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The Guardian - AU
The Guardian - AU
Business
Martin Farrer (earlier) and Graeme Wearden (now)

Wall Street closes lower amid fears over trade, oil and rates – as it happened

Traders work on the floor of the New York Stock Exchange (NYSE) on October 15, 2018.
Traders work on the floor of the New York Stock Exchange (NYSE) on October 15, 2018. Photograph: Spencer Platt/Getty Images

Closing summary

So ends another tense day in the markets.

It began with another day of losses in Asia, with China’s market dropping to their lowest close since late 2014.

Europe then had a wobbly session, before the UK’s FTSE 100 managed to close nearly 0.5% higher.

Brexit remained a worry, as UK PM Theresa May warned that she can’t accept Brussels’ proposal for a backstop for Northern Ireland.

The US market failed to sparkle, after the latest US retail sales figures were weaker than expected - only growing by 0.1% in September.

There was no big sell-off in New York, but the main indices did end the day lower.

The tech sector remained under pressure, due to its exposure to global growth, and its vulnerability to disruption from a trade war.

Hardware maker Cisco Systems was the biggest faller on the Dow, down 2.2%, followed by Apple (-2.1%), Visa (2%) and Microsoft (-1.8%).

The disappearance of Saudi journalist Jamal Khashoggi in Turkey also loomed over the markets. The oil price has risen - Brent is 0.4% higher at $80.76 tonight - amid chatter that Riyadh could cut supplies in retaliation for any sanctions.

And on the fiscal side, America’s budget deficit has jumped to $779bn, thanks to a burst of spending.

That’s all from us today. Goodnight.

Updated

Wall Street ends in the red

So much for the rally!

A late swirl of selling has sent Wall Street into the red at the closing bell.

The Dow shed 89 points, or 0.35%, back down to 25,250.

The Nasdaq had a worse day, losing 1%.

Once again, anxiety over US interest rate rises and worries over an economic slowdown weighed on the markets.

Is volatility turning into the new normal? It’s certainly more common than it used to be....

Here’s a couple of photos from Wall Street today:

Trader James Riley works on the floor of the New York Stock Exchange
Trader James Riley works on the floor of the New York Stock Exchange Photograph: Richard Drew/AP
Here’s trader Ryan Falvey.
Here’s trader Ryan Falvey. Photograph: Richard Drew/AP

And here’s a photo from Riyadh, where the Tadawul All-Share Index (TASI) jumped by 3.5%, after heavy losses on Sunday

A Saudi trader at the stock market trading room in Riyadh.
A Saudi trader at the stock market trading room in Riyadh. Photograph: Ahmed Yosri/EPA

With one hour’s trading to go, Wall Street is edging higher.

The Dow is now up 0.5%, or 122 points, at 25,462, and on track for its second ‘up day’ in a row.

The numbers are in.... America’s budget deficit jumped by over $100bn in the last fiscal year, to nearly $780bn.

Higher defence and social security spending helped to drive up the deficit, even though the economy grew strongly too.

Marketwatch has the details:

The U.S. recorded a $779 billion deficit in the fiscal year ending Sept. 30, an increase of $113 billion, as spending climbed while revenue remained nearly flat, the Treasury Department announced Monday.

Outlays grew by $127 billion, or 3.2%, while government receipts rose 0.4%, or $14 billion.

Compared to GDP, the deficit rose to 3.9%, up by 0.4 percentage points.

In September alone, the U.S. recorded a surplus of $119.1 billion.

UK defence firm BAE Systems saw its shares fall today, as traders pondered the implications of the Khashoggi case.

Earlier, Donald Trump told reporters that the Saudi king had firmly denied being responsible for the journalist’s disappearance - indeed, Trump suggested that rogue elements could be to blame (inside the Saudi consulate in Ankara?).

Trump has now dispatched his Secretary of State, Mike Pompeo, to the Middle East to investigate.

Fiona Cincotta of City Index says the Saudi tensions loomed over the City:

Ironically, it was UK defence giant BAE Systems that bore the brunt of the dispute, trading down 3.46% on the day, as a conflict with the oil producing country could threaten its £10 billion deal for 48 Typhoon jets.

The oil market was surprisingly placid about rising political tensions with Brent crude trading up 0.35% and WTI up 0.39%. Instead some investment went into gold and gold shares, notably Rangold and Anglo American.

Updated

Germany’s stock market also had a better day, with the DAX gaining 90 points or 0.8%.

France ended slightly lower, though.

London closes back over 7,000

A day that started with blustery rain and deep puddles in the City of London has ended with a modest recovery.

The FTSE 100 has nudged its way back over the 7,000 point mark, gaining 33 points or 0.45% to finish at 7,029.

This means the Footsie has avoided setting another six-month closing low, as looked possible this morning.

Wall Street is attempting to push higher, and add to Friday’s recovery.

The Dow is now up 84 points, or 0.3%, while the Nasdaq is coming off its lows.

Last week’s market sell-off was partly due to worries that the global economy is slowing.

And Capital Economics has added to those concerns, by predicting that the next recession could be closer than previously thought.

Neil Shearing, their chief economist, believes it will be triggered in America, as the Federal Reserve raises rates to calm inflation (as Donald Trump has warned).

Shearing writes:

The next global downturn is likely to come much sooner than the current consensus anticipates – indeed, we think that world GDP growth is already peaking in this cycle and that it will slow relatively sharply in 2019-20.

The downturn itself is likely to be led by the US, where higher interest rates will begin to weigh on rate-sensitive sectors of the economy, and China, which is undergoing a structural slowdown.

And while we anticipate that the next global downturn will be relatively short and mild compared to previous cycles, there is a long and growing list of threats that mean there is a significant risk of a sharper adjustment.

Growth forecasts

Yellen: Trump 'unwise' to blast Fed

The newswires are reporting that Janet Yellen, the former chair of the US Federal Reserve, has criticised Donald Trump for his attacks on her predecessor, Jerome Powell.

Nick Timiraos of the Wall Street Journal has the details:

Yellen also cited the danger that the US economy is running too hot, and also cautioned that the US trade dispute with China could hurt the global economy.

Updated

Back in New York, the sell-off is gathering momentum. The Nasdaq tech index is now down 1%.

AstraZeneca 'stops UK investment' due to Brexit uncertainty

Pharmaceuticals giant AstraZeneca has frozen investment in the UK until it knows what’s happening with Brexit, according to the firm’s chairman.

Leif Johansson told French newspaper Le Monde that the UK-Swedish firm has activated its contingency plans. It is now stockpiling medicines at national borders and has duplicated some of its UK operations in Sweden.

Johansson, whose company has operations in Cambridge and Macclesfield, adds:

We have also stopped investing in the UK.

More here.

Updated

Wall Street opens lower

The floor of the New York Stock Exchange.

The chimes of the opening bell are ringing out across Wall Street, teeing up a fresh week’s trading.

Traders are edgy following the worst week since March, and in the face of rising tensions around Saudi Arabia.

And...shares are dipping in early trading. The Dow Jones industrial average has shed 20 points, or 0.1%, while the Nasdaq is 0.3% lower.

Big tech stocks, including Facebook, Netflix and Amazon, are among the big fallers:

Tech shares

Back in London, the FTSE 100 has struggled back from his morning’s six-month low. It’s now up 19 points , or 0.3%, at 7015.

But the FTSE 250 index, which contains smaller UK companies, is having a worse day. It’s down 199 points, or 1%, at 18,774, partly due to those nasty profit warnings from SuperDry and ConvaTec this morning.

The weak US retail sales growth in September has surprised City economics and investors - here’s some early reaction:

US retail sales miss forecasts

Just in: Americans spent less in restaurants and malls than expected last month.

US retail sales only rose by 0.1% in September, much weaker than the 0.6% growth which economists had expected.

This is partly due to a 1.8% fall in spending at restaurants and bars, the biggest drop since December 2016.

That wiped out a 0.8% surge in car purchases. Clothing sales rose by 0.5%, while online and mail-order shopping jumped by 1.1%.

Such a big drop in spending in bars and eateries could worry economists - it may signal that US consumers are cutting back. However, it could also be due to one-off factors, such as the hurricanes which hit the US last month.

Two more top US executives have pulled out of Saudi Arabia’s ‘Davos in the desert’ event, over the disappearance of Jamal Khashoggi.

Blackstone’s Stephen Schwarzman and BlackRock’s Larry Fink have both withdraw from the high-profile Saudi Arabian investment conference taking place later this month (with a shrinking guest list).

Over the weekend, the CEO of JP Morgan and the chairman of Ford both cancelled, as the furore over Khashoggi’s disappearance intensified.

Other top bosses are still weighing up their next move -- but I suspect we’re reaching where attending the event is more controversial than finding a previous engagement in the diary (or even subsequent one...)

Britain’s shadow foreign secretary, Emily Thornberry, has called for Britain to rethink its relationship with Riyadh too:

We should not be in league with a brutal dictatorship that beheads its own citizens for standing up for their rights, which rains down airstrikes on civilian areas in Yemen with no concern for innocent children, and that thinks it can assassinate dissident journalists in other countries with impunity. We must apply the same standards to countries such as Saudi Arabia, Israel and Egypt that we apply to Iran, Russia and Syria.

Where any of them abuse human rights and breach international humanitarian law, we must be prepared to call it out in the same measure, rather than treating it as one rule for our supposed friends and another for our supposed enemies.

The sign on a Bank of America ATM machine is pictured in downtown Los Angeles.

Just in: Bank of America has beaten Wall Street forecasts, which might calm some investors’ nerves.

The second-largest US bank make profits of 66 cents per share in the last quarter, ahead of the 62 cents expected by analysts.

Revenues grew by 4%, as Bank of America benefitted from higher interest rates and recent US tax cuts.

Chief executive officer Brian Moynihan sounds upbeat, declaring:

“Responsible growth, backed by a solid U.S. economy and a healthy U.S. consumer, combined to deliver the highest quarterly pre-tax earnings in our company’s history.”

A cheap charm bracelet from Claire’s Accessories

More UK retail gloom:

Fashion accessories retailer Claire’s is considering a raft of store closures in the UK, according to a report on the Press Association.

The US stock market is expected to lose ground when trading begins in three hours.

The futures market is indicating the Dow Jones industrial average will shed 106 points, or 0.4%, at the open.

New retail sales figures (at 1.30pm UK time) and financial results from Bank of America could both move the markets.

The main Asian stock markets have all closed in the red today.

Japan fell by almost 1.8%, Hong Kong lost 1.5%, Shanghai shed 1.4% and Australia finished 1% lower (our earlier summary has more details)

Oil price up as US-Saudi tensions build

Saudi Aramco’s Ras Tanura oil refinery and oil terminal.
Saudi Aramco’s Ras Tanura oil refinery and oil terminal. Photograph: Ahmed Jadallah/Reuters

The oil price is pushing higher this morning, amid rising tensions between Saudi and the US over the disappearance of journalist Jamal Khashoggi.

Brent crude has risen 1% to $81.25 per barrel, back towards the four-year high set earlier this month.

Bloomberg is reporting that the Saudi King has ordered an “internal probe” into the Khashoggi - who is presumed to have been murdered after entering the Saudi consulate in Istanbul.

On Saturday, US president Donald Trump vowed ‘severe punishment’ if it was confirmed that the Saudi regime had killed Khashoggi. This was a hardening of Trump’s original position, that he didn’t want to risk investment and jobs over the case.

Saudi Arabia, though, denies being involved -- and has now vowed to retaliate if sanctions are imposed.

In theory, Saudi could hurt America badly by cutting crude production -- in a repeat of the 1970s oil shock. That would send transport costs soaring, drive inflation higher, and hurt growth.

Saudi is the biggest single producer in the Opec cartel, producing over 10 million barrels today (global demand is 100 barrels/day), so it could have a major impact on prices.

However, there’s an argument that rival suppliers, such as the US shale industry, could step in to fill a production shortfall.

Updated

Ouch. Germany’s stock exchange has now overcome its technical issues, and traders are sending shares lower.

The DAX has dipped by 20 points, or 0.18%, to 11,503 points, a new 20-month low.

Updated

Gold Bullion stored at ‘The Vault’, guarded by the Ministry of Defence at The Royal Mint.

The gold price has jumped by 1% today to $1,231 per ounce.

Bullion is benefiting from a “flight to safety” as nervous investors look for a safer place for their money, says Stephen Innes of trading firm OANDA:

While the market’s version of a “Red October “ makes it way into the South China Sea, echoes of Octobers past are reverberating throughout global capital markets as risk off continues to linger with equity market look ever so fragile.

The US Treasury is set to release the semi-annual FX report. While China doesn’t meet the historical criteria to be named a currency manipulator who is to say, President Trump, my not rewrite the requirements so that China’s inclusion in the future is assured?

Geopolitical embers are smouldering, threatening to ignite the middle east powder over the disappearance of journalist Jamal Khashoggi.

UK stocks hit fresh six-month low

The UK FTSE 100 has just hit a new six-month low, as its early gains fizzle out.

The blue-chip index of leading sharews in London is now down 27 points at 6968.

That’s its lowest level since the end of March, adding to last week’s losses.

This follows the weak trading in Asia (where Japan lost 1.8% and China fell 1.4%).

Russ Mould, investment director at AJ Bell explains:

“There is a noticeable lack of bargain hunters on Monday morning as last Friday’s rebound in select parts of the market fails to extend into the new working week.

The FTSE 100 was down 0.1% in early trading at 6,988 with investors clearly lacking confidence to snap up stocks whose share prices were badly damaged in last week’s market sell-off.

The biggest riser is gold producer Randgold – a traditional ‘safe-haven’ in troubled times, with other ‘defensive’ stocks such as British American Tobacco and BT Group also in demand.

Engineering firms such as Melrose and BAE are among the big fallers:

The best and worst-performing stocks on the FTSE 100 this morning
The best and worst-performing stocks on the FTSE 100 this morning Photograph: Thomson Reuters

Updated

Pakistan’s stock market has made a bad start to the new week, falling over 2% in early trading.

That follows a 4% tumble last week, as investors fretted about Pakistan’s economic outlook.

Prime Minister Imran Khan is seeking an emergency bailout from the International Monetary Fund, who may demand tough austerity measures in return.

Germany’s stock exchange has been hit by a technical glitch that has prevented trading getting underway.

The Financial Times explains:

The opening of trade in Deutsche Börse’s stock market, the primary trading venue for German equities, was delayed on Monday by “technical problems”.

Deutsche Börse’s Xetrastock exchange, one of Europe’s biggest, faced issues with its “trading infrastructure” which meant the “trading start will not take place according to the usual trading schedule.”

So, we can’t see how the German DAX is faring yet....

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

European stocks hit new 22-month low

As feared, there’s no recovery in Europe’s stock market this morning.

The Stoxx 600 index, which tracks the largest European companies, has dropped by another 0.4% to a fresh 22-month low.

With traders reluctant to take risks, there’s a jittery feel in the trading floors again.

Kit Juckes of Societe Generale says:

The Swiss franc and yen are stronger. Hard Brexit risks are mounting, global political risks are ever-present and equities and bond yields are lower ex-Italy.

The breakdown in Brexit talks, the disappearance of dissident Saudi journalist Jamal Khashoggi, the demise of the CSU in Bavarian elections, the impasse over Italy’s budget and the worried tone coming from the IMF/World Bank meetings in Bali all combine to give financial markets an uncomfortable feel this morning.

SuperDry slides after profits warning

.

Shares in UK fashion group SuperDry have plunged by 20% after it shocked the City with a profits warning.

SuperDry says that the “unseasonably hot weather conditions” in the UK, Continental Europe and on the East Coast of America has hit demand for its autumn ranges, and wipe £10m off profits.

In another blow, the company is taking an £8m hit on foreign exchange costs, after discovering that its “hedging mechanisms” have not protected it from volatility in the currency markets.

Investors aren’t impressed - sending SuperDry shares sliding from £10.15 to just £8.12. At the start of the year they were worth £20.

Astonishingly, that’s not enough to make SuperDry the worst-performing stock today.

That ‘honour’ goes to medical equipment maker ConvaTec, whose shares have lurched 30% lower. The colostomy and wound bag manufacturer has slashed its profit forecasts, due to “challenging market dynamics”, and its CEO is retiring.

Updated

In London, the FTSE 100 index has opened 20 points higher (+0.3%), as traders try to put last week’s losses behind them.

Artjom Hatsaturjants at City firm Accendo Markets says the pound’s weakness is helping multinational companies:

The muted open comes after a negative start to the week in Asia, where concerns over rising US interest rates continued weighing on equities.

Brexit negotiations suffered another setback over the weekend, as PM Theresa May rejected key EU proposals over the Irish border, dealing a blow to negotiations to avert a hard Brexit. This has sent the GBP [the pound] sharply lower ahead of an EU leaders summit on Wednesday, helping FTSE’s international names.

Investors looks at stock price movements on screens at a securities company in Beijing/
Investors looks at stock price movements on screens at a securities company in Beijing Photograph: Nicolas Asfouri/AFP/Getty Images

After another day of losses, China’s stock market has sunk to its lowest closing level in almost four years.

  • CHINA’S SHANGHAI COMPOSITE INDEX CLOSES DOWN 1.49% TO 2568.1
  • CHINA’S CSI 300 INDEX FALLS 1.4% TO 3,126.45 AT CLOSE

A cocktail of risks are weighing on the markets, says Jasper Lawler of London Capital Group:

Concerns over higher US borrowing costs were the catalyst for last week’s heavy sell off. However, there were plenty of other risk factors which were also dampening sentiment.

Those risk factors, including US- Sino trade tensions, Brexit, Italy’s Budget proposal and now increased political tensions between the US and Saudi Arabia, are set to keep pressure on risk appetite this week.

Political risk weighs on European markets

A man shelters under an umbrella as he walks past the London Stock Exchange

Good morning from a wet and grisly London.

Last week wasn’t a pretty one for the City - the FTSE 100 fell steadily to a six-month low, while European stock sank to their lowest in 21 months.

And as the rain tips down, there’s little sign of optimism in the markets today.

Germany traders have been rattled by yesterday’s Bavarian state parliament election, which saw the ruling Christian Social Union lose its majority. That’s another blow to Angela Merkel (whose CDU party are partners with the CSU)

There are tensions in Italy too, where the government is expected to approve its new budget, despite complaints from Brussels that it will breach EU fiscal rules.

Yesterday, Italian prime minister Giuseppe Conte announced the budget would be “a change of gear for Italy”. Conte suggests Europe would soften its view, once Rome has explained its growth strategy to them....

But until that happens, investors will fear another episode in the eurozone debt crisis.

Spread-betting firm IG predicts fresh losses in Frankfurt and Milan today:

Updated

Summary

The losses continue to mount up on financial markets amid uncertainty across the world about trade, rising US interest rates and now a potential clash between the US and Saudi Arabia over the fate of missing journalist Jamal Khashoggi.

The Saudi tension has sent the price of oil up and it’s also been a rough night for the pound ahead of this week’s crunch Brexit summit with sterling slipping. The yen meanwhile has strengthened a touch against the dollar.

  • Stock markets fell in Asia overnight led by the Nikkei in Japan. It is off 1.85% (not helped by the rising yen). Seoul -0.7%, the Hang Seng -1.24% and Shanghai is off 0.83%.
  • The ASX200 in Sydney closed down 0.99%.
  • Futures trade suggests a flat start later today for the FTSE100 while the Dax30 in Germany is seen dropping 0.25%. Wall Street is tipped to fall too.
  • The pound is down 0.3% to $1.31 and €1.135.
  • Brent crude is up 1.25% amid Saudi tensions.
  • JP Morgan and Ford bosses have joined the boycott of the Future Investment Intiative conference in Riyadh next week in the wake of the Khashoggi affair.
  • China says it faces “uncertainties” but has “plenty of room” for fiscal manoeuvre if thin gs get sticky. Which they nevertheless say they won’t.
  • The US dollar rose against the euro and other currencies. These included the Aussie dollar, a proxy for emerging market sentiment, which slipped to US71.06c from US71.26c on Friday.

I’m signing off now. It’s been an interesting day but it’s time to hand over to Graeme Wearden in London. Thanks for joining us.

It will be fascinating to see where the price of oil goes this week. Brent futures have risen 1.255 today to $81.5 a barrel and that could rise to $100 according to one analyst.

Kazuhiko Fuji, senior fellow at the Japanese government thinktank, the Research Institute of Economy, Trade and Industry, said:

Oil prices could rise to $100 on worries about Saudi Arabia. People had thought the Saudis will make up for fall in Iran’s output. If they are starting to use oil as their weapon, that will be a whole new chapter.

Correction – ASX200 down 0.99%

Apologies - I jumpped the gun on the Aussie market. The final settlemtn pushed it deeper into the red to end down 58.6 points, or 0.99%, at 5837.1 points.

Sears files for chapter 11 bankruptcy

Sears, the venerable US retailer, has gone into administration. It has filed for chapter 11 bankruptcy, according to a filing in a New York court, Reuters reports.

A Sears store in New Hyde Park, New York.
A Sears store in New Hyde Park, New York. Photograph: Shannon Stapleton/Reuters

The filing says Sears, which once dominated US retailing in the golden age of catalogues, has assets in the range of $1bn to 10bn and liabilities in the range of $10bn to $50bn.

Australian market closes down 0.79%

The ASX200 is done for the day. It finishes down 46 points, or 0.79%, at 5,849 points.

How can Saudis affect the world economy?

Saudi Arabia has threatened to retaliate against the world economy if western nations impose sanctions or similar if it emerges that the country’s security forces murdered the journalist Jamal Khashoggi.

A Saudi flag flies over the Saudi Arabian consulate in Istanbul where Jamal Khashoggi was last seen alive on 2 October.
A Saudi flag flies over the Saudi Arabian consulate in Istanbul where Jamal Khashoggi was last seen alive on 2 October. Photograph: Yasin Akgül/AFP/Getty Images

But what form could Saudi action take? Our business reporter Rob Davies has been looking at the issues and his main points are

  • The Saudis have the obvious power to push up oil prices. it’s the world’s biggest producer and reducing output would see prices rise, possibly causing a devastating oil shock to the world economy.
  • Second, the Saudis support thousands of US jobs through their extensive arms imports. Loss of those contracts would damage Donald Trump and he has already flagged that he doesnn’t want to jeopradise those deals for companies such as Boeing and Lockheed.
  • Saudi funds are also important to planned US infrastructure development.
  • And it is a key strategic ally in the Middle East

On the other side of the ledger, the Saudis are relying on western companies to reform the kingdom’s stagnant economy and diversify it away from oil. The growing boycott of next week’s Future Investment Initiative conference in Riyadh (now including JP Morgan and Ford) shows possible leverage. it will be a blow to Prince Mohammed’s prestige if more high-profile names pull out.

You can read Rob’s full piece here:

Updated

We seem to have hit a fairly quiet spot in the trading day.

The ASX200 in Sydney is down around 1% and is due to close in a few minutes.

The indicator board at the Australian Stock Exchange (ASX) in Sydney on Monday.
The indicator board at the Australian Stock Exchange (ASX) in Sydney on Monday. Photograph: Brendan Esposito/AAP

The Nikkei hasn’t moved from the -1.5% mark for a couple of hours. Ditto the Kospi (-0.5%) and the Hang Seng ( -0.1%). The CSI300 in Shanghai is probably the biggest mover, sliding from positive territory a couple of hours ago to now being off 0.8%.

Updated

Talking of China, it’s worth revisiting comments by the country’s central bank governor at the close of the IMF meeting in Bali on Sunday.

Yi Gang said China still had plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR) in the face of any negative impact from trade tensions with the United States.

Yi Gang speaks in Bali.
Yi Gang speaks in Bali. Photograph: Sonny Tumbelaka/AFP/Getty Images

He admitted China faced “tremendous uncertainties” but was seeking a “constructive solution” to the current trade tensions. “We still have plenty of monetary policy instruments in terms of interest rate policy, in terms of RRR. We have plenty of room for adjustment, just in case we need it,” Yi said, indicating that Beijing feels it has plenty of ammunition to fire up the economy if needed.

He added that he expected GDP to print at least 6.5% on Friday.

Chris Weston of Pepperstone in Melbourne has weighed with some commentary, saying things could quite ugly on stock markets if data out of China – inflation, GDP and retail sales – disappoints later in the week.

After last week’s volatility shock to markets, we start the week on a negative tone, with broad weakenss through Asia and the ASX 200 falling out of bed. The weekend news flow has centred on a lack of progress in the Brexit negotiations, a deterioration in Saudi/US relations, which have resulted in a 1.1% rally in crude, and the loss of majority for the CSU party in the German regional elections.

Updated

Here are the latest scores, courtesy of IC Markets (although I think they’ve missed the minus sign off the Hang Seng price):

Summing up nicely, Masayuki Kubota, chief strategist at Rakuten Securities says: “We can’t say the shock is over.”

The pound is set for a volatile few days as the wrangling over Brexit intensifies ahead of the meeting of European leaders starting on Wednesday night. It sits at $1.31 at the moment after losing 0.3% today.

The key issue is how to prevent a hard border between Northern Ireland and the Republic. The EU wants the North to remain essentially bound by EU customs rules but that is facing pushback from Brexiters. Theresa May is hoping a temporary “backstop” can be put in place where the whole country remains in the customs deal for the time being.

(There’s a good explainer here from Daniel Boffey, or Brussels correspondent.)

Meanwhile, former foreign secretary and would-be Tory leader, Boris Johnson, has sounded off again in his Telegraph column. He says the backstop idea should be rejected completely and says the EU is treating the UK “with contempt”:

In presuming to change the constitutional arrangements of the United Kingdom, the EU is treating us with naked contempt. Like some chess player triumphantly forking our king and our queen, the EU commission is offering the UK government what appears to be a binary choice. It is a choice between the break-up of this country, or the subjugation of this country, between separation or submission.

So seems like a good moment to run this brilliant picture of UK foreign secretary Jeremy Hunt and other foreign ministers in the maze at his country retreat Chevening this weekend.

Jeremy Hunt and fellow foreign ministers navigate the Chevening maze at the weekend.
Jeremy Hunt and fellow foreign ministers navigate the Chevening maze at the weekend. Photograph: Patrick Tsui FCO/Crown Copyright

Still with Australia and interesting to note that Shane Oliver, the high-profile chief economist at AMP, has suggested that he might have to revise downwards his forecasts on house prices.

He tweeted on Saturday that the auction results weren’t good but his forecast of a peak to trough fall of 15% out to 2020 remained in place. But he told the AFR that he might hve to rethink that forecast on the downside.

“The risks are skewing to greater than 5% declines per year, which is what I’ve been assuming,” he told the Financial Review on Sunday. “I am thinking about revising down again.”

Australian shares battered

In Australia the ASX200 has had a torrid morning. At one point it was down more than 1.5% but it has recovered at bit and is now at 5,829, a fall of 66 points or 1.1%.

The financial sector has been battered amid concern about the impact of the royal commission on the big four and the amount of compensation they will have to pay. Commonwealth is the worst performing, down more than 2%.

There’s also the question of the impact from a deteriorating housing market. According to the AFR this morning, less than half of properties at auction this weekend were sold. That’s a bad outcome during what should be one of the busiest times of the year. Agents are blaming lack of credit for buyers pulling out.

Hong Kong down, Shanghai up

The Chinese trading day has kicked off.

The Hang Seng is down nearly 1% while the Shanghai Composite is up a fraction.

Another major factor in stock market losses this week has been the prospect of a full-blown US-China trade war. But calls for calm from leaders gathered at the IMF conference in Bali last week seem to have fallen on deaf ears.

The Chinese currency fell again against the dollar today. It’s now at 6.92. That is sure to rattle Washington where there is a widespread view that beijing manipulates the currency to benefit exporters.

In Sunday’s IMF communique, members agreed to debate ways to improve the World Trade Organization so it can better address trade disputes and that countries would “refrain from competitive devaluations and will not target our exchange rates for competitive purposes”.

The latter point address concern that China will allow the yuan to depreciate in order to make its exports more competitive to cope with any downside from US tariffs. Hmm ...

While the Ssudi government has come out fighting on the prospect of US sanctions in the Khashoggi case, the boss of the Saudi-owned Al-Arabiya satellite news network has gone a few steps further.

Turki Aldakhil paints an apocalyptic picture of world affairs if the US tries to get tough on the Saudis. He says the kingdom would respond by slashing oil output and would team up with Russia and stop buying US arms. The US would be “stabbing itself to death”.

Imposing any type of sanctions on Saudi Arabia by the West will cause the kingdom to resort to other options, US President Donald Trump had said a few days ago, and that Russia and China are ready to fulfill Riyadh’s military needs among others. No one can deny that repercussions of these sanctions will include a Russian military base in Tabuk, northwest of Saudi Arabia, in the heated four corners of Syria, Israel, Lebanon and Iraq.

At a time where Hamas and Hezbollah have turned from enemies into friends, getting this close to Russia will lead to a closeness to Iran and maybe even a reconciliation with it.

The list of marquee speakers at the Future Investment Intiative conference in Saudi Arabia next week makes interesting reading because a few of them have now said they will not be going.

Jamie Dimon has pulled out along with the boss of Uber and the editor of the Economist, Zanny Minton-Beddoes, while US treasury secretary Steve Mnuchin is under pressure not to go. Watch this space for more.

List of speakers at Saudi FII conference.
List of speakers at Saudi FII conference. Photograph: FII

The rise in oil prices is gathering pace too.

Brent futures are up 1.3% to $81.54 a barrel.

The sellers are gaining the upper hand in stock markets around Asia Pacific today. Hong Kong and China open later this morning. But this is how it’s looking so far:

  • The Nikkei is now down 1.56%, or 353 points at 22,341
  • The Kospi is off 12 points, or 0.55% at 2,150
  • The ASX200 is down 62 points at 5,833, a fall of 1.07% so far

Updated

Ford boss pulls out of Saudi conference

Bill Ford, the chief executive of Ford, has become the latest high-profile business leader to pull out of the Future Investment Initiative conference in Riyadh later this month, Reuters reports.

He joins JP Morgan boss Jamie Dimon in announcing his withdrawal on Sunday. Neither cited a reason but it is suspected that the diplomatic standoff over the Khashoggi affair would be high on the list.

Uber chief executive Dara Khosrowshahi, Viacom boss Bob Bakish and billionaire Steve Case, one of the founders of AOL, have also said they won’t be going to the event dubbed “Davos in the desert”, Reuters said. Bloomberg and CNN have also pulled out of covering the event.

Read the full story on the growing row by our diplomatic editor Patrick Wintour:

Updated

Nikkei down 1%

Trading is under way in Japan and Korea. The Nikkei is off 1% and the Kospi is down 0.5% in Seoul.

That seems par for the course today given the poor start in Sydney, where it’s now off 0.89% for the day. The question is whether the markets can bounce back or they are dragged lower by a compound of problems ...

Oil price rises

The price of Brent crude has risen this morning to $80.5 a barrel.

It’s surely connected to the Saudi issue, so it’s worth looking again at what the kingdom has said about possibly retaliating to external pressure over the Khashoggi affair.

A statement from Riyadh on Sunday said:

The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations. The kingdom also affirms that if it is [targeted by] any action, it will respond with greater action.

Crucially, the statement also pointed out that the oil-rich kingdom “plays an effective and vital role in the world economy”. That has to be an implicit threat to cut oil production and push up the price of a barrel, doesn’t it?

JP Morgan chief cancels Saudi visit

The standoff between Saudi Arabia and just about everyone else in the world over the disappearance of journalist Jamal Khashoggi looks like intensifying. The Saudis have promised pushback if Donald Trump carries out his threat of “severe Punishment” if the kingdom is found to have disposed of Khashoggi, as alleged by Turkey.

Now, Reuters report that JP Morgan Chase chief executive Jamie Dimon has cancelled plans to attend a Saudi Arabian investor conference later this month.

The bank did not give any more details for Dimon’s decision not to attend the Future Investment Initiative conference in Riyadh, and did not comment on whether concerns about the disappearance of Khashoggi were a factor.

In currencies, the US dollar has gained a bit today. That means the Aussie dollar is down slightly at US71.07 while the yen has slipped to 112.2. The pound is at $1.31.

Australian market is down 1%

The benchmark ASX200 has slipped around 1% in the first few minutes.

The banks, as usual of late, have been sold with the financial sector down 1.47%. Same for resources which are down more than 1% but utilities are off 2%.

More commentary on the Australian market from Michael McCarthy at CMC Markets. His thrust is that this week sees a lot of data from China including lending, retail sales and GDP which should give us a picture of where the superpower is heading, ie is it in good enough shape to survive a trade-war inspired downturn? There’s also inflation and trade data from Japan, retail sales in the UK and in the US, retail sales, housing numbers and Fed minutes.

Here’s what Michael says:

Australian investors face a challenge at this morning’s opening. Despite positive moves for US shares and buoyant industrial commodities SPI futures were belted at the New York close, suffering a 51 point loss for the session. The first hour of trading may indicate whether this was an error or the beginning of further underperformance for Australian shares.

Greg McKenna, the independent market strategist, says the markets narrative has been hijacked by the Saudi pushback and Brexit but reckons it’s a close call on what direction things will take.

This is what he says in his morning note:

Much water to flow here especially for the Pound and oil prices. Looking back to Friday though and while stocks in the US rallied into the close it was a messy day and hardly a convincing bounce. Is it the bottom? Many think so and the medium-term charts recovered to hold channel bottoms. But we’ll see.

Welcome to the live blog

Good morning and welcome to the Guardian business live blog.

We’re firing up a bit earlier than usual today because it looks like being an interesting session in Asia Pacific markets.

In Australia, the ASX200 has dropped 51 points after opening a few minutes, or just under 1%. The Nikkei in Japan in expected to fall 0.83% and the Hang Seng will also dip slightly. China’s CSI300 is set for a bounce though.

That’s only part of the picture today though because Saudi Arabia’s threat to disrupt the global economy will likely send the oil price higher today. Stocks on the Saudi market fell on Sunday.

Meanwhile, the Brexit talks in the UK remain very tense with questions about whether Theresa May’s government can seal a deal on its backstop solution for the Irish border. Senior members of her Tory party are threatening to rebel over the matter and that has seen the pound drop substantially. It’s buying $1.309 – down more than 1% on Friday’s close. A forecast showing that the UK economy is going to have its worst year since the financial crisis hasn’t helped.

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