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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Bank of England warns no-deal Brexit would cause historic downturn - as it happened

Click play to watch the Bank of England’s press conference

Closing summary: Critics pile in after Bank's Brexit warning

Time for a recap:

The Bank of England has warned that a no-deal Brexit would trigger the worst UK downturn since the Great Depression. In a new scenario drawn up for MPs, the BoE outlined how:

  • GDP would fall by as much as 8% next year
  • House prices would fall by 30%
  • the unemployment rate would increase from its current level of 4.1% to about 7.5%,
  • The pound would plunge by a quarter, driving inflation up to 6.5%.
  • Interest rates would be hiked sharply to curb rising prices and support sterling

Bank of England governor Mark Carney told reporters that the Bank would have limited powers to cushion Britain from a supply shock, if trade with the EU was suddenly disrupted.

Lowering interest rates isn’t going to open a port,lowering interest rates is not going to allow a bank in London to continue to operate in the continent if passporting has been taken away.”

Carney also warned that some UK businesses are unprepared for a cliff-edge Brexit, or simply can’t protect themselves from new trade barriers.

The level of preparedness of businesses and infrastructure,infrastructure such as ports, customs systems and transportation operations, will be important determinants of how well the economy adjusts to new trade barriers.

Evidence from surveys and other UK authorities suggests that the country is not yet fully prepared for a cliff-edge Brexit.

The governor denied scaremongering, insisting:

“Our job is not to hope for the best but to prepare for the worst.” “We have looked at a potential no-deal, no-transition Brexit... the reason we do that is to be prepared for all eventualities.”

The Labour Party have said the report shows the perils of a no-deal Brexit. They want Theresa May to rethink her plan, before it’s too late.

The Bank’s analysis has been criticised, though, with top economist Paul Krugman saying its assumptions were questionable.

Carney was also savaged by Brexit supporting MPs; Jacob Rees-Mogg dismissed him as a ‘second-tier failed politician’ who had damaged the Bank’s reputation.

The Bank also reported that Britain’s banking sector could survive whatever Brexit throws at it. HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group, Santander, Standard Chartered and Nationwide Building Society all passed this year’s stress tests.

Carney said the public should take comfort in the strength of the UK financial system:

The purpose of what we’ve released today... is not supposed to make people scared, it’s supposed to provide reassurance that even if this happened, which is not likely, the system is more than ready for it.

That’s all for today. Thanks for reading and commenting.

Guy Bradshaw, Head of Residential at UK Sotheby’s International Realty, doesn’t believe the Bank’s forecasts either:

He says US citizens are already eyeing up UK property, which becomes more affordable if the pound weakens:

“To claim house prices will fall by a third is highly unrealistic, this is almost double the downturn in prices we saw in 2008. It is unlikely we will be walking away from the EU without a deal so this scaremongering is doing nothing to help a market which is already stagnating under punitive stamp duty costs as well as political and economic uncertainty.

“The biggest driver for London’s prime property market next year will undeniably be foreign investment by individuals looking to hedge their bets with the good currency play. Already this evening we have spoken to a handful of American investors who have proactively reached out to us following the BOE’s announcement. With the exchange rate potentially offering US buyers a 25% discount on properties this could be one of the smartest times to invest in London. These buyers are predominately from Miami and New York and are unphased by the proposed foreign buyer tax as they know they will recover these costs when the market bounces back.

Henry Zeffman of The Times has a mischievous idea.....

BoE Brexit warnings: What the papers say

The Financial Times says the Bank of England is warning of a ‘historic’ economic downturn:

A cliff-edge Brexit where the UK crashed out of the EU with no deal and no transition could lead to the country’s GDP dropping by its sharpest ever levels, according to a new Bank of England analysis.

UK GDP could fall by as much as 10.5 per cent over a five-year period in the severest of Brexits, compared to its pre-referendum levels, while house prices could plummet by 30 per cent, the BoE said on Wednesday as part of its semi-annual scan of threats to financial stability.

That compares with respective drops of 6.25 per cent and 17 per cent during the financial crisis. But the central bank concluded that the financial system could withstand even the most severe of Brexit risks, with UK lenders all passing the BoE’s annual stress tests, the results of which were also published on Wednesday. It added that securing an implementation period would mitigate the worst financial-stability risks.

The Telegraph takes a similar line:

A disorderly Brexit could wipe 8pc off UK economic output within a year, creating the worst slump since World War II, according to the Bank of England.

This would result in the Bank having to hike interest rates to 5.5pc in order to compensate for the sudden shock.

Unemployment would almost double, from the current rate of just over 4pc to 7.5pc, despite a fall in net migration of 100,000.

The pound would lose 25pc of its value against the dollar under a “no deal, no transition scenario”, and could be worth less than a dollar.

Bloomberg has summarised the key points in the “disorderly” Brexit scenario:

  • GDP drops 8%
  • House prices fall 30%
  • Commercial property prices plunge 48%
  • Sterling falls 25% to below parity with the dollar
  • Unemployment rises to 7.5%
  • Inflation accelerates to 6.5%
  • BOE benchmark rate rises to 5.5% and averages 4% over 3 years
  • Britain goes from net immigration to net outflow, reducing labor supply

Krugman: BoE has gone out on a limb

Ouch. A Nobel-prize winning economist is questioning whether the Bank of England’s analysis really stacks up.

Paul Krugman, an expert on trade, isn’t convinced that the UK economy would actually shrink by 8% (a really massive contraction) in a no-deal Brexit.

Krugman isn’t castigating the Bank ala Rees-Mogg; but he’s politely questioning the Bank’s economic logic - and how it thinks trade disruption would hurt productivity.

Another Brexiteer MP has criticised the Bank’s work:

Lukman Otunuga, research analyst at City firm FXTM, believes the Bank’s analysis strengthens the prime minister’s hand, as she tries to force MPs to back her deal:

On the bright side, the Bank of England stated that a close economic relationship with the EU could boost GDP growth by 1.75% over the next five years.

It seems investors are focusing on the positive aspects of the BoE’s financial stability report to push the Pound higher. Today’s report may offer Theresa May some ammunition when she sells her Brexit deal to parliament.”

Breaking away from Brexit, the New York stock market is surging after America’s top central banker hinted that US interest rates won’t rise as fast as expected.

My colleague Phillip Inman explains:

The outlook for economic growth in the US has grown uncertain, the US central bank chief Jerome Powell said on Wednesday as he signalled a slower pace of interest rate rises over the next two years.

Powell, who has angered Donald Trump this year with his determination to raise rates, said the Federal Reserve would pause to assess the impact of higher borrowing costs on US households and businesses.

Analysts were divided over whether the Fed chief had buckled to complaints by the president or had become worried about rising distress in the housing market following eight rises since 2015.

Powell said there were mixed signals from recent economic data despite the economy growing at more than 3% and the jobs market showing a slight lift in wages.

He said: “If the light goes out you move cautiously,” he said.

US traders aren’t moving cautiously, though. They’ve sent the Dow Jones industrial average surging by over 2%, or 550 points, as fears that the Fed might hike too fast melt away.

A screen at the New York stock exchange showing chairman Jerome Powell speaking at the Economic Club of New York today.
A screen at the New York stock exchange showing chairman Jerome Powell speaking at the Economic Club of New York today. Photograph: Richard Drew/AP

We shouldn’t forget that the BoE is confident that the banking sector can cope with whatever Brexit throws at it.

Rob Smith, banking partner at KPMG UK, says today’s stress tests have shown UK banks in a good light:

“The Bank of England is keen to paint a positive picture as we head into Brexit. The EBA put UK banks on the naughty step earlier this month whereas the Bank of England is clearly keen to emphasise their robustness.

Here’s Labour’s shadow chancellor, John McDonnell, on the Bank’s of England’s Brexit forecasts:

“The Bank has confirmed what other independent reports this week have been telling us: a No Deal Brexit could be even worse than the financial crisis of ten years ago, and the country would be much worse under Theresa May’s deal.

“Instead of ploughing on with this discredited deal the Government should set new priorities that would protect jobs and the economy.”

Updated

Two leading Brexiteer MPs have attacked the Bank of England for its gloomy assessment of a no-deal Brexit.

Jacob Rees-Mogg, head of the European Reform Group of backbench Conservative MPs, blasted Mark Carney’s performance, saying:

“It is unusual for the Bank of England to talk down the pound and shows the governor’s failure to understand his role. He is not there to create panic.”

Rees-Mogg has also got personal on Radio 4’s PM programme, calling Carney:

A second-tier failed Canadian politician who unfortunately we have running one of our most distinguished institutions who has trashed its reputation by his succession of hysterical and wrong forecasts.

Former cabinet minister Priti Patel also criticised the BoE:

“The Bank of England is undermining its credibility and independence by giving such prominence to these extreme economic forecasts and scenarios.”

Andrew Sentance, a former Bank of England policymaker, is also unimpressed:

Here’s the full quote from Mark Carney tonight, on how a no-deal Brexit could hit the UK economy hard:

In both scenarios, tariffs and other trade barriers are introduced suddenly next spring.

The UK recognises EU product standards but the EU does not reciprocate.

In the more severe, or disorderly scenario, the UK’s border infrastructure does not cope smoothly with new customs requirements for some time

There’s a pronounced increase in the return investors demand for holding sterling assets.

By the end of 2023, GDP is more than 10% lower in the disorderly scenario compared to that May 2016 trend.

And that also means a plunging pound, a surge in inflation, and a slump in house prices:

BoE forecasts

Updated

Full stories on stress tests and Brexit

If you’re just tuning in, here’s our news story about the Bank of England’s warning that a no-deal Brexit would cause economic turmoil:

And here’s our piece on the UK bank stress tests (which are being overshadowed by Brexit, but still important).

Q: In your scenario, would a UK recession in 2019 be less severe if interest rate were cut to zero?

Deputy governor Ben Broadbent says it all depends on Brexit’s impact on the supply side of the UK.

Carney weighs in too -- saying lower interest rates wouldn’t keep a UK port open, or give a City bank access to the EU markets.

In other words, the usual rules (that you ease monetary policy in a recession) don’t apply.

And that’s the end of the press conference.

Updated

Q: Do you feel happier talking about Brexit risks now you have a UK passport, after becoming a UK citizen this month?

Mark Carney breaks into a grin, and reveals he doesn’t actually have a passport yet (‘the Home Office is busy’), but he does have citizenship.

The governor adds that it’s a great privilege to have this role, and “testament to UK openness” that he was hired.

Here’s a picture of Carney at his citizenship ceremony:

Live feed of Mark Carney's press conference

Governor of the Bank of England Mark Carney gestures as he hosts a Financial Stability Report press conference at the Bank of England in central London on November 28, 2018.
Governor of the Bank of England Mark Carney gestures as he hosts a Financial Stability Report press conference at the Bank of England in central London on November 28, 2018. Photograph: Daniel Leal-Olivas/AFP/Getty Images

Carney declines to say whether he outlined these dire no-Brexit scenarios when he brief the cabinet about the issue in September.

But he repeats that these are scenarios, not forecasts (scenarios of plunging house prices, a slumping pound and a deep recession).

No-deal Brexit would cause worst crash since the Great Depression

Q: If your worst-case scenario came true, and there was an 8% decrease in the UK economy, would that be the worst year for the economy ever?

Apparently no! Britain suffered a 20% plunge in output after it rejoined the gold standard (in 1925), says deputy governor Ben Broadbent.

Governor Mark Carney jokes that the BoE learned its lesson:

That was the last time the Bank gave advice to the government, to go back on the gold standard.

On a cliff-edge Brexit, Carney says:

It is a possibility that we will have a no-deal Brexit with no transition.... The probability has increased with time. And our job has been to get the system ready.

Q: Your worst-case Brexit scenario suggests that UK interest rates rise to 5.5% as the economy crashes, which is the absolute opposite of what happened in the 2008 crisis. So is it really likely?

Carney says that a no-deal Brexit would indeed be the opposite of the financial crisis. It was a demand shock.

But if the UK left the EU without a deal, it would be a supply shock, which would then hurt demand as well.

It’s hard to assess exactly how that supply shock would strike the UK, and how long it would last (there’s little historical precedent - perhaps the oil shock of the 1970s?).

A sharp supply shock, plus an exchange rate adjustment (a plunging pound), equals inflation -- which the Bank would typically tackle with higher interest rates.

Q: Aren’t you effectively endorsing government policy with this no-deal Brexit warning? And doesn’t that undermine the independence of the Bank of England?

Mark Carney says the Bank of England is accountable to parliament, and parliament asked it to examine the impact of Brexit on the economy.

He repeats that the Bank has developed scenarios, not forecasts. It has to do this work to ensure financial stability.... so when you’ve done it, and parliament has asked for it, you have to publish it.

Here’s a video clip of Mark Carney discussing the impact of a no-deal Brexit.

Q: What would happen to your growth forecasts if Britain didn’t leave the EU?

Carney says you can ‘mechanically extrapolate’ Britain’s growth rate at 2016, when the UK was running at 2% growth per year.

He doesn’t go further... but the UK only grew by 1.8% in 2017. It is expected to only grow by 1.3% this year, 1.6% in 2016, and then 1.4% in 2020 and 2021.

Carney: Businesses aren't ready for no-deal Brexit

Mark Carney has warned that some British firms are unprepared for a no-deal Brexit, or simply can’t prepare.

The proportion of businesses that have drawn up, or activated contingency plans, are a fraction of the whole, the governor says.

In some cases it is very difficult for those businesses to plan for border frictions. The logistics of that happening is very difficult.

That’s why it is important to more seamlessly to the new relationship between the UK and EU, whatever it takes, he adds.

Updated

Carney: Britain isn't fully ready for cliff-edge Brexit

Mark Carney has warned that the UK is not “fully prepared” for a cliff-edge Brexit.

Q: Are you part of Project Fear?

The governor replies that the Bank of England’s job is not to hope for the best, but to prepare for the worst.

And he insists that the “core of the financial system” is ready for Brexit, however it plays out.

The Bank of England is ready for Brexit, whatever form it takes, governor Mark Carney says.

But he also warns that the Bank’s powers are limited. Monetary policy can do little to offset the “potentially significant hits to productivity” that Brexit could bring.

Bank: No-deal Brexit will be worse than the financial crisis

The Bank has also releases its Brexit analysis - and warned that crashing out of the EU without a deal would worst than the 2008 financial crisis.

My colleague Richard Partington reports from the Bank:

Britain crashing out of the EU without a deal would trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis, the Bank of England has warned.

Raising the stakes as Theresa May battles to win support in parliament for her Brexit deal, the central bank said that failure to reach a deal with Brussels – with no transition period to a new trading relationship - would spark an immediate economic crash.

GDP would fall by as much as 8% next year, exceeding the depth of the recession that followed the financial crisis in one of the worst-ever peacetime capitulations for the economy.

House prices would fall by 30% and the unemployment rate would increase from its current level of 4.1% to about 7.5%, while interest rates would be forced to rise as inflation increased to 6.5%.

In sharp contrast, the Bank said that May’s Brexit deal had the potential to encourage a bounce for economic growth over the next five years, relative to its current forecast, although only if Britain maintains the closest possible trading ties with the EU.

Updated

As this chart shows, the Bank’s stress test is actually more testing than the 2008 financial crisis.

stress1

Worst-case Brexit scenario: economy shrinks, pound tumbles....

Governor Mark Carney is speaking to reporters now, explaining that today’s Brexit scenarios show ‘what could happen, not what is going to happen’.

And they are certainly testing.

As the Press Association explains:

In the event of a disorderly no deal, no transition Brexit, Britain’s GDP could fall by 8% from its level in the first quarter of 2019, according to analysis of a worst case scenario by the Bank.

The unemployment rate would rise 7.5% and inflation would surge 6.5%. House prices are forecast to decline 30%, while commercial property prices are set to fall 48%. The pound would fall by 25% to less than parity against both the US dollar and the euro.

The Bank of England says it has tested whether UK banks could survive a ‘worst case’ assumptions about the challenges the UK economy could face in the event of a cliff-edge Brexit.

That includes:

  • the sudden imposition of trade barriers with the EU; loss of existing trade agreements with other countries; severe customs disruption; a sharp increase in the risk premium on UK assets; and negative spillovers to wider UK financial markets.

Here’s the key messages from the Bank of England’s stress tests of the UK banking sector.

Stress testing

Our stress test shows that UK banks could continue to lend in a scenario more severe than the financial crisis.

Bank resilience

UK banks are prepared and strong enough to continue to serve UK households and businesses even through a disorderly Brexit.

Brexit checklist

The UK government is making sure the financial services UK households and businesses get from EU providers won’t be disrupted.

UK banks pass disorderly Brexit stress test

BREAKING: All seven of Britain’s major lenders have passed the Bank of England’s stress tests, meaning they are strong enough to withstand a disorderly Brexit.

That means HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group, Santander, Standard Chartered and Nationwide Building Society are all strong enough to ride out a no-deal departure, without needing to raise more funds.

The BoE’s Financial Policy Committee says it has reviewed a scenario whereby Britain crashes out of the European Union in four months’ time with no deal or transition period.

The FPC says:

“Based on a comparison of this scenario with the stress test, the FPC judges that the UK banking system is strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit

“No bank needs to strengthen its capital position as a result of the stress test.”

Updated

City economists are getting impatient....

Hold your horses.... there’s a small delay.

Due to technical problems, the stress tests will be released at 4.40pm, along with the Bank of England’s financial stability report and its analysis on the impact of Brexit

David Madden of CMC Markets says the City is keen to see the stress test results:

UK banks will be in focus as the Bank of England stress test results will be announced after the closing bell of the London session.

Traders will be interested to find out how British bank would cope in the various different Brexit scenarios.

UK banks have beefed up their balance sheets since the credit crisis, and now they could face additional tough times, depending on the terms of the UK’s exit of the EU.

Coming up.... UK stress tests

It’s nearly time for the Bank of England to release the results of its latest stress tests.

This annual exam will show whether Britain’s biggest banks can handle a major downturn, or a disorderly event such as a no-deal Brexit.

HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group and Santander are all being put through their paces, along with Standard Chartered (which has more of an international focus) and the Nationwide Building Society.

The BoE’s scenario is pretty brutal, modelling:

  • a 33% fall in property prices
  • a 40% fall in commercial property prices
  • UK unemployment more than doubling, to 9.5%
  • UK GDP falling by 4.7%
  • World GDP falling by 2.4%
  • UK interest rates rising to 4%, from 0.75% at present.

The BBC has a good preview, here:

How healthy are Britain’s banks?

The results are due at 4.30pm sharp, followed by a press conference with governor Mark Carney. BoE is also releasing its Brexit impact assessments, so it could get busy....

The Bank of England in London.
The Bank of England in London. Photograph: Kirsty O'Connor/PA

Fed: No-deal Brexit would rock markets.

America’s central bank has identified Brexit has one of the key threats to US financial stability.

In a new report, the Federal Reserve warned that a wide range of economic and financial activities could be disrupted if Britain leaves the EU without a deal.

It says:

An intensification of sovereign debt concerns or unresolved uncertainty about the implications of Brexit could lead to market volatility and a sharp pullback of investors and financial institutions from riskier assets, as occurred following the June 2016 Brexit referendum in the United Kingdom and earlier during the European debt crisis.

The Fed adds:

Because London is an important international financial center, U.S. banks and broker-dealers participate in some of the markets most likely to be affected by Brexit.

The Fed also flags up the Italian budget row, and the slowing Chinese economy as potential risks [something Tiffany’s has already confirmed today].

Heads up: Donald Trump has just dropped a loud hint that he will impose new tariffs on car imports.

The president has tweeted that such a measure would protect US jobs, following GM’s decision to close several factories.

There are already rumours that the president could slap a fresh 25% customs duty on car imports from all countries except Canada and Mexico. These tweets suggest something is brewing....

Tiffany’s CEO, Alessandro Bogliolo, has told analysts that Chinese tourists have cut their spending in both the US and Hong Kong.

Explaining last quarter’s underwhelming sales growth, he explained:

“What we have clearly seen in the quarter has been a shift in Chinese tourism and spending,.

So we have seen spending of Chinese jewelleries going down in important markets outside of China and we have seen strong sales in mainland China. This is a clear pattern that we have seen now since few months.”

Tiffany's suffers from drop in Chinese tourist spending

A gift box from Tiffany & Co.
A gift box from Tiffany & Co. Photograph: Wilfredo Lee/AP

US luxury jewelry vendor Tiffany & Co has been hit by a drop in Chinese tourists visiting America, sending its shares sliding.

Tiffany’s has missed Wall Street expectations by only reporting a 4% rise in revenues for the last quarter.

It blamed weaker spending by Chinese tourists, who have been cutting back as China’s growth rate has slowed.

That rather suggests that Tiffany’s is the latest US company to been hurt by Donald Trump’s trade war. Those tariffs on Chinese imports are rebounding nastily on America’s economy.

As Associated Press puts it:

Chinese economic growth declined to a post-global crisis low of 6.5 percent in the quarter than ended in September.

A trade fight with the Trump administration is pressuring communist leaders to energize economic activity that has weakened since Beijing clamped down on bank lending last year as it tries to rein in surging debt.

Shares in the company have plunged by 9% in New York, as investors fret.

Updated

Wall Street is open....and shares are rising in early trading.

The Dow has jumped by 150 points, or 0.5%, as investors hope that Donald Trump and Xi Jinping might agree a trade breakthrough when they sit down for dinner on Saturday.

Technology companies and industrial firms are leading the rally.

Bloomberg’s Bob Burgess has spotted that the US trade gap in goods has actually hit a record high....

Balraj Sroya, sales trader at Foenix Partners, thinks Donald Trump will welcome today’s US GDP figures, confirming another solid quarter of growth:

The print surprisingly saw business investment pick up pace last quarter, while corporate profits bolstered to 6-year highs with the assistance of Trump’s tax bill.

The stellar print strengthens Trump’s negotiating hand ahead of trade talks with his Chinese counterpart Xi Jinping this weekend, as the US economy is proving resilient to recent pressures while the Chinese have not fared so well.

US trade deficit rises

Ouch! America’s trade deficit has swelled, despite Donald Trump’s attempts to close the gap between imports and exports.

The U.S. Census Bureau has reported that the international trade deficit jumped by $1bn in October to $77.2bn, as Americans bought more from overseas while selling less the other way.

  • Exports of goods for October were $140.5 billion, $0.8 billion less than September exports.
  • Imports of goods for October were $217.8 billion, $0.2 billion more than September imports.

US growth confirmed at 3.5%

America’s economy grew faster than other advanced economies in the last quarter.

The second estimate of US GDP for Q3 has confirmed that it expanded at an annualised pace of 3.5%, matching the initial estimate.

That’s the equivalent of almost 0.9% quarterly growth, faster than the UK (+0.6%), the eurozone (+0.2%) and Germany (-0.2%).

However, this is a slowdown on previous quarter’s growth, of 4.2% (again, annualised).

The data also shows that consumer spending rose by 3.6%, down from a first estimate of 4.0%.

Business investment was faster than first thought, at +2.5% (up from a first estimate of 0.8%).

Updated

Even Bitcoin is joining in the rally today.

The cryptocurrency has leapt by over 10% today, to $4,157 - its highest level since Sunday.

Some relief for crypto-enthusiasts. However, that’s almost 80% below its record high last December.

Thought For The Day: on the question of how central bankers extract themselves from their stimulus programmes.

The US stock markets are expected to open higher in a couple of hours, following Asia and Europe’s lead.

Updated

Central bankers need a host of skills these days. Intellectual heft to deal with the data, and communication abilities - with the markets hanging on your every word - is a must.

But apparently, it also helps to be tall.

According to the Washington Post, Donald Trump fretted that Janet Yellen was too short to lead the Federal Reserve, before deciding not to reappoint her.

He may now be regretting ditching Yellen (5 foot 3 inches) in favour of the rather taller Jerome Powell.

Trump has admitted he’s “not even a little big happy” about Powell’s performance, given the Fed’s interest rate hike plans.

Heads-up: Donald Trump has declared he is “totally” willing to see the US government shut down, unless it funds his border wall with Mexico.

In an interview with Politico, the president demanded that Congress sends him a bill approving $5bn for his wall on the US-Mexico border.

In classic Trump-speak, insisted that he doesn’t want the wall “just for political gain,” before immediately adding “politically speaking, that issue is a total winner.”

Talk of a shutdown might worry Wall Street; it would hamper efforts to push infrastructure spending programme into law.

A prolonged shutdown could even lead to worries about a default; back in February, President Trump signed a bill suspending the debt ceiling until March 1, 2019.

President Xi vows to open China's economy

China’s President Xi Jinping delivers a speech during a visit to the Senate as part of a state visit in Madrid, Spain, November 28, 2018. REUTERS/Juan Medina
China’s President Xi Jinping delivering a speech to the Spanish Senate in Madrid today Photograph: Juan Medina/Reuters

Newsflash: President Xi has pledged to “sharply widen” the door to China’s economy for foreign investors.

During a pre-G20 trip to Spain, Xi also pledged to ‘step up’ the protection of intellectual property rights. That might go some way to assuaging America’s concerns...

Xi also told the Spanish senate that China planned to import $10 trillion worth of goods over the next five years, adding:

“China will make efforts to open, even more, its doors to the exterior world and we will make efforts to streamline access to markets in the areas of investment and protect intellectual property.”

Asia-Pacific stock markets have closed, with most indices higher (but Australia ended flattish).

Uh oh.....

World stock markets have hit a one-week high this morning, on hopes of a thaw in U.S.-China trade relations, Reuters reports.

That’s thanks to the rally in Asia, where markets in China, Japan and India all made gains, following a late rally on Wall Street.

Bernd Berg, global macro strategist at Switzerland-based Woodman Asset Management, warns that the rally could unwind, if Trump and Xi don’t hit it off at dinner:

“An expectation is being priced into markets ahead of the G20 meeting that we will see some deal or at least a framework for a deal between Trump and (Chinese President) Xi Jinping.

But if they come out with nothing this weekend, it’s going to be very bad.”

Updated

Donald Trump and Xi Jinping will have plenty of choices for their dinner date.

Argentinian authorities are putting Buenos Aires into a security lockdown tomorrow, ahead of the G20 summit, and encouraging residents to leave the City.

With protests expected, the government has decided to divert flights away from the capital, and cancel public transport services.

Some 22,000 police and security agents will be involved in a vast security operation, which will see several “no-go zones” created to prevent protestors getting close to world leaders.

The flurry of quotes, headlines, and tweets from @realdonaldtrump in recent weeks about trade have left investors jittery, says Kit Juckes of Societe Generale.

He explains:

The impact of these “tape bombs” on short-term foreign exchange price action definitely seems bigger in recent months.

Market participants are more high-strung amid the downturn in global equities, credit, emerging markets and commodities. Also, much is riding on the Trump-Xi meeting this weekend. So tape bombs can shake things up in this febrile atmosphere, at least temporarily.

(The term “tape bombs” refers to the old ticker tape that brought news to the trading floors, before the days of terminals and the web.)

European stock markets have also opened positively, with small gains across the board.

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

Michael Hewson of CMC Markets says traders are taking their cue from Larry Kudlow’s optimistic comments about a US-China trade deal.

His comments that US officials were having discussions at a number of levels of government has raised expectations about some form of agreement, though these comments were caveated with the proviso that China needed to do more for that to happen.

Equity markets have chosen to focus on the positive with Asia markets also pushing higher ahead of the key meeting on Saturday with President’s Trump and Xi.

Chinese stock market jumps 1%

A bank electronic board showing the Hong Kong share index today
A bank electronic board showing the Hong Kong share index today Photograph: Vincent Yu/AP

Hopes of a trade war breakthrough at the Trump-Xi dinner date has lifted shares in Asia today.

China’s CSI 300 index jumped by 1.3%, with Hong Kong’s Hang Seng close behind.

Stephen Innes of trading firm OANDA says investors are cautiously optimistic, following Larry Kudlow’s comments last night:

As the market prepares for the dinner date of the century, regional equity investors are expressing a sense of relief that there may be light at the end of Trump’s trade war tunnel despite the ideological differences that were on full display at the Asia-Pacific Economic Cooperation summit.

But last nights heavy -metal headline assault should be a clear-cut reminder that when worlds leading free economy and the worlds best example of state-directed capitalism meet face to face, things can go sideways in a hurry.

Updated

The agenda: Dinner for two presidents

A salad dressing

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

Fancy dinner for two, in an exclusive setting in Buenos Aires? It sounds delightful, especially when the bill shouldn’t be a problem.

But this particular Saturday night date will have a difference - when Donald Trump and Xi Jinping sit down in a few days time, they’ll have a chance to kiss, make up, and calm the trade war that is worrying the global economy.

Larry Kudlow, the director of Trump’s National Economic Council, revealed last night that Trump and Xi will meet for a formal dinner at the G20 meeting this weekend.

Kudlow told reporters that the two presidents could “turn a new page” in their bilateral economic relationship....but only if Xi makes concessions on trade policy.

Kudlow said:

“President Xi has an opportunity to change the tone and the substance of these talks.

This is a big opportunity. President Trump has indicated he’s open. Now we have to know if President Xi is open.”

This is their only scheduled meeting before January, when the US is set to hike its tariffs on $200bn of Chinese imports from 10% to 25%. So it really does matter.

Trump had raised the stakes on Tuesday by floating the idea of imposing tariffs on pretty much all Chinese goods sales to America. This trade war could easily get a lot worse....

Investors, though, will hope that China will give ground on issues such as intellectual property transfers.

We’ll find our later today if Trump’s tariffs are having effect on America’s trade gap, when the latest import and export figures are released.

Also coming up today

Federal reserve chair Jerome Powell, is giving a speech this afternoon. Wall Street will watch for signs that Trump’s criticism of the Fed over interest rate policies has had any effect.

The Bank of England is publishing the results of its annual stress tests on Britain’s biggest lenders this afternoon. They’ll show if UK banks can cope with an economic shock, or a recession.

The stress tests will probably be overshadowed by the Bank’s analysis of Britain’s Brexit withdrawal agreement, also released at 4.30pm, and likely to warn against a no-deal scenario.

The agenda

  • 1.30pm BST: US trade figures for October
  • 1.30pm BST: Second estimate of US GDP for Q3 2018
  • 4.30pm: Bank of England publishes 2018 bank stress tests, and no-deal Brexit analysis
  • 5pm: Fed chair Jerome Powell gives a speech

Updated

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