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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Trump claims trade war is working as China's growth hits 27-year low - business live

Beijing, China at the Imperial City north gate.E4JY8K Beijing, China at the Imperial City north gate.
The Imperial City north gate in Beijing. Photograph: Alamy Stock Photo

Full story: Donald Trump claims trade war is working as China's economy slows

If you’re just tuning in, here’s our news story on the Chinese growth figures.... and president Trump’s response.

Donald Trump has claimed that his tariff battle with China is working after official data from Beijing showed growth in the world’s second biggest economy dropping to its slowest pace since 1992.

The US president said the impact of his protectionist measures had been to cause an exodus of companies from China, as Beijing announced that its annual rate of expansion had slowed from 6.4% to 6.2% in the second quarter of 2019.

In tweets that were immediately challenged by economists, Trump said his tough action had forced China’s leaders to the negotiating table.

Responding to evidence that trade tension was one factor behind the slowdown, Trump said: “China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal....

“...with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!”

The US has imposed tariffs on $250bn (£199bn) worth of Chinese goods including chemicals and machinery, while China has placed import levies on $110bn of US goods such as soybeans.

More here:

The German share price index DAX graph at the stock exchange in Frankfurt today
The German share price index DAX graph at the stock exchange in Frankfurt today Photograph: STAFF/Reuters

European stock markets ended the day higher, blown upwards by hopes of fresh Chinese stimulus measure to prop up growth.

Britain’s FTSE 100 ended 25 points higher at 7,531, up 0.35%, while the German DAX gained 0.5%. Mining stocks and industrial groups gained.

Fiona Cincotta, senior market analyst at City Index explains that some investors expect the People’s Bank of China to ease monetary policy:

After a brief stint in the red the FTSE has powered higher on Monday as risk on dominated. Better than expected results from Citigroup boosting Wall Street and the prospect of stimulus for China lifted the FTSE at the start of the week.

Chinese GDP data showed that the economy grew by 6.2% its lowest level of growth in almost a decade. However, rather than depressing the market, hopes of stimulus for the world’s second largest economy have boosted risk appetite, lifting demand for riskier assets such as stocks. Just as we are seeing with the US, the prospect of easing financial conditions is not being interpreted as bad news for stocks. Instead the prospect of cheaper borrowing in the case of the Fed and support from the PBOC is giving investors plenty of confidence to buy in.

Expert: Foolish to celebrate China's slowdown

Donald Trump may feel vindicated by China’s economic problems, but Americans won’t be cheering if the US economy suffers the consequence.

Few countries would be fully insulated from a Chinese economic hard-landing, and America would certainly feel consequences - including less demand for US goods and financial volatility if emerging markets were also dragged down.

Patrick Chovanec, managing director of Silvercrest Asset Management, fears that the official GDP data are masking the true weakness of China’s economy.....

Summary: Trump cheers as China slows

Time for a quick recap:

Chinese GDP over the decades
Chinese GDP over the decades Photograph: Bloomberg TV

Wall Street hits record high

Boom! America’s stock market has hit a new all-time high at the start of trading in New York.

The S&P 500 index and the Dow Jones industrial average have both touched fresh records, adding to last week’s gains.

Wall Street open, July 15 2019
The opening bell of Wall Street today Photograph: Bloomberg TV

Here’s Reuters take on those Trump trade war tweets:

U.S. President Donald Trump on Monday pointed to slowing economic growth in China amid restarted trade talks, saying U.S. tariffs were having “a major effect” and warning that “possibly much more” were to come.

Growth data released earlier on Monday showed the world’s second-largest economy had slowed to 6.2% in the second quarter, its weakest pace in at least 27 years amid ongoing trade pressure from the United States.

“This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place,” Trump tweeted.

Trump and his administration are seeking to push China to make a trade pact after talks broke down in May. Trump and Chinese President Xi Jinping agreed to restart negotiations at their meeting at the G20 last month.

U.S. and Chinese negotiators spoke by phone last week, and in-person talks are expected soon in Beijing, U.S. officials have said.

America’s National Association of Manufacturers points out that the Empire manufacturing survey isn’t THAT good.

Factories may be growing again, at least in and around New York, but new orders are still down and employment level fell again.

Here’s NAM’s chief economist, Chad Moutray:

Economists say we shouldn’t get too excited by the Empire manufacturing report.

The pick-up in growth is encouraging, but US factories will still be hurt by a trade war.

New York factories return to growth

Newsflash: Factories in the New York region have strengthened this month, after the US and China agreed to restart trade talks.

The Empire State manufacturing index, just released the, has risen to 4.3 in July, up from -8.6 in June. That’s the biggest turnaround in two years.

Any positive reading suggests that manufacturing activity is expanding across New York state.

Factory bosses reported that current business conditions improved this month. At the end of June, Donald Trump and China’s Xi Jinping agreed to resume negotiations, removing the immediate threat of another flurry of tariffs.

Reaction to follow....

Adrian Lowcock, head of personal investing at financial platform Willis Owen, agrees that the trade war is hurting China’s economy.

But, with growth at a 27-year low, Lowcock also believes China can take action if the slowdown worsens.

“The Chinese GDP data shows that the trade war with the US is having an effect, as exports slowed. Although the US and China have announced they are re-starting negotiations it doesn’t look like a resolution will come quick enough for any imminent turnaround in the economic data.

“There are, however, some positives. The weaker economic data still shows an economy growing above 6% per annum, with domestic consumption continuing to grow. At the same time, China can intervene with further stimulus should the government become concerned.

“China is slowing but it still looks manageable, and in the meantime investors get access to some fast growing companies, at sharply cheaper valuations currently than they were earlier this year. Nonetheless, while now may be a more attractive entry point thanks to the falls, investing in China requires a long term focus and a lot of patience.”

Reaction to president Trump’s trade war tweets range from the educational to the bewildered:

Inaccurate tweets are one thing - at least today’s ones aren’t racist, unlike Trump’s shameful attack on four progressive Democratic congresswomen yesterday, which has just been condemned by Theresa May’s office.

Trump: China trade war is working

Just in: Donald Trump has claimed that the slowdown in China’s economy is due to the trade war he began last year.

In a couple of factually questionable tweets, the president claims that companies are leaving China to dodge his tariffs, and that those tariffs are also bringing money into the US.

Factcheck 1: A recent survey showed that 40% of US companies were considering moving manufacturing out of China. But economists said this is only partly due to the trade war. Plus, firms could leave most of their supply chain in China, and just complete the work in another country, circumventing tariffs.

Factcheck 2: These tariffs are paid by US companies when they import goods, not by the Chinese firm doing the exporting. Trump often gets this wrong - arguing that China is actually picking up the tab by cutting its prices or weakening its currency. But in May, the IMF showed that US importers have born the cost.

Updated

While Alan Turing is an excellent choice to be honoured on a UK banknote, it’s a blow to campaigners who hoped the Bank of England would recognise an ethnic minority citizen, for the first time ever.

The Banknotes of Colour campaign say they were ignored by the Bank, even though it claims to take diversity and equality “very seriously”.

In a letter in today’s Financial Times, Zehra Zaidi and Dr Patrick Vernon say:

Our campaign exhausted every avenue. We garnered more than 150,000 petition signatures. On December 16 2018, our campaign secured the support of celebrities such as David Oyelowo, Meera Syal and Gemma Chan, who signed a Sunday Times letter alongside 220 people in public life.

On February this year, a letter signed by 100 cross-party politicians was sent by Helen Grant MP to the governor. On April 2, she presented a private members bill in parliament.

Our campaign has not been taken seriously by the Bank. We have been met with a wall of legalese that the BoE has fulfilled its public sector equality duty. What then of the duty to engage with under-represented groups?

Between the October 2018 announcement that there would be a new £50 note and the November 2018 announcement that the category would be #ThinkScience, the BoE allowed campaigns such as ours to be active for weeks.

The BoE did not explain why it went against its own criteria of ensuring professional diversity on banknotes, in replacing a current scientist on the £50 in James Watt with another scientist. Moreover, there is now a complaint by a group called the Black Physicists that the BoE did not accept its nomination and who have asked the Treasury select committee to review the process.

The campaign weren’t even told than the announcement was coming today.

Here’s the full shortlist of scientists considered for the £50 note, drawn from 989 different scientists who were nominated by the public:

  • Mary Anning (1799-1847) – a self-taught palaeontologist known around the world for the fossil discoveries she made in her hometown of Lyme Regis.
  • Paul Adrien Maurice Dirac (1902-1984) – whose research revolutionised our understanding of the universe’s smallest matter.
  • Rosalind Franklin (1920-1958) – who drove the discovery of DNA’s structure, a critical breakthrough in our understanding of the biology of life.
  • Stephen Hawking (1942-2018) – who made outstanding contributions to our understanding of gravity, space and time.
  • William (1738-1822) and Caroline Herschel (1750-1848) – a brother and sister astronomy team devoted to uncovering the secrets of the universe.
  • Dorothy Crowfoot Hodgkin (1910-1994) – whose research using x-ray crystallography delivered ground-breaking discoveries which shaped modern science and helped save lives.
  • Ada Lovelace (1815-1852) and Charles Babbage (1791-1871) – visionaries who imagined the computer age.
  • James Clerk Maxwell (1831-1879) – who made discoveries which laid the foundations for technological innovations which have transformed our way of life.
  • Srinivasa Ramanujan (1887-1920) – whose incredible talent for numbers helped transform modern mathematics.
  • Ernest Rutherford (1871-1937) – who uncovered the properties of radiation, revealed the secrets of the atom and laid the foundations for nuclear physics.
  • Frederick Sanger (1918-2013) – whose pioneering research laid the foundations for our understanding of genetics.
  • Alan Turing (1912-1954) – whose work on early computers, code-breaking achievements and visionary ideas about machine intelligence made him one of the most influential thinkers of the 20th century.

The news that Alan Turing, the father of modern computing, will grace the new £50 is being well-received.

Here’s Conservative MP Guy Opperman:

Labou MP Lucy Powell is just as pleased -- this is a rare issue that can unite MPs across the House of Commons.

Scientist Dr Emily Grossman, a member of the Advisory Committee which made the choice, says there was a very strong shortlist.

The new £50 will feature one of Alan Turing’s most famous quotes, given to The Times in 1949 about the opportunities of computing:

“This is only a foretaste of what is to come, and only the shadow of what is going to be.”

The note is also illustrated with a very high-level mathematical formulae, as my colleague Nicola Davis explains:

It will also reference one of Turing’s academic papers, “On Computable Numbers, with an application to the Entscheidungsproblem”, in which he essentially envisages computing machines and shows there are indeed unsolvable problems – in other words, propositions that cannot be deemed provable or not based only on rules and statements of fact.

Updated

Alan Turing is face of Bank of England's new £50

Newsflash: Alan Turing, the scientist famous for helping to crack the wartime Enigma code and pioneering the modern computer, has been chosen to appear on the Bank of England’s new £50 note.

The mathematician was chosen from a list of almost 1,000 scientists in a decision that recognised both his role in fending off the threat of German U-boats in the Battle of Atlantic and the impact of his postwar persecution for homosexuality.

Bank’s governor Mark Carney is making the announcement now at the Science and Industry Museum in Manchester.

Turing played a pivotal role at the Bletchley Park code and cypher centre during the second world war, but was prosecuted in 1952 for homosexual acts. He died from cyanide poisoning two years later; a inquest concluding his death was suicide.

Here’s a concept version of the new £50, which will enter circulation in 2021.

A Bank of England mock-up of the new £50 note featuring Alan Turing
A Bank of England mock-up of the new £50 note featuring Alan Turing Photograph: Bank of England

And here’s the full story:

Updated

Mining stocks are among the risers on the London stock exchange this morning, on hopes that China’s economy will perk up.

FxPro’s analyst team explain:

“The Chinese GDP came out better than expected, somewhat reducing concerns about the growth rate of the second largest world economy. In addition to quarterly data which marked an increase by 1.6%, the markets reacted to a spike in industrial production. In June, the annual growth accelerated from 5% to 6.3%. Since China is the largest raw materials importer, strong industrial figures are setting the demand for the commodities. As a result, we see an increase in purchases of mining companies, as well as Australian and New Zealand dollars, which are in demand in the hope of increasing exports to China.

At the same time, in a more global context, one cannot lose sight of the fact that the current data remains very weak. The annual growth rate of the economy has slowed to a minimum level over the past 27 years, and the current surge in production has been stimulated by the Chinese government. Under these conditions, market growth momentum can be very unsustainable if no further good news follows.”

Heads-up: In 15 minutes we discover which pioneering scientist is being honoured as the face of the Bank of England’s new £50 note.

China’s stock market ended the day up 0.4%, as traders anticipated fresh government stimulus measures to spur growth.

There was also relief that the GDP report wasn’t worse, and that retail sales and industrial output growth accelerated.

Europe’s mini rally has now fizzled out, though:

Because China’s GDP data only dates back to 1992, we can only say for certain that today’s data is the worst in at least 27 years.

It’s probably the worst in around 30 years, as the FT explains:

Chinese economic growth plummeted in the aftermath of the 1989 crackdown on pro-democracy protests in Tiananmen Square, but recovered and began its long period of expansion after Deng Xiaoping’s “southern tour” of 1992.

The real economy also slowed sharply during the Asian financial crisis of the late 1990s and in the aftermath of the global financial crisis of 2008.

Over in Berlin, the government has warned that Germany’s economy is under pressure.

In its monthly report, the economy ministry warned that industrial activity is subdued, partly due to to weak global demand. It also singled out trade conflicts, geopolitical tensions and Brexit as key “downward risks”.

But, the ministry also hopes growth may pick up over the summer:

“After what is shaping up to be a subdued development in the second quarter, the forces of economic upswing could become more prominent again if the external environment settles.”

Data firm Markit has spotted that China’s business leaders are unusually pessimistic about their prospects:

But they’re not alone. Business confidence worldwide has weakened to a 10-year low, as bosses anticipate weaker profits and less investment.

Graham Spooner, investment research analyst at The Share Centre, says Sports Direct investors are understandably spooked by the delay to its results.

“It was no surprise to see Sports Direct’s shares drop sharply in response to this news, near to a seven-year low. Whenever a company announces a delay to reporting results within just a few days of when they are due the market naturally becomes concerned. Investors should note that part of this is due to a review of processes carried out by the company’s auditors, Grant Thornton, but the decision to buy House of Fraser rests entirely on Sports Direct’s management. That purchase was just one of several over the past year, including Evans Cycles, and trading on the high street has been difficult for many retailers.

Until the company publishes its results and investors can see the situation for themselves they should be very wary.”

Sports Direct shares tumble after results delay

A Sports Direct store on Oxford Street in London.

In the City, shares in retail group Sports Direct have plunged over 10% after it announced its annual results, due on Thursday, will be delayed.

The problem is two-fold.

1) “Complexities” over the integration of House of Fraser, which SPD acquired lat summer, and uncertainty over its future performance.

2) “Increased scrutiny” of SPD’s auditors, Grant Thornton, who are taking longer than usual to crunch the numbers. Last week they were slammed by regulators for doing a shoddy job, with audit quality at the firm labelled a “matter of deep concern”.

Sports Direct admits that there’s a danger that the guidance given in Sports Direct’s announcement of 13 December 2018 could be affected by the ongoing auditing work.

That’s sent its shares sliding 11% to 231p, the weakest since the end of 2018.

More here:

China’s growth report may reassure investors that the global economic outlook isn’t as bad as feared, says Kit Juckes of Société Générale.

He’s encouraged by the pick-up in retail spending and factory production in June:

Is it really that bad? England won the cricket world cup, a Frenchman’s in yellow in the Tour de France, Wimbledon managed a fortnight free of rain delays and the Chinese economy is recovering from the weakness that it suffered at the start of the year.

There’s a distinct risk that the theme for markets this week will be ‘it’s not that bad’, particularly in London. China’s barrage of economic data this morning may show real GDP growth continuing its gradual and suspiciously steady pace of slowdown continuing (6.2% y/y in Q2) but there were clear accelerations in retail sales, industrial production and capital spending.

GDP data should always be viewed with some scepticism, as they’re a blunt and incomplete measure of how a country is faring.

This has spurred New Zealand to use wellbeing as a better measure, as it tries to tackle wealth inequality, homelessness, child poverty and mental health issues.

But China’s growth reports can often send eyebrows higher - due to Beijing’s ability to consistently hit its GDP targets.

Some analysts suspect that local officials feel heavy pressure to report that their region is performing as planned - even if it isn’t.

As the Financial Times reported in March, there are signs that some data is being falsified.

“Since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics,” said the authors led by Chang-Tai Hsieh, economist at the University of Chicago Booth School of Business and research associate at the US National Bureau of Economic Research.

For years, the sum of China’s provincial GDP has exceeded the national figure, a clear sign of statistical inflation at the local level. The National Bureau of Statistics (NBS) has previously acknowledged that “some local statistics are falsified”, and in 2017 the central government accused three provinces in China’s north-east rust belt of fabricating data.

Investors in Europe are taking the China slowdown in their stride.

The London stock market has opened a little higher, with the FTSE 100 index up 8 points. There are stronger gains in other countries, with Germany’s DAX gaining 0.8%.

European stock markets
European stock markets Photograph: Refinitiv

Neil Wilson of Markets.com says traders are anticipating more stimulus measures from the Chinese government to spur growth (and relieved that industrial output and retail spending rose in June).

Bad news = good news. Relatively lacklustre growth in China has the market baying for more stimulus. To be fair, despite the headline Q2 GDP number slipping to a 30-year low at 6.2%, there were some signs of encouragement. Industrial production rose 6.3% in June, an improvement on the 5% growth in May. Retail sales also beat forecasts.

Most of the recent softness seems trade-related, with exports having dipped 1.3%.

Updated

The Chinese government is likely to do whatever it takes to keep its growth rate above 6%, says Hussein Sayed, Chief Market Strategist at FXTM:

Today China reported its slowest rate of quarterly economic expansion in almost three decades. The economy grew 6.2% in Q2, in line with markets’ expectations, but 0.2% below Q1 growth.

Policymakers will likely defend the 6% growth levels over the second half of 2019 by escalating stimulus measures, whether it’s in the shape of fiscal or monetary. On the bright side, industrial output grew 6.3% in June and retail sales easily beat market expectations coming at 9.8%. Whether this trend will be sustained remains to be seen, but so far, the data clearly reflects that China is not headed towards a hard landing.

Although China’s growth rate has slowed in recent quarters, there are signs that its economy may be picking up.

Industrial production rose by 6.3% year-on-year in June, up from 5% in May. Retail sales growth sizzled too - up 9.8% from 8.6%.

This may show that Beijing’s recent stimulus measures are starting to pay off.

This charts confirms that China’s growth rate is now the weakest since modern records began in the early 1990s.

The trade war with America has pulled it below its slump after 2008 financial crisis:

Chinese GDP over the decades
Chinese GDP over the decades Photograph: Bloomberg TV

Introduction: Chinese growth slows to 6.2%

People holding hands behind a Chinese flag.

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

Along with death and taxes, you can usually rely on China’s GDP figures to be bang on target.... despite the challenge of measuring growth across such a huge country.

And once again, Beijing has hit the spot -- reporting that its economy grew at an annual rate of 6.2% in the second quarter of 2019.

Although strong by advanced economy standards, that’s actually the weakest growth rate seen in China in 27 years -- a sign that the trade war that has raged with America for the last year is causing economic damage.

Government spokesman Mao Shengyong blamed weak economic conditions within China, and in the global economy.

“Economic conditions are still severe both at home and abroad, global economic growth is slowing down and the external instabilities and uncertainties are increasing.

“The economy is under new downward pressure”

The second quarter economic growth was the country’s slowest pace since the first quarter of 1992 — the earliest quarterly data on record, according to Reuters.

China GDP
Slowdown.... Photograph: Bloomberg TV

Tom Rafferty, principal economist for China at The Economist Intelligence Unit, blames trade tensions between Beijing and Washington.

He writes:

“Uncertainty caused by the US-China trade war was an important factor and we think this will persist, despite the recent tariff truce.

“Businesses remain skeptical that the two countries will reach a broader trade agreement and recognise that trade tensions may escalate again.”

But on the optimistic side, this is within Beijing’s goal of growth of between 6% and 6.5% this year. The economy doesn’t appear to be falling over, despite Donald Trump’s efforts to cut China’s trade surplus with America.

Investors aren’t panicking. China’s stock market is calm as a mill pond today, with the CSI 300 index up 0.07%.

As Stephen Innes of Vanguard Partners puts it:

The China GDP data was very much in line with consensus confirming the markets view that the economy continues to slow, and while GDP touched 27 years low in Q2, the on consensus print does lessen the market fears that China’s economy is headed for a hard landing.

As such risk assets will respond favourably but it’s hard to escape the economic realities that the US-China trade war is having on global economies.

More reaction to follow....

Also coming up today

The economics diary is a little thin, but we do get the latest Empire survey of manufacturers in the New York region.

Plus, the Bank of England will reveal the face of its new £50 note. Alas, there isn’t time to add one of our cricketing heroes [or the gracious Kane Williamson] , so the honour will go to a pioneer from the world of science.

The agenda

  • 11.15am: Bank of England unveils new £50 note
  • 1.30pm: US Empire Manufacturing survey of factories in the New York area (expected to rise to 0.5, up from -8.6).

Updated

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