With this, we are closing the blog for the day. Thank you for all your great comments. We’ll be back tomorrow.
Closing summary
Following an initial dip, the pound has rallied since news broke of the resignation of Brexit secretary David Davis late on Sunday night. He has been replaced by former housing minister Dominic Raab, a Brexit-supporting minister.
Sterling is currently up nearly 0.5% at $1.3349, and steady against the euro. Investors are betting that Davis’ departure won’t endanger the prime minister, and that a “soft” Brexit has become more likely since Friday’s Chequers summit.
Stock markets have begun the week on a positive note, despite rising trade tensions between America and China, which both imposed tariffs on a number of imported goods on Friday. Analysts say that markets brushed aside concerns over the impact on the world economy (as they have known for a month that the tariffs were coming), and were cheered by Friday’s healthy US jobs figures.
Oil prices are climbing on higher global demand and US efforts to block Iranian supplies using sanctions. Brent crude is up 0.8% at $77.71 a barrel while US crude is little changed at $73.82 a barrel.
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It is the third day of gains on US stock markets.
Wall Street has opened higher, as expected.
- Dow Jones up 0.4%
- S&P 500 up 0.4%
- Nasdaq up 0.55%
This means Draghi could leave office in November 2019 without ever having hiked interest rates during his eight-year term.
Interest rates in the eurozone will stay on hold for at least another year, as previously signalled. Draghi said:
We expect key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path.
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Draghi also reiterated that the ECB would pare back its monthly asset purchases from €30bn to €15bn and end the programme at the end of December. “This is subject to incoming data confirming our medium-term inflation outlook.”
Draghi warns trade disputes are main risks to outlook
In his speech to the European parliament, ECB chief Mario Draghi has warned that the main risks to economic growth come from trade disputes.
As I have said before, downside risks to the outlook mainly relate to the threat of increased protectionism. A strong and united European Union can help reap the benefits of economic openness while protecting its citizens against unchecked globalisation. In leading by example, the EU can lend support to multilateralism and global trade, which have been cornerstones of growing economic prosperity over the past seven decades. But to be successful on the outside, the EU requires strong institutions and sound economic governance at home.
You can read the whole speech here.
Wall Street is expected to open higher, with investors still cheered by healthy US jobs data published last Friday, which have outweighed concerns over rising trade tensions between Washington and Beijing. Stock market futures are pointing to rises of 0.4% to 0.5% for the S&P 500, the Nasdaq and the Dow Jones.
While we are waiting for ECB chief Mario Draghi’s speech at the European parliament in Brussels (2pm BST), the central bank’s governing council member Ewald Nowotny has warned that trade wars, Brexit and capacity constraints are the main risks for the eurozone economy.
He told a financial seminar in Zurich:
For the eurozone, the Brexit constellation is something we look at. It is mainly a risk for the UK, but it also may pose risks and uncertainties for the eurozone.”
Michael Minall, automotive sector specialist at management consultancy Vendigital said that following steady sales declines over the past few years, this admission from Nissan could well mean the death of diesel.
In 2015, VW’s emissions-rigging highlighted the disparity between real-world performance of diesel engine cars and laboratory test results. These latest revelations have once again pushed the issue into the spotlight, at a time when many consumers have also lost confidence in diesel. While the findings of Nissan’s investigation and the immediate impact of the news on automotive suppliers is unlikely to be significant, it certainly represents another nail in the coffin for the diesel car market.
In other news, Nissan has admitted that exhaust emissions and fuel economy tests for 19 models in Japan were falsified.
The Japanese carmaker said on Monday it had discovered the testing environments for emissions and fuel economy in final vehicle inspections at most of its factories in Japan were not in line with requirements, and inspection reports were based on altered measurements.
“A full and comprehensive investigation of the facts … including the causes and background of the misconduct, is under way,” Nissan said. The problems were found during voluntary compliance checks following an improper vehicle inspection scandal last year.
In October, a recall of 1.2m vehicles was triggered after Nissan said uncertified inspectors had signed off on final checks for cars sold in Japan. The carmaker blamed staffing shortages for the scandal, which caused annual operating profit to slide.
Nissan said the latest misconduct did not compromise the safety of the affected models, and mileage readings were in line with levels presented in product catalogues. It was in the process of compiling data for the GT-R sports car to confirm it satisfied safety standards.
Returning to trade... China says it will use the funds collected from tariffs charged on imports from the US to help ease the impact of US tariffs on Chinese companies.
The commerce ministry also said it will encourage companies to import more products such as soybeans and cars from other markets.
Amin Nasser, the chief executive of Saudi Arabia’s state energy giant Saudi Aramco, has warned of an oil supply crunch as investment in shale projects won’t be enough to meet rising demand.
He told the Financial Times in an interview (paid content):
Something like shale oil… it is not going to really create a major dent in total global supply requirements up until 2040.
Energy companies are reluctant to invest in longer-term projects that are more costly, and are instead cutting costs and returning money to investors through dividends and share buybacks.
Meanwhile, the Church of England has threatened to sell its shares in oil and gas firms that fail to do enough to combat climate change.
Church of England threatens to sell its share in oil and gas firms if they're not doing enough on climate change https://t.co/WHZKlLxv8S
— Adam Vaughan (@adamvaughan_uk) July 9, 2018
Oil prices climb
Elsewhere, oil prices are climbing on increased global demand and US use of sanctions against Iran to shut out Iranian output. Brent crude, the world benchmark, is 0.8% higher at $77.74 a barrel.
The US wants to reduce oil exports from the world’s fifth-bigger producer of oil to zero by November, which would put pressure on other big producers such as Saudi Arabia to pump more crude. However, Saudi Arabia and other members of the Opec oil cartel have little spare capacity and oil demand has outpaced supply in recent months. US oil output is increasing but is not enough to plug the gap if Iranian exports are blocked.
Connor Campbell, financial analyst at Spreadex, has also explained the buoyancy of sterling following David Davis’ departure.
Sterling continued to benefit from the resignation of Brexit Secretary David Davis, with his claim that he won’t challenge Theresa May’s Tory leadership, alongside the swift appointment of Dominic Raab as his replacement, extending the pound’s Monday gains.
Hopes that Davis’ grumpy abandonment of his passion project will lead Britain away from the harder EU exit Double D was after, and towards the ‘softer’ Brexit proposed by Theresa May at Chequers over the weekend has allowed the pound to ride-out Monday’s bumpy ministerial transition. Against the dollar it shot up half a percent, hitting a 3 and a half week high of $1.333, while against the euro it climbed 0.3% to sit a smidge off €1.133.
Despite all this the FTSE still managed to find its own groove on Monday, the UK index rising 0.5% to tickle 7650. That’s very much in line with the situation elsewhere, with the DAX up 0.2% and the CAC jumping 0.6%. The gains come as investors express their relief at the lack of trade war escalation between the US and China (or indeed the US and EU) over the weekend, something that had become the norm in the last few weeks.
Turning to this afternoon and the Dow Jones it looking at its own half a percent rise when the bell rings on Wall Street, a move that would leave the US index just short of 24600, its best price in a fortnight. There’s not too much US-specific stuff to deal with this Monday, so, Trump-intervention aside, should be able to keep hold of that growth.
The pound is remarkably resilient this morning following David Davis’ resignation as Brexit secretary.
Viraj Patel, foreign exchange strategist at ING, says:
We’ve been saying that what matters for sterling markets is the type of Brexit delivered - not who delivers. The pound is able to live with ministerial resignations as long as that is the extent of the fallout. Looking at the tail risks of a Tory leadership contest - or even a General Election - we note the legislative hurdle is pretty high to see either outcome. So at this stage, one is inclined to interpret Davis’ resignation as a sign that the UK government is steering towards a softer Brexit - which is the more powerful, positive sterling driver.
UK gilt yields rise as markets bet on Brexit deal
UK bond yields are also rising as investors are betting on a greater chance of Britain reaching a Brexit deal with the EU, following the resignation of Brexit minister David Davis. Dominic Raab, the housing minister, has been announced as his replacement in the last few minutes.
Davis said this morning that he was not calling on other ministers to quit and expressed belief that Theresa May could survive the upheaval.
The yield on two-year gilts hit its highest level since 24 May.
Some more thoughts on sterling, which is up around 0.4% at $1.3340.
Chris Scicluna at Daiwa Capital Markets said:
Sterling remains broadly stable this morning, and firmer than it was ahead of the Cabinet agreement last Friday.
Joshua Mahony, market analyst at online trading firm IG, said:
Brexit concerns are back at the top of the agenda, following last week’s meeting at Chequers, culminating in yesterday’s resignation from David Davis. While markets should be worried by the added uncertainty of losing the Brexit secretary just eight months before the UK leaves the EU, there is a feeling that the UK is moving towards a business-friendly softer Brexit. The BCC has voiced its concerns over the impact of a potential rate rise, with companies clearly in limbo ahead of an uncertain Brexit. However, while companies and individuals may not too keen on a BoE rate rise, markets are clearly warming to the idea, with GBPUSD rising to a three-week high, amid a wider dollar selloff.
Markets are currently pricing in an 80% chance of a BoE rate rise in less than a months’ time, yet with the UK GDP figure due out tomorrow morning, we could see some sterling volatility to come this week. Interestingly, tomorrow’s UK GDP reading represents the start of a new period where we will see monthly releases from the ONS, allowing the BoE to enjoy a more accurate economic environment for setting rates.
Contrary to earlier reports, junior Brexit minister Suella Braverman has not resigned, Reuters is reporting, citing a UK government official.
There isn’t much corporate news here in the UK this morning. As we reported earlier, Mothercare is slashing more jobs than expected and unveiled details of its planned fundraising later this month.
The German publisher Axel Springer has raised its stake in the UK online estate agent Purplebricks to 12.5% from 11.5% and did not rule out a further increase. Purplebricks ventured into the US last year, its third market after Britain and Australia, but remains deep in the red with its operating loss quadrupling last year.
Despite warnings that the tariffs imposed by Washington and Beijing on Friday in a tit-for-tat trade dispute could hit economic growth around the world, markets are sanguine – for now.
Analysts at London Capital Group said:
The actual trade tariffs are nothing new, the market has been aware of them for over a month, and for now conditions are still supportive for financial growth, allowing markets to move higher.
Sentiment could remain resilient until we see solid evidence of these trade tensions feed through to softer economic data, particularly in China.
Mid-morning summary
Global stocks have hit a two-week high following the stronger-than-expected US jobs report on Friday, and as traders shrugged off rising trade tensions between America and China.
Sterling recovered quickly after a dip following Brexit secretary David Davis’ resignation as traders focused on the likelihood of a “soft Brexit”. Davis made clear this morning that he would not stand against Theresa May and would not encourage others to challenge her. The pound is now up 0.5% against the dollar.
The MSCI world equity index, which tracks shares in 47 countries, has risen 0.8% while the pan-European Stoxx 600 is 0.6% ahead.
- UK’s FTSE 100 up 0.15% at 7629.13
- Germany’s Dax up 0.2% at 12,524.87
- France’s CAC up 0.6% at 5480.75
- Spain’s Ibex up 0.4% at 9947.70
- Italy’s FTSE MiB up 0.66% at 22,0780.09
Sterling rises 0.5% after Davis comments
Sterling is now up more than 0.5% to $1.3358, after former Brexit secretary David Davis said he was not planning to challenge Theresa May’s leadership, and that he wanted her to stay as prime minister.
“I like [May]. She is a good prime minister,” he told the Radio 4 Today programme.
I’m told that the Bank of England’s deputy governor Ben Broadbent is speaking at an internal event this morning. The Bank’s chief economist Andy Haldane is speaking at townhall meetings in the North East. Again there is no text.
UK blocks aerospace sale to Chinese buyer
UK regulators have blocked the sale of aircraft parts firm Northern Aerospace to a Chinese buyer following a probe into national security concerns.
Britain’s Competition and Markets Authority launched an investigation last month into the £44m sale of the company by its UK private equity owner Better Capital to Chinese aerospace and mining firm Shaanxi Ligeance Mineral Resources. The probe came after the UK business secretary Greg Clark intervened.
Northern Aerospace is based in County Durham and employs 600 people. It designs and makes aeroplane components for carriers including Airbus, Boeing and Gulfstream.
Better Capital said this morning:
Permission to complete the sale was not obtained from the Competition and Markets Authority by the revised contractual deadline, despite requests for such permission by both parties.
Accordingly the proposed transaction has lapsed.
Mothercare shares fell more than 12% in early trading to 25.2p, and are now changing hands at 26.17p. The new shares are being issued at 19p.
On the corporate front, struggling retailer Mothercare has announced details of its restructuring and refinancing package as it fights for survival. It plans to cut 900 jobs, 100 more than previously announced, and put its Children’s World subsidiary into administration.
The move comes after landlords rejected the company’s proposals for rent reductions for Children’s World stores last month. Mothercare will now close a total of 60 out of its 137 stores, 10 more than it said in May. These will be carried out through a company voluntary arrangement (CVA), which allows companies to shut loss-making shops and secure rental discounts.
It expects to make annual savings of about £10m following the closures, and also plans to raise £32.5m from existing shareholders through a rights issue.
You can read the full story here.
Last week, German finance minister Olaf Scholz warned that Washington’s decision to impose tariffs on imports from China and the EU would damage everyone.
Donald Trump threatened last month to impose a 20% tariff on imports of all vehicles assembled in the EU. He imposed tariffs of 25% on steel and 10% on aluminium imported from the EU, Canada and Mexico at the start of June. The EU and Canada hit back with their own levies on US goods.
German trade surplus widens
German trade data this morning show that the country’s trade surplus widened in May – despite Europe’s trade dispute with the US.
Exports rose 1.8% on the month, according to data from the Federal Statistics Office in Berlin, while imports increased 0.7%. This pushed the trade surplus up to €20.3bn in May from €19bn in April – better than expected.
Carsten Brzeski at ING says:
The latest weakening of the euro should bring some relief in the coming months, more than offsetting current US tariffs on European aluminium and steel.
Looking ahead and despite the very benign impact of trade tensions so far, a fully fledged trade war would surely leave negative marks on the German economy.
Markets are hoping for further clues about a tightening to monetary policy when European Central Bank president Mario Draghi speaks at the European parliament in Brussels this afternoon.
CMC’s Madden says:
Traders will be listening carefully to the central banker’s speech as it may give away clues to possible changes to the monetary policy. Last month, the head of the ECB announced the bond-buying scheme would be wound down at the end of the year. Mr Draghi also suggested that interest rates are unlikely to be hiked until at least the back end of 2019. The currency bloc has been going through a mixed economic period, and Mr Draghi’s update could give an insight into what the central banker is thinking.
European markets have risen at the open.
- UK’s FTSE 100 up 0.4%
- Germany’s Dax up 0.4%
- France’s CAC up 0.5%
- Spain’s Ibex up 0.2%
- Italy’s FTSE MiB up 0.5%
- Portugal’s PSI 20 up 0.3%
David Madden, market analyst at CMC Markets UK, says:
The pound is holding up relatively well. This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job.
Trade remains in focus globally, with Donald Trump heading to Europe this week for the NATO summit. He has already voiced his opinion that the US pays a large share of the NATO budget.
Madden says:
Mr Trump is still playing the ‘America first’ card, and there is a possibility that global trading relations could take a further knock.
Last week there were signs that the relationship between the EU and the US were improving, after it was reported that the Trump administration is contemplating rowing back on the threat to impose 20% tariffs on EU cars. It was also reported that Angela Merkel is considering throwing her weight behind the proposal of cutting levies on US cars into the EU.
The embattled prime minister, Theresa May, is expected to reshuffle her cabinet sometime after 9am following Davis’ resignation. You can read the latest on our politics live blog.
Hussein Sayed, chief market strategist at online forex broker FXTM, says:
The pound was surprisingly steady after the resignation of the Brexit secretary David Davis. Trading the pound is going to be tricky in the coming days and will depend predominantly on how the negotiations with the EU develop after Davis’ resignation and the survival of Theresa May. However, from Monday’s market reaction, traders seem to believe we’re still heading towards a soft Brexit.
Introduction: Markets shrug off trade dispute, Davis resignation
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
The trade war between America and China began on Friday, when both Washington and Beijing imposed 25% tariffs on a number of imports. The US fired the opening salvo, imposing levies on $34bn of Chinese imports, including aerospace, IT and medical kit. China hit back with tariffs on products such as soybeans, chemicals and some cars.
But markets have taken the escalating trade dispute in their stride.
European stocks are expected to open higher after Asian stocks rallied overnight. Worries over the trade dispute ebbed away on Friday when non-farm payrolls data showed stronger-than-expected US job growth and steady wage gains, suggesting the Federal Reserve will stick to gradual interest rate increases, and pushing US stocks higher that day.
The pound wobbled after the shock resignation of UK Brexit secretary David Davis and Brexit ministers Steven Baker and Suella Braverman. Sterling weakened to $1.3290 when the news broke, but has since recovered and hit its highest level since 14 June this morning. It’s now trading 0.2% higher at $1.3321. Against the euro, it has been steady at 88.38p.
Central bankers including Bank of England deputy governor Ben Broadbent and European Central Bank president Mario Draghi are due to speak today.
Also coming up
8.50am BST BOE deputy governor Ben Broadbent gives opening address at BOE conference
2pm BST ECB president Mario Draghi speaks at the European Parliament in Brussels
We’ll be tracking all the main events throughout the day...
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