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The Guardian - UK
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Graeme Wearden (until 3.30) and Nick Fletcher

World stock markets hit record highs as Japan and Spain rally - as it happened

An electronics stocks indicator showing the Tokyo Stock Exchange today.
An electronics stocks indicator showing the Tokyo Stock Exchange today. Photograph: Kazuhiro Nogi/AFP/Getty Images

European markets mixed but Spain soars

Spain ended as the standout performer among European markets, despite the uncertainty over the standoff between Madrid and the Catalan independence seekers. At the very least, the demand for clarification over the independence situation meant the immediate tensions have been defused. David Madden, market analyst at CMC Markets UK, said:

The stalemate between the region and the Spanish government is still ongoing, but the news that the region isn’t rushing for the exit has lifted investor confidence. We don’t have any clarity as to how the situation will develop from here, but at least the market can be confident of political stability in the country. Dealers may become nervous again when the separatists try and pursue their agenda, but at the moment normality has returned to the Spanish market.

Overall in Europe, the final scores showed:

  • The FTSE 100 finished down 0.06% or 4.46 points at 7533.81, but it is still just 14 points or so below its closing peak
  • Germany’s Dax edged up 0.17% to 12,970.68
  • France’s Cac closed down 0.02% at 5362.41
  • Italy’s FTSE MIB rose 0.97% to 22,552.21
  • Spain’s Ibex ended up 1.34% at 10,278.4
  • In Greece, the Athens market lost 0.85% to 748.61

On Wall Street, the Dow Jones Industrial Average is currently up 21 points or 0.09%.

On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

Despite the rally in Japanese and Spanish stock markets, it has been fairly lacklustre elsewhere. Chris Beauchamp, chief market analyst at IG, said:

It hasn’t been the busiest day in global markets, despite further developments in the Spain/Catalonia situation. A lack of heavy data and earnings has characterised the week thus far, although with US banks on the calendar for the next two days that is about to change.

Weakness throughout the morning was replaced by small gains, as the Spanish response to the Catalan (sort of) declaration of independence came in the form of a gentle, ‘could you possibly clarify that?’ from prime minister Rajoy.

Catalonia now apparently exists in a state of limbo, having declared and then suspended its independence, while Spain has said it might think about activating Article 155. The irresistible force has met the immovable object, and stalemate has resulted. The lack of any drama has meant that, outside the Ibex, the market reaction has been limited.

Back with the rise in the Japanese stock market, and this may not be the end of it, according to Trevor Greetham, head of multi asset at Royal London Asset Management. He says:

Japan’s stock market has hit a two decade high but we think it has further to run. The economy is picking up, corporate profits are being upgraded and the central bank is on the side of equity holders - unusually they have pledged to overshoot their inflation target of 2% and are keeping policy very loose until they get there.

This policy commitment makes Japan’s stock market a useful hedge against possible losses on bond portfolios if US interest rates continue to rise as we expect. Japanese long term rates are pinned down close to zero. Whenever US bonds sell off, widening interest rate differentials weaken the yen and boost the export-oriented Nikkei.

It is for this reason that I have been overweight Japanese equities in multi asset funds but underweight the yen since this element of Abenomics was first announced. We don’t expect the snap election to change things for the worse. If anything, an opposition win could result in the abandonment of planned sales tax rises, resulting in even looser fiscal policy.

Global central banks have begun to start switching off the money taps which have been supporting the world economy and stock markets since the financial crisis.

The US Federal Reserve has already begun raising interest rates, with another increase possible before the year end. The Bank of England is hinting at a rise in November despite an uninspiring UK economic performance, and the European Central Bank is looking at tapering its bond buying programme.

So could these moves disrupt the global recovery? Capital Economics’ Vicky Redwood says perhaps not:

We expect global growth to slow only modestly as the era of easy money starts drawing to a close. The monetary tightening is set to be gradual, limited and staggered, with some countries only starting to tighten as others are finishing. And the relationship between interest rates and GDP growth has generally been weak. But with debt still high, the world economy would struggle with a much bigger tightening.

The backdrop to this tightening is a reassuring combination of faster economic growth and low inflation. The world economy was only hit hard before when rates were raised abruptly to dampen high inflation. And although reversing quantitative easing is an added complication this time, central banks have already taken key steps along the path of monetary tightening with little effect on the economy or the markets.

What’s more, the tightening should be gradual. It is unlikely to be closely synchronised – we expect a gap of over three years between the first rises in US and euro-zone interest rates. And it need not be that big; neutral interest rates have fallen and central bank balance sheets are unlikely to return to pre- crisis levels. We think that, at most, half of the post-crisis loosening in monetary policy will get reversed

But there are risks:

Even a gradual approach to tightening may prove to be too much if demand is more fragile, or markets more nervy, than we think. And if central banks need to back-track, they have limited ammunition with which to loosen policy again. The gradual approach also risks inflating asset bubbles further, storing up trouble for the future.

There is also a risk that a slow tightening simply turns out to be infeasible if inflation takes off, leading policymakers to tighten policy more rapidly than they have signalled. With debt to income ratios still high, and saving ratios low, a sharp rise in interest rates would make us significantly more worried.

Opec lifts oil demand forecast

Elsewhere Opec, the organisation of petroleum exporting countries, has forecast higher demand for its oil in 2018.

In its monthly report it said the world would need 33.06m barrels a day of its crude next year, up 230,000 barrels from its previous forecast. It suggested that its agreement to curb output was helping to get rid of a supply glut. But it does not expect prices to surge, forecasting that crude will remain between $50 and $55 a barrel in the next year.

Brent crude is currently down 0.11% at $56.55.

Q: Is there a tax rate above which it would be counter-productive to tax the rich?*

The IMF’s Vitor Gaspar says the IMF hasn’t come to any conclusions on this.

But, since the 1970s, tax rates on the wealthy have fallen steadily, and the Fund believes there is scope to raise them without damaging growth, he reiterates.

* - this question was most famously tackled by economist Arthur Laffer, on the back of a napkin, showing that raising taxes too high can actually result in lower revenues:

The Laffer curve
The Laffer curve Photograph: x

It’s very popular with economists and politicians who favour tax cuts - the problem, though, is knowing where you are on the curve in the first place..

Surely no-one can argue with this chart?....

The IMF’s concerns about inequality might grate with readers in Greece, for example, where years of austerity have driven millions deeper into poverty.

Nadia Daar, who runs Oxfam’s office in Washington DC, hopes that today’s warm words will actually translate into action:

Vitor Gaspar, the IMF’s Director of Fiscal Affairs, is taking questions now.

He says improving heathcare provisions for the poor would help tackle inequality.

Asked about the IMF’s comments on taxation, Gaspar says that back in 1981 the average top marginal rate was 62%. That has fallen to 35% now.

He says the Fund is “agnostic” about whether countries will want to tax their higher earners more. But it also believes that countries should put inclusive growth at the top of their agenda.

Updated

The IMF is concerned that inequality has risen in more than half the world’s countries in the last three decades.

That includes three major nations - China, India and the United States. - even though inequality has declined across the globe.

These rises in inequality can hurt “social cohesion”, lead to political polarization, and ultimately lower economic growth, the Fund warns.

Some countries have experienced a reduction in inequality while others, particularly advanced economies, have seen a significant increase that has, among other things, contributed to growing public backlash against globalization.

The IMF are presenting the details of their Fiscal Monitor in Washington now - it’s being streamed live here.

IMF: It's OK to tax rich more to tackle inequality

NEWSFLASH: The International Monetary Fund is calling on governments to consider tackle inequality by raising taxes on the rich.

In its latest Fiscal Monitor report, just released, the Fund argues that taxing top earners more would not have an adverse impact on growth.

Indeed, it says “progressive taxation” and fiscal transfers can be key components of a strategy to redistribute wealth more fairly.

These conclusions appear to support centre-left parties who push for higher taxes on the wealthiest, but are a rebuke to the right-wing argument that cutting taxes for top earners will trickle-down through the income layers.

From Washington, our economics editor Larry Elliott reports:

In an analysis certain to be seized on by Labour as backing for its tax strategy, the IMF used its influential half-yearly fiscal monitor to attack the rationale for the reductions in tax for the highest earners in recent decades.

The IMF said tax theory suggested there should be “significantly higher” tax rates for those on higher incomes but the argument against doing so was that hitting the rich would be bad for growth.

“Empirical results do not support this argument, at least for levels of progressivity that are not excessive,” the IMF said, adding that different types of wealth taxes might also be considered.

The fiscal monitor does not mention any country by name, but the thrust of the report suggests it has doubts about the pro-rich tax plan proposed by Donald Trump for the US.

Here’s Larry’s full story:

Updated

David Lipton, the IMF’s deputy managing director, sums up the challenge facing politicians and central bank chiefs -- tackle risks, while avoiding a crash.

IMF: Global recovery could be derailed by debts

The International Monetary Fund has sounded a new warning that the good times in the global economy may not last.

In its new Global Financial Stability Report, the Fund points its finger at the rising debt piles across advanced and emerging economies. It fears that the increased risk appetite and the ongoing search for yield means investors could be too reckless, with dangerous consequences.

Tobias Adrian, of the IMF’s financial stability watchdog, warns this complacency could be creating financial excesses.

“While the waters seem calm, vulnerabilities are building under the surface [and] if left unattended, these could derail the global recovery.

The IMF singled out Australia, Canada and China as being three countries where households and businesses have taken on more debt, potentially putting them at risk if there is a new financial crisis.

Updated

Over in Westminster, the Unite trade union have held a protest urging the government to do more to protect Bombardier workers in Northern Ireland.

Those jobs are threatened by the 220% tariff which the US government is imposing on Bombardier planes sold to Delta Airlines, following a complaint by Boeing that its Canadian rival was getting unfair subsidies.

Members of Britain’s Unite trade union protest outside the Houses of Parliament in support of Bombardier workers in London.
Members of Britain’s Unite trade union protest outside the Houses of Parliament in support of Bombardier workers in London. Photograph: Peter Nicholls/Reuters

Several MPs took part in the demonstration too (Labour’s shadow business secretary, Rebecca Long-Bailey is in the middle, in front of shadow trade secretary Barry Gardiner).

The preliminary decision to impose tariffs on Bombardier’s C-Series jets has been widely criticised (Boeing faces particular stick, as it doesn’t manufacture a similar jet anyway).

Gardiner gave Boeing a rollicking on Bloomberg TV this morning, calling the US planemaker a ‘subsidy junkie’ and the ‘king of corporate welfare’.

The government has also criticised Boeing, saying it doesn’t like to see such behaviour from a partner. Maybe that’s why the US company has put up some adverts for MPs to admire on the way to and from parliament.

CNBC’s Michael Santoli suggests Donald Trump shouldn’t demand too much credit for the US stock market rally.

After all, shares rallied just as strongly in the 11 months after Barack Obama was re-elected to the White House in 2012.

Obama’s first term didn’t begin with much of a rally, though, as the markets were still tumbling as the world economy entered recession.

Trump: Look at the rally!

US president Donald Trump is unhappy that the media aren’t giving more coverage to the stock market rally (maybe he’s not reading the right liveblogs.....)

He’s tweeted that the US stock market has gained over $5 trillion since he won last November’s election:

It’s true that the Trump Rally (if we must call it that) is impressive, with the Dow Jones industrial average up around 25% in the last 11 months.

But I’m not sure that this proves the need for tax cuts (which, experts point out, will mainly benefit the very richest in America). Actually, the rally is partly due to predictions that Trump will make it easier for firms to repatriate funds that are currently parked overseas. That money might then be handed to shareholders in dividends, or used to buy back shares. Not very good for growth, but a boost for share prices....

US stock market

Sam Jones, our correspondent in Barcelona, says Mariano Rajoy has just put the ball back in Catalonia’s side of the court in the independence crisis.

He writes:

Rajoy, who has refused to rule out invoking article 155 of the Spanish constitution to take control of Catalonia, was quick to seize on the ambiguity of [Catalan president] Puigdemont’s position, accusing him of deliberately sowing confusion.

“The cabinet has agreed this morning to formally require the Catalan government to confirm whether it has declared independence after the deliberate confusion created over whether it has come into effect,” he said in a television address on Wednesday.

Here’s the full story:

Spain’s Prime Minister Mariano Rajoy giving a press conference after a crisis cabinet meeting at the Moncloa Palace today.
Spain’s Prime Minister Mariano Rajoy giving a press conference after a crisis cabinet meeting at the Moncloa Palace today. Photograph: STRINGER/AFP/Getty Images

Back in Madrid, prime minister Mariano Rajoy has demanded full clarity over the Catalonian president’s announcement yesterday that he has ‘suspended independence’.

Rajoy says he needs to know whether the region has formerly declared a breakaway, and hinted that the region could lose its existing powers if it has.

Assocated Press has the details:

Spanish Prime Minister Mariano Rajoy demanded on Wednesday that the Catalan leader clarify whether he has declared independence, issuing a veiled threat that the central government could limit or rescind the province’s autonomy if he has.

He said the Catalan government’s response would be crucial in deciding “events over the coming days.”

It is the first time that Rajoy has openly said that Article 155 of the Spanish constitution will be the next step taken by the government if Catalan authorities don’t backtrack. He said the government “wants to offer certainty to citizens” and that it is “necessary to return tranquility and calm.”

Spain’s stock market is now pushing higher, sending the IBEX up 1.5% today to 10,299 points. That keeps world stocks at this morning’s record high.

Cobra Beer chief warns about "no deal" Brexit

Lord Karan Bilimoria, founder and chairman of Cobra Beer, is worried about a “no deal” outcome from Britain’s Brexit negotiations.

This option re-emerged from the fog of Brexit yesterday, when prime minister Theresa May told MPs that it was possible that Britain might not reach an agreement with Brussels over its future arrangement.

Bilimoria says it would be a “terrible” blow to companies such as Cobra (a favourite tipple at many Indian restaurants) and the wider UK economy.

“No deal would be the worst possible outcome and when the public voted to leave they didn’t give the government a blank cheque to leave on any basis whatsoever.

“In practical terms it would be very difficult because we export Cobra from Burton on Trent to almost every country in Europe. We manufacture two of our products in Belgium, and import from Belgium into the UK. At the moment it’s seamless. If we suddenly have to deal with border controls and checks and the extra cost of import costs both ways, that makes our product less competitive. It’s going to be terrible.

Karan Faridoon Bilimoria
Karan Faridoon Bilimoria Photograph: Jason Alden

Speaking earlier on BBC Radio 4’s Today programme, Bilimoria said the sharp fall in the value of the pound - which makes British goods cheaper abroad - since the Brexit vote was not entirely helpful either.

“The currency effect helps our exports on the one hand but we as a country are a net importer so the consumer is starting to take a hit. We supply 98.5% of the Indian restaurants in this country. They are taking a hit because a lot of their ingredients are imported so for our export business, yes it helps, but as a country we’re net importers.

“I’m proud to be a British manufacturer but we’re reliant on inward investment. Britain is the largest recipient of inward investment in the whole of Europe and our position at the top table of the world is already hugely diminished already, let alone leaving the European Union.”

Chancellor Philip Hammond answering questions at the Commons Treasury Select Committee today.
Chancellor Philip Hammond answering questions at the Commons Treasury Select Committee today. Photograph: PA

Chancellor Philip Hammond has been discussing Brexit in front of the Treasury committee this morning.

Hammond warned that a “no deal” Brexit could leave the EU and the UK unable to share data, and could even mean airlines can’t fly between the two (although he added that this is an unlikely outcome).

The chancellor also floated the risk of a “bad-tempered” Brexit, if the two sides don’t make progress on Britain’s future relationship with the EU.

But he is also resisting pressure to commit billions in extra spending on new customs controls at the UK borders, until we have more clarity over the future.

Andy Sparrow’s Politics Live blog has full details:

The Nikkei’s rise to a 21-year high today has stirred some memories for Nick Leeson, the original Rogue Trader.

Leeson swapped a desk at Barings Bank for a cell at Changi Prison after running up a series of losses which he hid from his bosses.

The black hole which brought down Barings in 1995 emerged after Leeson wagered that the Nikkei would remain stable on a particular day (by selling put and call options that would deliver a profit if the market stayed calm, but cost him if it rose or fell by much).

Unfortunately for Leeson, the Kobe earthquake struck - sending the Nikkei tumbling. He placed a series of increasingly unlikely bets that it would recover, before being uncovered.

Leeson’s tongue-in-cheek point is that those positions would have turned a profit, eventually. But the scale of his losses actually wiped out Barings capital reserves, ensuring its demise.

Here’s how we reported it at the time:

Front page of the Guardian, 1995

The BBC’s Katya Adler has the latest from Spain....

Joshua Mahony, market analyst at IG, agrees that Catalonia’s decision to back away from declaring full-blown independence last night has reassured the markets.

He says:

European markets are looking towards Spain for inspiration, as the decision from Catalan leader Carles Puigdemont to delay a declaration of independence has led to a sharp rise in the IBEX and euro.

But... the situation does remain fluid. Spain’s cabinet will meet later today to discuss the situation, and prime minister Mariano Rajoy is due to speak about the issue soon.

Global markets hit new peak

Boom! World stock markets have hit a new all time high.

MSCI’s All-World stocks index, which tracks 2,400 companies around the globe, has inched up to 493.31 points this morning.

The MSCI All-Country index

That’s partly due to the Nikkei’s surge to a two-decade closing high in Japan today.

The rally in Spanish stocks and bonds this morning is also helping.

David Meier, economist at Julius Baer, says the news that Catalonia plans to negotiate with Madrid, rather than immediately trigger independence, is reassuring investors.

He writes:

“This episode could serve as a deterrent for other independence movements in Spain and Europe rather than lead to a rise in break-up risks. Markets rightly maintain their calm.

The global market rally also owes a lot to US stocks, which have racked up a string of record highs this year. The Dow Jones industrial average has gained more than 20% since Donald Trump won the US election last November, even though his promises of tax reform and infrastructure spending are still on the ‘To Do’ list.

Relief over Catalonia has also pushed the euro to a two week high, at $1.184 against the US dollar.

Spanish bonds are also recovering.

Updated

Spanish market rebounds as Catalonian tensions ease

President Carles Puigdemont

Spain’s stock market has opened strongly, on relief that Catalonia’s president has backed away from declaring independence.

The IBEX jumping over 1% in early trading, with traders welcoming President Carles Puigdemont speech last night in which he pledged to negotiate with Spanish government, and “suspend” the independence move

Lukman Otunuga, Research Analyst at FXTM, says investors are hoping that the two sides can hammer out a compromise:

A strong sense of relief was felt across financial markets on Tuesday evening, after Catalan leaders signed a “symbolic” declaration of independence, but immediately suspended its formal approval and called for talks with Madrid.

Although President Carles Puigdemont’s remarks disappointed many of his ardent supporters, who were hoping for a unilateral declaration of independence, his speech was music to investors’ ears, as this softer approach eased tensions.

Kobe data falsification scandal deepend

The Nikkei’s rally comes despite a big scandal enveloping Japan’s third-biggest steel maker, Kobe Steel.

Kobe has shocked Japan, and beyond, by admitting that it has fabricated data on components used in cars, aircraft and space rockets.

The company has sold aluminium and copper products to more than 200 companies, including Boeing, Toyota and Nissan, even though they had failed quality control tests - and falsified data to make it appear that items had passed.

The scandal may stretch back a decade, Kobe says, and involved dozens of staff. It risks damaging Japan’s reputation for manufacturing quality.

Today, the company revealed that iron powder results were also faked.

Kobe’s share price has now plunged by a third since the company came clean on Sunday, and top officials bowed apologetically to reporters.

Kobe's share price

Introduction: Nikkei hits 21-year high

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Japan’s stock index has closed at its highest level in over two decades, as optimism over the global economy builds and geopolitical worries ease.

Upbeat traders in Tokyo sent the Nikkei 225 index up to 20,881.27, a gain of 57 points or almost 0.3%.

It comes after Wall Street’s Dow Jones index hit a fresh record high last night, as the bull market rally refuses to fizzle out.

There was excitement in Tokyo as trading ended....

The Nikkei, which tracks Japan’s manor companies, is now at levels last seen in December 1996. It’s a strong recovery from the depths of the financial crisis (in 2009, the Nikkei suffered an undignified tumble below 8,000 points).

Is this proof that you should invest in the stock market for the long term? Not exactly. The Nikkei’s alltime peak was actually a stratospheric 38,915.87 points, back in December 1989. Someone who bought Japanese shares 30 years ago may still be waiting patiently to break even...

But still, it’s a nice landmark, and comes after the International Monetary Fund raised its forecasts for global growth yesterday.

Hugh Dive, chief investment officer at Atlas Funds Management, say’s there’s a “risk on” mood in the markets again:

“One of the biggest drivers of global equities is the United States and some of the macro data coming out from there has been quite positive.

There is also this view that China is travelling much better than many people had expected.”

There’s also relief that tensions between the US and North Korea haven’t become further inflamed, and that Catalonia has suspended its declaration of independence.

This all helped other Asia-Pacific markets to rally today too. New Zealand shares hit their record high for a seventh day running, while Australia’s market hit an eight-week high.

European stock markets are expected to follow suit this morning:

Also coming up today....

2pm BST: The International Monetary Fund release its Global Financial Stability Report this afternoon. It will single out dangers to the global economy, and identify solutions to avoid a new financial crisis.

7pm BST: The US Federal Reserve releases the minutes of its monetary policy meeting earlier this month. Wall Street will be looking for hints about whether interest rates will rise in December.

Updated

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