Trade war fears send European markets sharply lower
The escalation of trade tensions has sent investors scurrying for the sidelines, amid growing fears of an all out global trade war.
Reports that Donald Trump planned to block Chinese companies investing in US tech companies and could also restrict tech exports to China set the tone for the day. Comments from the US treasury secretary that the reports were inaccurate did little to limit the damage, especially since Steve Mnuchin suggested the restrictions might not apply just to China.
On top of that, the impact of EU tariffs at a company level was demonstrated by the decision of motor bike maker Harley-Davidson to move some production out of the US. The final impact on European markets was pretty grim:
- The FTSE 100 fell 2.24% or 172.43 points to 7509.84, its worst daily performance since 6 February this year
- Germany’s Dax, already weak on worries about the impact of tariffs on its key car producers, dropped 2.46% to 12,270.33
- France’s Cac closed down 1.92% at 5283.86
- Italy’s FTSE MIB finished 2.44% lower at 21,355.19
- Spain’s Ibex ended down 1.78% at 9617.9
On Wall Street the Dow Jones Industrial Average is currently down 382 points or 1.55%.
Here’s our latest report on the trade wars and Harley-Davidson move which is helping cause the market woes:
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Unsurprisingly in the current circumstances, the VIX volatility index is moving higher:
$VIX spikes ~40% to 19.6. Twenty is long-term avg and market's 'rule of thumb' dividing line between worries/outright fear, if you like. Move is still less than 6 pts so far. This is not (yet) anything to write home about, though coincides with new day low for U.S indices ^KO
— Ken Odeluga (@Ken_CityIndex) June 25, 2018
Amid the increasing trade tensions, things could get worse from here for markets, says Fiona Cincotta, senior market analyst at City Index:
Trade war fears appear to be ramping up almost daily. Initially traders were rather complacent that Trump’s threats were just a hardball negotiating tactic. However, he has more than proved that his intentions are far more serious and damaging; this realisation has struck market sentiment hard.
Global equities are falling sharply today, with indices on both sides of the Atlantic succumbing to losses of over 1%. The fear that is driving the markets here is at what point does this end? How much damage needs to be done to the economies involved and global trade in order for Trump to decide enough. This is a huge uncertainty in this very dangerous game of economic “chicken”, as investors are starting to see US – Sino relations sink past the point of no return. In the absence of any optimistic news over the global trading climate, we can expect the current sell off to intensify over the coming sessions.
Regarding that tweet from US treasury secretary Mnuchin, Chris Beauchamp at IG said:
The new week has begun on a firmly negative footing, as equity indices around the globe suffer heavy losses, with trade wars getting the blame once more. What’s more, the US administration itself appears divided as the Treasury Secretary tweets out that planned measures regarding intellectual property will encompass all countries and not just China.
It seems the US is hell-bent on falling out with everyone, increasing the risk that trade wars will do what all the other worries of the past nine years have failed to do – namely stop the great bull market in equities. The usual havens are in demand as investors seek refuge from the turmoil, with the ten-year Treasury yield dipping below 3% once more – investor concerns about what a 3% yield would do seem awfully quaint compared to the genuine concerns about the impact of trade wars.
Falling oil prices in the wake of Friday’s decision by Opec to increase production - Brent crude is down 1.8% - is another factor in the day’s market slump.
But the trade tensions continue to dominate, and the markets may have been too complacent up until now about the impact to the global econom. Neil Wilson at Markets.com made a number of points about the state of play:
First, markets have been pretty relaxed about the trade war escalation and so the events of recent days necessitate a repricing of risk that is arguably overdue.
Second, Donald Trump’s call for restrictions on Chinese investment in US companies does mark step up in tensions and makes a full blown trade conflict more likely. Three, taken on their own the restrictions on investments would have a bigger economic impact - i.e. on corporate earnings - than fairly small beer tariffs would if there is no escalation. Four, US equities are still just about flat for the year, which given the massive ramp up through Jan is not a terrible performance. From a technical viewpoint, as long as we see the Dow hold its 200-day SMA - which at time of writing it is managing to do - we’re still in an upwards trending channel from the April lows.
The US should confirm tariffs on Chinese imports and the investment curbs by the end of this week - it could be a pivotal few days but there is still some hope -albeit fading - that the White House will step back from the brink. Harley Davidson’s decision to pull US jobs is a timely reminder to the administration that trade is not a zero sum game that either won or lost.
Although some members of Trump’s team seem to be rowing back on the Chinese reports:
On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.
— Steven Mnuchin (@stevenmnuchin1) June 25, 2018
It is hard to know which would be better: that the US is targeting China alone on technology or that it plans to expand its attacks further afield as well.
Eutelsat looking at bid for Inmarsat
A bidding war could be on the cards for Britain’s leading satellite company Inmarsat.
Earlier this month US group EchoStar had a bid rejected by Inmarsat, and since then it disclosed a 3% stake in its target.
Now Paris-based Eutelsat has said it is currently evaluating its own offer for Inmarsat, pushing the UK group’s shares around 4% higher.
Market slide accelerates
Wall Street’s decline is accelerating, sending other markets lower in its wake, as the global trade tensions continue to grow.
Investors have been increasingly concerned about the fallout from Trump’s actions on tariffs, and today’s developments - the threat of more restrictions on China and Harley-Davidson cutting some US production - are confirming their worst fears.
Both the Dow Jones Industrial Average and the S&P 500 are down around 1%, with the Nasdaq Composite nearly 1.4% lower on Trump’s tech plans.
In Europe the FTSE 100 has dropped 1.9% while in Germany - whose car production would be hard hit by US tariffs - the Dax is down 1.8%.
Shares in Carnival, the world’s biggest cruise company, have dropped more than 8% after it cut its earnings forecast for 2018.
In the second quarter it said revenues had risen by 10.4% with earnings per share up from 52 cents a year earlier to 78 cents, helped by higher ticket prices and on-board spending.
But increased fuel costs and adverse exchange rates mean that it now expects its full year earnings to be $0.19 a share lower than it forecast in March.
A weak start to trading in New York:
Ding ding! The US stock market is open for trading....and trade war fears are biting.
The Dow Jones industrial average has fallen by 160 points, or 0.65%, to 24,420.
Technology shares are dropping, following reports that the Trump administration will block Chinese companies from investing in the US, and also restrict US tech exports to China.
Alphabet (Google’s parent company) is down by 1.7%, semiconductor maker nVidia is down 2.1% and aircraft maker Boeing is down 2%.
Harley Davidson is also dropping, down 2% after outlining its response to Europe’s new tariffs on US goods.
Shares in Harley-Davidson open over 2% lower after the motorcycle manufacturer announces plans to shift production away from the US due to EU tariffs; says tariffs will add over $2K to the cost of each vehicle exported to the EU
— Kim Gittleson (@kgittleson) June 25, 2018
Bloomberg points out that Harley’s sales in Europe hit their highest level since 2011 last year (as a share of total sales).
Harley-Davidson to shift some production of #motorcycles out of U.S. after EU #tariffs https://t.co/bIbL6M4gDT via @business @tpalazzo #tradewar $HOG pic.twitter.com/JDXDQMmAGS
— Phil Serafino (@PhilSerafino) June 25, 2018
Clearly the company can’t afford to lose sales in such a ‘critical market’ (which is why it will swallow the tariff cost itself, while it moves production out of America).
Here’s some reaction to Harley-Davidson’s plans to move some US production overseas, from former White House press spokesman Tony Fratto....
On this beautiful Monday morning, #TradeWars remain stupid...
— Tony Fratto (@TonyFratto) June 25, 2018
Harley-Davidson motorcycles exported to the EU will cost the company about $2,200 more, as it shifts production overseas to offset EU tariffs https://t.co/qFaPSn5bCK via @WSJ
ING economist Carsten Brzeski isn’t impressed either:
This is how you win a trade war. NOT. Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs - TheStreet https://t.co/KhJtuBOOWV
— Carsten Brzeski (@carstenbrzeski) June 25, 2018
Peter Alexander of NBC News points out that Donald Trump has previously hailed Harley-Davidson as a great US business.
Trump, last year: “Thank you Harley-Davidson for building things in America.”
— Peter Alexander (@PeterAlexander) June 25, 2018
Tying it to winning WI in 2016: “I want to thank the people of Wisconsin. Great people. Amazing people. And they get it.” https://t.co/dlzui62PkQ
CNN has a good first take on the Harley-Davidson news:
Harley-Davidson is already taking a hit in the trade fight between President Trump and European allies.
The company is shifting some production of motorcycles for European customers out of the United States to avoid EU retaliatory tariffs.
The EU is imposing tariffs on $3.2 billion worth of American goods, including motorcycles, orange juice, bourbon, peanut butter, motorboats, cigarettes and denim. They are a response to the Trump administration’s tariffs on steel and aluminum imports from Europe.
For motorcycles, the EU is raising its 6% tariff to 31%. That will make each bike about $2,200 more expensive to export, Harley said. Harley is not raising prices for customers. The company said it will take a hit of $30 million to $45 million for the rest of this year.
Harley-Davidson’s (HOG) stock fell 2% in premarket trading.
Harley-Davidson will move some production out of the US to avoid EU retaliatory tariffs https://t.co/7j8nc9XKOQ pic.twitter.com/Gi941KMopt
— CNN Breaking News (@cnnbrk) June 25, 2018
Donald Trump won’t be happy to hear that Harley-Davidson is moving some production out of America.
The president singled out the motorcycle maker in his first State of the Union speech in February 2017, telling Congress that he would help companies like Harley-Davidson sell their goods abroad.
As the new president put it:
I just met with officials and workers from a great American company, Harley-Davidson. In fact, they proudly displayed five of their magnificent motorcycles, made in the USA, on the front lawn of the White House.
At our meeting, I asked them, how are you doing, how is business? They said that it’s good. I asked them further how they are doing with other countries, mainly international sales. They told me — without even complaining because they have been mistreated for so long that they have become used to it — that it is very hard to do business with other countries because they tax our goods at such a high rate. They said that in one case another country taxed their motorcycles at 100 percent.
They weren’t even asking for change. But I am.
I believe strongly in free trade but it also has to be FAIR TRADE.
Instead, Trump has provoked the European Union into imposing higher tariffs on £2.5bn of US imports, by slapping tariffs on steel and aluminium imports into America.
Harley-Davidson isn’t the only US company being hurt by Donald Trump’s tariffs.
A nail manufacturer in the mid-west state of Missouri says it has lost 50% of its business in two weeks, thanks to the new tariffs on steel imports.
Mid Continent Nail Corporation imports steel wire from Mexico, so has seen prices surge to uncompetitive levels thanks to the 25% tariff on imports imposed by Trump earlier this year.
The company has already laid off 60 temporary staff, and could axe another 200 by the end of July unless it gets a tariff exemption, quickly.
According to local news outlet Missourinet, Mid Continent Nail Corporation produces half of the nails made in America, but has seen orders tumble as customers find cheaper products elsewhere.
Trump’s tariff on steel imports has caused the country’s remaining major nail producer to lose about 50% of its business in two weeks. Company laid off 60 temp workers. It could slash 200 more jobs by the end of July and be out of business around Labor Day https://t.co/yy4LhSgDYI
— Catherine Rampell (@crampell) June 22, 2018
Shares in Harley-Davidson have fallen almost 2% in pre-market trading in New York.
Traders are calculating that absorbing the $100m annual cost of Europe’s new tariffs will hurt Harley’s profits.
We don’t yet know how many US jobs will be affected by Harley-Davidson’s decision to move some production from America to Europe.
But it’s possible that the company’s base in Milwaukee, Wisconsin could be hit badly.
Wisconsin is one of the rural states that backed Donald Trump in the 2016 presidential election, heartened by his promise to Make America Great Again and bring jobs back home.
Harley’s announcement, though, shows that trade wars aren’t as “good and easy to win” as Trump once claimed....
Key swing state company moving production out of US after EU retaliates to Trump tariffs. Seems important --> Harley-Davidson to Shift Production of Motorcycles Out of U.S. After EU Tariffs https://t.co/zKYhPvlKoZ via @business
— Timothy Coulter (@TimothyCoulter2) June 25, 2018
EU tariffs drive Harley-Davidson to move production out of America
NEWSFLASH: Harley-Davidson is planning to move some manufacturing out of America in response to Europe’s new tariffs on motorcycle imports.
Harley-Davidson has just announced that the EU’s tariffs will have a serious impact on its business. The average tariffs on a Harley will rose to 31%, from 6% today, adding $2,200 to the average price of a motorcycle exported from the US to Europe.
Such a burden could make Harley’s uncompetitive in Europe.
So the company has decided it must shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden.
The company says:
Harley-Davidson expects ramping-up production in international plants will require incremental investment and could take at least 9 to 18 months to be fully complete.
It says this is the “only sustainable option” to ensure Harleys can still be sold in Europe (where it sold almost 40,000 last year).
It says:
Increasing international production to alleviate the EU tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe.
That could be serious blow to Harley workers in America - and a stark example of the damage that a trade dispute can cause.
Europe implemented tariffs on imports of US goods, including motorbikes and bourbon, in response to Donald Trump’s new tariffs on steel and aluminium.
In the short term, Harley says it will absorb the cost of the tariffs, rather than passing it onto customers - costing it up t0 $100m per year
It says:
Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses.
Therefore, Harley-Davidson will not raise its manufacturer’s suggested retail prices or wholesale prices to its dealers to cover the costs of the retaliatory tariffs.
Updated
European markets down with a bump
The Stoxx 600 index of European shares is on track for its biggest one-day fall in a month, according to Reuters data.
European car firms are partly to blame, following Trump’s threat to impose 20% tariffs on auto imports from the EU.
Renault are down 2.8%, Daimler has lost 2.5, while car parts firm Continental has shed 3.6% (fewer car sales means less demand for tires and brakes).
Analysts at FXPro say traders are shunning riskier assets, thanks to Donald Trump’s repeated threats to impose tariffs on America’s trading partners.
Over the weekend President Trump indicated that if trade barriers and tariffs against the US were not removed that he would have no choice but to add further sanctions against those countries targeting the US.
The stock market selloff is gathering pace.
Britain’s FTSE 100 is now down 96 points, or 1.2%.
Mining stocks are helping to drive the selloff, with Anglo American down 3.3% and Antofagasta losing 2.6% - and dragging the sector down to a seven-week low.
That reflects concerns that a trade war will hurt global growth, and dampen demand for commodities like iron ore, copper and nickel.
Oil giants are also falling, matching a drop in the price of crude after the Opec cartel agreed to raise production levels last week.
Connor Campbell of SpreadEx says:
With a troublesome US open on the horizon, the European indices saw their losses intensify as Monday went on.
The FTSE was one of the worst performers at the start of the week. Not only was the UK index dealing with the same trade war fears gripping its peers, it also had to process Brent Crude’s 1.2% decline, a move that took the black stuff back towards $74.50 per barrel and left Shell and BP down 1.1% and 1.8% respectively.
This in turn forced the FTSE 90 points lower, taking the index back under 7600 and only 50 points away from last Thursday’s 7 week nadir.
Turkey’s stock market is defying today’s downturn, after Recep Tayyip Erdoğan was reelected as the country’s president last night.
The Istanbul bourse has jumped by 1%, although the Turkish lira is sliding after an early rally.
Erdoğan’s AKP party won 52.5% of the votes, giving it an unexpected outright majority in a crucial election for Turkey’s future.
Turkey’s presidency has sweeping new powers to appoint officials and set security policies, following a constitutional shake-up last year.
Erdoğan has promised to use his new powers to fight terrorism and improve Turkey’s troubled economy.
But having overseen a crackdown since an attempted coup in 2016, Erdoğan is likely to keep running Turkey in an autocratic manner.
Vincent-Freědeěric Mivelaz of Swiss Bank explains:
Erdogan is likely to act unilaterally (in politics and economics) without consulting the opposition.
Among the five parties making the parliamentary threshold of winning 10% of votes, cooperation will not be easy. The constitutional reform of April 2017 reinforces the power of the president (abolishing the office of the Prime Minister, allowing direct appointment of top officials, allowing intervention in the legal system and state-of-emergency powers) and its allies in the Nationalist Movement Party in the parliament. Erdogan’s “People’s Alliance” is projected to win 342 seats out of 600 in the parliament, giving little power to the opposition.
Emerging markets expert Charlie Robertson of Renaissance Capital warns that Turkey faces troubles ahead.
Main messages: election win supportive of the normal 15% rally in equities (in $) after a big rate hike. Capital controls risk low, but not disappeared. Given growth halving (at best) + more serious risk of Brazil/Greek style crisis - this was an election that was better to lose https://t.co/nWBGVLHvxa
— Charlie Robertson (@RencapMan) June 25, 2018
Updated
US stock market futures down
The US stock market is heading for losses when trading begins in almost four hours time.
The futures market suggests the Dow Jones industrial average will drop by 150 point, or 0.7%.
The technology-focused Nasdaq could lose 1%, amid concerns that tech companies are being dragged into Donald Trump’s trade dispute with China.
US futures down sharply. pic.twitter.com/YKbtcHyYcD
— Fercan Yalinkilic (@FercanY) June 25, 2018
China’s central bank tried to calm nervous investors yesterday.
The People’s Bank of China relaxed the rules on commercial banks, allowing them to hold less cash. That should encourage them to pump more than $100bn of liquidity into the economy, to help Chinese firms.
But this wasn’t enough to prevent another day of falling share prices in Shanghai - where the market lost more than 1% today.
Chinese stocks on the brink of a bear market. pic.twitter.com/QJ160EQwpo
— David Ingles (@DavidInglesTV) June 25, 2018
After two hours trading, European stock markets are falling deeper into the red.
The FTSE 100 has now shed almost 1%, down 70 points at 7612. Germany’s DAX has lost 1.2%, helping to knock the Europe-wide Stoxx 600 down by around 1% too.
Ken Odeluga, market analyst at City Index, says it’s a Blue Monday in the markets.
The dark mood over global markets returns, on increasing pessimism that a full-blown U.S.-China trade war may be unavoidable.
Technology firms are leading the selloff, following those reports that American firms will be blocked from selling some tech to China - and that Chinese firms will not be allowed to invest in US rivals.
In London, IT firm Micro Focus has fallen over 4%.
Chipmakers such as BE Semiconductor (-3.7%) and Infinion (-2.7%) are also suffering.
Odeluga explains why the markets are worried:
The latest White House trade restriction against China might be an unprecedented ban of firms, at least 25% Chinese-owned, from investing in “industrially significant” U.S. technology companies.
If the Treasury proposals, outlines of which were reported by the Wall Street Journal, are enacted, Beijing would have little choice but to react in kind. That could mean potential clampdowns on U.S. technology firms active in China, from the smallest to the largest.
EBA: Banks aren't ready for hard Brexit
Newsflash: EU banks aren’t properly prepared for the risk of a hard Brexit, according to the industry’s top European watchdog.
In a new report, the European Banking Authority has warned that financial institutions haven’t drawn up contingency plans in case Britain leaves the EU without a deal in March 2019.
Crucially, the EBA is concerned that London and Brussels may not agree a transition deal that would allow UK-based banks to maintain their current links with Europe, and vice versa.
The EBA also urges banks not to assume that politicians will find a magic solution to the trillions of pounds worth of cross-Channel contracts that could be left in limbo after Brexit.
The EBA warns that:
- a) progress in the preparations of financial institutions for the potential departure of the UK from the EU without a ratified withdrawal agreement in March 2019 is inadequate;
- b) the recent political agreement on a transition period, while welcome, does not provide any legal certainty until a withdrawal agreement is ratified at the end of the process for the departure of the UK from the EU;
- c) there remains a material possibility that, despite the best efforts of both sides to conclude a ratified withdrawal agreement, this may not be possible, in which case the UK would leave the EU on 30 March 2019 by operation of law without a transition period; and
- d) the necessary mitigating actions take time, and should be pursued without further delay
German business morale falls
Ouch: German business morale has deteriorated, as the threat of a trade war casts a shadow over Europe’s largest economy.
Munich’s IFO institute has reported its business climate index has dropped to 101.8 this month, down from 102.3 in May. That’s a sign that German businesses are finding life tougher this year.
IFO chief Clemens Fuest explained.
Companies were less satisfied with their current business situation. Their business expectations, by contrast, remained slightly optimistic.
The tailwind enjoyed by the German economy is calming down.
After a strong 2017, the IFO survey has been deteriorating for much of this year.
Carsten Brzeski of ING points out that domestic political tensions in Germany are also hurting the economy, as Angela Merkel’s coalition threatens to split over migration
The next two weeks could dramatically change the political landscape in Germany and in a worst case scenario even lead to a fall of the government and new elections.
For the economy, this would mean further delays of the urgently needed investments, new structural reforms and strengthening of the monetary union.
But there’s always hope...
Six drops and one stagnation in the last seven months or in other (soccer) words: six losses and one draw. This is clearly not a promising trend. However, as seen last Saturday in the World Cup match between Germany and Sweden, never count out Germany.
Hope dies last, even if it takes until the very last second.
A bit like in the world cup, never count out Germany. But this #Ifo drop is not a promising trend, says ING's @Carstenbrzeskihttps://t.co/IeOVYutTCe
— ING Economics (@ING_Economics) June 25, 2018
Updated
Even before these latest threats, there were concerns that trade war fears are hurting the global economy.
Yesterday the Bank of International Settlements (which represents central banks) warned that growth could falter if nations imposed more protectionist measures on each other.
BIS chief Agustín Carstens warned:
“Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting investment.”
Trump goes after China: What the papers say
The Wall Street Journal says the Trump administration is determined to protect US companies from having their tech secrets snaffled by Chinese rivals.
We’ve got trillions of dollars seeking our crown jewels of technology,” said White House trade adviser Peter Navarro last week. “There has to be a defense against that.”
The Financial Times says Chinese investment in America could tumble, if Trump blocks China from buying into US tech companies.
According to the Rhodium Group consultancy, Chinese foreign direct investment in the US plunged more than 90 per cent to just $1.8bn in the first half of 2018 compared with the same period last year.
In 2016, Chinese companies made a record $46bn in foreign direct investment in the US. The exact scope of the investment measures has been the subject of internal discussions in the Trump administration in recent days, say people familiar with the debate. It is unclear how quickly restrictions would take effect and if they would apply to Chinese investments in venture capital funds, which provide much of the seed money for US technology start-ups.
But according to officials and people briefed on the discussions, the administration has decided to restrict China’s ability to invest in or acquire US companies in the industries identified by Beijing in its so-called Made in China 2025 plan. Xi Jinping, China’s president, has set a goal of leading the world in those ten sectors, which include aerospace, AI, robotics, medical devices and railways.
US firms are concerned that they’ll be blocked from selling some tech products to China, says Politico:
Like the tariffs that Trump imposed on $50 billion in Chinese imports — and those he has threatened to impose on $400 billion more if Beijing retaliates — the new investment restrictions and export controls are intended to pressure China to stop unfair trade practices that threaten the United States’ technological leadership. Trump is expected to invoke his emergency powers to protect national and economic security to put the restrictions in place.
But the administration is already getting pushback from bureaucrats who think it would be a misuse of the export control system, and from businesses that fear the approach will further disadvantage U.S. firms trying to enter the Chinese market
European shares open in the red
Trump’s latest threat against China has hit European markets.
Shares are down across the region in early trading, with Britain’s FTSE 100 and Germany’s DAX both losing 0.6%.
The threat that Chinese firms could be blocked from investing in US tech companies has worried the City, as Jasper Lawler of CMC Markets explains
In the latest escalation of the trade war Trump has decided to take aim at Chinese investments. A draft series of restrictions on inbound Chinese investments are due to be published later this week, in a move which could have great long-term consequences on the US – Sino economic relationship.
Once again details remain very sketchy, with the scope of such a measure still under discussion. It is now very difficult to get away from the fact that neither side has any intention of backing down in this game of economic “chicken”.
The agenda: Trump threatens China again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Fears of a trade war between America and China have ratcheted up another notch, hitting confidence in the markets.
Overnight, it’s emerged that President Donald Trump is drawing up a fresh crackdown on Chinese investment in the US.
New rules, which could be announced within days, would prevent firms with at least 25% Chinese ownership from acquiring American companies involved in ‘industrially significant technology’, such as robotics, electronic cars and aerospace.
Trump is also planning to restrict US companies from selling certain technologies to China, using “enhanced export controls”, according to the Wall Street Journal.
Such a move would further damage relations between Washington and Beijing, following the threat of tit-for-tat tariffs.
The Trump administration is embracing increasingly aggressive restrictions on what they see as China’s unfair trade practices. These latest measures could undermine China’s efforts to become a world leader in emerging technologies.
As the WSJ explains:
The twin initiatives, set to be announced by the end of the week, are designed to prevent Beijing from moving ahead with plans outlined in its “made in China 2025” report to become a global leader in 10 broad areas of technology.
The Treasury Department is crafting rules that would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls “industrially significant technology.”
The ceiling may end up lower than that, according to people familiar with discussions finalizing the plans.
The news has hit Asian markets, with Japan’s Nikkei and China’s Shanghai Composite indices both falling by 1%.
European stock markets are expected to follow suit, with the FTSE 100 dropping in early trading.
#FTSE100 called -40pts at 7642 with oil lower after OPEC, GBP flat and metals lower on multiple trade war threats pic.twitter.com/0cPHmsh8Zx
— Mike van Dulken (@Accendo_Mike) June 25, 2018
Last Friday, Trump threatened to impose new tariffs on European car makers, declaring that they should set up factories in America instead. That rocked the share prices of Fiat, BMW and Daimler.
Trump also fired a warning shot at America’s trade partners over the weekend. The president tweeted that they must drop trade barriers and tariffs - even as he slaps them on US imports - or else...
The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!
— Donald J. Trump (@realDonaldTrump) June 24, 2018
No wonder investors are worried....
Also coming up today...
We get the new IFO survey of German business morale, which may show another decline, plus the latest US home sales.
In Dublin, Ireland’s central bank and the International Monetary Fund are hosting a two-day conference on “the euro at 20”. It will examine the euro’s performance over its first two (sometimes turbulent) decades.
IMF Christine Lagarde will give the opening speech this morning.
The agenda
- 8.45am BST onwards: “The euro at 20” conference in Dublin
- 9am BST: IFO survey of German business confidence released
- 3pm BST: US new home sales
Updated
