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The Guardian - UK
The Guardian - UK
Business
Julia Kollewe Jasper Jolly and Kalyeena Makortoff

Pound falls sharply as Boris Johnson prompts hard Brexit fears – as it happened

Prime Minister Boris Johnson outlines his government’s negotiating stance with the European Union after Brexit.
Prime Minister Boris Johnson outlines his government’s negotiating stance with the European Union after Brexit. Photograph: Frank Augstein/AP

Closing summary

The Chinese stock market suffered a 7.7% fall when it reopened today after the extended lunar new year break, while Japan’s Nikkei fell by 1%.

However, in Europe and the US markets traded higher after steep losses last week, as traders took some comfort from measures taken by Chinese authorities to contain the deadly coronavirus (even as its death toll rose further), alongside the People’s Bank of China’s injection of liquidity into money markets.

  • FTSE 100 index in London up more than 50 points at 7337.30, a 0.7% gain
  • Dax in Frankfurt up 20 points at 13,002, a 0.15% gain
  • CAC 40 in Paris up 21 points at 5828, a 0.37% gain
  • FTSE MiB in Milan up 174 points at 23413, a 0.76% gain

On Wall Street:

  • Dow Jones up 180 points at 28,436, a 0.64% gain
  • S&P 500 up 23 points at 3248, a 0.72% gain
  • Nasdaq up 85 points at 9236, a 0.93% gain

On currency markets, the pound fell sharply as Michel Barnier, the EU’s chief negotiator, and Boris Johnson, the UK prime minister, set out their negotiating positions ahead of trade talks next month. Johnson’s comments revived fears of a no-deal Brexit. Sterling is down 1.3% against the dollar at $1.3028, and has lost 0.88% against the euro, at €1.1795.

With this, we are saying good-bye. We’ll be back tomorrow.

Wilson has summarised the two positions.

The EU position is as follows:

  • Both the EU and UK must agree on level playing field.
  • EU offer is conditional on open, fair competition – application of EU state aid rules.
  • Disputes to be decided by European court.
  • UK financial services will no longer have passporting rights. This is a big, big area for the UK to negotiate on.
  • FTA would need to include deal on fisheries.
  • Gibraltar not part of any deal.

Britain’s position is so at odds with the EU that even the basis for a deal has not been reached.

  • The UK says there is no need to follow the EU’s rules, no need to bind UK to agreement.
  • UK needs full legal autonomy – i.e. not bound by EU court.
  • Ready to consider fishing deal – proposes annual negotiations with EU fishing, which seems unlikely to wash with the EU.
  • Negotiating on behalf of UK family, which includes Gibraltar.

On the plus side, the EU believes it will not need individual approval from member state parliaments for whatever deal is struck.

Neil Wilson, chief market analyst at Markets.com, has looked at the Barnier-Johnson clash, which caused sterling to sell off. The pound is now down 1.3% against the dollar and 0.96% lower against the euro, as Brussels and London set out their negotiating positions ahead of trade talks next month.

The way the two sides have come out, traders are starting to consider no-deal risks again. No deal is not the base case by any means but the EU and UK look in very different places right now at the start of talks. It’s going to be a very long and rocky road to get there and the shape of the deal will hinge on some important concessions on both sides. The British government has come out swinging over the weekend with plenty of fighting talk, but they’re up against a tough opponent.

There are several sticking points we can see right now, some of the most obvious ones are outlined but can be summed up as simply that the EU wants the UK to adhere to its rules and its courts, which the UK won’t do. So we are left at present at something of an impasse before the talks even begin. What we should remember is that, as in all negotiations, these views are the starting point, not the final destination.

Updated

Wall Street rises after Friday's sell-off

On Wall Street, the Dow Jones has opened more than 60 points higher at 28,319, a 0.23% gain – not quite as buoyant as hoped. The S&P 500 rose some 10 points, or 0.31%, to 3235 while the Nasdaq climbed almost 40 points, or 0.43%, to 9190.

Meanwhile, Hong Kong’s economy shrank by 1.2% last year, according to official figures, when months of pro-democracy protests and global trade wars pushed the city into its first annual recession since the height of the financial crisis in 2009.

GDP declined at an annual rate of 2.9% in the fourth quarter, accelerating from the previous quarter’s 2.8% fall. The coronavirus, which has infected at least 15 people in Hong Kong so far, will put further strain on the economy, after Hong Kong’s authorities imposed restrictions on movement between the city and mainland China.

On trade, the BBC has done a useful explainer of what a Canada-style free trade agreement is, as one of our readers points out.

The CBI, which represents the UK’s biggest businesses, has responded to Boris Johnson’s speech. CBI president John Allan said:

Business optimism is returning. The right signals about the UK’s future relationship with the EU will turn confidence into investment.

The prime minister’s clear, vocal commitment to global free trade and maintaining high standards through a thriving relationship with the EU will help.

The challenge is to ensure business confidence is not caught in the crossfire of a tough, public negotiation. Talk of a bare bones deal could pause investment.

David Allen Green, a lawyer who is a columnist on law and policy for the Financial Times, has tweeted:

Updated

However, the death toll from the Wuhan coronavirus has passed that of the 2002-03 Sars virus in mainland China, reaching 361 today. The number of infections also jumped, passing 17,200.

On the markets, US stock index futures are pointing to a rebound when Wall Street opens in half an hour. On Friday, the Dow Jones and the S&P 500 index recorded their worst weekly losses in at least five months as the deadly coronavirus spread.

Today, Chinese stocks fell 7.7% when Chinese stock markets reopened following the extended lunar new year holiday, as they caught up with stocks around the world.

But on Wall Street, the Dow Jones is expected to open nearly 140 points, or 0.5%, higher, as investors have taken some comfort from steps taken by Chinese authorities to mitigate the economic impact of the virus outbreak.

The People’s Bank of China cut interest rates and injected 1.2 trillion yuan ($173bn) into money markets through reverse bond repurchase agreements.

Updated

You can watch Barnier’s speech here:

As a reminder, you can follow the latest on the Barnier-Johnson clash on our Brexit live blog.

The UK prime minister later said he would walk away from the talks if the EU did not agree to the UK’s demands. Triggering fresh fears of a no-deal Brexit, he said:

There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar, any more than the EU should be obliged to accept UK rules.

.... further evidence that next month’s trade talks between London and Brussels are not going to be easy.

Sterling is on the back foot today, sinking more than 1% against the dollar after Boris Johnson, the UK prime minister, and Michel Barnier, the EU’s chief negotiator in the Brexit talks, set out their stalls. The pound is down 1.1% at $1.3054 and 0.84% lower against the euro, at €1.1799.

Barnier reminded Johnson that he had already agreed last year in a “very important” declaration to stay true to EU rules on subsidies and standards.

Updated

Turning back to trade, Angela Merkel, the German chancellor, has said that she would be prepared to back changes to the EU’s Lisbon Treaty, the bloc’s legal cornerstone, to strengthen the EU’s competitiveness.

She said during a joint press conference with the Austrian chancellor, Sebastian Kurz in Berlin:

I could well imagine treaty changes should this be necessary.

We are required in view of Britain’s exit to strengthen our competitiveness and to act more quickly.

German Chancellor Angela Merkel and her Austrian counterpart Sebastian Kurz attend a news conference after talks at the Chancellery in Berlin.
German Chancellor Angela Merkel and her Austrian counterpart Sebastian Kurz attend a news conference after talks at the Chancellery in Berlin. Photograph: Hannibal Hanschke/Reuters

Updated

Britain’s manufacturing sector showed signs of stabilising last month to emerge from the longest downturn since the financial crisis, according to the latest PMI survey, as reported earlier. Here is our full story:

Updated

Opec is reportedly considering cutting oil output by around 500,000 barrels per day in order to boost the slump in crude prices, according to Reuters.

Demand for oil has fallen amid the coronavirus outbreak, causing prices for benchmark Brent crude to fall by around $10 to $56.47.

Oil Ministers Quevedo, Prince Abdulaziz bin Salman Al-Saud and Novak are seen at a meeting in Vienna, Austriaon December 6, 2019.
Oil Ministers Quevedo, Prince Abdulaziz bin Salman Al-Saud and Novak are seen at a meeting in Vienna, Austria
on December 6, 2019.
Photograph: Leonhard Föger/Reuters

Reuters said Opec and allies including Russia are considering bringing a ministerial meeting forward from March to 14-15 of February.

An Opec & partners panel called the Joint Technical Committee (JTC) has already scheduled a meeting for 4-5 February in Vienna to assess the impact of the virus on demand, the wire service’s sources explained. Reuters adds:

The technical panel is likely to make a recommendation on any further action to support the market, the sources said.

OPEC+ has been reducing oil supply to support prices, agreeing in December to cut output by 1.7 million bpd until the end of March. Its next meeting is scheduled for March 5-6.

At midday, sterling has fallen by as much as 1.1% against the US dollar, having briefly dropped below $1.305.

The FTSE 100 is up by 0.34% at about 7,310 points.

The FTSE 250 has dipped by 0.2%.

The EU has published its draft negotiating guidelines for the Brexit trade talks, setting out its stall ahead of discussions starting in earnest.

The latest update from Michel Barnier suggests the EU will be “very demanding” in setting level playing field conditions for any trade deal.

You can follow the Barnier’s question and answer session on the politics live blog here:

Updated

A quick update on UK stocks: there’s not much happening on the blue-chip or mid-cap indices.

The FTSE 100 has gained 0.4%, likely aided by sterling’s weakness. The highest riser is Auto Trader, up by 2.8%.

On the FTSE 250, up by 0.3%, tech-focused publisher Future (with titles like Tech Radar, What Hifi? and PC Gamer) is the top gainer, up by 8% after it said profits would be better than expected. Shares in Aston Martin have fallen back somewhat, down by 5%, after gaining strongly last week when it agreed a rescue deal.

Phillip Inman, one of the The Guardian’s economic writers, who wrote about the likely impact of the Coronavirus on the Chinese and global economies at the weekend, says some of the optimism among City analysts of a quick bounce back are beginning to evaporate.

Diana Choyleva, a respected China expert who leads the consultancy Enodo Economics, says 2020 is going to be a bad year for China, however much credit it pumps into the economy to keep businesses and consumers borrowing. She says:

The economic fallout from the Wuhan coronavirus, which is more contagious than SARS, is set to be severe. Importantly, investors hoping for a decisive growth rebound once the outbreak is contained are likely to be disappointed.

Beijing will have no choice but to throw money at investment. Even so, the authorities are unlikely to be able to re-energise the economy as they did post-SARS in 2003.

China’s structural growth rate has slowed significantly since then, so the short-term hit could well translate into a technical recession.

She says the authorities actions so far have been slow considering the speed at which the virus spreads, leading her to estimate that China’s average GDP growth rate fell to 3.7% last year from 7.2% in 2018. From this weak position, and with mountains of historic bad corporate debts to clear, the country is in a weak position from which to recover.

Help is also unlikely to come from outside China, she says. “The sluggish response of officials in Wuhan and the determination of a secretive regime to keep a tight grip on information about the coronavirus is bound to dampen foreign business enthusiasm towards China.”

You can read more detail here:

Sterling falls by 1% amid Brexit trade deal sabre rattling

The pound is now down by 1% to $1.307 against the US dollar, with tough talk from both sides of the Channel.

Michel Barnier, the EU’s chief negotiator, has laid out some new red lines for a trade deal which appear to contradict Boris Johnson’s positions.

Kit Juckes, chief global forex strategist at Société Générale, said:

Brexiteer politicians are moving from celebrating the exit to sounding bold as the trade talk verbal jousts begin. The foreign exchange market is likely to be nervous and with positioning data still suggesting an excessively long speculative position in the market, sterling is vulnerable.

UK manufacturing slightly stronger than previously thought in December

The British manufacturing sector performed slightly better than initial figures suggested – the sector’s output was steady rather than the decline seen in early data.

The final reading of the UK manufacturing purchasing managers’ index (PMI) came in at 50.0 in December, compared to a flash figure of 49.8, according to IHS Markit. The 50 mark is the point where contraction turns to expansion.

The manufacturing sector has struggled over the past year.
The manufacturing sector has struggled over the past year. Photograph: IHS Markit

Rob Dobson, director at IHS Markit, said:

The start of 2020 saw the performance of the UK manufacturing sector stabilise, as receding levels of political uncertainty following the general election aided mild recoveries in new order intakes, employment and business confidence.

Improvements were mostly seen via rising consumer demand and renewed input buying by businesses, suggesting that the reduction in uncertainty following the election has encouraged households and businesses to step up spending. In contrast, an ongoing downturn at investment goods producers suggests that the economic certainty required to achieve a full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit road-map in the coming year.

Nissan’s Sunderland plant makes the Qashqai, Juke and electric Leaf models.
Nissan’s Sunderland plant makes the Qashqai, Juke and electric Leaf models. Photograph: Owen Humphreys/PA

Speaking of Brexit, Nissan is worth a mention this morning after the Financial Times (£) reported that the Japanese carmaker had drawn up plans to “double down” on the UK in the event of tariffs on car exports following the end of the transition deal.

If Nissan were to pursue the plan it would represent positive news for the government, which has had a frosty relationship with the struggling British car industry since the Brexit vote.

However, the plans were reportedly only one of several scenarios imagined by the carmaker, whose Sunderland plant is the biggest single car factory in the UK, and the usually reserved carmaker has made voluble warnings against tariffs.

Indeed, Gianluca de Ficchy, the chairman of Nissan Europe, said in October that the imposition of a 10% tariff on exports under World Trade Organisation terms would threaten the entire business model in Europe.

And the denial from Nissan is pretty emphatic, with worryingly clear implications for workers in Sunderland.

Nissan’s spokesman said:

We deny such a contingency plan exists. We’ve modeled every possible ramification of Brexit and the fact remains that our entire business both in the UK and in Europe is not sustainable in the event of WTO tariffs.

We want our UK team of more than 7,000 people to have the best possible chance of future success, which is why we continue to urge UK and EU negotiators to work collaboratively towards an orderly balanced Brexit that will continue to encourage mutually beneficial trade.

Sterling fell back on Monday morning against the US dollar.
Sterling fell back on Monday morning against the US dollar. Photograph: Refinitiv

That sterling selloff is gaining momentum. The pound has now lost 0.7% against the US dollar and 0.5% against the euro.

It is still well within the trading range set on Friday – but nevertheless it serves as a reminder that there is no end to Brexit uncertainty in sight in the near term.

The government’s majority may have allowed it to “get Brexit done” at the end of last week, but there appears to be little respite for anyone hoping the UK’s exit from the EU will not define 2020 as well.

Sterling has started the week on the back foot, down by 0.5% against the US dollar and 0.3% against the euro, with positioning around the Brexit trade deal thought to be one of the factors in play.

Prime minister Boris Johnson will today lay out his stall in Brexit trade negotiations, refusing close alignment of rules and rejecting the jurisdiction of the European courts.

The position will likely not be greeted by the EU, and it sets up a tricky start to a crucial period for determining whether Brexit is a success.

Neil Wilson, chief market analyst at Markets.com, said:

Britain won’t align; the EU demands it. The scene is set for a showdown and a rocky path for negotiations that introduces new headline risk for the pound – think back to last year and the way GBP pairs were moving around wildly on any report about deal or no deal.

Ryanair profits up despite Boeing 737 Max denting growth plans

A Ryanair flight from the Toulouse-Blagnac airport, near Toulouse.
A Ryanair flight from the Toulouse-Blagnac airport, near Toulouse. Photograph: Pascal Pavani/AFP via Getty Images

Ryanair reported profit after tax of €88m euros (£74m) for the three months to the end of December, the third quarter of its financial year.

The Irish airline upgraded its profit expectations last month in a trading update thanks to higher-than-expected bookings over the festive period.

Average fares for the latest quarter rose by 9% and revenue for optional extras like pre-booked seating increased by 21%.

The positive financial news came despite the grounding of the Boeing 737 Max, which the company had expected to form a key part of its growth plans. Ryanair has already warned staff that it could be forced to cut jobs because of the delayed arrival of the new planes, which have been banned from the skies since March following two fatal crashes.

Asked in a prerecorded video published on Monday about deliveries of the new Max planes, Ryanair chief executive Michael O’Leary said:

What is likely is they will push out that delivery profile with Boeing by at least 12 months. At best that means we will have to roll forward our plans to fly 200m passengers per year ... by at least 12 months, possibly 24.

Richard Flood, investment manager at Brewin Dolphin, said:

This is a strong set of results in a seasonally weak part of the year for Ryanair. The reduction in seat capacity across the sector as a result of the failure of a number of airlines should enable Ryanair to maintain strong pricing into the key summer months. The European airline industry faces a large challenge should the coronavirus spread to Europe, and Ryanair would not be immune to such a development.

In Europe, where traders have had some time to react to the coronavirus outbreak, shares have gained at the open.

The FTSE 100 is up by 0.27%, Germany’s Dax gained 0.3%, and France’s Cac 40 rose by 0.15%.

Shares in Shanghai fall by 7.7%

Chinese stock markets plunged on Monday in a delayed investor reaction to the coronavirus outbreak that has seen increasing numbers of confirmed cases.

Shares on the Shanghai stock exchange composite index fell by 7.7% to a one-year low, while the CSI 300 index, which tracks the biggest shares in both Shanghai and Shenzhen, fell by 7.9%. Japan’s Topix index fell by 0.7%.

Markets had reopened after the extended lunar new year break that started on 23 January, accounting for the strength of the move. The fall was expected following weakening share prices in other countries, with economists expecting the outbreak unsurprisingly to weigh on economic activity.

Mark Haefele, chief investment officer, UBS Global Wealth Management, said:

While the severity of the onshore sell-off will dominate news headlines on Monday, the flat trade in offshore China equities (Hang Seng –0.1%) backs our thesis that today represents more of a catch-up. If anything, we think the magnitude of the sell-off appears less severe than market bear cases ahead of the open.

The People’s Bank of China was seen by economists as helping to prevent a deeper rout, after it responded to the outbreak over the weekend with measures to keep markets moving that included a £130bn stimulus package.

The central bank also on Monday made unusual comments on the stock market, saying that it expected markets to return to a rational state in the long run.

Ian Williams, an economist at Peel Hunt, the stock broker, said:

China’s authorities have demonstrated their determination to deal with the economic implications of the coronavirus by cutting the key reverse repo rates by 10 basis points [o.1 percentage points] as soon as markets have reopened after the New Year. The move may help sentiment but there is still no urgency to rebuild risk exposure as the virus continues to spread.

There was further dispiriting news for economists fixed on China, as manufacturing purchasing managers’ index (PMI) data came in weaker than expected, with a reading of 51.1 points against an expectation of 51.3. However, the survey was carried out mostly before the extent of the coronavirus outbreak was known.

Meanwhile, Ryanair on Monday said that the effects of the ongoing Boeing 737 Max crisis will continue to impact it for as long as two years.

The Irish budget carrier is one of the biggest customers of the grounded jet. In a video message on Monday chief executive Michael O’Leary suggested Boeing’s delivery schedule could ultimately be up to two years late, meaning it may hit its long-term 200m passenger target by March 2026 rather than March 2024.

The agenda

  • 9:55am GMT: Germany manufacturing purchasing managers’ index (PMI) (January)
  • 10am GMT: Eurozone manufacturing PMI (January)
  • 10:30am GMT: UK manufacturing PMI (January)

Updated

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