Closing summary: IMF warns of no-deal Brexit hit and Trump threatens tariffs on EU
The International Monetary Fund has the jitters – with Brexit and trade tensions at the top of the agenda at its latest Washington meeting.
It has downgraded growth forecasts around the world – notably in Germany and Italy – and warned that the global economy faces a “delicate moment”.
The latest World Economic Outlook #WEO projects slowdown in growth in 2019 for 70% of the world economy. https://t.co/qSVoq5IxJr pic.twitter.com/TDmpp55zR1
— IMF (@IMFNews) April 9, 2019
Brexit is a key risk facing the global economy, the IMF said, with forecasts of a severe recession for the UK if it leaves the EU without a deal.
However, the EU appears prepared to offer the UK a long extension of the Article 50 negotiation period until the end of 2019 in a bid precisely to avoid a no-deal Brexit, which the vast majority of economists think would be harmful for both the UK and the EU.
Meanwhile, US President Donald Trump earlier underscored the fears expressed by the IMF that the global trading order is under threat. His administration has unveiled a package of tariffs on cheese, wine, and planes which would hit goods worth more than $11bn if implemented.
Trump appeared to promise more in the way of aggro between the EU and the US.
The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!
— Donald J. Trump (@realDonaldTrump) April 9, 2019
In London, Mike Ashley’s Sports Direct has finally been forced to give up on its efforts to snap up Debenhams.
The ailing department store chain rejected Ashley’s advances, opting instead for a administration controlled by its lenders. Sports Direct also had to accept the loss of its entire stake in the business.
And Standard Chartered has had to take a $1.1bn fine from the US over charges that it helped break sanctions against Iran.
Thanks for reading today, and please do join Graeme Wearden tomorrow for a return to normal service on the business live blog. JJ
Standard Chartered said it will pay a total of $947m (£726m) to US agencies and £102m to the UK’s Financial Conduct Authority.
The bank took a provision of only $900m in preparation in the fourth quarter of 2018, meaning it will need to take another charge of $190m in its accounts for the first quarter of 2019 to cover the rest.
Bill Winters, Standard Chartered’s chief executive, said:
We are pleased to have resolved these matters and to put these historical issues behind us. The circumstances that led to today’s resolutions are completely unacceptable and not representative of the Standard Chartered I am proud to lead today.
Fighting financial crime is central to what we do and who we are; we do not tolerate misconduct or lax controls and we will continue to root out any issues that threaten the trust we have built over more than 160 years.
Deferred prosecution agreements with the US Department of Justice and New York authorities have been extended for another two years until 2021, but the bank will no longer have to undergo compliance monitoring, Standard Chartered said.
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The previous post has been corrected. Please refresh your page to view the updated post.
Standard Chartered pays $1.1bn to settle Iran sanctions issues
Standard Chartered Bank has agreed a $1.1 billion (£840m) settlement with the US and British agencies over charges that it violated sanctions against Iran.
The sanction busting transactions were worth $437m, the US Treasury’s Office of Foreign Assets Control (Ofac), which was one of multiple US agencies to fine Standard Chartered.
London-headquartered Standard Chartered’s violations represented an “egregious case”, Ofac said in a statement.
From June 2009 until June 2014, SCB processed 9,335 transactions totaling $437,553,380 that were processed to or through the United States. All of these transactions involved persons or countries subject to comprehensive sanctions programs administered by OFAC.
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This post has been changed to correct the total fine payable by Standard Chartered. The post previously said the total fine was $639m, which only related to one of the fines.
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The IMF has a useful chart to illustrate what it thinks will happen if there is a no-deal Brexit under two separate scenarios.
The yellow line is the current forecast of relatively steady growth for the next few years (albeit slower than predicted before the EU referendum in 2016 – the green line).
The two scenarios for a no-deal Brexit, in which trade defaults to World Trade Organization terms, both show severe recessions in the UK.
The UK will lose about 3.5% of GDP by 2021 in the less severe scenario if the IMF’s predictions are proven correct. The EU will lose 0.5% of GDP over the same time period, the forecast said.
The less severe scenario does not include significant delays to goods at the border. Under the more severe scenario the losses to GDP would be sharper in the short term, although the IMF said that the long-term effects will be similar in both scenarios.
US stock markets have fallen at the opening bell.
The Nasdaq and the S&P 500 both lost 0.4% in early trading in New York, while the Dow Jones industrial average fell by 0.5%.
Brexit uncertainty is a driver of the IMF’s 0.3% growth downgrade for the UK in 2019, and a 0.2% downgrade for 2020 growth, according to the Washington-based organisation’s chief economist.
“The situation is clearly in flux on a daily basis,” Gopinath said, speaking at a press conference following the release of the IMF’s outlook.
However, Gopinath said that the uncertainty surrounding the future of UK-EU trade, with three days to go until the UK is scheduled to leave, was a key reason for a downgrade to the UK’s economic prospects. She said:
We’ve seen the negative consequences of the uncertainty surrounding Brexit, which has weighed on investment.
The negative effects of a no-deal Brexit would be “substantial”, costing around 6% of the UK’s GDP, as well as having a big impact on the EU.
It is not a positive outlook from the International Monetary Fund across the global economy.
Gita Gopinath, the IMF’s chief economist, said:
While the global economy continues to grow at a reasonable rate and a global recession is not in the baseline projections, there are many downside risks. Tensions in trade policy could flare up again and play out in other areas, such as the auto industry, with large disruptions to global supply chains.
Growth in systemic economies such as the euro area and China may surprise on the downside, and the risks surrounding Brexit remain heightened.
A deterioration in market sentiment could rapidly tighten financing conditions in an environment of large private and public sector debt in many countries, including sovereign-bank ‘doom loop’ risks.
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Just released: April 2019 World Economic Outlook #WEO - Global growth has softened to 3.6 percent in 2018, is projected to decline further to 3.3 percent in 2019, and to return to 3.6 percent in 2020. https://t.co/HoSQZ4zkm7 pic.twitter.com/c1fElAK54u
— IMF (@IMFNews) April 9, 2019
IMF says no-deal Brexit risks two-year UK recession
Britain’s already struggling economy would be pushed into a two-year recession by a no-deal Brexit, the International Monetary Fund has warned.
Ahead of Theresa May’s plea to EU leaders for a further delay to Britain’s departure, the IMF used a downbeat half-yearly assessment of the global economy to predict that the UK economy could be 3.5% smaller than expected by 2021 if trade barriers were swiftly erected, Larry Elliott writes.
The World Economic Outlook – completed in March before the latest developments in Brexit – predicted UK growth of 1.2% in 2019 on the assumption that a Brexit deal is done.
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Saudi Aramco, the state-owned oil producer which is often cited as the largest company in the world, has more than $100bn in orders for its first ever bond issue.
Aramco is looking to raise $10bn from the sale, which is seen by many as a precursor to a previously delayed initial public offering.
Having made core earnings of $224bn last year and with $86bn in free cash flow at the end of 2018, Aramco does not need to borrow.
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A return to tensions in the US-EU relationship is part of the broader turn away from open world trade, say analysts at Deutsche Bank in a report published today on the German economy – one of those with the most to lose from car tariffs.
World trade slowed considerably towards the end of 2018 and even shrank around the turn of the year, according to the report edited by Deutsche’s Stefan Schneider.
It seems that German goods exports will stagnate or rise moderately at best during the first half of 2019. An increase by 2% in nominal terms would probably be a good result for 2019 as a whole.
World trade looks set to remain structurally weak in the foreseeable future. With protectionism becoming more and more popular in many countries, bilateral trade agreements appear the best option to secure free trade.
Trump may be using the Airbus dispute as a way to up the ante ahead of a May decision on cars, according to Cailin Birch, global economist at the Economist Intelligence Unit.
That the US government would choose to act now, with little warning, in response to a fairly stale trade issue is very interesting. In our view, this shows that the US wants to pressure the EU to engage in meaningful trade talks, but without having to apply the more painful measure of automotive tariffs.
The Trump administration has until mid-May to decide whether or not to act on the results of the 232 investigation [related to national security] into automotive imports. However, such a move would be equally damaging to automotive manufacturing and sales in the US, so the Trump administration may be trying to use the Airbus case as a way out.
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Donald Trump has said that the “EU has taken advantage of the US on trade for many years”, in another ominous sign for the trade relationship.
The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!
— Donald J. Trump (@realDonaldTrump) April 9, 2019
In July, Trump and the European commission president Jean-Claude Juncker appeared to have averted the possibility of a full-blown trade war, with a promise to work towards “zero tariffs”.
However, despite the warm words, many of the key concerns remain unresolved (see 8:59am). This is a particular concern around potential tariffs on car imports, which would represent a major escalation, targeting the EU’s industrial heartlands.
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US stock market futures are pointing to a flat opening on Wall Street.
Futures for the Dow Jones industrial average fell by 0.06%, for the S&P 500 three-month futures fell by 0.1%, while Nasdaq futures declined by the same amount.
UK likely to be offered Brexit extension until end of year
Britain is likely to be offered a final, long extension ending on 31 December after the EU’s chief negotiator, Michel Barnier, failed to convince the bloc’s capitals that Theresa May has a plan to break the Brexit impasse.
A number of member states, most prominently France, along with Slovenia, Greece, Austria and Spain, remain sceptical about a lengthy extension, citing the risks to the EU of Britain behaving badly, Daniel Boffey reports.
Barnier tried to push for a shorter extension to keep pressure on MPs to back May’s deal, according to a leaked note on discussions. The full story is here:
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After early worries about the potential impact of Trump’s tariffs, European stocks have recovered on the major stock indices as we reach the halfway point in London trading.
The FTSE 100 is up by 0.1% at 7,459 points, although the mid-cap FTSE 250 is faring slightly worse, down by 0.2%.
Sterling is flat against the euro, and up by 0.2% against the US dollar.
Some more analysis of the Debenhams administration.
We probably won’t have details of possible store closures for weeks, but Debenhams’ failure is still hugely significant given the size of its property estate (many in town centres) and the number of employees it has, said Richard Lim, chief executive at Retail Economics.
Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.
Put simply, the business has been out manoveured by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.
Debenhams put into administration, wiping out Mike Ashley's stake
Debenhams has been taken over by its lenders, wiping out shareholders including Mike Ashley’s Sports Direct and paving the way for store closures that put thousands of jobs at risk.
Ashley, who spent at least £150m on building up a near 30% stake in Debenhams, lost out after the company and its lenders rejected a last-ditch offer of a new £200m cash injection as it was dependent on him becoming chief executive, writes Sarah Butler.
Full story here:
An interesting story on bitcoin (remember that?) has hit the wires. Reuters reports that China is planning to ban “mining” of the cryptocurrency.
China’s state planner has published a draft list of industrial activities the agency is seeking to stop in a sign of growing government pressure on the cryptocurrency sector. China is the world’s largest market for computer hardware designed to mine bitcoin and other cryptocurrencies, even though such activities previously fell under a regulatory grey area.
The move may have something to do with the truly horrendous amount of energy used in creating the currency. Read more about that here:
It’s time for Mike Ashley to bow out and accept that his near 30% stake is going to be wiped out, according to some City analysts.
AJ Bell investment director Russ Mould likened Ashley to “a greedy child who wants a new toy” – even after gaining a string of goodies in the past year. He said:
While Mike Ashley seems to like the thrill of the chase, it is time for him to admit defeat with his pursuit of Debenhams and adding another string to the bow of his retail empire.
Someone needs to tap him on the shoulder and remind him that he’s already got a core business to run and a bit more attention wouldn’t go amiss.
The equity sales team at Berenberg investment bank agreed: the risks are high around Sports Direct’s strategy even if it were successful, with a lot of work to turn around Debenhams. They said:
We still believe this long-running saga is a significant management distraction at a time when the core Sports Direct business is under structural pressure.
Let’s get some more on another of today’s big stories: the endgame in Mike Ashley’s pursuit of Debenhams.
Ashley’s Sports Direct has offered Debenhams a £200m cash injection in a last-ditch attempt to strike a deal that would prevent its stake in the business being wiped out, writes the Guardian’s Sarah Butler.
But the department store group is expected to reject the latest offer, as it is still tied to Ashley being appointed chief executive, which the group’s lenders oppose.
Debenhams remains on course to be handed to its lenders on Tuesday via a “pre-pack” administration that would enable stores to continue trading but render shares worthless.
Britain’s retailers this morning blamed Brexit for holding back larger purchases – with consumer reticence thought to be an important factor in the UK’s recent sub-par growth record.
The British Retail Consortium (BRC) and the accountancy firm KPMG said sales growth dropped to 0.5% in the year to March, down from an annual growth of 2.3% a year ago, as consumers held back from spending on big-ticket items, writes Richard Partington.
While the timing of Easter likely produced distortions in the figures, uncertainty is holding back consumers, the BRC said. You can read more here:
The EU’s Brexit negotiator, Michel Barnier, is holding a press conference at the moment.
He has suggested the EU might not grant a long article 50 extension unless May backs a customs union, Andrew Sparrow reports on the Guardian’s politics live blog.
Sterling is flat against the euro at €1.1609 at the time of writing, but has swung back and forth in morning trading, albeit in the range of yesterday’s movements.
Against the US dollar the pound has gained 0.15% to $1.3087 – after briefly jumping above $1.31 earlier this morning.
You can follow the press conference and all of the politics developments here:
Some more tariff reaction: while Donald Trump describes his tariffs as part of his “America First” policies, most economists believe that they mostly serve to raise prices for consumers, the very people the US president says he wants to help.
Paul Donovan, chief economist at UBS Global Wealth Management, this morning described the tariffs as “tax increases” which will hit consumers directly.
US President Trump has drawn up a little list of things US consumers can be taxed for buying. The latest round of tariffs are directed at the European Union, following a World Trade Organization ruling against subsidies for Airbus.
Whether the US president’s newfound enthusiasm for the WTO will last if the WTO rules against Boeing in a similar case remains to be seen.
The White House’s willingness to abide by WTO processes in this case could actually be beneficial for the embattled organisation, Donovan added.
Let’s take a closer look at the list of products at risk if the US does follow through on its $11bn tariff threats.
Just like the EU’s previous threats to hit American export icons such as Harley Davidson motorbikes, Levi jeans and bourbon whiskey, the US is targeting some symbolic European products.
Non-military aircraft top the list, in an obvious reference to the dispute’s origin in EU subsidies for Airbus. Airbus shares are down by 1.7% today, although it is worth noting that they are still up by more than 40% year-to-date, as US rival Boeing has been hit by the fallout from two air crashes which have led to the grounding of its 737 fleet.
Beyond aircraft though, there is a cornucopia of culinary delights on which tariffs could be levied. Swordfish steaks, salmon fillets, crabs, scallops, mussels, oysters, octopus, various jams and olive oil are on the list with 12 categories of wine to wash it down.
Some 40 categories of cheese are listed, including roquefort, pecorino, and Gouda, as well as British stilton and cheddar – even “american-type cheese” from the EU is included.
Other more unusual (and non-edible) products include ski suits, swimwear, hunting knives and even wind-up wall clocks.
The full list is here.
European stock markets have rallied after falling earlier in the morning.
The FTSE 100 is now only marginally down, by three points or 0.04%. Germany’s Dax is down by 0.14% while France’s Cac 40 is down by 0.1%.
The wider Stoxx 600 index is up by 0.1%.
It appears that the EU is preparing to respond to Trump’s latest tariff threat in kind, according to Bloomberg.
The imposition of tit-for-tat tariffs is feared by economists as it can quickly escalate into full-blown trade war if no compromise is reached.
🇪🇺 🇺🇸 The EU reacts to planned U.S. tariffs on $11 billion of EU goods as a result of alleged subsidies to Airbus SE by saying the bloc is preparing similar action against American products in a tit-for-tat case at the World Trade Organization concerning aid to Boeing - Bloomberg
— Christophe Barraud🛢 (@C_Barraud) April 9, 2019
Nissan accuses Carlos Ghosn of "blatantly unethical conduct"
Nissan has responded to Ghosn’s video, laying the blame squarely at the feet of its former leader.
The Japanese carmaker first reported Ghosn to authorities over allegedly underreporting his income, leading to his arrest in November. Another former Nissan executive, Greg Kelly, was also arrested.
In a statement, Nissan said:
The sole cause of this chain of events is the misconduct led by Ghosn and Kelly. Aside from any criminal matters, Nissan’s internal investigation has uncovered substantial evidence of blatantly unethical conduct. This resulted in a unanimous board vote to discharge Ghosn and Kelly as chairman and representative director, followed by a shareholder vote to discharge them from the board.
Further discoveries related to Ghosn’s misconduct continue to emerge. The company’s focus remains on addressing weaknesses in governance that failed to prevent this misconduct.
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If you have just shy of eight minutes free, Carlos Ghosn’s pre-recorded video (see 08:06) is definitely worth a watch for an insight into one of the most dramatic corporate bust-ups of recent times.
Ghosn’s lawyer has said the video was edited to remove the names of individuals, according to Agence France-Presse, but he has not pulled many other punches. He had intended to give the message in person at a press conference, but was rearrested before being able to appear.
The former Nissan boss accused unnamed former colleagues of plotting to overthrow him to prevent the Japanese carmaker from losing control in its alliance with Renault.
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But an important – and geopolitically interesting – point from analysts at Deutsche Bank’s macro strategists, led by Jim Reid: tariffs will only be implemented after the World Trade Organization (WTO) gives a final ruling on the EU’s subsidies this summer.
Reid, and his colleagues Craig Nicol and Quinn Brody, wrote:
The Trump administration hasn’t always trusted the WTO on these matters so its interesting that they are here. Proposed items in the list include new passenger helicopters, various cheeses and wines, ski-suits and certain motorcycles.
This news might also remind investors that the US report on the national security risk of auto imports was delivered back in February without any official response yet. Having said that the US first complained to the WTO about Airbus subsidies 15 years ago so this has been a long-running dispute.
Relying on the WTO at this point seems like a strange move, given Trump’s almost systematic dismantling of its legitimacy and his obvious distaste for the trading world order it presides over.
But given that the US has had some genuine success with the WTO’s ruling on the EU’s Airbus subsidies, perhaps they believe that it makes sense to pursue the traditional rules-based approach – even as they try to undermine the WTO fundamentally.
As a side note, it’s worth pointing out the timeframe over which these disputes play out as well: trade negotiations are hard.
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Let’s get some reaction to the possibility of $11bn in US tariffs on EU goods.
Neil Wilson, chief market analyst at Markets.com, said the tariff threat looks like a relatively contained problem, but added that there is a “risk of contagion if the EU decides to respond in kind” – as well as doing nothing for business confidence in the EU.
We are now back to where we were before the Juncker visit to Washington – there is a real risk of a tit-for-tat trade battle between the EU and US, and therefore ought to weigh on risk.
Meanwhile, we are still waiting for a breakthrough between the US and China – despite warm words, so far nothing has materialised.
The decision does not augur well for EU-US trade, with the looming threat of tariffs on cars – which would represent a big blow to the relations and likely to the world economy.
Lee Hardman and Fritz Louw, currency analysts at MUFG, said a move back towards an EU-US trade war could damage the prospects for the euro.
Downside risks for the euro from escalating trade tensions would heighten more significantly if the Trump administration also decides to raise tariffs on imports of autos.
May will have to persuade her EU counterparts that she can secure actual progress, whether that be a compromise with Labour or if she can somehow get her withdrawal deal through the Commons with another heave.
Andrea Leadsom, the Brexiter leader of the House of Commons, has just now said that getting the May/EU deal through parliament would be the best possible outcome – if the EU supports measures on the troublesome backstop, the insurance policy for the Irish border.
You can read more Brexit detail here:
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With the flurry of early news, we’ve got three posts into the live blog without mentioning the “B” word. But Brexit is only three days away, unless something comes up.
The early signs, ahead of the crucial summit of European leaders tomorrow, suggest we could be in for a bumpy ride in the next few days.
Theresa May will go to Paris and Berlin today to plead with Angela Merkel and Emmanuel Macron for a Brexit extension, but France’s EU minister said it will want the UK to give a good reason for a longer negotiation period.
Entering a meeting of EU ministers in Luxembourg today, France’s Amélie Montchalin said: “We want to understand what the UK needs this extension for.”
Then come the questions of the conditions; what role the UK wants to play during this extension time, in what kind of decisions it wants to take part.
Bruno Le Maire, France’s finance minister, earlier said that France needs a clear reason for any Brexit delay.
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Europe’s main stock markets have all fallen at the open as investors take into account the threat of $11bn in tariffs from the US.
London’s FTSE 100 is down by 0.2% in early trading, while Germany’s Dax and France’s Cac 40 both fell by 0.3% as markets opened.
Shares in Airbus, the Franco-German planemaker at the centre of the trade dispute, fell by 2.3%, making it the worst performer on the Cac 40 in early trade.
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Carlos Ghosn blames a "conspiracy" at Nissan for his arrest
Carlos Ghosn, the former Nissan boss, has blamed a “conspiracy” for his arrest and continued detention in Japan.
Ghosn faces multiple charges from Japanese prosecutors, including underreporting his income to authorities. He has also been accused of ethical violations by Renault, the French carmaker whose alliance with Nissan has come under pressure since Ghosn’s arrest.
In a video message recorded before his rearrest on fresh charges in Tokyo last week, Ghosn said he was the object of plotting by Nissan employees who thought that plans for a closer alliance with Renault would threaten the Japanese carmaker’s autonomy. He said:
This is a conspiracy. This is not about specific events, this is not about greed, this is not about dictatorship. This is about a plot, this is about conspiracy, this is about backstabbing.
Ghosn said that he has been unfairly painted as a dictator in an effort to discredit him.
I am innocent of all the charges that have been brought against me. I am also innocent of all the accusations that came around these charges, that are all biased, taken out of context, twisted in a way to paint a personage of greed and a personage of dictatorship.
However, Ghosn said his love for Nissan and Japan is “untainted” since his arrest in November.
I love Japan and I love Nissan. Nobody spends 20 years in a country, nobody works 20 years in the leadership of a company without love and without attachment.
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Introduction: Trump proposes tariffs on EU goods worth $11bn
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Donald Trump’s White House has threatened to impose tariffs on EU goods worth $11.2bn, including French cheese, wine and aircraft, in a move which would significantly escalate trade tensions between the world’s biggest trading blocs.
Trump’s US trade representative, Robert Lighthizer, announced late on Monday night a list of goods which could be hit by tariffs in retaliation for EU subsidies to Airbus, the European aerospace manufacturer.
The 14-page list has some fairly symbolic targets, with “French cheese”, Roquefort cheese, wine, champagne, olive oil and seafood such as oysters.
Airbus and Boeing, the two major civil aerospace operators, have been at the centre of a long-running tit-for-tat battle over subsidies by their respective governments. Lighthizer said:
This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of US countermeasures”.
Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional US duties imposed in response can be lifted.
In the City, Debenhams is likely to reject a last-ditch £200m offer from Sports Direct to take over the ailing department store chain.
The offer still comes with the condition that Sports Direct founder and all-round retail impresario Mike Ashley becomes Debenhams’ chief executive. On past form that is unlikely to fly with Debenhams’ board, meaning a pre-pack administration could still be in the offing.
You can read much more detail here:
And later we will hear from the International Monetary Fund on their latest thoughts on their outlook for the world economy.
The agenda
- 2pm BST: International Monetary Fund world economic outlook press conference
- 3pm BST: US JOLTs job openings
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