Apple is particularly vulnerable to an escalating US-China trade war, analysts say.

Mobile phones made in China aren’t currently subject to the new US tariffs, but they are on the list of $300bn of imports which could soon be hit.

Morgan Stanley analyst Katy Huberty has calculated that a 25% tariff on the iPhone could lead to a price increase of $160 for the iPhone XS. Or Apple could decide not to pass it on-- which would wipe 23% off its earnings per share.

Huberty wrote:

“Apple has one of the most significant exposures to Chinese exports to the US in our IT Hardware coverage group, given final assembly for many of its consumer electronic devices is located in China.”

With an hour’s trading to go, the Dow is up 310 points at 25,635 points.

That would be its best day since the start of April.

After being shunned yesterday, technology shares are back in investors’ good books.

IBM has gained 2%, Apple is 1.8% higher and Cisco is up 1.7% in late trading..

Tech stocks are obvious casualties from a US-China trade war (as so many US companies use Chinese factories). Today’s warmer comments from the two sides could be good news for the sector.

But analysts are still predicting more volatility.

Jerry Lucas, senior trading strategist at UBS Global Wealth Management, told Reuters:

“We’re seeing trade optimism from semi-market friendly tweets from Trump. If we’re still talking then it means that a deal could be done soon.

“We’re in a highly uncertain period right now, and the market is going to oscillate between good and bad days.”

Wall Street traders are also taking comfort from reassuring comments from China’s government today.

While many Americans were sleeping, Chinese Foreign Ministry spokesman Geng Shuang told reporters in Beijing that negotiations hadn’t broken down.

Geng explained:

“My understanding is that China and the United States have agreed to continue pursuing relevant discussions. As for how they are pursued, I think that hinges upon further consultations between the two sides,”

But.... China still won’t take all the blame for the sharp deterioration in relations last week.

Geng insisted that China had shown goodwill in the talks -- by sending a delegation to Washington last week even though the US was raising tariffs on some Chinese goods.

Ironically, today’s calmer financial markets mean there’s more chance the trade war continues.

It might take a major crash for both sides to end the dispute, argues Stefan Legge of the University of St Gallen.

Here’s his take:

• The US-China trade dispute will last and likely be extended beyond the realm of trade. The two nations are engaged in geopolitical rivalry and neither side is going to cave in. The Chinese response to the recent tariff hike was predicted – President Xi cannot lose face in this dispute.
• What then can de-escalate the trade war? In late 2018 and early 2019, both sides agreed to a truce when stock markets tumbled for a while both in China and the US.
• However, the market response to the recent developments is rather mild. Either businesses do not expect a further escalation, have priced in the distortion, or companies can live with more trade frictions.
• The latter point makes sense to the extent that the tariffs are but an addition to existing trade barriers. It is not like international trade – commerce between the US and China – was free of barriers and distortions before the US President started imposing tariffs. As the Global Trade Alert documents on a regular basis: most shipments were already subject to significant distortions prior to the US-China trade war.
• If, however, the recent trade policies indeed have a significant negative impact on both economies, I would expect two things to happen more than I would expect a de-escalation: First, both countries will increase subsidies to affected businesses, as they already announced. Second, both administrations will attempt to blame the geopolitical rival – or individual firms – for negative outcomes.
• When prices go up in the US as a result of the tariffs – and they have in the past and will now, no question – President Trump will blame the companies for raising prices. Politically, this could work to his favor in the 2020 presidential election. The question is whether the blame game can be managed successfully by Donald Trump and I would not underestimate his skills in this regard.
• Bottom line: Unless there will be a severe negative reaction by the market to the trade dispute, the escalation is likely to continue.

Britain’s FTSE 100 index has closed 77 points higher at 7241, up 1%.

Back on Wall Street, every sector of the Dow Jones industrial average is up.

That’s a change from yesterday, when everything was taking a dive.

Donald Trump’s pledge to reach a deal with China, eventually, seems to be helping.

Consumer focused companies such as Coca-Cola (+2.5%) and Visa (+2.2%) are leading the rally followed by industrial and technology stocks including Cisco (1.95%) and Boeing (+1.5%)

Here’s the latest prices:

• Dow: +193 points or 0.77% at 25,518
• S&P 500: + 25 points or 0.9% at 2,837
• Nasdaq: + 78 points or 1% at 7,726

Ken Odeluga, analyst at City Index, doesn’t believe today’s rally marks the end of the trade war jitters.

He says:

Volatile gyrations require markets to go up as well as down; Tuesday brings the upswing.

Nobody believes tariff turmoil is done; it would be difficult to do so given Washington’s signal that a further barrage of new 25% duties on $300bn of Chinese goods is in the works.

Commodity prices are also rebounding a little. Soybean price are up almost 2% from yesterday’s 10-year lows.

Ding ding! Shares are rising at the start of trading in New York, but it’s not a very strong rally.

The Dow Jones industrial average is up 88 points so far, a gain of 0.35% to 25,314. That doesn’t make much of a dent in yesterday’s 617-point selloff.

Technology stocks are recovering some ground, following Donald Trump’s pledge to reach a deal with China eventually.

Bloomberg have spotted a distinct change of tone in the Chinese media recently - towards more nationalistic rhetoric.

That could be a sign that Beijing wants to ensure the public back their leaders on this issue, and blame Donald Trump for the trade war. If so, that could mean they expect it to rumble on for a while.

Donald Trump simply can’t tear himself away from Twitter today.

The president has now predicted that the People’s Bank of China will cut interest rates to stimulate its economy, to cope with trade war damage, and challenged the US Federal Reserve to do the same.

Some economist have also suggested the PBoC will be forced to ease monetary policy soon. But an aggressive interest rate cut would clash with Beijing’s efforts to clean up the financial system, reduce speculation, and clear out bad debts.

It might also weaken the yuan -- and trigger capital flight if nervous Chinese citizens tried to transfer money out into dollars.

A record number of investors are bracing themselves for a stock market crash.

Bank of America’s latest survey of market players found that a third of fund managers have hedged themselves against sharp falls in asset values in the next few months. More investors are also keeping money safe as cash, rather than investing in equities or bonds.

The survey also found that the US-China trade war remains the number one ‘tail risk’ which could derail the markets. It’s now been the top issue worrying investors for the past year:

After yesterday’s heavy losses, global stock markets are turning more positive - as Donald Trump’s latest tweets calm the mood.

The main European share indices are all positive today, and Wall Street is also expected to open high (after its worst falls in months yesterday).

• UK FTSE 100: up 67 points, or 0.9%, at 7231
• German DAX: up 64 points or 0.5% at 11,940
• French CAC: up 61 points or 1.2% at 5,324

Donald Trump’s claim that America’s steel industry is booming thank to his tariffs has been fact-checked, and found wanting.

Here’s Lydia DePillis of CNN:

Bloomberg’s Michael McDonough points out that the steel industry has lagged the wider US stock market of late:

The big picture is that Britain’s economy has created more jobs than expected over the last few years....but pay growth has lagged behind.

Brexit minister James Cleverly understandably highlights the first part:

The Resolution Foundation gives the other side of the story:

Here’s the full story:

Disappointing news: Britain’s economy has become even less productive.

Labour productivity – effectively the amount of output we produce -- fell by 0.2% in the last three months, the third consecutive quarterly fall.

It’s a consequence of firms failing to invest in new machinery and equipment, and instead relying on recruiting more workers to cover the gaps.

John McDonnell MP, Labour’s Shadow Chancellor, blames the “do-nothing Government”.

“With business investment also falling and wages still lower than a decade ago, we have an economy in a state of neglect, damaged by years of Tory mismanagement.

This Government is falling apart, but it must not bring the economy down with it.”

The Young Women’s Trust has also warned that young people, particularly those with children, face a tough task in the current economic climate:

Communications and campaigns director Joe Levenson says:

“Today’s data shows a fall in young women’s unemployment and economic inactivity, which is welcome news.

“Wage growth, however, has slowed and we remain concerned about young people getting stuck on low pay.

“We know that young women are already struggling to get by – and this will only make it harder. Many face inescapable debt, a battle to put food on the table and, in some cases, are having to leave work as an hour’s childcare costs more than an hour’s wages.

“Young people need hope for a more secure financial future. That means extending the Government’s National Living Wage to under-25s, so they can keep up with the cost of living, and giving them the skills to get good jobs.

TUC General Secretary Frances O’Grady is concerned that wage growth slowed last month (to just 1.3%, including bonuses, after inflation).

She says:

“Pay growth is stalling again. The last thing workers need is another hit in the pocket when real wages are still lower than a decade ago.

“The government must raise the minimum wage to £10 as quickly as possible. And give unions the freedom to enter every workplace to negotiate fair pay rises.“

Today’s jobs report also shows how the rise in women’s retirement age is keeping hundreds of thousands of people working longer.

The ONS reports that the number of women classed as economically inactive has fallen sharply since 2014.

That includes:

• women looking after the family or home (down 254,000)
• women taking early retirement (down 239,000)

The ONS says:

This reflects ongoing changes to the State Pension age, resulting in fewer women retiring between the ages of 60 and 65 years, as well as more women in younger age groups participating in the labour market.

We learned last month that the number of women over 50 in employment has hit a record high, which experts attributed to the increase in the state pension age to 65, from 60 a few years ago.

That sparked the WASPI campaign - with women born in the 1950s saying they weren’t given proper notice of the changes, leaving them facing financial problems.

The proportion of UK adults classed as economically inactive (not in work or seeking employment) has dropped to 20.8%, close to a record low.

This is down to a drop in students, reports economist Rupert Seggins.

There are now 32.70 million people in employment, 354,000 more than a year ago.

That helped push the employment rate to a joint record-high of 76.1%, impressive given the uncertainty over Britain’s exit from the EU.

Andrew Wishart of Capital Economics suspects that Brexit uncertainty may have forced companies to hire staff:

The continued strength of employment in the first quarter of 2019 probably reflects heightened economic activity as firms brought forward purchases and output in preparation for a possible no-deal Brexit. Now that risk has passed, activity and employment growth are likely to soften.

This chart shows how wage growth weakened a little last month, particularly for those lucky enough to get a bonus (their earnings growth fell from 3.5% to 3.2%):

The women’s unemployment rate has hit a new all-time low, at 3.7%, down from 3.8%. That’s the lowest since records began in 1971.

For men, the jobless rate has dropped to 3.9% from 4.1%.

The vegan sausage roll truly is the gift that keeps on giving.

Bakery firm Greggs has hiked its profit forecasts this morning, after reporting a surge in sales so far this year.

This is “helped by the roll-out of vegan-friendly sausage rolls to all shops following limited availability in the early part of the year when demand outstripped supply.”

Greggs now expects profits will be “materially higher” than previously thought - news that has sent its shares soaring 11% to a new all-time high.

In the City, mobile operator Vodafone has hit its shareholders with a stinging dividend cut.

Following days of speculation, Vodafone revealed it will slash its payout by 40% this year, to help bolster its balance sheet and fund its 5G mobile network ambitions.

This is Vodafone’s first ever dividend cut. It comes as the firm also reports a €7.6bn loss for the last year. That’s partly due to the cost of exiting its Indian business, but also reflects hefty bills buying 5G licences.

Shares in Vodafone slumped by almost 6% yesterday as investors braced for a dividend cut - they’re up 2.3% this morning.

The dividend cut will hurt shareholders such as pensioners and asset managers. But Delta Partners’ head of research, Mayssaa Issa, argues it’s unavoidable:

The operator has engaged in several initiatives to contain cost and secure new revenue streams, including redefined convergence approach for increased customer engagement, 5G investments aiming for further cost efficiencies and new revenue streams, and digital transformation focusing on big data, AI and RPA which already achieved some cost savings. In addition to that, improved asset utilization strategy with extended network sharing agreements (4G/5G) in the UK, Spain and Italy and the creation of a virtual TowerCo was part of the strategy adopted to contain costs.

However, the burden of hefty price tags for 5G-suitable spectrum in the UK, Italy and Germany weighed in.

China is keeping tight-lipped about the suggestion it could stop buying US government debt, as part of a trade war retaliation.

A debt strike may sound like a potent weapon for Beijing to use against America. China is thought to hold around $1trn of US Treasury bills -- if it were to suddenly start sell, bond prices would slump and yields (interest rates) would rise, hurting US companies.

However, it’s called a nuclear option for a reason. Such market volatility would destabilise the global economy, hurting China too. Plus, once it started dumping Treasuries on the market, falling prices would make its remaining holdings less valuable.

Better news from Europe -- shares are recovering in early trading, after hitting seven-week lows yesterday.

Traders could be taking comfort from Donald Trump’s suggestion last night that he’ll discuss the trade conflict with his Chinese counterpart, Xi Jinping, at next month’s G-20 summit.

Some investors may also be concluding that European stocks are a safer bet than either US or Asian equities in the current climate.