Graeme Wearden 

Markets rally as China calls for calm in trade war – as it happened

Rolling coverage of the latest economic and financial news, as Beijing promises not to hit back straight away over Trump’s latest tariffs
  
  

A cargo ship berthing at Qingdao port in Qingdao in China’s eastern Shandong province.
A cargo ship berthing at Qingdao port in Qingdao in China’s eastern Shandong province. Photograph: STR/AFP/Getty Images

Finally, the FTSE 100 index of top London-listed shares has ended the day nearly 1% higher at 7184, a gain of 69 points.

David Madden of CMC Markets says hopes of trade war progress, and the prospect of a new Italian government, lifted stocks.

He writes:

The Chinese ministry for commerce made it clear they are keen to strike a deal, but at the same time they will not be pushed around. Beijing admitted that further trade tensions will be harmful to everyone, and foreign firms operating in China won’t come under pressure, but at the same time, the country is willing to flex its financial muscles to inflict pain on the US should it see fit.

The political mood in Italy has lightened too as there is a possibility the Five Star Movement and the Democratic Party might form a government and in turn avoid a political crisis, at least in the near-term.

Markets like stability and the possibility of a government being formed is boosting sentiment.

Just in: President Trump appears to have given an interview to Fox News, and revealed that talks are taking place with China today, at a “different level” (not quite sure what that means).

Reuters: India targeting US companies amid China trade war

Reuters has an interesting exclusive - they’ve heard that India is hoping to woo foreign companies such as Apple, to encourage then to move operations from China to avoid the trade war.

Here’s a flavour:

India is targeting companies including Apple, Foxconn and Wistron Corp with a charm offensive aimed at encouraging them to shift business out of trade war-hit China, according to a source and a document seen by Reuters.

Several Indian officials met on Aug. 14 and discussed a list of “target companies” that also include Taiwan-headquartered contract manufacturer Pegatron Corp, a source with direct knowledge said.

The dispute between the United States and China, the world’s two largest economies, has led to higher tariffs on goods worth billions of dollars and disrupted global supply chains, prompting companies to look at other investment avenues to escape higher tariffs.

Amid suggestions that India is late to capitalise on the trade war, government ministries have been asked to submit their policies and incentive structures to Invest India, the country’s foreign investment promotion agency.

Nine sectors including electronics, autos pharmaceuticals and telecoms will be targeted.

Wall Street jumps at the open

As predicted, stocks are rallying in New York following the conciliatory comments from Beijing.

The news that China’s commerce ministry spokesman Gao Feng said Beijing wouldn’t immediately respond to Trump’s latest tariffs has cheered Wall Street.

The Dow has jumped by more than 1%, gaining 293 points to 26,329 points. The tech-focused Nasdaq is 1.4% higher.

Meanwhile, Greece’s new Prime Minister Kyriakos Mitsotakis is making his first official trip to Berlin since his election last month.

Our Athens correspondent Helena Smith explains:

Aides close to the centre right leader say he will not be visiting Germany with a “laundry list of demands” but rather focusing on his reform agenda “and issues that concern the present and future of Europe.”

In the past the focus of such trips, they say, had been “all about cutting us slack when it came to implementing tough fiscal measures.”

Under its third and final bailout agreement, Athens’ former leftist government committed to achieving the controversially high primary surplus of 3.5 % – a promise that has been repeatedly slammed as unrealistic.

One aide said:

“We will not be making any such requests.

“Instead, this visit is going to be about setting a new tone, turning a new page in a new era.”

Mitsotakis, a former banker, says attracting investments – the cornerstone of his economic policy – will be at the centre of his talks with Angela Merkel along with his pet subject of green energy and its role in sustainable growth for Europe and tourist-dependent economies like Greece.

The two leaders have held a news conference, where Mitsotakis struck an emollient tone:

“I’d like to thank the Germany people for the understanding they showed Greece.”

“I want to change the narrative ... Greece is no longer the “problematic country” in a Europe faced with Brexit and so many other challenges.”

This chart shows how US exports fell in the last quarter, and companies ran down their inventories rather than restocking -- two factors that slowed economic growth.

Just in: Updated growth figures from the US have confirmed that the economy slowed in the second quarter of 2019.

They show that GDP rose at an annual rate of 2.0%, very slightly lower than the 2.1% first estimated (but basically still 0.5% growth on a quarterly basis). That’s down from 3.1% in the first three months of 2019.

Today’s data show that consumer spending continued to prop up the economy, growing by 4.7%. However, net trade pulled growth back, with exports falling

The Bureau of Economic Analysis blamed “downturns in inventory investment, exports, and nonresidential fixed investment” for the slowdown in growth.

Brits scramble to hit PPI claims deadline

Today is the final deadline for UK bank customers to file compensation claims for missold PPI insurance.... and there’s a predictable scramble.

Despite having had literally years to get their claims in, plenty of people are only making inquiries today. And just as predictably, some banks are struggling to cope.

Santander has been fielding complaints from unhappy customers all morning, who say they can’t get through to the PPI helpline, or who are struggling to get the online form to work.

For example:

Martin Lewis, founder of MoneySavingExpert.com, has some advice:

“As predicted, there is unprecedented last-minute demand for reclaiming PPI. We’ve seen our own traffic to our tool increase by over twentyfold in the last two days since we started the media campaign. And that huge demand is causing even major bank systems to creak and struggle.

“The obvious first advice is to take time, be prepared and be patient. However, it is simply not fair or right that people who have tried to submit a claim before the deadline and have been disenfranchised by bust bank tech miss out.

“Take a timed screenshot if possible of any page that isn’t working, and if not at least take notes of what you did and when you tried, because almost certainly the regulator will have to ensure that people who miss the deadline because of bad bank tech will still be able to get their claim in, and we will be pushing for it to do so.”

Italian credit-default swaps (a measure of concern that Italy could default on its debts) have fallen to a one-month low, following Conte’s reinstatement as PM.

Stocks are rallying in Milan too, where the FTSE MIB index of top Italian companies is up 1.9% today, outpacing the rest of Europe.

Markets cheer new Italian government

Back in the eurozone, Italian bond yields have hit record lows after prime minister Giuseppe Conte was sworn in to lead a new government.

Conte, whose future was in doubt last week, has retained his position after the anti-establishment Five Star Movement party hammered out a new coalition deal, with the centre-left Democratic Party.

The two parties face a tough battle - Italy’s economy stagnated in the last quarter (and hasn’t actually grown over the last year). The previous government hoped to boost spending and cut taxes to boost growth, but ran into opposition from Brussels.

Speaking after accepting the job again, Conte declared:

We must transform this crisis into an opportunity.

In response, investors piled back into Italian debt, sending the yield (or interest rate) on its 10-year bonds down to just 0.96%, an all-time low.

The reassuring comments from Beijing are likely to push shares higher in New York.

Wall Street is tipped to rally by almost 1% when trading begins in under three hours, as investors welcome the prospect of fresh negotiations between the US and China next month.

As Connor Campbell of City brokerage Spreadex puts it:

“The markets are so desperate for any sign of progress

“Warranted or not, that seems to have been enough for them to jump significantly this morning.”

A trade war breakthrough might calm worried that America could fall into recession next year. Small business expert Gene Marks argues, though, that such fears are overdone:

In less good news, UK economic confidence has hit its lowest level in almost eight years, according to the EC’s monthly healthcheck.

That suggests that the Brexit crisis, and the ongoing trade war tensions, are hurting:

There’s a similar impact in Ireland:

Eurozone economic confidence rises

Economic confidence across the eurozone has risen, calming fears of a recession.

The European Commission’s economic sentiment indicator recorded a surprise increase in August, from 102.7 to 103.1. That’s a two-month high, up from July’s three-month low.

Firms reported a small pick-up in new orders and export orders, and are marginally more positive about the future.

ING’s Bert Colijn says it’s a small, positive sign:

While this is a marginal improvement and by no means suggests a growth recovery, it at least shows that the eurozone is not moving closer to a recession in these rather uncertain economic times.

However, there are plenty of downside risks...

With a deadline on Brexit coming up, the heating trade war between the US and China and possible car tariffs still hanging over the eurozone economy, concerns about continued industrial weakness could become bigger before they retreat.

Heads-up, travellers. Climate emergency activists have announced they’ll fly drones near Heathrow next month in an attempt to stop the airport functioning.

They reckon it will force flights to be suspended, with “up to 100” people apparently taking part. More here:

Updated

This sudden burst of trade war optimism has swept the FTSE 100 up by over 1%, or 73 points, back to 7188 points. That’s a one-week high.

Clearly traders are desperate for good news on the US-China trade war front -- but they should remember that similar hopes have been dashed before.

David Madden, market analyst at CMC Markets UK, says “positive noises” from Beijing are pushing shares up.

A spokesperson for China’s ministry of commerce, said that an escalation in trade tensions is not good for China, the US, or the rest of the world. Beijing reiterated its opposition to a trade war, and it will not discriminate against foreign firms operating in China, but at the same time it reminded the US it has ample retaliatory measures.

The largely hopeful tones of the update from China has lifted market sentiment, and that sparked buying this morning. US-China relations have been volatile recently, but for now there is a sense that things are heading in the right direction, and that has coaxed some traders back into the market.

Beijing appears to be taking a grown-up approach to the trade war, says Shane Oliver, chief economist at AMP Capital.

China tries to cool trade war

NEWSFLASH: Market are rallying after China’s government officials tried to calm the trade war with America.

In a potentially significant move, Ministry of Commerce spokesman Gao Feng has suggested Beijing will not immediately retaliate to America’s latest tariffs, when they kick in on Sunday.

Gao told reporters that China was focused on ending the trade war, not escalating it, saying:

“China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war,”

“China is lodging solemn representations with the U.S. on the matter.”

That will be welcome news to US companies who deal with China, who must have been worrying that Beijing would hit back.

As explained earlier, America plans to impose a new 15% tariffs on imports of imports of tech products and shoes from China, from Sunday.

Geng also revealed that China and the US are talking holding face-to-face talks next month (something Stephen Mnuchin was coy about overnight), and insisted that China is open to resolving the dispute calmly.

These comments are going down well with investors. European stock markets are rallying, with the Stoxx 600 index of top European shares up 0.8%.

The US stock market is also getting a boost, in the futures market:

French GDP revised up

Good news from France: Its economy is growing faster than expected.

New data shows that French GDP rose by 0.3% in the second quarter of 2019, up from the initial estimate of 0.2%.

INSEE, France’s statistics body, reports that business investment jumped by 0.9% during the quarter (up from +0.5% in Q1), while household consumption rose by 0.2% (down from 0.3%).

That suggests France’s economy is picking up, despite the disruption caused by the Yellow Vest protests in recent months.

Net trade also boosted growth, despite the US-China trade war -- but only because imports fell by 0.2% while exports were flat.

Growth of 0.3% means France is expanding faster than the eurozone average of 0.2%, and ahead of the UK and Germany which both contracted.

Over in Australia, policymakers are fretting about the consequences of the US-China trade war.

Thinktank China Maters has warned that Australia “will not be able to avoid economic disruption” if China were to suffer a ‘hard landing’. That could include mine closures and job losses across Australia’s mining industry -- and leave a big hole in the country’s finances.

More here:

UK tech firm's shares plunge

Ouch! Shares in one of Britain’s biggest tech companies have tumbled by nearly a third this morning, after it slashed its revenue outlook.

Micro Focus, the Berkshire-based software firm, warned the City that trading was weaker than expected. It no longer expects to hit its target of a 4%-6% drop in revenue this financial year -- it now forecasts a 6%-8% slump.

In a gloomy statement, it said:

Weak sales execution has been compounded by a deteriorating macro environment resulting in more conservatism and longer decision making cycles within our customer base.

Investors aren’t pleased -- Micro Focus shares are down 29% at £10.97, having hit £21 in early July.

Micro Focus launched a blockbuster $8.8bn takeover of Hewlett Packard Enterprise’s software business two years ago, but has been struggling.

No-deal Brexit fears are pushing the FTSE 250 index of medium-sized firms down.

The FSE 250 has lost 53 points, or 0.3%, to 19,149. Consumer credit firm Amigo is the top faller, slumping by 26% after missing profit expectations this morning, and cutting its forecasts.

European stock markets have opened cautiously, with small losses in France and Germany.

Italy is looking brighter, though, after Movement 5 Star and the Democratic Party agreed to form a new coalition, avoiding snap elections.

US retailers are extremely unhappy that fresh tariffs will be imposed on Chinese goods on Sunday.

The new levy, of 15%, will be applied to $125bn of products, including footwear, smartwatches, Bluetooth headphones and flat panel televisions. A second batch of products, including mobile phones, computers and toys, are being spared until December.

Hundreds of retailers have written a joint letter to Trump, warning that US families will be hurt by the tariffs. It says:

“Imposing tariffs in September on the majority of all footwear products from China - including nearly every type of leather shoe - will make it impossible for hardworking American individuals and families to escape the harm that comes from these tax increases”

Reuters has more details here: Retailers howl as U.S. trade agency locks in 15% tariffs on September 1

There’s now a 50-50 chance that Britain crashes out of the EU without a deal in two months time, says Deutsche Bank analyst Jim Reid.

The decision to prorogue parliament will trigger a major political battle next month, they say, which could potentially lead to a unity government.

Reid says:

The reality now is that under the new schedule, UK parliament has just under a week in early September followed by just over a week in late October to prevent a no deal outcome.

Assuming the timings are too tight and therefore legislation to block a no deal Brexit fails, the only option left for MPs would be a motion of no confidence in the government – either next week or in the last two weeks of October. Much will now depend on the strategy taken by anti no deal MPs over the next two weeks.

Our house view is still 50/50 for a no deal Brexit with the most likely path to preventing one being the formation of a national unity government either in early September or late October.

My take on this is that it is partly a political move aimed at shoring up the support of leavers in the country and removing the need for such minded voters to support the Brexit Party at a General Election. The gamble is that the remain vote (probably also solidified the other way by this decision) would be more split across other parties (especially Labour and the Liberal Democrats).

The more Parliament tries to blocks the move the more it could shore up support for Boris Johnson amongst the “leave” vote ahead of what might be a General Election before year-end. A fascinating and turbulent two months awaits us here in the UK.

This flowchart (larger version here) shows how various scenarios could play out:

Introduction: Investors fret about trade war and Brexit

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

Two issues are dominating investors’ minds today - the US-China trade war (again) and the Brexit crisis (ditto).

As things stand, America will impose new tariffs on Chinese imports on Sunday, further escalating the dispute with Beijing.

Overnight, Treasury secretary Stephen Mnuchin played down hopes of a breakthrough soon -- telling reporters that he expects Chinese negotiators to visit Washington soon, but wouldn’t reveal when.

A notably uncommittal Mnuchin would only say:

“We continue to have conversations. We’re planning for them to come.”

White House trade adviser Peter Navarro also warned that a deal doesn’t appear close, telling Fox News that:

“I can tell you that it’s unlikely anything quick will happen given the structural basis of the problems.”

Such cautious talk undermines hopes that negotiations could resume, and make rapid progress, before the US levies higher tariffs on hundreds of billions of dollars of Chinese exports. The first tranche, on over $100bn of goods, will be imposed in just three days time:

Fears that the global economy is weakening are stalking the bond markets again today, with the yield on long-dated 30-year US debt at an all-time low.

After yesterday’s wobbles, the pound is stable this morning at around $1.22 to the US dollar, and €1.101 to the euro. But sterling is still vulnerable, as the anger over the decision to suspend parliament for five weeks reverberates around Westminster, and beyond.

Markets were caught off guard by the government’s sudden move to ask the Queen to prorogue parliament, triggering a burst of selling yesterday:

City economists say that a no-deal Brexit is looking more likely, as Boris Johnson tries to limit MPs ability to block the UK crashing out of the EU.

Oliver Blackbourn of asset managers Janus Henderson Investors warned clients to expect more turmoil in the next few weeks:

The PM’s move is likely to precipitate a no-confidence vote in his government as soon as parliament returns after its summer break at the start of September.

The challenge for those opposed to the government’s actions lies in their ability to effectively organise the apparent majority against “no deal” within the time constraints now in place. They must either bring legislation to prevent this type of Brexit or find a unity candidate to lead a new administration within the coming days.

Expect to see arcane parliamentary procedures used by both sides towards either outcome. Summer holidays are definitely over for MPs, now comes the shouting.

Our Politics Live blog is covering all the action:

Also coming up:

We get a major healthcheck on Europe’s economy today, with eurozone confidence reports, German jobless figures and updated French growth data.

Fresh US trade data could also be interesting, in the light of the trade war.

The agenda

  • 7.45am BST: Second estimate of French GDP for Q2 2019
  • 8.55am BST: German unemployment figures for August
  • 10am BST: Eurozone business and consumer confidence surveys
  • 1.30pm BST: Second estimate of US GDP for Q2 2019
  • 1.30pm BST: US trade balance for July

Updated

 

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