deal is now worth $38 a share, up from its previous $28 offer that was worth c$55bn. This beats Comcast’s $35 all-cash, $65bn bid but we must assume that Comcast is ready to come back with an even stronger offer.

This offer from Disney is probably a little bit stronger than expected and [Disney’s] Iger will be looking to kill off Comcast’s bid once and for all. However, the rationale for Comcast remains the same, the question is only how much debt it can afford to carry. If it gets its way total debt would rise to $170bn according to Moody’s, with just $6bn in cash on its books. Disney will also take on Fox’s $14bn debts, giving this bid an enterprise value of more than $85bn.

Debt is a concern for investors here and points to market-top behaviour. The amount of debt both companies are prepared to assume is arguably a worry, but it’s a case of innovate or die in the face of competition. It’s a sign of just how desperately these two legacy media groups want the assets of Fox. In their attempt to contend with cord cutters like Netflix they are risking leveraging themselves up to a degree that makes them susceptible should the current benign market conditions deteriorate.

Sky shares are trading up 3% today at £13.82 on the news but they could go higher if Comcast really goes big. Even it doesn’t have the appetite for all of Fox it could settle to swoop for Sky only and bag those important European subscription revs.

Wall Street opens higher

US markets have joined in the generally positive mood after the week’s sell-offs as trade tensions between the US and China escalated.

The Dow Jones Industrial Average is currently up 80 points or 0.33%, while the S&P 500 opened up 0.325 and the Nasdaq Composite 0.5% better.

But General Electric shares are down after the group was pushed out of the 30 share Dow after more than a century. GE, one of the original members of the Dow, will be replaced by Walgreens Boots Alliance.

Back with trade disputes, and the European Union has confirmed it will begin charging import duties of 25% on a range of US products on Friday. The move is in retaliation to the US tariffs imposed on EU steel and aluminium.

The EU tariffs will be placed on €2.8bn worth of goods, from Harley Davidson motor bikes to bourbon and peanuts.

Over in the US, and the country’s current account deficit widened in the first quarter, but by less than forecast. Reuters reports:

The Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, widened by $8.0 billion to $124.1 billion, or 2.5 percent of national economic output, in the first three months of the year.

Analysts polled by Reuters had expected the current account deficit to widen to $129.0 billion from the previously reported $128.2 billion in the fourth quarter.

The figures also showed that US companies brought back cash from overseas after a December 2017 tax change. Companies paid out dividends of around $305bn from foreign receipts.

Newsflash: The takeover battle over Rupert Murdoch’s 21st Century Fox group has taken another twist.

Disney has raised its offer for most of 21CF to $38bn per share, up from a previous offer of $28 per share.

That takes the value of the offer up to around $70bn, from $52bn previously. Disney has also tweaked its offer to include a cash component - previously it was only offering shares.

It beats Comcast’s rival all-cash offer of $35 per share, and seemingly puts Disney back in poll position.

Anglo Irish boss sentenced over €7.2bn conspiracy to defraud

Over in Dublin, one of Ireland’s fallen bank bosses is being sentenced over his role in the financial crisis.

David Drumm, the former CEO of Anglo Irish bank, faces a prison term after being found guilty of conspiracy to defraud and false accounting earlier this year.

The case relating to banking transactions he was involved in at the height of 2008 financial crisis. By circulating deposits between Anglo and Irish Life & Permanent (IL&P), the bank created the impression that its deposits were €7.2bn larger than was actually the case.

Tom Lyons, deputy editor of The Sunday Business Post, is tweeting from the court room. He reports that Drumm’s team is defending his actions, while also recognising that a custodial sentence is on the cards....

Lukman Otunuga, research analyst at FXTM, says investors should be cautious about joining today’s rally.

He points out that the trade spat between China and the US could escalates again soon.

Asian and European stocks rose today as markets attempted to shrug off trade war threats. While the improved risk appetite could elevate stock markets higher, the sustainability should be questioned as fears over trade tensions remain a key market theme.

Global equity bears could transform the current rebound into a classical dead cat bounce if trade tensions between the United States and China continue to escalate.

The US stock market is expected to rise when trading begins in a couple of hours, ending several days of losses.

Yesterday the Dow lost 287 points, or 1.1%, wiping out its 2018 gains.

Updated

The Bank of England could face a major shake-up if Labour wins the next election.

Labour’s shadow chancellor, John McDonnell, is unveiling a swathe of proposed reforms to Britain’s central bank today.

The headline-grabbing elements include opening an office in Birmingham, a shift away from its base at London’s Threadneedle Street. The most intriguing element - setting the Bank a productivity target, alongside its current mandate to control inflation.

These ideas aren’t Labour policy yet, but they could be considered for its next manifesto:

Chris Giles of the FT suggests the Bank could have some issues with a productivity target:

Updated

UK factory orders pick up

Good news: UK factory orders have risen, helping manufacturers to boost their output.

The CBI’s latest healthcheck on the sector has found that manufacturing order books recovered in the last quarter, while the volume of output increased strongly.

The CBI says:

  • 33% of manufacturers reported total order books to be above normal, and 20% said they were below normal, giving a balance of +13%
  • 20% of firms said their export order books were above normal, and 11% said they were below normal, giving a balance of +9%
  • 43% of businesses said the volume of output over the past three months was up, and 13% said it was down, giving a rounded balance of +29%

Anna Leach, CBI Head of Economic Intelligence, believes Britain’s industrial sector may be picking up pace after a recent lull.

“The recovery in orders and a return to bumper growth in production suggests the lull in manufacturing activity may be over. While risks to demand persist from Brexit and escalating global trade tensions, firms can work with the Government to nurture a pro-enterprise environment that helps UK growth to shift up a gear.

UK housebuilder Berkeley has called the top of the London housing market.

After some bumper years, Berkeley told shareholders that profits will drop by 30% in the 2018/19 financial year, as the sector returns to “more normal” times.

Chairman Tony Pidgley says that new housing starts in London have dropped by a third in the last two years (or since the EU referendum, basically).

Pidgley blames Brexit uncertainty for the drop in activity:

It is telling that some funders and builders are choosing to exit the market when faced with the degree of risk and regulation that now confronts development in the capital where macro and political uncertainty, including Brexit, are leading to this caution.

This is a great shame as London is a fantastic world-class city with unique attributes that will last long beyond the current hiatus which is only exacerbating the well documented under-supply.

Stocks are recovering because investors are snaffling up bargains after Tuesday’s rout, says Ken Odeluga of City Index.

He believes the People Bank of China’s intervention overnight is reassuring the markets:

European stocks are posting solid gains with similar demand building in Dow, S&P and Nasdaq contracts.

This follows chunks of buying interest in Asia-Pacific shares. It looked very much like bargain-motivated flows juiced by a window of benign currency conditions, particularly in Japan, Hong Kong, S. Korea and Australia where benchmarks all added around 1%. Chinese equities also enjoyed a bounce, though to a lesser extent, with precarious sentiment capping Shanghai and Shenzhen gains as investors read the PBoC stepping in as corroborating a sense of crisis. The central bank recommended a reserve ratio requirement cut—essentially looser policy—after fresh tariff threats.

Elsewhere in the markets, cryptocurrency prices are falling after another digital coin exchange was hacked.

The South Korean cryptocurrency exchange Bithumb says it lost 35bn won ($31.5m) worth of virtual coins to hackers. It’s the second such breach in a week, highlighting the risks of investing in crypto (as coins are virtually anonymous, they can be almost impossible to recover).

Here’s the damage:

Two hours into the trading day, and European markets are all comfortably higher.

Shares are up across the board, as traders shake off some of their fears about a devastating trade war.

Analysts at FXPro say:

Markets are taking a breath right now and retracing some of the moves over the past number of sessions. Whether this turns into a broader rally or the selloff is resumed remains to be seen. Stock markets are higher after support was found in the European session yesterday and US and Asian traders built on the foundations of that support.

Pound falls ahead of Brexit vote

Sterling has hit a new seven-month low this morning, as the UK government faces another crunch vote over Brexit.

Parliament will vote on the EU withdrawal bill, the government’s flagship piece of Brexit legislation, later today. And one group of MPs are refusing to drop their demand for a ‘meaningful’ vote in the scenario in which Britain can’t agree a Brexit deal.

Former attorney general Dominic Grieve insists that parliament must have a chance to protect the UK economy, in the event of a no-deal. Grieve’s amendment has been been sent back to the Commons by the House of Lords, amid claims that Theresa May ‘double-crossed’ Grieve last week by promising to address his concerns, then pulling a u-turn.

The vote could be close, if Grieve’s band of backbench Conservative MPs hold firm. Some pro-Brexit Labour MPs could vote with the government, though, which would be a headache for opposition leader Jeremy Corbyn.....

This uncertainty has knocked the pound down by 0.2% to $1.315, the lowest since November 2017.

European markets bounce back

Those calming words from the People’s Bank of China are helping markets recover from yesterday’s rout.

In London the FTSE 100 has jumped by 80 points, or 1%, to 7683 (partly helped by a weaker pound).

Other European markets are also higher, with Germany up 0.4% and Spain gaining 1% following the rally in Asia overnight.

Mike van Dulken of Accendo Markets reckons investors are “calming their fears about the current US-China trade tariff dispute”.

That’s partly because neither side has actually imposed tariffs yet -- just made lots of threats.

Elsa Lignos of Royal Bank of Canada explains why things might calm down:

On the trade front, we’re likely to see a two month ‘hibernation’ as the US works through the legal process for the next $200bn of tariffs and China awaits the US’ formal response.

Updated

Blankfein: US and China will avoid 'suicide pact'

The boss of Wall Street giant Goldman Sachs has predicted that China and the US still step back from a devastating trade wars.

Lloyd Blankfein says that Trump’s threat to add tariffs on $200bn of Chinese imports are a negotiating tactic:

That’s what you would do if it was a negotiating position, and you wanted to remind your counterparty just how much fire power you had to bring to the negotiation.”

Blankfein is hopeful that Washington and Beijing won’t mutually destroy their economies.

“I don’t think we’re in a suicide pact on this...“I suspect we’re not going to cause the economies to collapse with Smoot-Hawley on steroids.

The protectionist Smoot–Hawley Tariff Act of 1930 imposed tariffs on more than 20,000 imported goods. It was meant to protect US workers after the Wall Street crash of 1929, but actually appears to have hurt economic growth and didn’t prevent the Great Depression.

China’s stock market isn’t the only one flirting with a bear market.

After days of losses, the Philippines PSI index has fallen almost 20% from its recent peak.

China Daily: We must avoid Trump's blood lust

Donald Trump’s threat to impose more tariffs on China is dominating the newspapers across Asia today.

The China Daily newspaper – often a good window into Beijing’s thinking – has accuse the US of trying to hurt the Chinese economy.

It says:

“Faced with this heightened intimidation from the U.S., China has no choice but to fight back with targeted and direct measures aimed at persuading the U.S. to back off, since it appears that any concessions it makes will not appease the Trump administration, which wants to suck the lifeblood from the Chinese economy.”

“Beijing will have to ensure that Washington is aware that there will be heavy price to pay every action it strikes against China if it is to avoid being a victim of the Trump administration’s growing blood lust.”

The Global Times also put the boot in, saying Donald Trump’s administration was the world’s biggest destabilising factor.

A raging fever of nationalism rising in the world’s sole super power sends an alarming signal. Nationalism is a challenge to globalization. Rising nationalism and protectionism could hinder the process of globalization and jeopardize the world order.

The US often points an accusing finger at alleged economic nationalism of other countries including China, but now, the reality is that Trump’s truculent nationalism is posing the biggest threat.

And in Hong Kong, the Apple Daily newspaper produced quite a front page...

The agenda: China calls for calm as trade war fears grow

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Could Donald Trump really trigger a trade war with China? With neither side backing down, the markets getting nervous after yesterday’s selloff hit shares and commodities across the globe.

Trump’s threat to impose new tariffs on $200bn of Chinese exports has investors worried, with Beijing already vowing to retaliate.

Overnight, China’s top central banker urged people to remain strong and calm.

People’s Bank of China governor Yi Gang told the Shanghai Securities Journal that China’s economy remained solid, and that there was no reason to panic.

“China still has good economic fundamentals and resilient growth. The yuan is one of a few currencies that have appreciated against the US dollar this year.

“I’m fully confident about the health of China’s capital market based on the fundamentals.”

Yi also pledged that the PBOC would act to “fend off systemic financial risks”, and prepare for the danger of “potential external shocks” and “fend off systemic financial risks”.

Yi Gang’s comments helped to stem another day of losses in China, where shares are on the brink of a bear market (down 20% from their peak).

Other Asian equity markets also recovered a little, with Japan’s Topix up 0.5% and Australia’s S&P 500 gaining 1.1%.

European traders might also recover their poise today, after Tuesday’s selloff.

Fiona Cincotta, senior market analyst at City Index, says investors fear the consequences of a trade war:

Global GDP could stand to be hit by 2% - 3% should the trade war continue and spread, to put this into context the Great Recession wiped out 6% of the global GDP, so this trade spat is by no means insignificant.

For weeks the market has been relatively complacent that Trump’s tough protectionist rhetoric were merely a negotiating tool; however, the realisation that the US President is willing to go ahead with his threats has sent a shiver through the markets.

Trump’s strategy appears to be to raise the stakes until China is forced to capitulate, by opening up its markets to American goods and addressing intellectual property theft concerns. But if that doesn’t happen, the world economy could find itself on a rocky road.

Also coming up today....

Top central bankers are gathered in Sintra, Portugal, for a conference organised by the European Central Bank. Federal Reserve chair Jay Powell, Bank of Japan chief Haruhiko Kuroda, and ECB president Mario Draghi will all speak.

Plue, we get a new healthcheck on Britain’s factories and the latest oil inventory figures from America

The agenda:

  • From 9am BST: European Central Bank conference in Sintra, Portugal
  • 11am BST: CBI industrial trends survey of UK factories
  • 3.30pm BST: US weekly oil inventory figures
 

Leave a Comment

Required fields are marked *

*

CAPTCHA

*