Graeme Wearden 

China’s yuan slides to 11-year low, but pound hits one-month high – business live

Rolling coverage of the latest economic and financial news
  
  

Screens showing stock market movements at a securities company in Beijing.
Screens showing stock market movements at a securities company in Beijing. Photograph: Wang Zhao/AFP/Getty Images

The pound’s strength held the London stock market back today.

The FTSE 100 closed 5 points lower at 7,089, while other European indices posted gains. Germany’s DAX rose by 71 points to 11,730, up 0.6%.

Fiona Cincotta at City Index agrees that no-deal Brexit fears are easing today, pushing the pound up (a bit).

She writes:

Sterling is advancing across the board as the UK opposition leaders met today to plot to prevent a no deal Brexit.

Whilst Bojo is sticking to his do or die Brexit mantra, he has also expressed a little more optimism that a new deal can still be achieved between the EU and the UK. This comes following last week’s visits to Germany and France where Angela Merkel and French President Macron both said they are willing to listen to alternatives the Irish backstop.

Pound traders are interpreting recent developments as a slight easing back from the brink of a no deal Brexit, and so it is advancing.

Merger news: Philip Morris has announced it is talking to fellow tobacco firm Altria over a possible takeover.

It’s billed as a ‘merger of equals’, but the deal has pushed Altria up almost 10% at the open while Philip Morris stock is down about 3%.

Philip Morris says:

“There can be no assurance that any agreement or transaction will result from these discussions.”

Rumours of a possible tie-up have been swirling recently, as the tobacco industry faces the decline of traditional cigarettes -- with Philip Morris backing smoke-free electronic cigarette brand iQOS.

If the deal goes through, it would reunite Philip Morris International and Altria more than a decade after the two companies split. Altria is focused on the US, while PMI selss overseas.

Pound rises on Brexit hopes

In the currency markets, sterling has gained three-quarters of a cent against the US dollar to $1.23 -- a one-month high.

It’s up against the euro too at €1.107, which is also the level since the end of July.

The rally comes as opposition leaders agreed to work together to prevent a no-deal Brexit, and oppose any efforts to shut parliament down.

Following a meeting in London, the Labour party, the SNP, the Liberal Democrats, Plaid Cymru, the Green party and the Independent Group for Change issued this statement:

The leaders of the opposition parties held a productive and detailed meeting on stopping a disastrous no-deal exit from the EU.

Jeremy Corbyn outlined the legal advice he has received from shadow attorney general, Shami Chakrabarti, which calls Boris Johnson’s plans to suspend parliament to force through a no deal “the gravest abuse of power and attack upon UK constitutional principle in living memory”.

The attendees agreed that Boris Johnson has shown himself open to using anti-democratic means to force through no deal.

The attendees agreed on the urgency to act together to find practical ways to prevent no deal, including the possibility of passing legislation and a vote of no confidence.

The party leaders agreed to further meetings.

Yesterday, prime minister Boris Johnson said he was “marginally more optimistic” about reaching a new deal with the EU. However, that would require a solution to the Irish backstop issue.

Otherwise, Johnson insists Britain would leave on 31st October without a deal.

Our Politics Live blog has more details:

Hopes of a trade war breakthrough have pushed the oil price up too, with Brent crude gaining 0.6% to $59 per barrel.

Neil Mackinnon, global macro strategist at VTB Capital, advises caution....:

“At the start of this week, investor sentiment turned around completely on reports that US-China trade talks are to be restarted and that there might be a US-Iran Summit – though this seems contingent on dropping sanctions.

But beware! Sentiment can clearly change on a tweet. If investors believe that the US-China trade dispute is part of a longer-term hegemonic battle between the US and China, then they likely assume the trade dispute will carry on for much longer without a satisfactory resolution.”

European stocks are higher

Shares in European carmakers are rising, following China’s proposal to relax restrictions on car sales.

Volkswagen shares have gained 1.6%, and Daimler are up 1.3%, helping to left Germany’s DAX higher.

Other European markets are also showing gains, following Donald Trump’s more optimistic comments about a possible trade deal with China (but only if it’s a “good” deal for the US).

Updated

China outlines new stimulus options

In an interesting twist, Beijing has announced it is considering measures designed to stimulate its economy, and counter the damage caused by the trade war.

Beijing’s State Council has identified 20 measures to support consumption, including removing the restrictions on auto sales that are imposed by some local governments.

That could stimulate demand for new cars - where sales have fallen steadily for the last year.

The Council also announced that it could:

  • Provide more help to turn struggling shopping malls, stadiums and old factory zones into commercial complexes and entertainment hubs.
  • Renovating commercial pedestrian streets
  • Allowing shops and restaurants to stay open longer to support “the night economy”,
  • More support to buy electric vehicles and smart home appliances on credit

These measures could support growth, which fell to a 27-year low of 6.2% per year in the last quarter. But more will probably be needed, especially if the trade war continues to escalate.

Updated

Economists don’t see much cheer in today’s updated German GDP report:

Italy’s Democratic Party have confirmed that coalition talks with M5S have hit a roadblock, but they’re not taking the blame.

They say it’s M5S’s fault, for insisting that their leader, Luigi Di Maio, should become interior minister as well as deputy PM. M5S have denied it, though.

The interior ministry’s job had been held by Matteo Salvini, head of the League party, so it’s now up for grabs following the end of the League-M5S coalition.

Over in Italy, talks to form a new coalition government are on hold.

The anti-establishment 5-Star Movement has suspended negotiations with the centre-left Democratic Party (DP), until they agree to the reappointment of Giuseppe Conte as prime minister.

In a statement, M5S say “nothing was achieved” in yesterday’s talks, adding:

“We cannot any longer work like this. Either the attitude changes or it’s difficult. We will see the PD again when the party has given its OK to the reappointment of Conte.”

Conte resigned last week after M5S’s previous coalition partners, the right-wing League, quit.

Despite M5S’s move, investors are still hopeful that a deal will be reached with DP to avoid new elections. The Italian stock market has jumped by 1% today, up 192 points at 20,869.

The trade war has certainly left its mark on Germany’s economy.

Updated GDP figures, released this morning, confirm that German GDP fell by 0.1% in the second quarter of 2019. Net trade dragged growth back, as the new US-China tariffs hurt demand for German-made goods.

German exports slumped by 1.3% during the quarter. Imports fell by 0.3%.

Construction investment also fell, but household spending rose slightly (+0.1%) while government spending increased by 0.5%.

Destatis, the Federal Statistical Office, says that “Germany experienced a slight decline in economic performance” in Q2.

The big question is whether Germany is falling into recession. Yesterday, we learned that German business confidence has hit a six-year low, as bosses grow more pessimistic about their economic prospects.

China’s central bank is doing its best to prop up the yuan, as it sinks to fresh 11-year lows today.

CNBC has the details:

China fixed the daily midpoint rate for the yuan at levels not seen for more than a decade on Tuesday as Beijing remains locked in a protracted trade war with Washington.

The People’s Bank of China set the midpoint at 7.0810 per dollar — weaker than the previous day’s fix, but stronger than the 7.1055 level the market was expecting, according to a Reuters estimate.

By setting the yuan midpoint at a level stronger than expected, China could be signalling to the markets that it may want to slow down the pace of the currency’s depreciation, Tommy Xie, head of Greater China research at Singapore’s OCBC Bank, told CNBC.

“Although China has been more open minded about its currency regime,” Xie said by email. While Beijing is giving markets a “bigger role to decide (on) the currency, China still monitors the pace of movement carefully,” he added.

Britain’s stock market has fallen in early trading, as investors fret about the trade war.

The FTSE 100 has lost 32 points, or 0.46%, to 7062 points. Healthcare stocks, consumer cyclicals and industrial firms are among the fallers.

This is the Footsie’s lowest level in nearly two weeks, when recession fears drove it down to a six-month low.

Other European markets are also a little lower, with Germany’s DAX down 0.3%.

Now this is awkward.

Beijing is refusing to confirm Donald Trump’s claim that Chinese officials called “twice” over the weekend to discuss trade talks with his administration.

Foreign ministry spokesman Geng Shuang has been asked about Trump’s comments at the G7 meeting, and he’s insisted that he’s not heard of any recent telephone call between the United States and China on trade.

Geng added that he hopes Washington can stop its wrong actions and create conditions for talks.

UBS: Sell stocks to avoid trade war losses

Swiss bank UBS is so concerned about the trade war that it is recommending that its clients sell shares.

UBS has cut its recommendation on equities to “underweight”, for the first time since the eurozone crisis in 2012.

Mark Haefele, global chief investment officer for UBS’s wealth management group, told clients that the risk of a deeper trade war was growing -- so they should ditch some equites now.

He wrote:

The trade dispute escalated this weekend, with the US president saying the conflict was “in many ways…an emergency.” Late last week, the US and China both announced a fresh increase in tariffs on each other’s goods, including an increase to 30% from 25% on $250bn of US imports of Chinese products.

We still believe the US can avoid recession in 2020, helped by easing from the Federal Reserve and healthy consumer spending. But downside risks are increasing for both the global economy and markets. With talks between the US and China dominating market moves over the near term, investors should brace for higher volatility.

We believe it is prudent to take action to neutralize part of this event risk, pending greater clarity on the political outlook. As a result, we are reducing risk in our portfolios, moving to an underweight in equities to lower our exposure to political uncertainty.

Updated

Introduction: All about the trade war

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

After a welcome long weekend break, City investors are returning to their desks...and returning to worrying about the US-China trade war.

Overnight, China’s yuan has sunk to a new 11 and a half-year low, on worries that its economy is suffering from the ongoing dispute with Washington. It has hit 7.16 yuan to the dollar in the onshore market for the first time since 2008.

The yuan has now lost more than 3% this month, as the trade conflict has escalated. These latest losses come after America and China confirmed they would impose new tit-for-tat tariffs next month.

China is imposing duties between 5% and 10% on more than 5,000 US products including agricultural goods, aircraft and crude oil.

This prompted America to hike its tariffs on many Chinese goods from 25% to 30%. It’s new tariffs, on $300bn of Chinese imports, will now be levied at 15% rather than 10%.

The yuan’s weakness will help Chinese companies compete abroad, and offset some of the impact of America’s tariffs.

But some economists believe China is actually trying to support the yuan, having allowed it to fall through the 7-level three weeks ago.

President Trump spooked global markets on Friday, when he demanded that US companies should repatriate their operations from China.

But there are also signs that we could yet see a reconciliation between the two sides. During yesterday’s G7 meeting, Trump claimed that China had called asking to restart negotiations, declaring:

“I have great respect for the fact that China called, they want to make a deal.

“This is the first time I’ve seen them where they really do want to make a deal, and I think that’s a very positive step.

Curiously, Beijing officials had no recollection of picking up the phone, but Trump’s comments were enough to push Wall Street higher yesterday. The Dow gained around 1%, having shed around 2% during Friday’s panicky rout.

Asia-Pacific markets are also calmer today, after suffering a sharp tumble on Monday.

Yesterday, China’s vice-president Liu He told a state-controlled newspaper that Beiojing wants to resolve the dispute “through calm negotiations and resolutely opposes the escalation of the conflict.”

Some calm would certainly be welcome in the City today, where traders are also watching out for new UK and US housing data. They’ll also keep an eye on Italy, where efforts to form a new coalition government are ongoing.

The agenda

  • 9.30am BST: UK Finance report on mortgage approvals in July
  • 2pm BST: S&P/Case-Shiller survey of the US housing market
  • 3pm BST: US consumer confidence for August

Updated

 

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