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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Sports Direct's Mike Ashley calls for web tax to save 'dying' high street - as it happened

Mike Ashley testifying to the Housing, Communities and Local Government Committee today
Mike Ashley testifying to the Housing, Communities and Local Government Committee today Photograph: Parliament Live

Finally, here’s Sarah Butler on Mike Ashley’s views on the high street crisis:

Summary: Mike Ashley's cunning plan for the high street

Mike Ashley select committee

Britain’s high street might be in better shape if it could sell tickets to watch Mike Ashley in action.

In an eye-catching performance, the man behind Sports Direct has unveiled a new plan to tackle Britain’s high street -- a tax on web retailers, to encourage them to keep high bricks-and-mortar outlets running too.

Under Ashley’s plan, any retailer which did more than 20% of its business online would be hit by the tax.

It’s not my fault the high street’s dying, is it? It’s not House of Fraser’s fault, it’s not Marks & Spencer’s fault, it’s not Debenham’s fault.

It’s very simple why the high street is dying - it’s the internet. The internet is killing the high street.

He suggested this would catch Sports Directs itself, but it was worth it to resuscitate the high street.

Sports Direct won’t be pleased with me for my suggestion. It’s not necessarily a good fix for Sports Direct , but it’s a fantastic fix for the high street.

Ashley’s plans sounds like a twist on the digital services tax which chancellor Philip Hammond announced in October’s budget.

Ashley, though, insisted that the high street was otherwise doomed, saying:

The high street won’t make 2030, it won’t get there, unless you do something really radical and grab the bulls by the horns.

Ashley also criticised landlords for using “prehistoric” rents, including some which can only be revised higher each year. This has put some retailers into a “downward death spiral”, the retail chief claimed, adding:

“Everybody has to come together and look at this.

I know it sounds very socialist, I’m not this crazy capitalist that everybody thinks I am.”

Ashley also called for retailers need to be more innovative, perhaps laying out computer games consoles for one half of a couple to play on while the other perused the aisles.

MPs on the Housing, Communities and Local Government Committee, who are looking at the future of the high street in 2030, looked sceptical -- asking how overseas-based e-tailers could be made to pay the levy.

Ashley arrived at the Thatcher Room in Westminster, keen to give MPs the benefits of his experience running Sports Direct. But he swiftly found himself on the back foot, as MPs demanded answers about his takeover of House of Fraser this year.

Ashey hotly denied ever promising to save all HoF’s 59 stores, saying:

What person could keep 59 stores open - beside God? It’s impossible, it can’t be done.

I believe Ashley is right - in August, he spoke about hoping to save 47 stores.

Even keeping 80% would be a God-like performance, Ashley continued.

Ashley also found that MPs haven’t forgotten Sports Direct’s reputation for using zero-hours contracts (it was criticised for Victorian workhouse practices in 2016).

He refused to rule out using more zero-hours contracts at HoF, insisting that many workers love them. And he denied “stroking a white cat” like a Bond villain, deciding which stores to axe.

Updated

And finally, Mike Ashley hinted that House of Fraser could work closer with Debenhams (in which he owns a stake).

He tol MPs:

“I told them to work together. They should work together

Mike Ashley winds up his hearing with a prediction -- Harrods and Selfridges will have a good year.

One of the reasons that House of Fraser failed is that it didn’t elevate itself, Ashley continues.

Luxury brands are on the up. Teenagers, people today, want to wear their wealth.

Ashley: Retail will be a ghost town outside London

Mike Ashley returns to his big theme - the internet has killed the high street.

He tells the MPs:

The web has killed the high street, not the local councils, not this, not that.

Ashley concedes that everyone involved may have moved too slowly to tackle the issue. Now, unless major change is pushed through, the high street is finished.

It is just going to die, and you’ll be left with Oxford Street and Bond Street.

Outside of London, it’s going to be a ghost town. Sorry, that’s what it’s going to be.

Interestingly, Mike Ashley says that local councils have helped keep House of Fraser stores open since his Sports Direct chain took it over this year.

Ashley tells the committee that some landlords have refused to cut the rent, in the hope that the department store will close - freeing them up potentially turn it into housing.

Councils, though, insisted that everyone involved made an effort to keep the House of Fraser store open.

Ashley suggests, though, that some stores need to downside - perhaps by turning their upper floors into residential units.

I accept House of Fraser cannot have 500,000 square feet in Birmingham. Honestly, you would need an Uber to take you round. It’s ridiculous.

Q: There are reports that high street rents might crash next year, by 20%. Wouldn’t that be good news for the retailers? But wouldn’t rents NOT fall, if landlords were able to turn high street stores into residential units (as some campaigners have asked for)

You’ll make me hated by every landlord in the country, but you’re absolutely correct, Ashley replies.

Labour MP Liz Twist, who represents the Bladon in North-East England, asks Mr Ashley to meet with her to discuss the fate of the House of Fraser Metro store.

No, absolutely not, Ashey replies.

Q: Why not?

If I do it for one person, think of all the other people that I have let down, Ashley replies, burying his head in his hands.

People keep thinking I can do these one-off things. It’s not easy to do,

Mike Ashley

But Ashley is prepared to attend a meeting with MPs to discuss the wider issue, ideally with HoFs landlords too.

Q: What’s happening with House of Fraser stores, and your push to cut rents?

Mike Ashley says local councils are refusing to cut rents, because they can see that HoF stores are profitable...but they’re not recognising the overhead costs behind the scenes.

So a store that seems to be making a £2m profit on paper is actually losing £2m, once you factor in the true costs of running a business.

Ashley then give a fascinating insight into business, saying that accountants can make up nearly any number you like, to flatter a company’s accounts.

You don’t even understand what they’re talking about, and they’ll say ‘I can make that store loss-making, or I can make it profitable’.

They say “I’ll put exceptions in - what are they when they’re at home?” Ashley adds with (apparent) disbelief.

The underlying problem in UK retail is the web, says Mike Ashley, as he continues to brief MPs on the future of the high street.

Looking magnanimously at the Housing, Communities and Local Government Committee, he adds kindly:

It’s not your fault, you didn’t do it.

Q: Why is there such a problem with rents in the retail sector?

Landlords and retailers have always been uneasy bedfellows, says Mike Ashley. And whenever one has the upper hand, he “gets out his hammer” and bashes the other one.

He says “good luck” to any landlord who owns highly lucrative land on Bond Street.

But he’s more critical of landlords who have got retailers on contracts where rents can only rise. Those rental agreements are a “downward death spiral....”

Ashley blames successful companies, such as McDonalds and his own Sports Direct chain, which agreed to hefty rent deals in the good times - which everyone else was then moved onto as well.

If you’re just tuning into Mike Ashley’s hearing on the future of the high street, here’s what you’ve missed...

Mike Ashley now concedes that it would be difficult to implement his plan for a new tax on web companies, but insists that it’s simple in principle.

[Reminder, the idea is a new levy on any retailer who does over 20% of its business online]

Q: Many retailers say that the solution is lower business rates and free parking..

Yes, but who’s going to pay for it, Ashley shoots back.

He admits that Sports Direct, which he founded, would be hit in the pocket if the government took up his suggestion of a new tax on e-tailers.

Sports Direct won’t be pleased with me for my suggestion. It’s not necessarily a good fix for Sports Direct , but it’s a fantastic fix for the high street.

Otherwise, Ashley argues, the high street is destined for destruction:

The high street won’t make 2030, it won’t get there, unless you do something really radical and grab the bulls by the horns.

Q: How would your plan for a new tax on web retailers work when people buy goods from abroad?

In theory you could still tax them, Ashley insists, but agrees that overseas retailers would have to sign up to pay it.

You want to get retailers saving the high street, he adds - through a new tax on companies who make most of their money selling online only.

High stores have to change, it’s not just about a sea of clothing any more, says Mike Ashley.

He suggests retailers need to be much more innovative -- maybe with different opening hours, more self-service tills.

Updated

In another burst of blue-sky thinking, Mike Ashley suggests high street stores could offer services such as free computer gaming to lure customers in.

Retail analyst Neil Saunders isn’t impressed:

Here’s some video clips of Mike Ashley in action:

Mike Ashley now insists that he doesn’t “sit in an office stroking a white cat”, trying to decide which House of Fraser stores to shut following this year’s takeover.

Of course I’m worried about the state of the high street, he continues.

It’s not my fault the high street’s dying, is it? It’s not House of Fraser’s fault, it’s not Marks & Spencer’s fault, it’s not Debenham’s fault.

It’s very simple why the high street is dying - it’s the internet. The internet is killing the high street.

That’s quite a statement, given Sports Direct has hundreds of stores in the UK, just bought House of Fraser, and also has a stake in Debenhams.

But Ashley has a cunning plan -- a new tax on web-only retailers, to encourage them to maintain a high street presence too.

Updated

Ashley: Only God could keep all House of Fraser's stores open

Q: You promised to turn House of Fraser into the Harrods of the high street and keep its 59 stores open, but now people are worried that their local store will close. How will you decide which stores to shut?

Ashley looks like he’s going to burst a blood vessel.

I never said I would keep 59 stores over. Never, never, never...

Everyone knows I set a target of keep 80% of the estate open, the Sports Direct boss insists.

What person could keep 59 stores open - beside God? It’s impossible, it can’t be done.

Even keeping 80% open would be messianic, Ashley indicates, before adding modestly that he’s not comparing himself to God.

Updated

Mike Ashley: Workers love zero-hours contracts

Over in the UK parliament, the boss of retailer Sports Direct is testifying to MPs about the future of the high street.

But Mike Ashley actually finds himself fending off tough questions about his company’s business practices, following the takeover of House of Fraser.

First off, he’s accused of letting customers down - by not refunding orders placed online just before House of Fraser went into administration. Ashley insists that customers received gift cards instead, as SPD got to grips with the company’s problems.

Ashley then asked whether he’ll be putting House of Fraser staff onto zero-hours contracts, something he’s been criticised for using heavily at Sports Direct.

Ashley insists that “the vast majority of staff love them”, but he won’t commit not to roll them out more heavily at HoF.

Getting impassioned, Ashley insists that he needs to keep all options open.

“I can’t, it’s impossible what you’re asking. It doesn’t make sense.

The high street has to change what it offers consumers.

That means stores might need to open later, and close later, Ashley suggests, telling MPs firmly:

Stop trying to showboat... I thought we were here to save the high street.

For all Donald Trump’s optimism, many financial analysts are unconvinced that the US and China can settle their trade dispute in just 90 days.

Reforming Beijing treatment of intellectual property will take much longer, and there’s only so much US produce which China can really absorb to help mop up the trade gap.

But still, the markets are up.

And that’s because the immediate threat of a deeper trade war has receded.

As Aninda Mitra, senior sovereign analyst at BNY Mellon Investment Management, puts it:

“To be sure, underlying problems remain unresolved. It is not as though existing tariffs are on the verge of being unwound. But what Xi has managed to extract from Trump is a stay on any escalation for three months. That interlude should see a stronger effort to set a framework for more talks and quid-pro quos.

In the long term, though, achieving full trade détente will be tricky:

“The best one can hope for in three months’ time is a trade and geopolitical deal in which we see a road-map for China to materially raise oil and agriculture imports from the U.S. to cut the bilateral surplus by more than one-half in about 1-2 years’ time. That will result in a diversion of Chinese imports from U.S. foes such as Russia and Iran, and possibly Saudi and rest of OPEC. I would imagine the Chinese would also acquiesce to at least some softening of U.S. access to technology and finance in China. Signals to this effect came from Xi suggesting he would not object to the Qualcomm-NXP deal if this were presented again.

“The highest priority for the Chinese authorities at the moment is to stabilize their economy. In this context, a 90-day truce should boost local sentiment, and prove more important from a psychological standpoint than recent policy stimulus which was seen as tepid, if not grudging.

In another boost to the White House, the US manufacturing sector has posted another month of strong growth.

The Institute for Supply Management has reported that new orders, employment levels and activity also jumped last month, while the prices paid by manufacturers fell.

This drove ISM’s monthly healthcheck on America’s factory sector up to 59.3. from 57.7. That level is consistent with strong growth.

There are some major names among the big movers on Wall Street today.

Aircraft maker Boeing has gained 6%, construction and machinery business Caterpillar is up 4%, and Apple has gained 2.6%. That suggests investors are optimistic that the trade war time-out will yield results.

Chipmakers AMD (+7.8%) and NVIDIA (+6%) are also romping ahead.

Randeep Somel, Director of Global Equities at M&G, explains why markets are upbeat:

The rally seen this morning in equity markets show that the escalating trade disputes are a significant concern to the global growth outlook of the world economy. Whilst its very early days and the process of normalising the trading relationship with China is going to be a complex process – today, at the very least is a signal that those negotiations can begin.

Riskier assets such as base metals and oil producers, as well as the US and European car manufacturers and associated supply chains are likely to show the most positive reflection of the news as they have borne the brunt of the negative headlines for most of this year.”

Wall Street jumps on trade war relief

After a minute’s silence to honour President George H.W Bush, Wall Street has opened, and shares are rallying hard.

The Dow Jones industrial average has jumped by 412 points, or 1.6%, to 25,950, in early trading, following upbeat comments from Donald Trump and Stephen Mnuchin in the last couple of hours.

The broader S&P 500 index is up 1.5%, while the Nasdaq has gained 2%.

Industrial stocks and technology firms are leading the rally, on relief that the US will not be imposing tougher tariffs on China -- at least not for 90 days.

Nick Payne, head of global emerging market equities, Merian Global Investors, says investors around the globe are feeling much cheerier.

“The 90-day truce in the Sino-US trade war agreed between President Xi and President Trump in Buenos Aires is a welcome development in reducing tension.

The very fact that both sides have reopened dialogue is a good step forward and should help sentiment and asset prices in emerging markets. Of course, hard yards lie ahead in reaching a comprehensive agreement, but for now, both sides can claim a “win”. US consumers can cheer that their manufactured-in-China favourites like iPhones will not be increasing in price for Christmas.

Donald Trump is claiming that China’s promise to cut tariffs on US car imports, from 40%, is a win.

However, Beijing only raised the tariff to 40% this summer after the US launched its trade war. A few months earlier, China actually cut the tariff from 25% to 15%.

Brad Setser of the Council of Foreign Relations reckons the tariff won’t be slashed below 15%.

US treasury secretary Stephen Mnuchin is also cheering the trade war truce.

Speaking on CNBC a few moments ago, Mnuchin says that the 90-day hiatus is a significant step:

This is the first time that we have a commitment from them that this will be a real agreement.

However...Mnuchin added that Beijing to follow through on its commitments, and open its economy more widely, and fairly, to US companies:

“They put on the table an offer of over $1.2 trillion in additional commitments. But the details of that still need to be negotiated.

This isn’t just about buying things. This is about opening markets to U.S. companies and protecting U.S. technology. Those are very important structural issues to the president.”

More optimism from the White House:

Trump: We've taken a BIG leap forward with China

The US president is awake, and in an effusive mood after his negotiations with Xi Jinping on Saturday night.

Donald Trump is tweeting that the trade truce can be a win for both the US and China -- a point analysts have also made today.

Salman Ahmed, chief investment strategist at Lombard Odier IM, agrees that Trump and Xi made a breakthrough:

“The much anticipated dinner between the two leaders resulted in the first major breakthrough since talks broke down in May. For now, China has agreed to buy more US products, including agricultural goods, and to tackle the trade imbalance concern. President Xi also agreed to designate fentanyl a controlled substance, in a move which was described as a “wonderful humanitarian gesture” in a statement issued by the White House on Saturday.

“On trade, President Trump said the US will not go ahead with the implementation of a 25% tariff rate scheduled for January. The tariffs on $200 billion worth of products will be left at the 10% rate for the next 90 days while both parties attempt to negotiate structural changes.

“Signs of rapprochement between China and the US is certainly good news. This does not reflect a definitive shift in the relationship between the US and China, but the opening up of negotiations is certainly a big step in the right direction.

Stephen Cooper, Head of Industrial Manufacturing at KPMG UK, is concerned by today’s UK factory data (even though anxious stockpiling drove growth up):

“Brexit and supply chain worries have dented November’s UK manufacturing data, with muted growth and optimism at a 27-month low.

“The continued decline in export orders is something manufacturers need to be mindful of, particularly as the Eurozone’s Manufacturing PMI numbers for last month were relatively flat and there are are also wider global demand concerns. With the Eurozone as such an important market for the UK, manufacturers need to prepare carefully for Brexit and ensure they understand every aspect of their supply chains.”

What are the terms of the truce between the US and China?

Washington agreed to postpone by 90 days the increase in tariffs from 10% to 25% on $200bn of Chinese goods, due to kick in on 1 January, while China pledged to import more US products, including – according to Washington – farm, energy and industrial products. This should help shrink the US trade deficit with China.

Trump tweeted that China had also agreed to “reduce and remove” tariffs on US car imports from the current 40% level but there was no confirmation from Beijing.

So has the trade war ended?

No. This is seen as a temporary respite in the trade spat between Washington and Beijing, which started in June after talks broke down. For instance, the announcement does not affect a separate $50bn worth of tariffs on Chinese goods – including widescreen TVs and pharmaceuticals – imposed by Trump in June. In September, China retaliated with $60bn of tariffs on US imports, including aircraft and coffee.  The US-China truce merely buys both sides more time to negotiate. The White House says there will also be immediate discussions on issues such as intellectual property protection, non-tariff trade barriers (such as customs checks) and cyber theft.

Could this truce fail?

Yes – there was no joint communique and few details have emerged so far. Some analysts say the deal only kicks the can down the road and tensions will resurface in three months.

How much damage has been caused by the trade war so far?

The Chinese economy is cooling and the Shanghai stock market has fallen almost 30% since the start of the year. A survey showed on Monday that new export orders at China’s factories extended their decline in November as the trade war took its toll.

While Trump’s tough stance is popular with his Republican supporters, the US trade deficit with China has worsened. General Motors, the largest US carmaker, announced last week it would halt production at five North American factories and cut 14,700 jobs, a decision partly prompted by the impact of Trump’s tariffs.

Why are the markets reacting so strongly?

The trade truce came as a positive surprise to markets after Trump’s combative comments in the past fortnight. The rally shows how sensitive global markets are to trade tensions. Julia Kollewe

Here’s a handy chart showing how the trade dispute intensified this year, as the US and China exchanged tit-for-tat tariffs.

Tony Fratto, a former White House deputy press secretary, will believe China’s tariff cuts when he sees them....

Influential investor Mohamed A. El-Erian of Allianz reckons the US-China trade truce is a quadruple win, at least in the short term.

He writes:

At the end of almost three hours of what the White House called “highly successful” discussions, the U.S. agreed to refrain for 90 days from implementing additional tariffs on $200 billion of imports from China. In return, China promised to use the time to make progress in three areas of concern to the U.S. and other countries: relaxing an array of nontariff barriers, including joint-venture requirements, that result in forced transfers of technology, operational models and other proprietary information and business practices; combatting intellectual property theft and other cyber interferences; and reducing the bilateral trade surplus by importing “very substantial” quantities of certain goods from the U.S.

This outcome is a short-term win for both sides, as well as the global economy:

China avoids additional tariffs that would further undermine its growth prospects and place even greater pressure on its financial markets. The U.S. defines a time-specific way forward to counter practices that place it at a competitive disadvantage in its bilateral economic relationship with China. And the world economy is in a better place, for now, to avoid a stagflationary trade war.

It is also a short-term win for investors and markets:

El-Erian adds that the world economy would have suffered if the talks had broken down. However, both sides now have to work “cooperatively” to turn this truce into a long-term deal.

There’s also a danger that the new 90-day deadline creates fresh political pressures, which will weigh on markets in early 2019.

The trade war time-out may come too late for some American farmers.

As this chart shows, soybean exports from the US to China usually peak in October and November, but not this year due to the trade dispute.

Wang Cun, director of the China Automobile Dealers Association’s import committee, has welcomed the suggestion that car tariffs will be cut.

Wang told reporters in Beijing that:

If they cancel the extra 25 percent tariff on US-made cars, then we will see positive signs for imported cars,”

Wall Street is on track for a big jump when trading begins in three and a half hours.

The Dow Jones is currently up 2%, or 500 points, in the futures market.

That’s a chunky move, given the US and China have only agreed a 90-day truce....and there’s been silence from Beijing about exactly what they’ve agreed too....

Shares in European car companies are surging, after Donald Trump tweeted that China has agreed to cut tariffs on auto imports.

Daimler are leading the pack, up 7%, in Germany followed by BMW (+6.6%) and Volkswagen (+4%). They all have factories in the US, so should benefit from a cooling in trade war tensions. Tire maker Continental is up 3.5%.

Ted Baker shares fall as CEO's hugs are probed

Shares in fashion chain Ted Baker have plunged by 13% this morning after the company’s founder was accused of forcing staff into hugs, massages and other inappropriate conduct.

My colleagues Sarah Butler and Jasper Jolly reported yesterday that current and former Ted Baker staff had accused Ray Kelvin of harassment.

They wrote:

More than 60 current or former staff are understood to have come forward to the employee campaigning platform Organise with complaints about Kelvin’s alleged behaviour, including kissing ears and giving unwanted hugs and shoulder massages.

Organise published a petition, signed by more than 1,000 people, calling for an end to forced hugging, saying: “It is part of a culture that leaves harassment unchallenged.” It also calls for new procedures allowing employees to report harassment to an “independent, external body”.

Ted Baker says it will investigate the case, adding:

Hugs have become part of Ted Baker’s culture, but are absolutely not insisted upon.”

Shares in the company have fallen to £15.86 (from £18.26), their lowest level since June 2013.

UK factory growth beats forecasts

Newsflash: Britain’s manufacturing was unexpectedly strong last month, as companies rush to stockpile products ahead of a Brexit crisis.

Markit’s UK factory PMI, which measures activity in the sector, has jumped to 53.1 for November, up from October’s 27-month low of 51.1.

Most of the demand came from domestic customers amid a rush to fill inventories with important products and components, in case of trade disruption after Brexit.

But the export picture is darker -- new orders from overseas shrank for the second straight month in November, the first back-to-back contraction since early-2016.

Rob Dobson, Director at IHS Markit, points out that manufacturers are still quite pessimistic.

“While demand from the domestic market was a positive spur, in some cases as clients built up stocks in response to Brexit and other supply-chain uncertainties, manufacturers also reported a further decrease in new export business as slower global economic growth and Brexit worries took a bite out of foreign demand.

Brexit worries also increasingly dominated the outlook for the sector. Although still forecasting growth for the year ahead, manufacturers’ confidence fell to its lowest ebb since August 2016.”

Overnight, manufacturing group EEF also reported that UK manufacturers have been working hard, stockpiling products ahead a possible cliff-edge Brexit.

It’s official: Europe’s factory sector slowed last month.

Data firm Markit reports that its eurozone manufacturing PMI fell to 51.8 last month, down from 52 in October. That’s the weakest growth since August 2016, and close to the 50-point mark that shows stagnation.

Italy and France were the worst-performing regions:

  • Netherlands 56.1: 25-month low
  • Austria 54.9: 2-month high
  • Ireland 55.4: 2-month high
  • Greece 54.0: 6-month high
  • Spain 52.6: 3-month high
  • Germany 51.8 (flash: 51.6) 31-month low
  • France 50.8 (flash: 50.7) 26-month low
  • Italy 48.6: 47-month low

On the upside, it’s better than the initial ‘flash’ estimate released mid-way through the month (51.5).

UBS analyst Paul Donovan suggests investors shouldn’t get too excited about the US-China trade truce.

US President Trump may, metaphorically, be claiming to have a tweet on Twitter that promises trade peace in our time. The reality of the US-China handshake deal at the G20 is not that secure. The deal looks to be a variation on the Juncker-Trump EU handshake deal.

City traders often talk about a ‘Santa Rally’, in which shares end the year with solid gains.

And this year, Santa may be coming early.... as the Trump-Xi truce boosts confidence across the financial markets.

Neil Wilson of Markets.com explains:

“December is starting with a bang, with a de-escalation in Sino-US tensions positive for risk. Donald Trump tweeted yesterday that China ‘will reduce and remove’ tariffs on US auto imports, amid signs of progress on trade talks.

It follows a more positive G20 meeting. The US will delay for 90 days any increase in tariffs to enable talks to take place. The US had planned to raise its 10% tariff on $200bn of Chinese goods to 25% on January 1st.

Some be concerned that there was no official word from China in relation to auto tariffs, and that the two sides are saying different things about the meeting.

European stock markets are a sea of green this morning, with gains across the board.

dec03europe1
European stock markets this morning Photograph: MeetingRoom/Thomson Reuters

In London, nearly every share is up in

Top risers on the FTSE 100, 3rd December 2018
Top risers on the FTSE 100, 3rd December 2018 Photograph: MeetingRoom/Thomson Reuters

Mayank Mishra, global macro strategist at Standard Chartered, explains:

“Even though it’s a 90-days truce and both U.S. and China still need to sort out multiple issues in this period, from markets’ perspective getting past the event risk with a positive outcome and de-escalation of tensions is clearly positive for risk sentiment.”

Progress!

Mining stocks are surging sharply in London too.

Anglo American, Glencore and BHP Group have all gained at least 6% this morning, on the prospect of higher demand for iron ore, copper and coal.

Boom! Shares in London have surged to a two-week high at the start of trading.

The FTSE 100 has jumped by 1.5%, or 102 points, to 7,082, as the US-China trade truce cheers investors.

Other European markets are also higher, with France’’s CAC up 2%.

Carmakers are among the top risers, following Donald Trump’s claim that China will drop auto tariffs.

A crop of soybeans being harvested at a farm in Hickory, North Carolina, last week
A crop of soybeans being harvested at a farm in Hickory, North Carolina, last week Photograph: Charles Mostoller/Reuters

Soybeans prices are moving sharply this morning, on relief that Washington and Beijing have backed away from a deeper trade war.

Trump’s claim that China will “immediately” start buying more US products has driven soybean prices up by 3% on the Chicago futures market.

However, they’ve dropped in China -- as traders anticipate a surge in supplies from America’s farmers.

Bloomberg has more details:

“The price spike in Chicago soybeans and the fall in Dalian is a normal market reaction to the U.S.-China trade truce because China has agreed to start buying agricultural products from American farmers immediately,” said Monica Tu, an analyst at researcher Shanghai JC Intelligence Co.

Still, “the market is very concerned about the outcome of further negotiations,” and whether there will be big purchases in the next few weeks, she said.

Yuan jumps

China’s currency is strengthening, on relief that America has decided not to hike tariffs on Chinese imports at the start of January.

The yuan has jumped by 1% against the US dollar, to ¥6.88 to $1. That’s up from ¥6.954 on Friday night, before the G20 summit got up to speed.

Hussein Sayed, Chief Market Strategist at FXTM,

What was delivered over the dinner was not a breakthrough, neither a long-term solution for the ongoing trade war between the largest two economies, but a 90-day window to improve relations.

Introduction of new tariffs are now shelved, and trade talks will intensify over the next three months. This outcome seems to be an optimistic one from the two leaders and more than what was priced into markets beforehand, meaning that this is enough to boost sentiment and risk-on trade.

But, don’t forget the White House’s 90-day deadline....

...but US and China accounts differ

A newspaper featuring a front page story about the meeting between US President Donald Trump and Chinese President Xi Jinping at a news stand in Beijing on December 3, 2018.
A newspaper featuring a front page story about the meeting between US President Donald Trump and Chinese President Xi Jinping at a news stand in Beijing on December 3, 2018. Photograph: Greg Baker/AFP/Getty Images

Chinese newspapers have cheered the truce hammered out between Trump and Xi at the G20 leaders meeting.

The Global Times called the deal a “momentous step forward”, while the People’s Daily dubbed it an “important consensus”.

However, China has NOT backed up the White House claim that the ceasefire will only last for 90 days, unless a permanent trade deal is reached.

As CNBC explains:

Official online statements about Chinese Foreign Minister Wang Yi’s briefing on the meeting did not discuss the technology transfers or the 90-day condition.

The timeframe and details on areas of disagreement also did not appear in online reports from China’s state news agency Xinhua, People’s Daily — the official Communist Party paper — and CGTN — the English-language version of state broadcaster CCTV.

The articles did note the U.S. and China agreed to work towards mutual benefits, and generally indicated Beijing would increase purchases of U.S. goods. The state media also said the two parties discussed North Korea denuclearization. The Chinese press also said Trump upheld a “One-China Policy” regarding Taiwan — something not mentioned in the White House statement.

Trade truce: What the experts say

European futures, December 03 2018
European stock markets are expected to jump this morning Photograph: Bloomberg TV

Sue Trinh of Royal Bank of Canada is cautious about this trade truce -- pointing out that the US and China haven’t released a joint statement on what was agreed.

But she also believes this is a win for president Trump:

Trade wars need to be framed in terms of who hurts the least and see the G20 meeting as a stronger win for the US.

China buys 3 months before tariffs on $200bn in goods rise to 25% while the US knows it will have a deal with sizeable China concessions in 90 days, or go ahead with tariffs having cleared the backlog of harvested crops from the agri sector.

Tai Hui, chief market strategist for Asia Pacific at J.P. Morgan Asset Management, is also wary, saying:

The negotiation is likely to remain challenging given the competition in a number of areas, especially technological development between the two countries. 90 days is not a very long to resolve these differences.

The good news is that this truce should be seen as Washington recognising the potential damage on the U.S. economy if tariffs escalate further. We see an ongoing dialogue between the two sides to be an important catalyst for Asian markets to recover lost ground this year, alongside steady global growth and a weaker US dollar.”

The agenda: Trade truce cheers investors

U.S. President Donald Trump, second right, and China’s President Xi Jinping, second left, attend their bilateral meeting at the G20 Summit in Buenos Aires, Argentina.
U.S. President Donald Trump, second right, and China’s President Xi Jinping, second left, attend their bilateral meeting at the G20 Summit in Buenos Aires, Argentina. Photograph: Pablo Martínez Monsiváis/AP

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

Global stock markets are rallying today on relief that America and China have pulled back from escalating their trade war.

In one of the most eagerly awaited dinner dates in a while, Donald Trump and Xi Jinping struck a truce at the end of the G20 meeting in Buenos Aires.

After the dinner, Trump declared:

“This was an amazing and productive meeting with unlimited possibilities for both the United States and China.

It is my great honor to be working with President Xi.”

However, the agreement is light on detail. We know that America has deferred its plan to raise the tariff on $200bn of Chinese imports from 10% to 25%, for 90 days (it was scheduled for 1 January).

This kicks the can down the road a little, teeing up more tense talks before the end of March.

In return, China has apparently agreed to purchase a “very substantial” amount of US goods - including farm, energy and industrial products. That would help narrow the massive trade gap between the two countries.

Trump has declared that China is also removing tariffs on US car imports -- which would be a win for America’s auto sector

However, the two sides will now face fraught talks over intellectual property protections, and the threat that the truce could break down at an time.

Still, investors are delighted to hear peace ring out.

Asian markets have surged overnight, with China’s Shanghai Composite jumping by 2.5%. That’s its biggest one-day gain in a month.

Australia has gained 1.8%, and Japan’s Nikkei is 1% higher.

Stephen Innes of trading firm OANDA says:

With the immense weight of the global supply chain dynamic network on their shoulder, a tariff detente has emerged after a highly anticipated dinner.

Both Presidents’ XI and Trump have agreed to put on hold the menacing tariff increases expected to get imposed January 1, marking a significant de-escalation in trade tensions between the world’s two biggest economies. Thankfully, for risk sentiment, the “dinner date of the decade” ended with a sense of harmony rather than trade war discord.

European markets are going to join the party too, and are expected to gain almost 2% at the open....

Also coming up today...

We find out how the world’s factories fared in November, when the latest surveys of purchasing managers are released. They’ll probably confirm that the eurozone has slowed sharply, while the US economy is more robust.

The agenda

  • 9am GMT: Eurozone manufacturing PMI report for November
  • 9.30am GMT: UK manufacturing PMI report for November
  • 3pm GMT: US manufacturing PMI report for November

Updated

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