European markets have closed higher, as traders welcomed a day without trade war escalation.
Britain’s FTSE 100 gained 45 points or 0.6% to close at 7953, while the German DAX gained 0.9% and the French CAC picked up 0.75%.
The reassuring noises out of Beijing today helped to calm nerves (although perhaps only temporarily), as did the German coalition deal on migration.
David Madden of CMC Markets explains:
Stocks are higher as improved political relations in Germany and constructive trade comments from China has lifted investor sentiment. Angela Merkel has brokered a deal with Horst Seehofer which will keep their alliance intact. The positive mood might not last long though, as the Social Democrats need to inspect the agreement. An official from the People’s Bank of China announced they will not use the yuan as a tool in the trade spat with the US, and traders are taking this as a step in the right direct for global trading relations.
That’s probably all for today. GW
Time for a quick recap.
Chinese central bankers have vowed not to use their currency as a weapon in the trade conflict with the U.S. The People’s Bank of China has pledged to keep the yuan stable, after seeing it slide to its weakest level in almost a year.
PBOC insisted that Beijing is committed to upholding “multilateralism, globalization, free trade and rule-based global guidelines”, a roll-call of causes under threat from America’s protectionist moves.
Sun Guofeng, head of the central bank’s financial research institute, told Bloomberg:
“Recently the yuan’s exchange rate has shown some weakness. This is entirely due to changes in market expectations as external uncertainties rise rather than intended guidance of the central bank.
China upholds multilateralism, globalization, free trade and rule-based international guidelines, and will not make the yuan’s exchange rate a tool to cope with trade conflicts.”
PBOC also pledged to maintain the yuan at a “reasonable, equilibrium” level.
This has helped to pull the yuan back up; earlier today it tipped below the 6.7 mark against the US dollar.
PBOC Governor said they will keep the Yuan at a “reasonable and balanced level”. This causing the Yuan to strengthen for the first time in 14 sessions (prior to his comments the currency made a new 12 month low). Expected after second set of exhaustion signals however in wave 3 pic.twitter.com/gEw9WKqfeC
— Thomas Thornton (@TommyThornton) July 3, 2018
Donald Trump has defended his policy of pushing other countries to reform their trade rules, or be hit with fresh tariffs.
The economy is doing perhaps better than ever before, and that’s prior to fixing some of the worst and most unfair Trade Deals ever made by any country. In any event, they are coming along very well. Most countries agree that they must be changed, but nobody ever asked!
— Donald J. Trump (@realDonaldTrump) July 3, 2018
European stock markets are recovering from Monday’s losses. In London, the FTSE 100 is now up 76 points (1%) at 7622.
Fiona Cincotta, senior market analyst at City Index, says European investors are relieved that Angela Merkel’s coalition crisis has been resolved.
A day after the German interior minister offered his resignation over Germany’s policy on immigrants, a move that had serious implications on the country’s brittle coalition government, Chancellor Angela Merkel managed to pull Germany back from the brink with a last minute deal which has pacified the rebels in her government.
There was a collective sigh of relief across European stock markets
Britain’s construction sector has posted stronger growth. Housebuilding helped to push activity up last month, but Brexit uncertainty may be restricting big projects.
There’s no wild dramas on Wall Street...yet anyway.
The US stock market has opened calmly, with the Dow Jones industrial average gaining 109 points, or 0.4%.
China’s central bank’s pledge not to use the yuan as a tool in the trade conflict with America is providing some reassurance.
But, analyst Marc-André Fongern believes the PBOC may have to back up its words with actions, and prop up the yuan if it falls again.
#China 🇨🇳 | In the short term, the #Yuan could strengthen as traders take profit from the recent slide. But if the market ignores the #PBOC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal. @commerzbank $USDCNH pic.twitter.com/dAzILhtSyA
— Marc-André Fongern (@Fongern_MA) July 3, 2018
Indian industrialist S.M. Lodha has warned that Donald Trump’s attempts to shake up global trade will backfire.
Lodha, who chairs UK insulation firm Western Thermal Limited, believes US firms will suffer as the EU, China, Canada and Mexico impose retaliatory tariffs.
Lodha explains:
“The trade tariffs imposed by President Trump on America’s closest allies including Canada, Mexico, European Union and India, are strategically misplaced and self-defeating as it stands to directly weaken the US economy. The US Chamber of Commerce, the country’s largest lobbying group which has been historically close to Republican administrations, have themselves gone on record to denounce Trump’s erroneous idea of putting “America First” though trade wars.
As President Trump’s steel tariff directly affects countries including Canada, EU and India, the EU has already warned that an estimated $300 billion worth of US goods could be hit by countermeasures. Even Canada has vowed to impose punitive countermeasures which can see over $12.6 billion worth of American goods being directly hit.
Therefore, it is the American exporters who would be bearing a brunt over something the illogical and politically misguided actions of President Trump. If a country imposes tariffs on another, one can’t complain if they retaliate. This is a key ‘Art of the Deal’ Mr Trump seems to have missed.”
PBOC: We won't weaponise the yuan
Newsflash: China’s central bank has promised not to launch a currency war against America.
Bloomberg has the details:
China is committed to multilateralism, globalization, free trade and rule-based global guidelines, Sun Guofeng, director of the PBOC’s financial research institute, said in a written response to Bloomberg News.
China won't use the yuan as a tool in tackling the trade conflict, PBOC official says https://t.co/8IkqSaaMr3 pic.twitter.com/j5W9ZPeDmf
— Bloomberg (@business) July 3, 2018
That’s an interesting pledge, given that the yuan (which is tightly controlled by Beijing) fell to an 11-month low today.
Even the PBOC can only have so much effect - if Chinese companies and wealthy citizens try to move capital overseas, the yuan will fall.
A weaker yuan also helps Chinese exporters, allowing them to cut prices and cushion the blow of US tariffs.
Sun Guofeng’s pledge seems to be reassuring the markets, pushing the yuan a little higher against the US dollar away from today’s 6.7 low.
PBOC reassurances and $/CNH is back down to 6.66.
— Kit Juckes (@kitjuckes) July 3, 2018
Chinese Yuan Non-Deliverable Forwards React to the PBOC's Statement on Keeping the Yuan Stable, Following the CNY's Recent Depreciation: (A weakening yuan risks capital outflows; a strengthening yuan could hurt exports) {@TheTerminal Chart Link: https://t.co/uj504kFfOs } pic.twitter.com/ZYvKEy2H24
— Michael McDonough (@M_McDonough) July 3, 2018
Updated
MPs quiz experts on Amazon tax bill
The Treasury committee has been quizzing tax experts this morning, and hearing that online giants are still getting an unfair advantage.
Charlie Elphicke, Tory MP for Dover and Deal, asked Richard Allen, the founder of group Retailers Against VAT Abuse Schemes, whether recent changes in the Finance Act had been effective in cracking down on VAT fraud by sellers on Ebay, Amazon and other online marketplaces.
Allen replied that the measures were not tough enough and that legislation was “more relaxed” than in Germany. Elphicke asked:
“Compared to Germany, our taxpayers are still being taken for a ride and Amazon are still in a position where they are not having to hand over information?”
Allen agreed, saying:
“Small traders get very annoyed when they find themselves being investigated for VAT when big companies don’t seem to get the same kind of attention.
I was told by senior officials they’d been instructed, HMRC had been instructed not to go too hard on Amazon yet.”
This has resulted in online firms having an unfair competitive advantage over high street retailers. “The regulatory environment in which these online businesses operate is not as tough as the regulatory environment for highstreet retailers.”
Allen added:
“You couldn’t sell dangerous products in a shop. You couldn’t openly sell goods where there is no VAT charge in a shop… There is a huge imbalance between online retail and high street retail.”
His biggest concern is that online retailers are unregulated private marketplaces operated by one company. “The owner of a private marketplace online gets to see the sales data of everyone selling on that platform and can use that to their advantage selling products themselves.” This means “they can manipulate prices on their own marketplace,” Allen said, adding that Amazon sometimes sold lost leaders to maintain its market position.
He is backing a VAT surcharge on overseas retailers selling goods in Britain – a similar measure is working well in Australia, he said.
“It would introduce an extra cost on these cheap imports that would protect British retailers from an avalanche of cheap stuff”.
Moscovici: Greece won't need another bailout
Exactly 49 days before Greece exits its third and final EU-sponsored bailout programme, the bloc’s economic and financial affairs commissioner Pierre Moscovici is visiting the country – with a message of hope.
Helena Smith reports from Athens:
The French have done more to back Greece than any other euro zone member in the nine years since the country almost crashed on the rocks of bankruptcy and as one of Paris’ most prominent politicians, Pierre Moscovici is an embodiment of that support.
On a flying one-day visit Tuesday, the EU’s economics chief insisted there were no ifs and buts to Greece’s ordeal finally being over.
“The time has come for Greece to be a normal country,” said Moscovici emphasising that oversight of the nation once it exited its last economic adjustment program would not amount to a fourth bailout.
He told the Greek parliament:
“There is no more program for Greece. There won’t be any more programs for Greece.”
Meeting the nation’s head of state earlier, Moscovici said the agreement euro zone countries had reached last month to reduce the country’s staggering debt load had “opened a new road with new conditions and prospects” for Greece.
“I know well that the story that we all experienced had tragic aspects and was dangerous for the euro zone and very, very difficult for the Greeks,” he said referring to the depression the country had suffered as it applied tough austerity and structural reforms in exchange for rescue funds.
Moscovici added he would never forget the pensioners who had had their pensions slashed, workers who had lost jobs, and families who had seen their children leave for wealthier climes.
Greece’s finance minister, Euclid Tsakalotos, who also met Moscovici, praised his supra-nationalism saying he and his team had worked for the good of Europe even if along the way “we had very big disagreements.”
Greece exits its third bailout programme on August 20.
Updated
Another early start for the US president...and a chance to bang the drum for trade reform.
The economy is doing perhaps better than ever before, and that’s prior to fixing some of the worst and most unfair Trade Deals ever made by any country. In any event, they are coming along very well. Most countries agree that they must be changed, but nobody ever asked!
— Donald J. Trump (@realDonaldTrump) July 3, 2018
I suspect ‘most countries’ would also rather the president tackled the issue in a more multilateral way, rather than using ‘national security threats’ to justify new tariffs on nations that saw themselves as US allies....
Updated
Good news from Ireland: the country’s jobless rate has hit a 10-year low.
Irish unemployment fell to just 5.1% in June, the central statistics office reports. It’s not been this low since October 2007, just after the credit crunch struck.
Ireland’s jobless rate has been falling steadily since its bailout ended in 2013, and is someway below the eurozone average of over 8%.
World stock markets are staging a recovery from yesterday’s slides, after China’s central bank tried to calm the panic.
In London, the FTSE 100 has gained 32 points or 0.44% to 7580 (it would be more, but for Glencore’s slump). The other European markets are also up, with Germany’s DAX leading the way after Angela Merkel resolved the migration dispute that was threatening to rip her coalition apart.
Investors have been cheered by the People’s Bank of China’s pledge to protect the yuan at a “reasonable, equilibrium” level, after it hit an 11-month low toda.
Although we’ve not got details, that feels like a promise not to allow the yuan to plunge alarmingly.
I like that China told us they're planning on stabilizing the yuan at it's equilibrium level -- without telling us where equilibrium lies.https://t.co/LKtvvdjVSG pic.twitter.com/sAZUnYUgrR
— Eddie van der Walt (@EdVanDerWalt) July 3, 2018
Even so, trade war fears still dominate the markets - with America and China set to impose retaliatory tariffs on tens of billions of dollars of exports later this week.
Mihir Kapadia, founder of Sun Global Investments, explains:
“At the end of the Asian trading day, markets in China are in a more nervous state than last week as investors fear the dispute between the United States and other nations will have a significant and serious impact on global growth. The Chinese yuan fell to an 11 month low, unsettling investors and causing the Chinese central bank to pledge to keep the currency stable.
Despite similar tensions over tariffs on EU goods, European markets saw some relief on the back of a migration deal that appears to have helped to stabilise Merkel’s coalition government and has allayed fears of German political uncertainty at least for the time being.
With President Trump setting an implementation deadline for the extra US$ 200bn of tariffs against China for this Friday, the markets reflect the anxiety and concern of many investors and stockholders with multi-billion dollar tariffs due to hit the world’s second biggest economy. With the dispute continuing to escalate, it is likely that global markets will feel the force of the tariffs set to be imposed by both nations, with Chinese companies likely to be hit the hardest.”
British gin sales rocket
It’s a little early, but we should raise a glass to Britain’s gin industry, which has enjoyed a bumper year.
Sales of UK-produced gin jumped by 32.5% in 2017 to £461m, the Office for National Statistics reports. That follows a spate of new distillery openings across the country, the rise of ‘craft’ or artisan gins, and even special gin festivals.
UK makers' sales of gin up 32.5% in 2017 – a trade body reports that the number of gin distilleries has more than doubled in five years https://t.co/CuK7M34R0c pic.twitter.com/9pNpOL2mQM
— ONS (@ONS) July 3, 2018
Britain’s food producers were the largest division of UK manufacturing, creating £70bn of products sold at home and around the world.
Petrol cars were the biggest single product category last year, with sales over £20bn. Aircraft parts and diesel cars were also very significant .
Beer also shone last year, breaking back into the list of top 10 products. More here.
Updated
Hold on. Max Jones, global Corporates relationship director for construction at Lloyds Bank Commercial Banking, argues that Brexit is hurting the UK building sector.
He points out that large construction projects are being held back, despite the rise in activity last month:
“The industry has regained some confidence after the lows of earlier this year. The bounce-back in Q2 appears to confirm that much of the weakness in the first quarter was the result of shutdowns in the wake of the Beast from the East rather than anything more structural.
“But the sector is hardly motoring, with some large contractors blaming Brexit uncertainty for the delay or cancellation of projects. The London market also looks significantly exposed to any reduction in EU labour.
“Nevertheless, the announcement of approval for a new runway at Heathrow has boosted sentiment in the sector, if not yet order books and revenue. But with Heathrow, Hinkley Point and HS2 all now given the green light, the focus shifts to the next mega-project that will offer firms comfort and visibility over their long-term pipelines.”
Britain’s construction sector appears to be shrugging off economic anxiety (despite the looming shadow of Brexit), says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.
“With the fastest rise in new orders since May 2017, it appears the brakes are off for the construction sector. Despite being hampered by economic uncertainty, firms reported an improved pipeline of work as clients committed to projects and hesitancy was swept away.
“Input prices were a challenge with the biggest inflationary rise since September 2017, so the pressure was on to build up stocks of materials rising in price and becoming more scarce. This resulted in a heavy impact on suppliers unable to keep pace as deliveries became laboured and purchasing managers were at their busiest for two and a half years.
UK construction growth hits seven-month high
Newsflash: Britain’s housing sector has strengthened, thanks to a pick-up in house-building.
Data firm Markit reports that construction activity accelerated last month, at the fastest pace since November 2017. New orders jumped, prompting companies to splash out on new materials - driving prices up.
This all propelled Markit’s construction PMI (which measures activity) up to 53.1 in June, from 52.5 in May, beating expectations.
Encouragingly, optimism in the construction sector picked up in June, from May’s seven-month low.
Tim Moore, associate director at IHS Markit, says Britain’s builders are getting back to work after the winter slowdown.
“The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March.
A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth.
I”ll pull together some reaction now.
The DoJ subpoena means problems are mounting up for Glencore.
Bloomberg’s Thomas Biesheuvel explains:
It’s been a tumultuous year for Glencore, mostly due to challenges linked to its business in the Congo, where it operates giant copper and cobalt mines. The Swiss company trader and miner is already facing the possibility of a bribery investigation by U.K. prosecutors over its work with Dan Gertler, an Israeli billionaire and close friend of Congo President Joseph Kabila, people familiar with the situation said in May.
Last November, the Paradise Papers expose showed Glencore’s links to Israeli mining billionaire Dan Gertler in Africa, including in the DRC.
Wow. Around £5bn has been wiped off Glencore’s value by today’s selloff.
#BREAKING Glencore subpoenaed by the US Department of Justice - shares drop as much as 10% wiping ~£5bn off its market capitalisation #OOTT pic.twitter.com/DCsbJxevqR
— David Sheppard (@OilSheppard) July 3, 2018
Glencore gets DoJ subpoena in money-laundering probe
Newsflash: The world’s biggest commodity trading firm is caught up in a US investigation.
Glencore told the City that it has received a subpoena from the US Department of Justice, asking for documents covering its activities in Nigeria, the Democratic Republic of Congo and Venezuela.
The investigation relates to US laws covering money-laundering and bribery of foreign officials.
Here’s the statement:
Glencore Ltd, a subsidiary of Glencore plc, has received a subpoena dated 2 July, 2018 from the US Department of Justice to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States money laundering statutes. The requested documents relate to the Glencore Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to present.
Glencore is reviewing the subpoena and will provide further information in due course as appropriate.
Glencore shares have tumbled by 9% as City traders digest the news, hitting their lowest level in almost a year:
Updated
China’s top central banker has blamed America for the yuan’s weakness.
In a statement, Yi Gang, governor of the People’s Bank of China (PBOC), says:
“Recently, there have been some fluctuations in the foreign exchange market. We are paying close attention to this,
“This is mainly due to factors such as the strengthening of the U.S. dollar and external uncertainties.”
Yi does have a point - emerging market currencies are all suffering from the dollar’s revival. The Vietnamese dong has also been under pressure, hitting an all-time low against the dollar today.
* VIETNAM DONG DROPS TO RECORD LOW, HITS 23,000 PER USD IN BANKS
— David Ingles (@DavidInglesTV) July 3, 2018
Chinese central bank tries to calm nerves
The People’s Bank of China has launched an attempt to reassure Chinese investors and prevent the yuan falling further.
In a statement released a few minutes ago, PBOC says it is “closely watching” moves in the foreign exchange markets.
Importantly, the Bank is also pledging to keep the yuan “stable” at a “reasonable, equilibrium” level. It’s also promising to maintain prudent and neutral monetary policy.
🇨🇳 #CHINA TO KEEP YUAN STABLE AT EQUILIBRIUM LEVEL: PBOC GOVERNOR
— Christophe Barraud🛢 (@C_Barraud) July 3, 2018
*YI: RECENT FX MKT VOLATILITY DUE TO USD STRENGTH, UNCERTAINTIES
*PBOC'S YI REITERATES PRUDENT, NEUTRAL MONETARY POLICY
This ‘verbal operation’ seems to be having an effect - the yuan is dragging itself back off the mat, recovering some (but not all!) of its losses today.
Reuters: #China's offshore yuan pares losses, trading at 6.6900 per dollar as of 0703 GMT (following jawboning by PBOC chief Yi Gang)
— Vincent Lee (@Rover829) July 3, 2018
ING’s China economist Iris Pang also blames Trump’s tariffs for causing the yuan’s decline, saying:
“Today’s depreciation is market-driven, reflecting the risks of a trade war.
This implies that the central bank is allowing market forces to dictate the speed of the depreciation when there is room to do so.”
Chinese banks scrambled to prop up the yuan after it fell through the 6.7 level against the US dollar this morning.
Bloomberg explains:
Chinese banks were seen selling dollars after the yuan weakened past a key level, stoking speculation that authorities were seeking to slow the losses.
The yuan was 0.5% lower at 6.6981 per dollar at 11:31 a.m. in Shanghai after earlier falling to 6.7204. Some Chinese major banks sold the dollar in the swaps market, according to four traders.
The agenda: Chinese yuan weakens as Trump holds firm on tariffs
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s no escape from trade war fears today. Asian stock markets have fallen to their lowest levels since last autumn, after Donald Trump refused to cave into international pressure over his tariffs.
A volatile day’s trading saw China’s Shanghai Composite index shed another 1.9% to a 28-month low, before rebounding in a late rally.
The Shanghai Composite Index is on track to wipe out all the gains since 2016! #China #EmergingMarkets #Hedgefunds #Markets #Investments #US #TradeWar pic.twitter.com/7sEsNG9Wa3
— Abdulla Rawanbakhsh (@ARawanbakhsh) July 3, 2018
The Chinese yuan also had a bad day, sliding against the dollar to its weakest level in almost a year.
Both the onshore and offshore yuan have fallen through the 6.7 per dollar level for the first time since August 2017.
The selloff suggests that Asian investors have been badly shaken by the looming tit-for-tat tariffs between China and America.
US tariffs on $34 billion of Chinese products are due to kick in on July 6, with China set to retaliate with duties of its own on the same value of American goods.
A trade was could hurt China’s economy badly, at a time when Beijing is trying to tackle its shadow banking sector and continue the evolution from a manufacturing-driven economy to a services-led one.
Chinese yuan slides to fresh 11-month low. Onshore yuan as low as 6.7168/$, offshore yuan 6.7326/$. Spread between offshore and onshore yuan continues to widen - briefly widest since Feb - reflecting mounting selling pressure from international investors. pic.twitter.com/NLnIqfuG8V
— Jamie McGeever (@ReutersJamie) July 3, 2018
Hussein Sayed, Chief Market Strategist at FXTM, says the sharp depreciation in the Chinese currency is worrying investors.
He reminds us that a similar slump three years ago spooked the global markets:
In August 2015, USD-CNY appreciated from 6.21 to 6.44, a two-day gain of 3.85%. As a result, global stock markets sold off sharply as investors feared the beginning of a currency war. With trade tensions increasing day by day, Beijing might be playing this game as a tool in its trade war with the U.S. However, such a strategy will be a double-edged sword as it might also lead to a flight of capital which the PBoC is well aware of.
Although the Chinese currency depreciated 3.23% in June, it didn’t sound quite so alarming, given that the Dollar appreciated against most major currencies in May and June. Going forward it’s going to be about the pace and magnitude of the currency moves that will drive equity markets. CNYUSD traded at 6.70 at the time of writing and will keep a close eye on 6.96, the lowest level reached in January 2017.
The White House is pressing on with its plans to penalise trading partners unless they give America a better deal.
Yesterday, president Trump insisted that the World Trade Organisation must reform, after “treating us very badly for many, many years.”
Also coming up today:
A new healthcheck on Britain’s builders is published this morning. The construction PMI is expected to show another month of slow growth, as the collapse of Carillion in January continues to ripple through the sector
European stock markets are expected to rise, after Angela Merkel reached a deal on migration with interior minister, Horst Seehofer that should prevent her coalition from collapsing.
We also get new eurozone retail sales and US manufacturing orders data, which will show whether trade war fears are having an impact.
The agenda
- 9.30am BST: UK construction PMI for June
- 10am BST: Eurozone retail sales for June
- 3pm BST: UK factory orders for May
Updated
