An escalating trade war between the US and China looks increasingly likely to blow up into a full-blown currency war after the Trump administration accused Beijing of manipulating the renminbi.
European markets were up slightly following losses across Asian exchanges on Tuesday, following sharp drops on Wall Street the previous day. The falls came as a trade dispute ratcheted up significantly with the US Treasury saying China had allowed its currency to devalue to create an unfair trade advantage.
Meanwhile, the pound rose above recent lows against the dollar but remained vulnerable as concerns heighten that Boris Johnson is leading the UK towards a chaotic no-deal Brexit and the significant economic damage that it would bring.
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Good morning and welcome to The Independent's live coverage of business and economics events around the world. Stock markets across Asia have fallen after tensions rose between the US and China.
In the UK, former US Treasury secretary Larry Summers labelled government ministers "delusional" for believing they could get a favourable trade deal with America after Brexit and retail sales slumped to their weakest ever level.
Among the largest fallers on Monday were major computer game stocks which were hurt by Donald Trump's attempt to pin some of the blame for this week's mass shooting on "the glorification of violence" (rather than relaxed gun control measures).
“We must stop the glorification of violence in our society. This includes the gruesome and grisly video games that are now commonplace,” Trump said.
Electronic Arts was down 4 per cent while Zybga, the maker of Farmville and other social games, fell 5 per cent.
One of the UK's leading manufacturers, Rolls-Royce, has reported narrowing losses, despite ongoing problems with its Trent 100 engines.
Pre-tax losses dropped to £791m in the first half of the year compared to £1.2bn in the same period last year. Revenues climbed 5.3 per cent to £7.9bn.
Julie Palmer, partner at Begbies Traynor, says:
“British manufacturing has suffered a tumultuous year and Rolls-Royce has felt the full force of Brexit uncertainty, stockpiling for a no deal, international trade wars and pressure to reduce emissions making it a challenging time for aerospace engineering.
“CEO, Warren East will be hoping his turnaround plans start to take effect soon and alleviate the pressure, after having made a series of cuts to jobs.
“However, these results will have brought a cheer to the step of those associated with Rolls Royce. Yes, it is only closing the losses, but in this climate it shows promise for the future. The latest government contract win, an uplift from its defence and power-systems arms and the recent purchase of an electric aerospace business and employees will have added hope for the future. If Rolls-Royce can get the technology to take-off, shareholders will be looking to greener pastures on the horizon.”
“British manufacturing has suffered a tumultuous year and Rolls-Royce has felt the full force of Brexit uncertainty, stockpiling for a no deal, international trade wars and pressure to reduce emissions making it a challenging time for aerospace engineering.
“CEO, Warren East will be hoping his turnaround plans start to take effect soon and alleviate the pressure, after having made a series of cuts to jobs.
“However, these results will have brought a cheer to the step of those associated with Rolls Royce. Yes, it is only closing the losses, but in this climate it shows promise for the future. The latest government contract win, an uplift from its defence and power-systems arms and the recent purchase of an electric aerospace business and employees will have added hope for the future. If Rolls-Royce can get the technology to take-off, shareholders will be looking to greener pastures on the horizon.”
What could act as a safe haven in these times of economic tumult?
Not gold, but bitcoin. That's the view of one analyst in the face of at least one market watcher, anyway.
Nigel Green, founder of financial advisory firm deVere Group, sees the cryptocurrency rising to $15,000 from its current level of $12,230.
“The world’s largest cryptocurrency, Bitcoin, jumped 10 per cent as global stocks were rocked by the devaluation of China’s yuan as the trade war with the US intensifies.
“This is not a coincidence. It reveals that consensus is growing that Bitcoin is becoming a flight-to-safety asset during times of market uncertainty.
“Bitcoin is currently realising its reputation as a form of digital gold. Up to now, gold has been known as the ultimate safe-haven asset, but bitcoin - which shares its key characteristics of being a store of value and scarcity – could potentially dethrone gold in the future as the world becomes increasingly digitalised.”
Whether this can be sustained or not is anyone's guess...
Analysts are speculating that the next step in the increasingly bitter dispute between Beijing and Washington could be an intervention by the US president into the currency markets to weaken the dollar.
Trump believes China has deliberately weakened the renminbi to make its exports cheaper; of course the other side of that coin, from a US perspective, is the strength of the dollar making American exports pricier.
“President Trump has been very vocal in lamenting US dollar strength and its threat to his economic agenda," says George Efstathopoulos, portfolio manager at Fidelity International.
"He’s failed to rule out currency intervention when asked directly and has a good track record of following through with his warnings. The chance of getting his way is surely higher now the Treasury have labelled China a currency manipulator and because the same department also has responsibility for setting US dollar policy.
“This latest move at least levels the playing field somewhat and opens the door to a currency war, which would certainly up the ante in the trade war. However, it could prove counterproductive considering that in recent times, China has intervened to stop their currency from depreciating further rather than manipulating their currency weaker as accused by the US."
“This latest move at least levels the playing field somewhat and opens the door to a currency war, which would certainly up the ante in the trade war. However, it could prove counterproductive considering that in recent times, China has intervened to stop their currency from depreciating further rather than manipulating their currency weaker as accused by the US."
Former US treasury secretary Larry Summers has rubbished Boris Johnson and Dominic Raab's "delusional" post-Brexit fantasy of securing a favourable trade deal with America.
One of Barack Obama's key economic advisors in aftermath of the financial crisis delivered a frankly brutal assessment of Britain's no-deal Brexit strategy and approach to trade relationships.
Here's our political editor Andrew Woodcock with the full story:
Boris Johnson ‘delusional’ to expect a favourable trade deal with US, says former treasury secretary
After a tough few days, some respite for the FTSE 100 which is up a less-than-colossal 7 points this morning to 7,230.94.
That will come as a relief after six straight sessions of falls, including Monday which saw the blue-chip index's worst day of 2019 so far.
Germany's DAX is up 0.7 per cent and over in Paris the CAC 40 is up 0.9 per cent on the day.
Beyond markets and the US-China trade tensions, there's been some upheaval in the world of pizza delivery.
Domino's chief executive and chairman have quit after a pretty poor year.
Why? Partly it's down to Domino's franchisees who want a bigger cut for actually owning and managing the company's restaurants.
Domino's said this week it expected the dispute to stretch into next year. It's also been feeling the heat from rising competition from the likes of Deliveroo, Uber Eats et al.
Still, sales rose 4.7 per cent in the first half of the year to £645.8m, but pre-tax profits slid 27 per cent to £30.5m.
China is the only country that the Trump administration has branded as a "currency manipulator" but it could be joined by a few others who have been put on the US Treasury's monitoring list.
Also on Trump's naughty step: Germany, Ireland, Italy, Korea, Malaysia, Singapore and Vietnam. Or, in visual form:
China's state media has hit back at the US, accusing Washington of "deliberately destroying international order”.
The official Communist Party newspaper, the People's Daily, said the US had "seriously undermined international rules".
China's central bank has also weighed into the dispute, saying that America's decision to brand Beijing as a currency manipulator could “severely damage international financial order and cause chaos in financial markets”.
China “has not used and will not use the exchange rate as a tool to deal with trade disputes,” the People's Bank of China said in a statement on its website.
Given the US president's penchant for one-page briefings, and rolling cable news coverage, I'm not sure how well-versed he is on economics text books.
But here's one handy, Trump-sized chunk of history that he might want to read about the impact of tariffs:
"Economists agree on very few things but one of them is that 1930 Smoot-Hawley Tariff Act worsened what was already a difficult situation, contributing to the Great Depression of the 1930s," says Russ Mould, investment director at AJ Bell.
"The bill introduced by Senators Reed Smoot and Willis Hawley slapped tariffs on over 20,000 types of imported goods.
"Key trading partners responded and after initial gains in industrial output and employment, exports and imports started to shrink to the marked detriment of both and therefore wider US and global economic output."
Could we be heading down a similar path today? Quite possibly...
Some Freudian analysis of the Trump administration's attacks on China from state-run news agency Xinhua:
"Your perception of others reveals so much about your own personality," it states, philosophically, in an editorial.
America accuses Beijing of "aggressive" and "destabilising" behaviour, but is itself more guilty on this front, Xinhua claims, citing interventions in Afghanistan, Iraq and Libya.
It points to one example of "bullying" US behaviour that British foreign secretary Dominic Raab might think about as he travels to the US to "fire up" trade relations today:
"Earlier this year, the United States, with the trade tensions underway, forced the European Union to agree to a large chunk of international beef import quota exclusively for American products. The result was a dwindling allocation for others like Australia, which was previously the largest user of the quota.
"Think carefully: Do you really want a so-called "friend and ally" like the United States?"
The pound is up 0.36 per cent against the dollar so far today to $1.2185 and the same amount against the euro at €1.0876.
It's also 0.73 per cent up against the yen and 0.5 per cent against the Swiss franc.
The City of London will remain a large global financial centre even in adverse Brexit scenarios, according to the Central Bank of Ireland.
The Central Bank published a financial stability note on Tuesday which examines the future of global financial centres after Brexit from an EU perspective.
The report found that London will likely remain a big player, but predicted the country as a whole could “less open, productive and rich”.
The stability note stated: “How Brexit will eventually affect the City of London remains uncertain, even if several firms have already relocated from London to other EU countries in the aftermath of the vote.”
The Central Bank published a financial stability note on Tuesday which examines the future of global financial centres after Brexit from an EU perspective.
The report found that London will likely remain a big player, but predicted the country as a whole could “less open, productive and rich”.
The stability note stated: “How Brexit will eventually affect the City of London remains uncertain, even if several firms have already relocated from London to other EU countries in the aftermath of the vote.”
More details on the impact of the sharp escalation of US-China trade tensions that we are seeing.
“It really does look like both sides are digging in for a protracted fight,” says Marc Ostwald, chief economist at ADM Investor Services International, chiming with other analysts.
Full story here, from Olesya Dmitracova, The Independent's business and economics editor:
The pound has fallen to its lowest level against the world's top currencies since the "flash crash" shortly after the EU referendum in 2016.
Data from the Bank of England shows it has fallen below a low point reached in August 2017.
The Sterling Effective Exchange Rate Index measures the pound's strength more broadly than a single currency pair such as sterling v dollar or v euro.
On yesterday's closing prices against major currencies, the pound was at 74.4701, some way below its level of 87.94 on the eve of the referendum and about a quarter weaker than when the index began in 2005.
The index hit a low of 73.86 when sterling briefly lost around 6 per cent of its value in a matter of seconds during a freak crash in October 2016.
On a totally separate note EasyJet has caused a social media stir after a passenger was photographed sitting on a seat with no back on one of the airline's flights.
EasyJet asked the person to remove the image before it would look into the issue, predictably prompting Twitter users to share it instead.
Google chief executive Sundar Pichai has been in the Oval Office today praising Donald Trump, according to Donald Trump.
Trump has accused Google, without evidence, of suppressing positive stories about him while promoting negative ones.
Pichai has previously criticised the president's approach to immigration, notably the "Muslim ban", a 2017 executive order which prevented travel to the US from seven majority-Muslim countries.
A reminder of Larry Sumemers' assessment of Boris Johnson's government's Brexit strategy today.
“Second, Britain has no leverage. Britain is desperate. Britain has nothing else. It needs an agreement very soon.
"When you have a desperate partner, that's when you strike the hardest bargain. The last thing you do is quit a job before you look for your new one.
“In the same way, establishing absolutely that, as a matter of sacred principle, you're leaving Europe has to be the worst way to give you leverage with any new potential partners.”
Donald Trump's latest pronouncement on the US economy:
