Summary
Time for a recap.
World stock markets have hit their highest level of 2019, as optimism builds that the US and China can calm their trade wars.
As Associated Press puts it:
On Friday, China and the U.S. announced plans to resume trade negotiations in Washington, fueling hopes that both countries were edging toward a deal.
“We feel we have made headway on very, very important and difficult issues,” U.S. Trade Representative Robert Lighthizer said in a meeting with Chinese President Xi Jinping.
Xi expressed hope for “a mutually beneficial and win-win agreement,” according to the official Xinhua News Agency.
China’s stock market led the rally, surging by over 3%. However, London isn’t really joining the party - the FTSE 100 is down 5 points.
The oil price was swept to a three-month high, with Brent crude close to $67 per barrel, after Donald Trump tweeted that progress was being made.
But...there are also worries that Trump could open up a new trade row with Europe. He’s received a new government report which outlines whether the EU auto industry is a national security threat - which could justify higher tariffs.
Germany’s Bundesbank remains cautious, predicting that growth will not rebound sharply after stagnating in the last quarter.
Brexit is also looming over the UK economy, driving household financial confidence down to an 11-month low.
With Wall Street closed for Presidents Day, there may be little more action today. We’ll be back tomorrow.
Updated
Brexit uncertainty, and fears of job losses, are eating into UK household confidence.
British households grew more downbeat about their finances this month, according to data firm Markit.
It’s monthly healthcheck of household morale fell to just 43.4 this month, down from 44.7 in January. That’s the worse reading for current financial wellbeing among UK households since March, pulled down by rising job insecurity.
Heads-up, travellers -- staff at Luton Airport have voted to hold a week-long strike.
Unite union members at GH London (a ground-handling service) are holding the walkout, in a protest over a pay freeze. It will run from 3rd to 10th March, potentially causing significant disruption to operations at the airport.
Press Association has more details:
GH London provides ground-handling services to Wizz Air at Luton Airport.
Unite regional officer Jeff Hodge said: “Unite has been calling for meaningful talks with GH London since the beginning of 2018.
“This strike vote is a result of the company’s failure to listen to its workforce who face a cut in their living standards.
“Now that the company is prepared to meet, we hope we can get constructive talks under way to resolve this dispute.”
Germany’s central bank has given investors a dose of realism, warning that Europe’s largest economy will continue to struggle for the next few months.
In its latest monthly report, the Bundesbank said recent weak factory order - combined with signs that businesses are gloomy -- mean there’s little hope of a strong rebound doon.
The Bundesbank says:
“All this suggests that the underlying pace of the economy should remain subdued at least in the first half of the year. “But there are no signs that the slowdown is becoming an outright downturn.”
Germany has just dodged a recession, after its GDP shrank in July-September but was flat between October and December.
Shoe retailer Footasylum has been a particularly dire stock market performer of late.
Having floated at 164p in November 2017, shares had slumped to just 30p last week - a serious loss for anyone who joined the IPO.
But there’s some relief today - shares have surged by 70% back to the giddy heights of 50p, after JD Sports announced it had bought an 8% stake, and could increase its holding to 29.9% – the maximum level permitted without triggering a bid.
Footasylum was founded by retail entrepreneur David Makin -- who also co-founded JD Sports. The company is now run by his daughter Clare Nesbitt; she and two siblings still own around roughly half of Footasylum’s shares, and made £25m from that float.
Updated
Take note, Donald Trump -- Europe says it will hit back if America decides its car industry is a national security threat.
EU Commission says EU would react swiftly if US applied tariffs to EU car imports
— DailyFX Team Live (@DailyFXTeam) February 18, 2019
It’s notable that markets are rallying despite weak US economic data last week -- poor factory output, and the biggest drop in retail sales in nine years.
Kit Juckes of Societe Generale explains why:
Markets are starting the week with a broad grin on their collective face. China’s strong lending data and China/US trade optimism outweigh any concerns about what President Trump may do regarding Auto imports.
The US has released two major economic indicators that send alarming signals about the US economy but for markets, policy (monetary and trade) outweighs such old-fashioned concerns as the economic cycle.
It’ll take more poor economic data to change that and while I’m sure it’s coming, it won’t be today (Presidents’ Day).
World stock markets hit 2019 high
Despite the weak open in Europe, global stock markets have hit their highest level in two and a half months.
With China up 3% today, and Japan’s Nikkei up 1.8% to its highest level this year, the MSCI’s All-Country World Index has gained 0.3% to its highest level since 3rd December last year.
APAC Closing Prices:#ASX 6089.8 +0.39%#NIKKEI 21281.85 +1.82%#HSI 28347.01 +1.60%#HSHARES 11149.02 +1.94%#CSI300 3445.74 +3.21%
— IGSquawk (@IGSquawk) February 18, 2019
Ricardo Evangelista, senior analyst at ActivTrades, explains: why stocks have risen:
Trade talks between the US and China appear to be making good progress. Both sides issued positive remarks about the progress of the negotiations, including President Trump’s admission that he may agree to an extension to the March the 1st deadline, maintaining the current level of tariffs on Chinese imported goods beyond that date.
The news appears to have calmed the nerves of investors and as fears over an escalation in the trade conflict recede, so does the value of the Dollar.
EU car industry fears new US tariffs
The US-China trade war optimism is being undermined by fears that Donald Trump could impose new tariffs on Europe’s car industry.
The US Department of Commerce has just filed a report, outlining whether the EU auto industry is a national security threat.
Trump now has 90 days to read this “section 232” report, and decide whether to impose levies of up to 25% on imported vehicles, or components.
The report is thought to focus on emerging technologies, at a time when the car industry is scrambling to develop better electric technologies as consumers shun diesel.
America’s Motor and Equipment Manufacturers Association has already urge the White House not to open up a new trade dispute, saying:
“These tariffs, if applied, could move the development and implementation of new automotive technologies offshore, leaving America behind.
“Not a single company in the domestic auto industry requested this investigation.”
This is weighing on European car stocks, with Volkswagen and Daimler both down 1%.
That’s put the German DAX into the red. Britain’s FTSE 100 has also dipped in early trading, as Europe drops the bullish baton handed over by Asia overnight.
The rise in the oil price is bad news for airline stocks, most of which are down this morning.
International Airlines Group (British Airways’ parent company) is leading the FTSE 100 fallers, down 2%. Budget airline Wizz Air has lost 1.4%, with easyJet dipping by 1%.
The airline industry is also digesting the demise of UK operator FlyBMI over the weekend. It blamed Brexit uncertainty, and higher fuel and carbon costs, as it collapsed leaving thousands of travellers stranded or out of pocket.
In the City, shares in household goods giant Reckitt Benckiser jumped 3% to the top of the FTSE 100 in early trading, after reporting decent results.
Reckitt, whose brands includs Dettol, Nurofen and Air Wick, beat analyst forecasts with 4% like-for-like sales growth in the last three months.
Chief executive Rakesh Kapoor (who is stepping down later this year) has told reporters that “the momentum is improving”.
RB posted strong growth in emerging markets and North America, but warned that Europe “remains tough”, due to a “challenging pricing environment”.
It also reported “a strong performance” in China, thanks to demand for Durex condoms and Dettol.
But Strepsils sales have been hit by “a weak start to the ‘flu season” [something for the rest of us to welcome, frankly]
China’s stock market has surged today, partly due to trade optimism.
The CSI300 index of leading Chinese shares has gained more than 3%, meaning it has gained almost 15% already this year (after grim losses in 2018).
Australia’s ANZ Bank says:
“Positive signs in the U.S.-China trade talks helped boost sentiment across markets.”
New data showing Beijing’s attempts to boost investment led to record new loans in January also cheered investors, according to Reuters.
Roaring day for Chinese stocks, Shenzhen A-Share index +3.7%, Shanghai Composite +2.7%. Now up more than 13% and 10% for the year respectively. pic.twitter.com/i1Et0FlhIN
— Mike Bird (@Birdyword) February 18, 2019
Other Asia-Pacific markets also posted gains, with South Korea’s KOSPI up 0.7%, Hong Kong’s Hang Seng gaining 1.5% and Australia’s S&P/ASX 200 rising by 0.4%.
Updated
Today’s rally means Brent crude has risen by 25% since the start of the year, when it was trading around $53 per barrel.
That reflects hopes that the US-China trade war will calm down, which would be good for global growth (and thus energy demand).
The agenda: Trump says Big progress on trade
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Hopes of a breakthrough in the US-China trade talks are ripping through the markets again, at the start of a new week.
The oil price has jumped to a three-month high this morning, sending Brent crude to $66.76 per barrel - a level last seen in November.
Asian markets have also rallied, following the news that trade talks between the U.S. and China will continue in Washington this week.
That follows high-level meetings in Beijing last week which appeared to go well - without achieving anything concrete yet.
Experienced City hands may remember the old joke that ‘It’s the hope that kills you’. Reaching a significant deal between Beijing and Washington that actually addresses concerns about intellectual property, technology transfer, and trims the US-China trade deficit will be extremely tough.
But Donald Trump has boosted optimism. After meeting with negotiators including trade secretary Steven Mnuchin, the president tweeted that “Big progress” is being made on “soooo” many levels (four ‘o’s must be good, right?!).
Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!
— Donald J. Trump (@realDonaldTrump) February 17, 2019
So, an extension of the March 1st deadline - giving more time for a deal to be achieved - looks possible.
Konstantinos Anthis, head of research at ADSS, says trade will be a big issue this week.
Risk appetite is on at the start of the week with currencies and equities buoyed by the signs of progress in the US-China trade talks. Trump’s decision to declare a state of emergency didn’t seem to bother investors too much as they’ve grown accustomed to the US President’s radical character and markets’ focus lies squarely on any further progress on the trade front this week.,,,
Regarding trade, the most recent news out of the talks between the US and China suggests that the two sides have come closer to each other and an extension to the March 1st deadline for increased tariffs appears likely.
Global stocks start week in Risk-On mood. Asia equities rally to the highest level since October on trade talk and stimulus wagers. Signs mount major CenBanks turning reflationary. BUT trading be thin for Presidents’ Day holiday in the US. Oil rises to 2019 high. Bitcoin at 3.7k. pic.twitter.com/Q8qh0JmIT8
— Holger Zschaepitz (@Schuldensuehner) February 18, 2019
Otherwise it’s looking like a quiet day, with nothing of note in the economics calendar. Wall Street will be closed for Presidents Day.
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