Summary: markets lifted as fears of US-China trade war ease
Signs that the US and China could be talking behind the scenes about avoiding a trade war have given global markets a lift after last week’s slump.
European markets, which had missed out on Monday’s gains, have moved sharply higher today, with the FTSE 100 currently up around 2%, Germany’s Dax 1.7% better and France’s Cac climbing 1.3%.
At the US open, the Dow Jones Industrial Average has also risen after Monday’s 700 point gain.
There were signs of weakness in the European economy, as business sentiment fell by more than expected in March.
Elsewhere our monthly Brexit watch showed the UK economy showing signs of steadying a year ahead of the country’s departure from the European Union.
On the corporate front, the insolvency service wants to disqualify former BHS owner Dominic Chappell from being a director for up to 15 years.
In the bid battle for GKN, which comes to a head on Thursday, predator Melrose has promised to keep the company’s aerospace division for at least five years.
And more bad news for retailers, with profit falls at H&M, Moss Bros and Game Digital.
On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Wall Street opens higher
The rally on US markets on Monday which saw the Dow Jones Industrial Average add nearly 700 points has continued at the opening of trading.
The easing of fears over a possible trade war between the US and China has lifted the Dow another 50 points or 0.2%, while the S&P 500 opened up 0.3% and the Nasdaq Composite up 0.48%.
Sterling is falling back after its recent strong run after last week’s agreement between the UK and EU on a Brexit transition deal.
A spate of profit taking has seen the pound fall 0.8% against the dollar to $1.4114 and 0.3% against the euro to €1.1399.
UK economy steadying in the run up to Brexit
The UK economy is steadying after the initial fallout from the vote to leave the European Union, according to our monthly Brexit watch series. Richard Partington reports:
As the one-year countdown to Brexit looms, the British economy is showing signs of steadying from the fallout triggered by the EU referendum, according to a Guardian analysis of economic news over the past month.
After progress with Brussels towards a two-year transitional deal to smooth Britain’s formal exit from the EU on 29 March 2019, the pound has risen back towards the highest levels seen since the leave vote.
Inflation triggered by the drop in sterling after the referendum is finally beginning to fade, just as pay rises begin to come through for workers. But while the Guardian’s latest Brexit dashboard hands support to Philip Hammond’s reasons for feeling “Tiggerish” at the spring statement earlier this month, sharp challenges remain.
The full story is here:
And here are the monthly statistics:
And the experts’ verdict:
BHS: Insolvency service decision on directors
Following the collapse of BHS, the insolvency service has said it will bring proceedings to disqualify Dominic Chappell, who bought the department store group from Sir Philip Green from running a company for up to 15 years. Its full verdict:
We can confirm the Insolvency Service has written to Dominic Chappell and three other former directors of BHS and connected companies informing them that we intend to bring proceedings to have them disqualified from running or controlling companies for periods up to 15 years.
We can also confirm that we have written to Sir Philip Green, also a former director of BHS, informing him that we do not currently intend bring disqualification proceedings against him.
As this matter may now be tested in the Court it is not appropriate to comment further.
Updated
US Opening Calls:#DOW 24333 +0.54%#SPX 2672 +0.48%#NASDAQ 6816 +0.91%#IGOpeningCall
— IGSquawk (@IGSquawk) March 27, 2018
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Royal Bank of Scotland has made its first acquisition since its ill-fated purchase of ABN Amro which went sour during the financial crisis. PA has the details:
RBS has snapped up accounting software firm FreeAgent, marking the lender’s first acquisition since its controversial crisis-era deal to buy ABN Amro.
The taxpayer-owned bank said it had agreed to buy the company for around 120p per share, valuing it at 53 million.
The decision comes weeks after the company reported its first profit in a decade and as the Government prepares to start selling off its 72% holding.
Chief executive Ross McEwan said: “We have been impressed by FreeAgent and its technology and are excited by the enhanced offering we will be able to provide to our customers.
“We believe that a technology-enabled solution for our business banking customers will make it easier for our customers to build their businesses safely and securely.”
It marks RBS’s first foray into deal-making since its 49 billion acquisition of Dutch bank ABN Amro in 2007, which quickly turned toxic.
In 2008, RBS was forced to announce an emergency rights issue, asking existing shareholders to inject 12 billion into the firm to strengthen its reserves.
Months later, the value of RBS shares plunged 90%, prompting a 45.5 billion Government bailout.
FreeAgent specialises in cloud-based accounting software and mobile applications aimed at businesses with 10 or fewer employees.
Given Donald Trump’s keenness on a strong stock market he may not want to really follow through on his trade war threats, suggest Craig Erlam, senior market analyst at Oanda
There are a lot of risks that financial markets have shrugged off over the last couple of years, to the amazement at times of investors, but the prospect of a trade war is clearly not one of these.
[This] has weighed heavily on risk appetite over the last couple of weeks with US equity markets posting significant losses on Thursday and Friday as things heated up. The message over the weekend though was far less confrontational and suggested the US would be open to scrapping the tariffs in exchange for certain other concessions such as reduced tariffs on important cars.
Ultimately, Trump’s target was and remains to reduce the county’s sizeable trade deficit with a number of countries and while he may give the impression that a trade war is a worthwhile sacrifice, I’m not sure he’s as keen on it as he makes out. The question now is how big a concession other countries are willing to make to appease him, if any, and whether it will be sufficient enough for him to sell it to US voters as a worthwhile victory. Given the reaction we’ve seen in markets over the last couple of week’s I don’t think he’ll be keen to follow through on his threats and risk sending markets into a tailspin.
Wall Street rally = Trump tweeting about the stock market again.
— Jamie McGeever (@ReutersJamie) March 27, 2018
40 tweets Oct. 1-Jan. 26 (market printing new high after new high)
1 tweet Jan. 27-March 23 (market falling)
1 tweet March 26 (Dow's third biggest point gain ever) pic.twitter.com/zHcs22gkOc
European markets continue to gain ground.
With the Dow Jones Industrial Average expected to open around 170 points higher, the FTSE 100 is now up 140 points or 2%, Germany’s Dax is 2.01% higher and France’s Cac has climbed 1.5%.
As far as the FTSE 100 goes, the rise comes after four straight declines and marks the biggest one day rise for nearly a year (since 24 April 2017).
The outlook for the eurozone economy could well become less benign over the summer as uncertainty impacts sentiment, says Bert Colijn, senior eurozone economist at ING Bank. And there is little in the latest confidence survey which will please the European Central Bank, he says:
This drop in the eurozone sentiment indicator from 114.2 to 112.6 rounds out the second month of disappointing survey data for the Eurozone.
While the economy continues to perform strongly, some clouds have reemerged on the horizon. Trade war concerns take centre stage and are adding uncertainty to the outlook for businesses and impacting the view on the general economic situation for consumers. Both manufacturers and the service sector experienced declining sentiment. Consumer confidence was unchanged after a large drop in February as lower expectations for inflation offset a weaker view on the economy and household finances.
Last month, the drop was mainly due to a decline in expectations from manufacturers and consumers. The developments in recent production, new orders and exports were only slightly negative. This month, we see indicators for recent production and new orders have come down somewhat more. Even though still at elevated levels of activity, this does signal that some moderation of growth seems to be under way.
On the bright side, employment expectations in services continue to improve despite uncertainty about global growth, meaning that the job market is likely to stand firm in the months ahead which should limit the downside to consumption growth as well. Export orders books only dropped from 2.5 to 2, indicating that the main channel through which trade concerns impact the economy for the moment is confidence and not yet trade itself.
The inflation outlook came down in March as both consumers and businesses in manufacturing and services saw selling price expectations decrease. As pipeline price pressures seem to level off a bit and the economic outlook is coming down from cloud nine, there is not much in this survey that will please the ECB. Expect continued dovish talk as the summer and decision on QE approaches.
Eurozone business confidence falls
European businesses have become more downbeat, according to the latest snapshot of economic sentiment.
The European Commission’s index for the eurozone fell to 112.6 in March from 114.2 in the previous month, below estimates of a level of 113.4. There was decline optimism among the manufacturing, service and retail sectors, but the construction sector showed a small improvement.
But consumer sentiment was unchanged from February to March.
In the EU as a whole, the index fell by 1.9 points to 112.5, partly due to a sharp drop in the UK. The Commission said:
The marginally stronger decrease of the headline indicator for the EU (-1.9) was mainly due to the marked deterioration of sentiment in the largest non-euro area EU economies, the UK (-4.2), and Poland (-2.0). In line with the euro area, confidence deteriorated strongly in industry, services, and retail trade, while it increased slightly in the construction sector and remained unchanged among consumers.
Updated
Union calls on GKN shareholders not to back Melrose bid
Back with GKN and the hostile bid from Melrose, union Unite has repeated its opposition to the proposed takeover. In a letter to GKN shareholders it lists a number of reasons why:
- A Melrose takeover has the potential to severely damage GKN’s customer base
- The timescales required in the aerospace and automotive industries is not compatible with Melrose’s approach
- Melrose does not have the skills or experience needed to make this bid a success
- Melrose’s plans for splitting the company will weaken its future prospects
- Increase in debt will increase risk
- Role of short-term investors in the takeover process - their support for the bid is motivated by a desire to make a short-term profit through arbitrage
- GKN stakeholders united in opposition to Melrose’s bid - Concern has been expressed by the company’s customers, its trade unions, its pension fund trustees, politicians and a growing number of long-term shareholders.
The union concludes:
We do not believe this bid is in the long-term interest of GKN and are concerned that it would jeopardise the company’s future. The choice facing investors is between a long-term future for GKN or a short-term, high-risk approach from Melrose. We therefore ask you not to accept Melrose’s offer.
So far it seems there may not be any profit taking when Wall Street opens later, despite Monday’s near 700 point surge on the Dow Jones Industrial Average.
The futures are pointing to a 100 point plus rise on the Dow in early trading, which should continue to give some support to European markets. Michael Hewson, chief market analyst at CMC Markets UK, said:
US markets look set to build on yesterday’s gains despite their biggest one day gain in over 2 years, as trade concerns move further into the background. Shares in focus are likely to include Facebook which, despite dropping below $150 for the first time since July last year, still managed to close higher on the day.
Updated
Melrose pledges to keep GKN aerospace for at least five years
Ahead of Thursday’s deadline for GKN investors to decide whether to accept the hostile £7.9bn bid from turnaround specialist Melrose or back the board, comes the daily update on the battle.
This time Melrose has made some commitments to try and keep interested parties - not least the UK government - happy. Reuters has the details:
Melrose on Tuesday pledged to own the Aerospace division of its bid target GKN for at least five years and to increase funding in apprenticeships and R&D in a last-ditch bid to win government backing for its hostile takeover.
In one of Britain’s most hotly contested corporate battles for years, shareholders have until 1pm BST on Thursday to accept the hostile bid from turnaround specialist Melrose or GKN’s plan to split off its auto unit and combine it with US group Dana, leaving GKN focused on Aerospace.
Some politicians have objected to Melrose buying GKN because they fear it could break up the mainstay of Britain’s engineering sector and sell it on to foreign buyers. On Tuesday Melrose said it would keep the Aerospace unit until April 2023.
Melrose said it reserved the right to list the Aerospace division on the stock market however and added that were it to be approached by a strategic buyer in that time, it would seek the approval of the government to sell.
The group said it would also pump a further £10m into the company over five years to support the creation of between 100 and 150 new apprenticeships in engineering, technology and science, a key area of focus for the government which is promoting an industrial strategy as it leaves the EU.
It has also committed to spend at least 2.2 percent of sales on research and development, saying this figure should be seen as a “floor, not a ceiling on our ambitions”.
Major government intervention. Business secretary Greg Clark insists on binding commitments from Melrose to secure continued investment and no sale of aerospace division for 5 years
— Simon Jack (@BBCSimonJack) March 27, 2018
Updated
Profits drop at H&M, Game Digital and Moss Bros
More downbeat news from the high street.
Fashion retailer H&M has reported a 61% fall in first quarter profits and said higher inventories would lead to increased markdowns in the second three months of the year. The Swedish company had already warned in February that weak demand would hit its earnings.
Elsewhere Game Digital said half year revenues rose from £498m to £517m but profits fell 25.5% from £16.5m to £12.3m. It said it would continue to negotiate property savings, close stores and rationalise retail working hours, but looked forward to a large number of new software releases, especially in the final quarter of this year.
And Moss Bros confirmed last week’s warning by unveiling a 6.1% fall in annual profits to £6.7m, hit by stock shortages and a tough retail environment. Richard Hunter, head of markets at interactive investor, said:
Last week’s profit warning may have taken some of the sting out of the situation, but Moss Bros is already facing an uphill struggle for the remainder of its trading year.
Updated
What a difference from last week... pic.twitter.com/OdTTC0sz1k
— Anthony Cheung (@AWMCheung) March 27, 2018
European markets open strongly
After the rise on Wall Street and Asia as trade tensions between the US and China ease, European markets have followed suit.
The FTSE 100 is up 90 points or 1.3%, Germany’s Dax has opened up 1.8%, France’s Cac has climbed 1.35% and Italy’s FTSE MIB is 1.48% better.
The only faller in the UK’s leading index is drinks giant Diageo, down marginally after it announced that the appointment of Ursula Burns to its board - due on 2 April - would be delayed following news she would be made interim executive chair of Nasdaq listed Veon.
Updated
Another factor for the renewed buoyancy in stock markets comes from North Korea, says Naeem Aslam, chief market analyst at ThinkMarkets :
Investors have reacted positively to the surprise visit of North Korea’s leader Kim Jong Un to China. This is his first trip outside his country since he became the leader of his country. Traders are considering this event as a further evidence of de-escalation of tensions in the Asia region.
Agenda:
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A surge on Wall Street has lifted Asian markets and is expected to do the same for European shares, as investors become increasingly convinced the US and China can resolve their trade issues.
After last week’s rout in the wake of President Trump announcing $60bn of tariffs on Chinese imports to the US, on top of his steel and aluminium sanctions, signs that the two sides were talking has led to a market revival. Michael Hewson, chief market analyst at CMC Markets UK, said:
The rebound in the US [came] as China moved to assuage US concerns about its trade policies by pledging to open up its markets to external companies. Chinese officials also pledged to overhaul protection for intellectual property rights. There was also an offer to buy more US semiconductors, as well as offering to finalise rules that would allow foreign financial firms to take stakes in Chinese securities companies, along with talk of lowering the tariff that is levied on US car imports of 25%
These concessions while fairly modest would allow the US administration to claim progress on changing the status quo where trade is concerned and could pave the way for further discussions further down the line.
So the Dow Jones Industrial Average jumped 2.81% or 669 points - the third highest points gain ever and its best percentage gain for nearly two and a half years. Although to put that in context, the percentage rise was less than the 2.93% slump recorded on Thursday after Trump unveiled the Chinese move.
Nevertheless, the revival on Wall Street has pushed Asian shares higher, with the Nikkei 225 up 2.3% and the Hang Seng around 0.9% better.
European shares missed out on the gains yesterday, partly on concerns about a slowdown in the region’s economy, said Hewson, with the US tax reforms which helped support Wall Street before the tariff shenanigans unlikely to give much of a lift to European companies.
But they are expected to benefit in early trading, with the FTSE 100 expected to open around 80 points higher, Germany’s Dax up 170 points and France’s Cac around 60 points.
Elsewhere it is another fairly quiet day on the economic front, apart from eurozone and consumer confidence figures and a US manufacturing survey.
On the corporate front, GlaxoSmithKline is planning a review of its Horlicks business as part of a deal to buy out Novartis’ 36.5% stake in their Consumer Healthcare Joint Venture for $13bn.
And one of the founders of Superdry, Julian Dunkerton is leaving the retailer on Saturday to “devote more time to his other business and charitable interests.”
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