Closing summary
The Chinese currency has today fallen through the symbolic seven-to-one-dollar level for the first time since May 2008. The drop came after Donald Trump’s threat of new tariffs on Chinese goods on Friday, and has sparked fears that the US-China trade war is turning into a full-blown currency war, which could damage global growth.
Trump was quick to accuse Bejing of “currency manipulation” and “a major violation which will greatly weaken China over time!” in a tweet today.
The yuan’s drop has triggered a sell-off on global stock markets. On Wall Street, the Dow Jones has lost more than 500 points, a 1.9% fall, while in London, the FTSE 100 index is trading nearly 180 points lower, a 2.37% decline.
- Dow Jones down 504 points, or 1.8% at 25,980
- S&P 500 down 1.9% at 2,875
- Nasdaq down 2.67% at 7,487
- UK’s FTSE 100 down 177 points, or 2.4%, at 7228
- Germany’s Dax down 1.55% at 11,688
- France’s CAC 40 down 1.79% at 5,263
- Spain’s Ibex down 0.98% at 8,810
- Italy’s FTSE MiB down 1% at 20,834
- Japan’s Nikkei down 1.75% at 20,720
- Hong Kong’s Hang Seng down 2.85% at 26,151
Tesco and HSBC have both announced thousands of job cuts in the last few hours.
Good-bye and thank you for all your comments – we’ll be back tomorrow.
Updated
US services PMI strengthens
The US services purchasing managers’ index is out: it has risen to 53.0 in July from 51.5 in June, signalling stronger activity in the service industries.
The composite PMI, which includes manufacturing, has increased to 52.6 from 51.5, “to signal a moderate expansion in overall business activity,” according to the survey compiler, IHS Markit. The rise was led by services firms which registered a faster increase in output, with manufacturers only recording a slight upturn in production.
Meanwhile, in China the service industries have recorded lower growth. Earlier today, the Caixin/Markit PMI slipped to 51.6, the lowest reading since February, from 52.0 in June.
Updated
Tesco is to cut 4,500 jobs at 153 high street Tesco Metro supermarkets, in the latest round of redundancies to affect staff at the UK’s biggest groceries chain, writes my colleague Rob Davies.
Jason Tarry, the supermarket’s UK and Ireland boss, said:
In a challenging, evolving retail environment, with increasing cost pressures, we have to continue to review the way we run our stores to ensure we reflect the way our customers are shopping and do so in the most efficient way.
We do not take any decision which impacts colleagues lightly, but have to make sure we remain relevant for customers and operate a sustainable business now and in the future.
Earlier this year, it emerged that chief executive Dave Lewis was planning to slash £1.5bn from Tesco’s cost basein an effort to rebuild profits, which have never recovered from the 2014 accounting scandal.
Fishmonger, butcher and baker jobs at the store giant were expected to be at risk, along with counter staff.
Tesco to cut 4,500 jobs
BREAKING: HSBC isn’t the only company cutting jobs today. Tesco, Britain’s biggest supermarket chain, said it would cut 4,500 jobs at 153 Tesco Metro highstreet supermarkets.
Dow falls over 400 points at the open
The opening bell has just rung on Wall Street. US stocks have fallen more than expected.
- Dow Jones down 414 points, or 1.56%, to 26,070.81
- S&P 500 down 46.62 points, or 1.59%, to 2,885.43
- Nasdaq down 181.37 points, or 2.27%, to 7,822.71
ECB: Global trade to remain weak
The European Central Bank has warned in its economic bulletin today that global trade will only pick up gradually in coming quarters and will remain weaker than overall economic activity.
Weak trade has been the biggest drag on global growth for much of the past year as a tariff war between the US and China damaged confidence and held back investment, particularly among manufacturers.
The ECB said:
Despite some signs of recovery, global trade is likely to remain more subdued than activity in coming quarters. Downside risks to the outlook for trade have partially materialised in recent months due to the implementation of higher tariffs, and the threat of a further escalation of trade tensions persists.
Gold prices have surged to a six-year high, as traders look for safe-haven investments.
Spot gold is currently up 1.6% at $1.463.40 an ounce, after rising as high as $1.464.60, its highest level since May 2013. Global stocks have declined for the sixth day in a row and yields on US 10-year government bonds have dropped to a near-three-year low.
Financial markets around the world have fallen sharply amid growing fears that the US-China trade dispute could escalate into a full-scale currency war, with damaging consequences for the world economy, writes our economics correspondent Richard Partington. Read the full story here:
If you are wondering what the US-China trade war is really about, have a look at our Q&A:
The roots of the dispute come from US president Donald Trump’s “America first” project to protect the US’ position as the world’s leading economy, while encouraging businesses to hire more workers in the US and to manufacture their products there.
Trump complains of a large trade deficit with China, which he views as a symbol of the US’s decline as a manufacturing powerhouse. Chinese imports to the US totalled $539.5bn last year, while $120.3bn was sold the other way – leaving a trade deficit of $419.2bn.
The president has accused Beijing of “unfair” trade policies, including allowing the theft of US companies’ intellectual property. The threat of import tariffs on Chinese goods is being used as leverage in talks where Trump is seeking changes to Beijing’s trade policy.
Tariffs have been imposed by Washington on some Chinese goods sold in the US for about a year. They came on top of broader tariffs used by Trump that have hit China and other trading partners such as the EU, Canada and Mexico, on goods including steel and aluminium.
In May 2019 the US president further ratcheted up existing import tariffs of 10% on $200bn (£153bn) of Chinese goods sold in the US to 25%, hitting everything on a long list of products. Trump has previously warned that 25% tariffs could be slapped on a further $325bn of goods in future – which would mean all Chinese imports being covered by tariffs.
Updated
Trump accuses China of 'currency manipulation'
Donald Trump has responded to the drop in the yuan to below seven-to-one dollar, accusing Beijing of “currency manipulation”.
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
Updated
Lunchtime summary
Traders are bracing for a full-blown currency war, after the People’s Bank of China allowed the yuan to drop below a level it had previously defended with sustained vigour, of seven-to-one dollar – its lowest level since May 2008. The move came after Donald Trump threatened new tariffs on Chinese imports on Friday, intensifying the trade war between the two countries.
This has led to a sharp sell-off on world stock markets, as traders worry about the consequences for the global economy.
- UK’s FTSE down 2.15%, or 158 points, at 7,248
- Germany’s Dax down 1.6% at 11,681
- France’s CAC down 2.08% at 5,247
- Spain’s Ibex down 1.06% at 8,802
- Italy’s FTSE MiB down 1.02% at 20,831
On Wall Street, the Dow Jones is expected to fall 350 points or more after the opening bell. Asian shares also tumbled on Monday, led by Hong Kong’s Hang Seng, which lost 2.85% as city-wide strikes brought Hong Kong to a standstill.
In a statement, China’s central bank linked the yuan’s weakness to the fallout from the country’s trade war with the US.
The PBOC said:
Under the influence of factors including unilateralism, protectionist trade measures, and expectations of tariffs against China, the yuan has depreciated against the dollar today, breaking through 7 yuan per dollar.
The pound is under pressure again against the euro, trading near two-year lows at €1.0883, down 0.47%. Against the dollar, it is flat now at $1.2162.
A closely-watched survey from IHS Markit showed an improvement in the UK’s service industries in July, with the headline index reaching a nine-month high. However, services growth was largely wiped out by sharp declines in manufacturing and contraction and the all-sector purchasing managers’ index (PMI) suggests the economy stagnated at the start of the third quarter. The all sector output index rose to 50.3 in July from 49.2 in June. (The 50 mark separates expansion from contraction.)
In the eurozone, the picture was similar, with solid growth in the services sector and an accelerated decline in manufacturing production in July. The IHS Markit composite output index slipped to 51.5, – “a level indicative of only modest growth and down from June’s seven-month high of 52.2,” it said. Germany is struggling and growth has also slowed in Spain. France performed best but even here the rate of expansion was well below trend.
Updated
And here is our story on the weak UK new car sales figures for July.
The British car market declined for a fifth consecutive month to deliver the weakest July sales in seven years, as the industry struggles with Brexit uncertainty and the backlash against diesel.
In other corporate news, the historic Belfast shipyard that built the Titanic will enter administration today.
My colleague Jasper Jolly writes:
Harland and Wolff Heavy Industries, which traces its history to 1861, has struggled in recent years because of stiff competition from abroad. The company’s Norwegian owner, Dolphin Drilling, filed for bankruptcy in June and put the Belfast shipyard up for sale.
Here is our full story:
HSBC to cut up to 5,000 jobs
BREAKING: HSBC has confirmed it is now planning to cut up to 2%, or 4,700 of its 237,685-strong global workforce. The job cuts are expected to hit senior staff the hardest, helping to reduce salary costs by as much as 4%, writes our banking correspondent Kalyeena Makortoff.
However, the move is expected to bring full-year restructuring costs up to $700m (£576m). The lender said it had already spent $248m on severance following an unspecified number of job cuts in the first half of the year.
The news came after the bank’s boss John Flint stood down “by mutual agreement”.
Updated
In Hong Kong, protests have entered their ninth week and escalated into city-wide strikes. Two cars have rammed protesters and police have been using teargas. You can read more on our Hong Kong live blog.
Here is a picture gallery:
A Hong Kong-wide strike has led to the cancellation of more than 100 flights to and from Hong Kong airport.
— CNN International (@cnni) August 5, 2019
CNN's @klustout explains how protesters' demands have changed over nine weeks of mass unrest: https://t.co/v9jLv6j6rn pic.twitter.com/k9Xxvcd0hs
Updated
To recap: last Friday, Trump tweeted that he planned to impose 10% tariffs on another $300bn worth of imports from China. His threat came even though renewed trade talks between Chinese and US officials in Shanghai ended on a seemingly positive note two days earlier, with both sides describing the talks as “constructive”.
In a statement today, China’s central bank said that “trade protectionism and tariffs on Chinese goods” caused the weakening of the yuan, after it let the Chinese currency fall through the 7 to the dollar level for the first time since 2008.
Louis Kuijs, chief Asia economist at the consultancy Oxford Economics, has looked at the global impact.
Despite this breach of the 7 mark, we still don’t expect Chinese policymakers to be comfortable with major weakening of the yuan. The concerns about triggering large financial capital outflows remain. Indeed, there are obvious tactical and time-specific considerations behind today’s move.
Further weakening of the yuan means that, globally, the pressure for the US dollar to strengthen is rising. This tends to be bad for the global economy. Moreover, the breaching of a previously defended important international benchmark, implies more uncertainty and variability on currency markets. Indeed, today other Asian currencies were also under pressure against the US dollar.
Such dollar strength will be unwelcome in Washington DC. President Trump has openly complained about a strong dollar and has threatened to try to weaken the US dollar. If the US government were now to take action to weaken the US dollar, that would be bad news for economic policymakers in Europe and Japan. In both places, currency appreciation would be very unwelcome at a time that growth is already faltering.
Back to the markets, where the share sell-off continues. Markets have taken fright after China’s decision to let its currency fall through the crucial 7 to the dollar level for the first time since May 2008, in retaliation for Donald Trump’s threat of further tariffs in the US-China trade war.
The FTSE 100 index in London lost about 160 points, or 2.1%, at one stage. There are only two risers.
- UK’s FTSE 100 down 151 points, or 2%, at 7,255
- Germany’s Dax down 1.36% at 11,710
- France’s CAC 40 down 2.1% at 5,246
- Spain’s Ibex down 1.26% at 8,785
- Italy’s FTSE MiB down 1.25% at 20,783
Investors are piling into safe-haven assets, such as the Swiss franc, which has touched a new 25-month against the euro.
Updated
A profit warning from Global Ports Holding, the world’s biggest independent cruise port operator, demonstrates that trade wars and the weaker global outlook are having an impact.
The company said cargo and container volumes had been weak while its cruise business had fared better. It now expects adjusted profits (Ebitda) to grow by low single digits in the first half, sending its shares down 8%.
Global stocks tumble after China hits back at Trump by weakening the yuan, further escalating the trade war https://t.co/P9KEeXDRXZ pic.twitter.com/S2eOONYIqi
— Bloomberg (@business) August 5, 2019
James Smith, developed markets economist at ING, warns that despite the improvement in the July UK services PMI, activity is likely to remain under pressure for some time to come, with business investment set to fall further as Brexit uncertainty increases.
When the UK releases its first estimate of second quarter growth on Friday, most of the focus will be on how much the stockpiling effect unwound after the inventory-building frenzy of the first quarter.
Even when this noise is stripped out though, the underlying picture remains pretty lacklustre. Admittedly, the latest services PMI was a little better than hoped, at 51.4. This was partly driven by better flows of new orders from overseas, according to Markit/CIPS. But with Brexit uncertainty mounting, the fact that expectations for the year ahead dipped to the lowest level since March underlines the challenges facing the sector over coming months.
Updated
He added:
The latest PMI numbers are indicative of the economy stagnating at the start of the third quarter after indicating a 0.1% decline in the second quarter. Even growth in the service sector remains worryingly subdued, constrained by a marked fall in business services activity, where the rate of decline in July has been exceeded only once in the past ten years. The best performing sector was consumer services, highlighting how the economy remains dependent on consumer spending to avoid contraction.
Updated
Taking the services, manufacturing and construction sectors together, the PMI all-sector output index rose to 50.3 in July from 49.2 in June, just above the 50 mark that separates expansion from contraction. Manufacturing and construction both shrank last month.
Chris Williamson, chief business economist at IHS Markit, which compiles the PMI surveys, said:
The overall picture is one of an economy that is only just managing to skirt recession, with July’s performance among the worst since the height of the global financial crisis in 2009.
Updated
Limited relief for #UK #economy as July #PMI indicates #services activity improved to 9-month high in July although still subdued compared to past norms. Index at 51.4 (50.2 in June). New business growth at best level since September 2018. But confidence & jobs growth down
— Howard Archer (@HowardArcherUK) August 5, 2019
UK services PMI at 9-month high
Growth in the UK’s key services industries unexpectedly picked up in July, the closely-watched IHS Markit/CIPS purchasing managers’ index suggests. The headline index rose to 51.4 from 50.2 in June, marking the highest level since October 2018.
However, despite the improvement the PMI remains well below its long-running average of 54.9 and IHS Markit said the economy remains at risk of stagnation in the third quarter.
European share sell-off gathers pace
The sell-off in UK and European shares has gathered pace. The FTSE 100 index in London has lost almost 2%, trading 145 points lower at 726.18. Germany’s Dax is down 1.6%; France’s CAC 40 has tumbled 1.88%; Spain’s Ibex is 1.06% lower and Italy’s FTSE MiB has shed 1.34%.
The pound is close to two-year lows against the dollar and the euro. Against the euro, it has fallen 0.5% to €1.0881, and against the dollar it is off 0.3% at $1.2120.
Updated
IHS Markit says:
The most prominent encapsulation of these trends was seen in Germany, where a rapidly deteriorating manufacturing economy almost entirely offset ongoing robust growth of the service sector. Latest composite data showed Germany expanding at its slowest rate for over six years.
Italy fared little better than Germany, despite growth improving slightly to a four-month high. Modest growth was seen in Spain, but nonetheless the weakest in nearly six years.
France performed best, although even here the rate of expansion was relatively subdued and well below trend.
Back to the eurozone. The IHS Markit composite monthly survey points to slowing economic growth, as the manufacturing downturn deepens.
🇪🇺 Eurozone Composite Output Index posts 51.5 in July ⬇️ from 52.2 in June, as service sector growth eases slightly while manufacturing production fell to the greatest degree since April 2013. More: https://t.co/OMFjYmSvWx pic.twitter.com/tsO8dl2lPG
— IHS Markit PMI™ (@IHSMarkitPMI) August 5, 2019
UK new car sales weakest July figure since 2012
UK new car sales fell 4.1% year-on-year in July, marking the fifth month of decline, according to the industry body, the Society of Motor Manufacturers and Traders. Some 157,198 vehicles left showrooms last month, the lowest July total since 2012.
Updated
The German readings are weak.
Germany Services PMI (Jul) comes in at 54.5 exp: 55.4, prev: 55.4
— Michael Hewson 🇬🇧 (@mhewson_CMC) August 5, 2019
Very disappointing news on #German #economy as #PMI shows #services & #manufacturing output index at more than 6-year low of 50.9 in July (52.6 in June). #Manufacturing contraction deeper as PMI down to 84-month low of 43.2 (45.0); #Services PMI down to 6-month low of 54.5 (55.8)
— Howard Archer (@HowardArcherUK) August 5, 2019
Updated
The French services PMI remains pretty strong at 52.6, but when combined with the shrinking manufacturing sector, the composite report points to weaker economic growth.
🇫🇷 Rising activity in the French service sector prompts the fastest rate of job creation in 9 months in July, according to latest PMI data. New business also rose at a solid pace. More here: https://t.co/fSx1Q4z6Hv pic.twitter.com/RFU64X4TEO
— IHS Markit PMI™ (@IHSMarkitPMI) August 5, 2019
Softer news on #French #economy as #PMI shows #services & #manufacturing output slowing in July from June's 7-month high (index down to 51.9 from 52.7). #Services PMI down slightly to 52.6 (52.9); manufacturing PMI down to 49.7 (51.9) indicating renewed modest contraction
— Howard Archer (@HowardArcherUK) August 5, 2019
Updated
Over here, the closely-watched services and composite PMI surveys are coming out, starting with Italy. The composite reports pull the services and manufacturing indices together.
🇮🇹 Italy's Services Business Activity Index ⬆️ to 51.7 in July, a 4-month high, yet composite numbers signal a still subdued economy at the start of Q3. More here: https://t.co/gdAtDVrDyT pic.twitter.com/lkUqU5yaN8
— IHS Markit PMI™ (@IHSMarkitPMI) August 5, 2019
Trade war shift to currency war?
Investors are seeking refuge in Treasury bonds, gold and the Japanese yen, as the trade dispute between the US and China continues and the Chinese currency’s drop ricocheted through global markets.
The FTSE 100 is now down more than 100 points at 7,305, a 1.37% fall.
Hussein Sayed, chief market strategist at the currency broker FXTM, discusses if the trade war is shifting to a currency war.
China still has a few tools to respond to the latest US tariffs, whether it’s through halting imports of American agricultural products, prohibiting exports of rare-earth materials, stopping the purchase of US debt, or further increasing tariffs on US goods. However, none of these tactics are enough to offset the impact of the additional tariffs on more than $500 billion worth of Chinese goods.
He asks if currency is the new option.
The Renminbi broke above 7 per US dollar this morning after the People’s Bank of China (PBoC) set the midpoint at 6.9225. This is the first time since May 2008 that the Chinese currency trades above the key psychological level of 7. The PBoC has spent hundreds of billions of dollars over the past couple of years to prevent their currency from breaching this key level, but now that doesn’t seem to be the case. In fact, the currency tool may be very effective as it significantly offsets the impact of US tariffs. If the Chinese currency falls by another 8% from the current level, the 10% tariffs paid by US importers will be offset by the Renminbi’s weakness.
While currency depreciation also has a negative effect such as the risk of capital outflow, as long as the decline is orderly, volatility is contained, and speculation activities are controlled, the risks will be minimized.
No one knows when this trade war will end, but it is becoming more likely that it will be after the US 2020 elections. We don’t think that this trade war will do any good to President Trump in the upcoming election, especially given the several swing states that are already hurt by the current trade dispute.
China's offshore yuan sinks past 7 per dollar to a record low. https://t.co/whTMDQfvpu by @frostyhk pic.twitter.com/DALpae2xAB
— Tracy Alloway (@tracyalloway) August 5, 2019
Updated
The German and UK stock markets opened more than 1% lower on Monday, continuing the slump from Asia overnight as traders fret about what US dollar rising above 7 against the Chinese yuan means for the economy and trade war.
Craig Erlam, senior market analyst UK and EMEA at trading platform Oanda, says:
This level has been protected for a long time by the Chinese who fear the consequences of rapid capital outflows and have spent large amounts of reserves to keep the currency just below. It seems they’re now prepared to relax this policy after the US ramped up the trade war last week, slapping a 10% tariff on $300bn of imports from the start of next month.
This unintended consequence of the new tariffs will undoubtedly infuriate Trump who has accused China of currency manipulation in the past, even though this is effectively a case of them manipulating it less as market pressures grow.
The timing of the move will spark speculation that this is being done intentionally as a counter-measure against US tariffs, which could cool relations further and make negotiations that much tougher. We now await Trump’s response which I imagine will come via Twitter shortly.
Updated
European stock markets are also in the red.
- Germany’s Dax down 0.9%
- France’s CAC 40 down 1%
- Spain’s Ibex down 0.8%
- Italy’s FTSE MiB down 0.8%
UK, European stocks lower; sterling tumbles
In London, the FTSE 100 index has opened more than 1% lower, trading nearly 80 points lower at 7330.47.
Sterling is also tumbling, and has lost 0.4% against both the dollar and the euro. It is threatening to go below $1.21 again.
Updated
The market turmoil in Asia led Japanese officials from the finance ministry, central bank and financial regulator to hold a meeting, to discuss the worrying moves in financial markets.
The yen jumped to a seven-month high against the US dollar on Monday, as investors piled into safe-haven assets, spooked by escalating trade tensions between the US and China.
The MSCI index of Asia-Pacific shares outside Japan sank 2.5% to the lowest levels since late January.
Ray Attrill, head of currency strategy at National Australia Bank in Sydney, told Reuters:
Everything is selling off right now. We have no reason to expect any cessation in selling unless we see any strong action to defend any yuan weakness.
Our working assumption is that we are unlikely to see any meaningful resolution to the trade dispute anytime soon.
The panic is expected to spread to Europe and Wall Street.
Updated
Introduction: Yuan tumbles and Asian markets fall amid trade war and Hong Kong protests
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The yuan has sunk more than 1% to 11-year lows on mounting fears of an escalation in the US-China trade war. It broke through the 7 to the dollar mark for the first time since the height of the financial crisis in 2008.
My colleague Martin Farrer in Sydney writes:
The simmering trade tensions between the United States and China have threatened to spark a full-blown currency war after Beijing allowed the yuan to drop below a level it had previously defended with sustained vigour. China’s central bank allowed the yuan to sink below the sensitive seven-to-one dollar level for the first time since 2008 in what one expert called a “weaponisation” of the currency.
Global shares tumbled on Friday after Donald Trump ramped up the US-China trade war. In a series of tweets, he threatened to impose a 10% tariff on the $300bn worth of remaining Chinese goods not yet impacted by American border taxes, by September.
The sell-off continued on Monday in Asia, where stock markets were also rattled by protests in Hong Kong, which have entered their ninth week. Hong Kong’s Hang Seng is down 2.89% and Japan’s Nikkei has lost 1.74%, falling to its lowest level since early June. Australian shares fell 2% and South Korea’s Kospi sank 2.6% to its lowest level since November 2016.
Protesters have begun a city-wide strike – Hong Kong has not held a general strike in more than 50 years. During the morning rush hour for commuters, protesters caused transport across Hong Kong to be brought to a standstill, blocking roads and trains.
You can follow all the latest developments on our Hong Kong live blog.
Are we going to see more August angst? asks Michael Hewson, chief market analyst at CMC Markets UK.
The big question is whether last week’s sell-off is a one-off and a buying opportunity, or the start of a much bigger decline.
Judging by the ferocity of the last two day’s sell-off and today’s further declines in Asia, there is a sense that it might be the latter which means we look set to see some further August angst for investors, starting with today’s session in Asia, which has seen further heavy falls and is set to see European markets open sharply lower this morning.
The agenda
- 8:45am BST: Italy services and composite PMI (July)
- 8:50am BST: France services and composite PMI (July)
- 8:55am BST: Germany services and composite PMI (July)
- 9:00am BST: Eurozone services and composite PMI (July)
- 9:00am BST: UK New car registrations (July)
- 9.30am BST: UK services and composite PMI (July). Expectation for services: 50.4
- 2.45pm BST: US Services and composite PMI (July)
Updated
