And finally....
Donald Trump’s hint that the new 25% tariffs on many Chinese goods could be removed, was welcomed on Wall Street.
The Dow shrugged off its losses to end the day 114 points higher, or 0.44% up, at 25,942.
The S&P 500 also finished a rough week in the green, up 0.37%.
Supportive comments from Steven Mnuchin and Liu He also cheered investors, who will be hoping for a trade breakthrough before the new tariffs really kick in (once boats leaving China now get to the US).
But it’s still been a lively few days, thanks to Trump’s decision to impose higher levies on Chinese goods. We all need a break. Goodnight! GW
Trump: tariffs could be removed, or maybe not
Twitter may not be the best platform for trade negotiations (or many other things too), but nevertheless the US president has turned to it again.
Significantly, he’s now suggesting that relations with president Xi are strong -- and hinted that tariffs on China could be removed:
Over the course of the past two days, the United States and China have held candid and constructive conversations on the status of the trade relationship between both countries. The relationship between President Xi and myself remains a very strong one, and conversations....
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....into the future will continue. In the meantime, the United States has imposed Tariffs on China, which may or may not be removed depending on what happens with respect to future negotiations!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Quite a twist, given Trump was threatening tariffs on more Chinese imports earlier today. Clearly an hour is a long time in US politics...
Here’s our news story on today ‘s trade war developments:
Wall Street is staging a Friday afternoon rally.
The Dow is now down a mere 50 points, or 0.2%, having been 300 points poorer earlier.
The positive noises from Steven Mnuchin and Liu He in the last few minutes may be reassuring investors.
Alfonso Esparza, analyst at trading firm OANDA, says:
US Secretary Mnuchin said the talks were constructive and trade negotiator Liu said that they went fairly well. The mixed signals from President Trump earlier had put pressure on energy prices and global stock markets, but positive comments from both sides sparked a rebound near close of trading for the week.
China’s vice-premier Liu He has told Fox News that the talks went well, and will continue in the future.
That’s an encouraging sign - suggestion the new tariffs imposed by the US overnight haven’t crashed the negotiations.
Vice Premier Liu He just told FOX Business that the talks today “went well” and that the talks “will continue” at some point in the future. #China #Trade.
— Edward Lawrence (@EdwardLawrence) May 10, 2019
Talks are over
It’s official: the negotiations between the US and China over trade have wrapped up. Before lunchtime.
Given they only started yesterday afternoon, it’s hard to believe that much was accomplished.
Treasury secretary Steven Mnuchin has described them as ‘constructive’ - which is better than nothing.
He told reporters:
“They were constructive discussions between both parties, that’s all we’re going to say. Thank you.”
Mnuchin and U.S. Trade Representative Robert Lighthizer have since been seen entering the White House, according to CNBC.
BREAKING: Treasury Secretary Mnuchin says China trade talks are done for the dayhttps://t.co/glZAUZzL5A
— CNBC Now (@CNBCnow) May 10, 2019
European markets have ended the week with modest gains.
- FTSE 100: Down 4 points or 0.06% at 7,203
- German Dax: Up 85 points or 0.7% at 12,059
- French CAC: Up 12 points or 0.3% at 5,327
Updated
Summary: Trade war fears weigh on markets
Time for a recap:
Fears of a deepening US-China trade war have rippled through the global economy today, after America hiked the tariffs on $200bn of Chinese imports. Almost 6,000 products will now incur a 25% levy at the US border, up from 10% previously.
President Trump defended the move, tweeting that there is ‘no rush’ to get a deal, and that plans are afoot to impose tariffs on all Chinese imports (an extra $325bn or so).
Trump also claimed that America would profit from tariffs -- a claim swiftly disputed by several commentators.
America’s tech industry has warned that the move will push up costs for consumers, and hurt the economy.
Any shipments already en route to America before today will be spared the higher tariffs, creating a window of opportunity to agree a deal.
However, talks between US officials and a delegation from China appear to have already ended today, without any signs of a breakthrough.
Liu He has left the building! The @USTradeRep building that is. Shook hands with Lighthizer and @stevenmnuchin1 and waved. Didn't look like he was just going to lunch ...
— Heather Scott (@heatherscottafp) May 10, 2019
Fears that the trade war will rage on have hit shares on Wall Street. The S&P 500 is down over 1%, in its worst week of the year.
Updated
Wall Street hasn’t had many bad weeks this year, but this weekly chart confirms that the last five days have been the worst of 2019.
Uber trades at just $42
Oops! Uber has begun trading at just $42 per share.
That’s three dollars (or 6%) below its IPO price (which was already the bottom of its range).
The escalating US-China trade war came at a dreadful time for the company. This values it at around $70bn, compared with hopes of around $100bn.
Ouch! #Uber opens at $42 in market debut, after pricing at $45 per share. https://t.co/i9mqHPUR0o pic.twitter.com/0aosy3b6EF
— Holger Zschaepitz (@Schuldensuehner) May 10, 2019
Still, those early investors who sold shares in the float, such as founder Trais Kalanick and Amazon boss Jeff Bezos, have still got their money.
BREAKING: $UBER IPO opens at $42 per share pic.twitter.com/x7Q5TYy0KM
— Reuters Top News (@Reuters) May 10, 2019
Updated
Eek. The indicative Uber pricing has now slipped to $42-$43 per share, as haggling continues on the NYSE floor.
That’s below the $45 float price set last night, and would be a disappointing start to its life as a public company. People who bought shares in the IPO would be looking at a paper loss.
Floor traders saying 5-10mins for first @Uber trade. #UberIPO pic.twitter.com/6ch2x8LV6f
— Peter Spiegel (@SpiegelPeter) May 10, 2019
Developing: China's top trade negotiator Liu He leaves U.S. Trade Representative's office after morning talks; unclear if discussions had ended completely for the day or if the vice premier would return for more negotiations https://t.co/glZAUZzL5A pic.twitter.com/1SZsGEZEqO
— CNBC Now (@CNBCnow) May 10, 2019
Here’s a photo of Liu He leaving the USTR a few minute ago. He’s shaking hands with Treasury Secretary Mnuchin.
Liu He leaving U.S. Trade Representative's office. Looks like talks over for moment. pic.twitter.com/atUmVDU3DV
— Rob Schroeder (@mktwrobs) May 10, 2019
It certainly looks like the end of the negotiations, with everyone looking suitably serious.
Newsflash: China top trade negotiator, vice-premier Liu He, has left the US Trade Representative’s office.
It’s not clear if that means talks are over for the day. But the two sides can’t have discussed much yet, given it’s not even lunchtime in Washington DC.
Jim Sciutto, CNN’s National Security Correspondent, has also chided the president for his comments about tariffs:
The US-China trade war is America’s most significant economic challenge. And the US President is repeatedly lying about his strategy, that is, raising tariffs. Tariffs bring NO money to the US. They are taxes on US companies & consumers. This falsehood matters and yet...
— Jim Sciutto (@jimsciutto) May 10, 2019
S&P 500 on track for worst week of 2019
Donald Trump’s tweet saying there’s ‘no rush’ to get a trade deal seems to have worried Wall Street.
The S&P is down over 1% today, taking its losses this week to almost 4%. That’s the worst week of this year (which has mainly seen shares rising).
Europe’s rally is fizzling out too, with the FTSE 100 now flat on the day.
David Madden of CMC Markets sums up the mood:
Equity markets are largely in positive territory, but there are all edging lower, as the feel-good factor in relation to the US-China trade situation is starting to wear-off.
The bounce in Asian markets overnight influenced European dealers ,and now that it is dawning on investors that the US-China stand-off is far from over, and things are likely to get worse before they get better.
Traders and investors have been waiting almost two hours for Uber’s shares to debut on the New York stock market.
There’s a big scrum around Citadel Securities’ trading post. In the eye of the storm is specialist Peter Giacchi, who has to decide what price to begin trading the shares at.
The latest word is that they’ll price at around $44.50 to $45, or pretty much where they were priced last night.....
The second day of US-China trade talks are now underway in Washington.
China Vice Premier Liu He has been greeted by US Trade Representative Robert Lighthizer (centre) and US Treasury Secretary Steven Mnuchin.
Shares are continuing to slide in New York...
Fiorina: Tariff hikes won't work
Carly Fiorina, the former CEO of technology giant Hewlett-Packard, has warned that slapping tariffs on Chinese imports won’t solve the long-term problems in global trade.
Speaking on Fox News, she say:
“There’s no question that both the U.S. and China have benefited from a trading relationship over the last 25 years. And there’s also no question that things about that relationship need to change.
I think the issue now is tit-for-tat tariffs aren’t going to work. Maybe it’s useful pressure in the short term but it’s not going to work in the long term.”
At least some of that message got through to the White House.....
“We have been engaged in an unfair relationship with China for a long time. They have reneged on the commitments they made to the WTO, particularly around intellectual property.” Carly Fiorina @MariaBartiromo
— Donald J. Trump (@realDonaldTrump) May 10, 2019
America's IT industry blasts tariff hike
ITI, which represents US technology firms, has criticised Donald Trump’s decision to raise tariffs on China.
Naomi Wilson, ITI’s Senior Director of Policy for Asia, warns that it will hurt US companies and drive up costs for consumers. But, she does also heed the concerns over China’s business practices.
Wilson says:
“We are disappointed that the U.S. and China were unable to reach a deal in time to avoid another escalation of tariffs. While we appreciate the administration’s commitment to addressing China’s unfair tech trade policies and practices, this trade conflict has taken a significant toll on U.S. businesses, workers, and consumers.
The increase to 25 percent duties on the $200 billion tranche of Chinese imports will raise that toll. This specific tariff increase will affect every day telecommunications equipment like modems and routers that help Americans connect to the internet and with each other.
Increased tariffs on hardware components also mean that companies large and small will find it more difficult to use digital and cost-saving solutions in their daily business. We encourage both sides to continue to negotiate in good faith and conclude a deal that addresses longstanding tech trade issues and moves towards a more open and balanced U.S.-China economic relationship.
The Dow is on track to hit its lowest closing level in five weeks, after a grim start to May
Wall Street is slipping deeper into the red, as the trade war weighs on New York.
The Dow is now down 161 points at 25,666, heading towards the five-week low stuck in yesterday’s volatile trading.
Most of the index is in the red, led by technology firms and industrial companies who would suffer from a trade war.
Machinery maker Caterpillar has lost 1.5%, Apple has shed 1.4% and IBM has dipped by 1.3%.
The Washington Post’s Heather Long has pithily fact-checked the president’s latest tweets (as I also tried to do earlier).
The level of factually wrong info from the president this morning is high.
— Heather Long (@byHeatherLong) May 10, 2019
1) Americans are paying tariffs, not the Chinese
2) Trump has now raised taxes on Americans by $62.5 billion
3) Pretty much every economist predicts tariffs will hurt the economy https://t.co/JMuq9YqPpT
Oxford Economics have calculated that America’s economy would take a significant hit if Donald Trump imposes tariffs on all Chinese imports, as he threatened today.
And a full-blown trade war would be much worse:
#Trump notes #trade talks continue in "very congenial manner" & no need to rush as 25% #tariffs applied.
— Gregory Daco (@GregDaco) May 10, 2019
Says process has begun to apply tariffs on all imports from #China@OxfordEconomics: This would reduce US #GDP by 0.5% in 2020; costing the economy $100bn, or $800/household pic.twitter.com/3LWJAzxNxg
Incidentally, the honour of ringing the Wall Street opening bell went to Austin Geidt, one of Uber’s first employees. She started as an intern in 2010, and has risen to become its head of operations.
But while Geidt and colleagues took the limelight on IPO day, founder Travis Kalanick (ousted after a series of scandals) maintained a slightly lower profile - but has been spotted on the trading floor.
Updated
DING DING! The New York stock market opening bell has been rung (thanks, Uber!), and shares are falling for the fifth day in a row.
The Dow Jones industrial average has dropped by almost 100 points in early trading, or 0.36%, with similar losses across the S&P 500 and the Nasdaq.
Donald Trump is calling on companies to move their manufacturing to the US, and avoid his tariffs:
Build your products in the United States and there are NO TARIFFS!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
He’s also repeated his pledge to support American farmers affected by the trade war.
Your all time favorite President got tired of waiting for China to help out and start buying from our FARMERS, the greatest anywhere in the World!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
About that “all-time favorite” claim... President Trump’s approval rating has risen recently, hitting a two-year high.
But at 49%, there’s room for further improvement -- President Obama hit 69% early in his presidency, for example, while president George W. Bush had a 90% approval after the 9/11 attacks.
US treasury secretary Steven Mnuchin has arrived at the US trade representative’s office in Washington, for a second day of talks with the Chinese delegation led by vice-premier Liu He.
America’s decision to raise the tariffs on thousands of Chinese products may dampen the mood; it doesn’t bode well for a breakthrough today.
Updated
If you’re just tuning in, here’s a breakdown of the 5000+ Chinese products facing steeper tariffs when they’re imported to the US.
It includes chemicals, building materials, food, consumer goods, and a few unusual items.
Updated
This week’s trade war drama has overshadowed Uber’s float on the US stock market, and cost its early investors billions.
The ride-sharing service finally priced its IPO at the lower range of expectations last hight, at $45 per share. That values Uber at $82.4bn.
The company’s owners had hope to price the float at up to $50 per share, which would have valued Uber at $100bn.
Despite this hiccup, Uber will still be the biggest tech float since Facebook. And Wall Street is rolling out the red carpet - the company is expected to ring the opening bell shortly.
CEO Dara Khosrowshahi has been spotted outside the NYSE, as have a group of protesters slamming Uber’s treatment of its workers.
This doggy isn’t sharing the excitement.
Investors are also been offered some savoury treats, as an Uber Eats representative tours the trading floors:
Uber Eats guys passing out free food on @NYSE floor ahead of IPO. #UberIPO pic.twitter.com/rSHQ4TO33M
— Peter Spiegel (@SpiegelPeter) May 10, 2019
Updated
European stock markets continue to take the trade war in their stride.
All the main indices are higher today, despite the escalating trade tensions between the US and China.
Jake Robbins, fund manager at Premier Asset Management, says traders are comforted that the two sides are still planning to negotiate in Washington today.
“Given market volatility this week on the fear that trade negotiations fail and tariffs increase today, it may seem odd that equity markets have rallied. It appears however that the greatest fear was for a complete breakdown in talks and an expectation that this would lead to an escalating tit-for-tat trade war with no end in sight.
“Whilst higher tariffs will cost consumers through higher prices, and corporations through lower margins, the market seems willing to take the positives from ongoing talks and the potential for a speedy resolution.
Donald Trump’s suggestion that US food shunned by China could be given to poor, starving countries has alarmed the FT’s trade expert, Alan Beattie.
It may sound terribly humanitarian, but Beattie argues that simply dumping cheap products on a developing country actually causes serious economic harm.
Oh God, no. A return to large-scale agricultural dumping in the guise of food aid. A proven way of undercutting farmers and destroying local markets in developing countries. You would do less damage just chucking the stuff overboard in the middle of the Atlantic. pic.twitter.com/tDZVC4AS8e
— Alan Beattie (@alanbeattie) May 10, 2019
Generally what happens is there's a food crisis in, say, sub-Saharan Africa, a grain ship chugs out of Baltimore or wherever (shippers and ports being part of the US food aid lobby btw) & arrives several weeks later just in time to undercut local markets as they start to recover.
— Alan Beattie (@alanbeattie) May 10, 2019
Wall Street isn’t impressed by Donald Trump’s claim that there’s “no need to rush” to get a trade deal.
The S&P 500 and the Dow Jones industrial average are being called down 0.5% in the futures market, as investors react to last night’s tariff hikes.
Traders had been hoping that a deal will be reached fast, before ships setting off from China today arrive at the US in a couple of weeks and face the new 25% tariffs.
Trump’s claim that talks are “very congenial” doesn’t quite convey the necessary urgency.
UPDATE: Trump deleted the original tweets, including the one that referenced 'no need to rush,' but then repeated them. https://t.co/6przhbTP8K
— CNBC Now (@CNBCnow) May 10, 2019
That’s odd. Those tweets from Donald Trump have just been deleted, and then reposted.
The final post, suggesting a $15bn support plan for US farmers funded by tariffs, has not reappeared (yet).
It’s been replaced by an attack on former vice-president Joe Biden, who may run against Trump in 2020.
Not sure why Trump deleted the original tweets, but here they are again (as the old links are broken):
We have lost 500 Billion Dollars a year, for many years, on Crazy Trade with China. NO MORE!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S....
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars. The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy.....
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance. In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with “murder!”
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Rick Scott, Republican senator for Florida, has welcomed Donald Trump’s pledge to use tariff revenues to support US farmers.
Speaking on Bloomberg TV, Scott says:
If we’re impacting our farmers, we should do what we can do keep them whole…. and help them build markets in other parts of the world.
Scott also blasted China for trying to “renege” on the draft trade deal drawn up in recent weeks, saying it had lost America’s trust.
Beijing is stealing out technology, and isn’t a good partner, he says sternly.
Trump: No need to rush on trade deal
Newsflash: Donald Trump has said that there’s “absolutely no need to rush” to reach a deal with China.
In a flurry of trade-related tweets, the US president claims that 25% tariffs are NOW being paid on Chinese imports (even though goods that started their journey before midnight will actually only be taxed at 10%).
Worryingly for China, Trump also declares that the process of imposing tariffs on the rest of China’s imports has begun. That’s a warning that he could escalate the trade war further
[Reminder: following last night’s move, $250bn of Chinese imports face a 25% levy, leaving roughly $325bn still on the table]
He also reveals plans to use some of the tariff proceeds to buy agricultural products from American farmers - an acknowledgement that the trade war is hurting the agricultural sector.
This food will be shipped to “poor and starving countries”, he pledges (without giving any names).
Trump also argues that tariffs are “bringing wealth into America” even though economists keep pointing out that they are paid by US companies, not Chinese ones.
Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.......
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars. The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy.....
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance. In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
....If we bought 15 Billion Dollars of Agriculture from our Farmers, far more than China buys now, we would have more than 85 Billion Dollars left over for new Infrastructure, Healthcare, or anything else. China would greatly slow down, and we would automatically speed up!
— Donald J. Trump (@realDonaldTrump) May 10, 2019
Updated
UK: We're worried about US-China trade war
Newsflash: The UK government has weighed in on the escalating trade dispute between the US and China.
Prime minister Theresa May’s spokeswoman has told reporters at parliament that no-one benefits from trade wars, and that Britain hopes for a resolution soon.
“We have been saying on this for some time that we are concerned about it and that we are clear that nobody benefits from trade wars.
The discussions between the two are ongoing and we hope that they will find a resolution to avoid any further escalation.”
Clearly London doesn’t share Donald Trump’s view that trade wars are “good and easy to win”.
He made that claim in March 2018, as the first flurry of tariffs were imposed. It is now dredged up every time negotiations stumble or markets slide.
Trade wars. Still good and easy to win. pic.twitter.com/K8tlL5EIQS
— Kai Ryssdal (@kairyssdal) May 6, 2019
Updated
UK trade deficit hits record high
Ouch! Britain’s economy may be growing faster, but it’s also failing to close its trade deficit.
The gap between what the UK imports and exports has hit a record high in the last quarter, new ONS figures show.
This was driven by higher imports of gold, chemicals, machinery and cars.
More worrying for the chancellor the trade deficit widened again - to 3.4% - meaning we imported more than we expected and v interesting fact GOLD, the ultimate safe haven in nervous times, was a big factor coming into the UK. Exclude it deficit was 2.3%! @Channel4News
— siobhan kennedy (@siobhankennedy4) May 10, 2019
Here’s the details:
- The total trade deficit (goods and services) widened by a record £8.9 billion to a record £18.3 billion in January-March.
- The goods deficit surged by £6.4bn to a record £43.3bn.
- Goods exports rose by £2.5bn to £91.4bn.
- Goods imports increased £8.9 billion to £134.8 billion.
Worryingly, the good deficit with the EU widened by £1.7bn to £25.7bn, while the deficit with the rest of the world widened by £4.7bn to £17.6bn.
This may be partly due to the Brexit stock-piling effect; some companies
Britain’s construction sector grew by 1% in the last quarter, as building firms got busier.
But Clive Docwra, managing director of construction consulting and design agency McBains, says Brexit is still hurting the sector.
“Today’s figures mark another increase in output, coming after last month’s statistics showed unexpected moderate growth during February.
“However, this was driven by repair and maintenance - there was no growth in new work across the first quarter of the year, including a decrease in private commercial and housing work.
“This reflects that many investors are still deferring decisions on projects until Brexit is resolved – and we’re perhaps further away than ever on certainty and finality in that regard.”
UK GDP: Political reaction
Britain’s politicians are predictably split on whether the UK is romping along healthily, or simply scrambling to protect itself from Brexit.
The Chancellor of the Exchequer, Philip Hammond, takes an upbeat view on today’s growth figures, pointing out that we’ve now enjoyed nine years of growth.
“Today’s figures show the economy remains robust, with growth of 0.5% in Q1 benefitting every major sector.
“The economy has grown for nine consecutive years, debt is falling, employment is at a record high and wages are rising at their fastest pace in over a decade.
“We’re investing at records levels in our infrastructure and skills to boost productivity and wages, which will ensure that Britain is well-placed to seize the opportunities that lie ahead.”
But his opposite number, shadow chancellor John McDonnell, sees a more sickly patient. He says:
“It’s not surprising to see households and businesses protecting themselves against a potentially disastrous Tory No Deal Brexit.
“With this government increasingly resembling a business entering administration it’s time they admitted the failure of their approach and stood aside for a General Election.
“With wages, investment and productivity all stagnant it’s clear only Labour’s plan for a £10 per hour Real Living Wage, National Transformation Fund and regional industrial strategy will deliver the sustainable growth we all need.”
Manufacturers: Risks about despite stockpiling boost
Britain’s manufacturers insist that all isn’t rosy, despite enjoying the biggest surge in output since the Lawson boom of the late 1980s.
Seamus Nevin, chief economist at Make UK, the manufacturer’s organisation, fears that Brexit - and the US-China trade war - could both hurt the UK economy this year.
While we can hopefully look forward to a good summer as firms wind down their emergency Brexit planning, the increasing global economic slowdown and growing trade dispute between China and the US means a downturn is still possible.
Output has been artificially boosted in the first part of this year by emergency stock build-ups in preparation for a potential no deal Brexit. That risk is still not off the table.
Encouragingly, UK business investment rose by 0.5% in the last quarter, ending a year-long slump.
Today’s GDP report also shows that household consumption also rose, by 0.7%. That’s a sign consumers kept spending despite the uncertainty and delays over Britain’s departure from the EU.
Ruth Gregory of Capital Economics says:
There were encouraging signs that underlying growth gained some pace in Q1. Household consumption rose by a solid 0.7% q/q. Meanwhile, despite the ongoing Brexit chaos, business investment did not fall (it rose by 0.5% q/q) for the first time in four quarters.
💷 GDP increased by 0.5% in Q1 2019 driven by growth of 2.2% in manufacturing output.
— Tom Boadle (@TomBoadle) May 10, 2019
📦 That’s companies stockpiling ahead of a possible no-deal Brexit, as the Bank of England said last week.
📈 Just look at that impact though... pic.twitter.com/m0xaeQz0MV
While monthly GDP data can be volatile, it appears that January provided most of Britain’s growth in the last quarter:
Strong Q1 growth masks slowdown in economy @ons estimates GDP grew 0.5% in Jan, grew 0.2% in Feb but FELL 0.1% in March
— Helia Ebrahimi (@heliaebrahimi) May 10, 2019
This chart shows how UK growth bounced back in the last quarter
On an annual basis, year-on-year growth accelerated to 1.8%, up from 1.4% in Q4 2018.
UK manufacturing growth hits 30-year high
Britain’s manufacturing sector has surged back in the last quarter -- probably due to a rush to stockpile ahead of Brexit.
Today’s growth figures show that UK manufacturing output increased by 2.2%, its fastest rate since Quarter 3 (July to September) 1988.
That compensates for a slowdown across Britain’s services companies. Service sector output only rose by 0.3%, down from 0.4%.
UK growth accelerates despite March chill
Newsflash: Britain’s economy picked up pace in the last quarter, despite stalling as the Brexit crisis raged in March.
UK GDP rose by 0.5% in the first three months of 2019, new figures from the Office for National Statistics show. That’s up from 0.2% in the fourth quarter of 2018.
However, the economy did shrink by 0.1% in March alone -- a month dominated by parliamentary deadlock over Brexit and fears of a no-deal exit.
More to follow....
The markets may be too complacent about the trade war, fears Simon Harvey, FX analyst at Monex Europe.
”The assumption for now seems to be that the sabre rattling of the past week is part of a still-functioning negotiating process that will yield results in the near future - if this assumption is challenged volatility has the potential to get much worse”.
Trade war fears led investors to pull over $20bn out of global stock markets in the last week, according to new figures from Bank of America.
This is the third-biggest outflow of 2019.
China’s foreign ministry spokesman Geng won’t reveal how Beijing will retaliate.
He says we should “stay tuned” to hear the detailed measures which China will take.
Geng also criticises US regulators for rejecting China Mobile’s application to operate in America yesterday (due to espionage concerns). America should stop its “groundless” attacks on Chinese firms, he declares.
#US govt is urged to respect the principle of the market economy & stop its groundless containment toward Chinese firms, said Chinese Foreign Ministry spokesperson on the US @FCC voting Thursday to deny #ChinaMobile's bid to provide telecom services in US. pic.twitter.com/HloG3Ce7ae
— Global Times (@globaltimesnews) May 10, 2019
Comments are now turned on, by the way, so do let us know what you think about the trade war - and other important issue...
China: US needs to meet us halfway
China’s foreign ministry is holding a press conference in Beijing now.
Spokesperson Geng Shuang has told reporters that a health relationship between the US and China is in all sides’ interests.
Geng also called on the US to “meet halfway”, to help ensure stable relations between the two economic powers.
He also says he isn’t aware of president Xi speaking to president Trump by phone.
Yesterday Trump said he hoped to speak to Xi “soon”, after receiving a “beautiful letter” from the Chinese leader.
Carmaker Jaguar Land Rover has suffered an alarming slump in sales in China last month -- a sign that consumer demand is weak after months of trade tensions.
My colleague Jasper Jolly explains:
Jaguar Land Rover (JLR) sales slumped in April after continued weakness in China, amid reports that its Indian owner, Tata Motors, is considering selling the luxury carmaker.
Global sales at Britain’s largest carmaker fell by 13.3% last month compared to April 2018, as Chinese sales plunged by 45.7%, JLR said on Friday.
Chinese demand for new cars fell in 2018 after almost three decades of constant growth. The Chinese weakness was behind a £3.1bn writedown on JLR’s investments in the final three months of 2018 and is thought to be a major factor in the 4,500 job cuts JLR announced in February.
Felix Brautigam, JLR’s chief commercial officer, blamed Chinese weakness for a “tough month”, amid a stronger performance in the UK, where sales rose by 12.1%, and the US, where sales rose by almost 10% to a record high.
Tata on Thursday denied that it is looking to sell JLR.
Got questions about the US-China trade war? Don’t worry, we’ve got the answers:
European stock markets have opened higher, as traders resist panicking over the escalating trade war:
The City has taken note that the new 25% tariffs only apply to goods loaded onto ships in Chinese ports from today.
Kit Juckes, currency expert at French bank Société Générale, points out that this creates time for a breakthough:
The Chinese delegation is in Washington, presumably tucked up in bed. Maybe we get some news today, or maybe we have to wait for a weekend of Tweeting.
Increased tariffs are in place though they only take effect on goods now leaving China so theoretically could be cancelled before anyone has to pay anything.
Bloomberg is reporting that the Chinese government has been buying shares, though state-controlled fund.
That suggests they’re trying to prop up equities, and helps explain why the Shanghai stock market has rebounded in late trading.
According to Bloomberg & its sources, China State Funds jumped in after lunch break & it explains why it dipped & bounced massively.
— Trinh (@Trinhnomics) May 10, 2019
So what's the meaning of this? More help from gov? pic.twitter.com/nSsAfFJLgD
Patrick Zweifel, chief economist at Swiss-based Pictet Asset Management, predicts that China will indeed retaliate against the US.
He also points out that the trade war will hurt both country’s economic growth.
1/3
— Patrick Zweifel (@PkZweifel) May 10, 2019
√ #US officially increased tariff from 10% to 25% on $200bn Chinese goods that will be exported from #China beginning today (May 10) i.e. goods that are currently on their way to the US will still be subject to the previous 10% rate
2/3
— Patrick Zweifel (@PkZweifel) May 10, 2019
√ In practice then, new tariff will become effective in a few weeks, which opens an unofficial window to continue negotiations. Talks will continue today
√ China will retaliate and US will start the process (c.3 months) of imposing the remaining $300bn of goods at 25%
3/3
— Patrick Zweifel (@PkZweifel) May 10, 2019
√ Assuming no #USChina deal and with current higher tariffs remaining in place, the negative impact on China’s GDP growth would be some 0.5% and some 0.2% on US growth, with just the additional increase in tariffs representing a cost for the US of 0.15% of 2018 US GDP pic.twitter.com/i6blc8vPZd
Updated
Robert Ward of the The Economist Intelligence Unit says Bruno Le Maire is right -- a full-blown trade war is the biggest threat to the world economy.
As US raises tariffs on $200bn Chinese exports, a reminder that escalation/spillover of US-China trade war has for a while now been @TheEIU’s top global risk. Tariffs damaging for CN, but also no free lunch for Trump as US companies/consumers ultimately absorb higher costs. pic.twitter.com/nv9Ht7sXDH
— Robert Ward (@RobertAlanWard) May 10, 2019
Higher tariffs often lead to higher prices in the shops (as importers pay the bill, and then pass the charges onto consumers).
But economist Paul Donovan of UBS Wealth Management suspects US companies will try to swallow the bill themselves, and hopes that a trade deal means the new tariffs are reversed soon.
He also dismisses Donald Trump’s claim that China actually pays these tariffs. In a note labelled “Read my lips – pay more taxes”, Donovan says:
- US President Trump has followed through on the pledge to make Americans pay more taxes. However the increase in trade taxes on $200bn of Chinese imports only applies to new purchases – so it will take two or three weeks for the taxes to actually hit.
- Because trade negotiations are continuing, companies are unlikely to change their prices. These taxes will erode US corporate profits, rather than push up inflation. The longer the negotiations go on, the greater the economic damage. A longer period of uncertainty will further delay corporate investment – which in turn hurts exports and manufacturing.
France’s finance minister, Bruno Le Maire, has just warned that the US-China trade dispute is “negative” for the world economy, Reuters reports.
The risk of further escalation is the biggest risk to global growth, Le Maire adds, in a sign that policymakers are watching the trade talks closely.
The Chinese stock market is staging a late rally too - up almost 3% in its best day in five weeks.
🇨🇳 *SHANGHAI COMPOSITE EXTENDS GAIN TO 2.7%, MOST SINCE APRIL 1 - BBG
— Christophe Barraud🛢 (@C_Barraud) May 10, 2019
*#CHINA'S CHINEXT GAUGE EXTENDS GAIN TO 4%
*YUAN EXTENDS GAIN TO 0.34%, TRADES AT 6.8022
Updated
Morning all.
European stock markets are set to bounce back this morning, despite Donald Trump escalating the trade war with Chins with higher tariffs on $200bn of imports..
Britain’s FTSE 100 is expected to gain around 30 points, or 0.4%, which would claw back around half of yesterday’s losses. Germany, France, Spain and Italy are all expected to open higher.
European Opening Calls:#FTSE 7235 +0.38%#DAX 12012 +0.32%#CAC 5335 +0.40%#MIB 20867 +0.24%#IBEX 9118 +0.25%
— IGSquawk (@IGSquawk) May 10, 2019
But shouldn’t investors be running to the hills, in the face of an escalating trade war?
You’d think! But the City seems to be hoping that a trade agreement can still be agreed in the coming weeks (or months).
The news that Chinese goods already heading to the US won’t incur the new 25% tariffs is also helping - this ‘grace period’ means there’s a window for the two sides to make progress.
Investors will be watching Washington closely today, of course, as the second day of US-China trade talks takes place.
Jasper Lawler of London Capital Group explains that the prospect of some telephone diplomacy between the country’s leaders is also calming the markets.
The market’s reaction has not been all doom and gloom. We are not seeing see the same risk off reaction that we have seen in previous sessions. The fact that the two sides have agreed to continue negotiations on Friday is offering a glimmer of hope that the relationship between the two powers hasn’t deteriorated beyond repair.
Markets are also clinging to Trump’s comments over a “beautiful letter” from Chinese President Xi Jinping and an expected phone conversation between the two leaders
I’m handing over to my colleague Graeme Wearden, thanks for your company and keep following along.
Summary
- The US has increased tariffs on $200bn of Chinese goods from 10% to 25%, with the change coming into effect at midnight.
- Tariffs increased when midnight deadline for agreement to be reached between China and the US passed without a deal, though talks between the delegations will continue on Friday.
-
Beijing vowed to retaliate over the increase. In a statement, the commerce ministry said Beijing “deeply regrets” the increase and said they would “have to take necessary countermeasures”.
- The Asia-Pacific stock market held steady despite the introduction of the tariffs. The Shanghai Composite, was up 1.5% and the Hang Seng is up too. In Tokyo the Nikkei is down around 0.8% while the Australian ASX200 is flat.
- The muted response of the markets to the tariff increase may be due to the “grace period”, which means the 25% duty will not be applied to cargoes that left China before 12:01am on Friday. Goods that left Chinese ports and airports before midnight will be subject to the original 10% duty rate and are only applied once those cargoes arrive in the US, effectively meaning there is a window of about three weeks before the tariff comes into effect.
Global Times, the Chinese state tabloid, reports that the Shenzen and Shanghai markets quickly rebounded after the new tariffs were introduced.
The Shenzhen and Shanghai markets quickly rebounded after turning green shortly after the afternoon session opened on Friday. By 1:25 pm, the Shanghai and Shenzhen markets rebound has driven the surge of circuit board shares. #stock #trade war pic.twitter.com/wqTT9BOqMU
— Global Times (@globaltimesnews) May 10, 2019
The Australian dollar has fallen below the US$0.7 mark again after the Reserve Bank was forced to slash its forecasts for economic growth today.
The trade war won’t be good news for the Aussie either but the RBA is now sketching out a much grimmer picture than previously. It now expects annual GDP growth in the 12 months to June of 1.75%, compared to the 2.25% it flagged six months ago. The target for 12 months to December is downgraded from 3.0 to 2.75%.
Following on from the positivity in Asia, the FTSE100 is expected to open 0.4% higher this morning, according to futures trading. In New York, however, the Dow is on course for a fall of the around the same magnitude.
This tweet earlier from IG Markets shows the general picture:
Everything coming off now, as hope of a last minute reprieve fades. #tradewars pic.twitter.com/WogtDBMjaY
— IGSquawk (@IGSquawk) May 10, 2019
Michael Hewson, chief market analyst at CMC Markets UK, has this assessment of the day’s events and what impact they might have on the markets. He says:
Given the deadline has now passed there is the possibility that tariffs could still be avoided given that US officials allowed for goods currently in transit to be exempt from the new tariff increases, which means there is a potential window, albeit a limited one, for an agreement to be hammered out, after President Trump said that a deal still remained possible.
It is this hope that investors may well cling to as the tariff deadline passed earlier today, while China said it would take measures to retaliate in due course.
There is no doubt that the stakes have increased in the past few days, with not only these now new China tariffs, but also escalating tensions in the Persian Gulf, after the USS Abraham Lincoln carrier group sailed through the Suez Canal into the region.
The US also has to make a decision a week from now on whether to implement auto tariffs on imported cars from the EU, which is likely to be another factor that could weigh on the markets over the next few sessions. For now that it is a decision for next week, for the here and now investors want to see evidence of a softening of tone as Chinese and US officials sit down and move their positions back closer together.
An note on the impact of the grace period on the tariffs. The new 25% duty is only applied to cargoes leaving China after 12:01am on Friday.
Goods in the more than 5,700 affected product categories that left Chinese ports and airports before midnight will be subject to the original 10% duty rate.
The grace period was not applied to three previous rounds of tariffs imposed last year on Chinese goods, which had much longer notice periods of at least three weeks before the duties took effect.
“This creates an unofficial window, potentially lasting a couple of weeks, in which negotiations can continue and generates a ‘soft’ deadline to reach a deal,” investment bank Goldman Sachs wrote in a note.
“Given this detail, downside to sentiment might be slightly more muted than if the tariff increase came with a ‘hard’ deadline. This also leaves an opportunity for the two sides to reach an agreement in the next couple of weeks, though challenges remain.”
Lily Kuo, in Beijing, has this wrap of the tariff hike.
Last-minute talks in Washington between Chinese vice premier Liu He and US trade representative Robert Lighthizer failed to salvage months of talks on a deal and at 12.01am on Friday tariffs on Chinese goods were raised to 25% from 10%.
China’s ministry of commerce said in a statement just after the deadline: “The Chinese side deeply regrets that it will have to take necessary countermeasures,” adding that “high-level economic and trade consultations” were underway.
“It is hoped that the US and the Chinese side will work together to resolve existing problems through cooperation and consultation,” it said.
The increased tariffs apply only to goods leaving China after the deadline and will go into effect only once shipments reach the US, leaving room still for negotiations. The White House said the two sides will resume talks on Friday amid hopes that a deal can be reached.
My colleague Graeme Wearden has compiled this selection of some of the products that the 25% tariff will be placed on.
As you can see, it’s pretty wide-ranging and includes: live fish, soy sauce, jam, beer, rocks, kerosene, gold, rice, rat poison, french doors, toilets, blown glass, air conditioning units, televisions, cars, sail boats, chandeliers, musical instruments, toilet paper, cigars, shoelaces, furs, bovine semen and parking meters.
Asia Pacific stock markets hold steady
The tariffs may have kicked in but investors still appear to be holding out for some sort of last-minute solution.
China’s main index, the Shanghai Composite, is up 1.5% and the Hang Seng is up too. In Tokyo the Nikkei is down around 0.8% while the Australian ASX200 is flat.
The US dollar index, which measures the greenback against a basket of currencies, is flat. China’s currency, the yuan, is up too which suggests there’s not a huge amount of anxiety about the deal despite Beijing’s threat of “counter-measures”.
Offshore yuan doesn't appear to care about higher tariffs.
— Tom Orlik (@TomOrlik) May 10, 2019
Which seems as good a reason as any to sign off. pic.twitter.com/c7wtY2j3Zb
Perhaps traders been watching too much Champions’ League football this week and think that the Washington talks can provide a dramatic finale.
Here’s how the Chinese state media is reporting on Beijing’s reaction to the news.
#BREAKING China vows to retaliate after the US moved to increase #tariffs on $200 billion worth of Chinese goods to 25%. Countermeasures expected soon: Chinese commerce ministry pic.twitter.com/YoBCTiBFTu
— Global Times (@globaltimesnews) May 10, 2019
#BREAKING: China "deeply regrets" U.S. tariff hike -- Chinese delegation pic.twitter.com/n21OFUCjyf
— China Xinhua News (@XHNews) May 10, 2019
#BREAKING: China "will have to take necessary countermeasures" to U.S. tariff hike -- Chinese delegation pic.twitter.com/4TOqJ1PqtW
— China Xinhua News (@XHNews) May 10, 2019
Beijing vows to retaliate over tariff hike
China’s ministry of commerce has released a statement saying it “deeply regrets” the US tariff hike and vows to retaliate after the US moved to increase tariffs on $200 bn worth of Chinese goods from 10% to 25%.
A reminder that on Thursday, Gao Feng, a spokesperson for China’s ministry of commerce, said China was ready to hit back if the US pushed through with its plan to increase tariffs.
“We hope the US side could meet the Chinese side halfway to address the issue through dialogue rather than unilateral measures,” Gao told a press briefing.
“At the same time, the Chinese side is fully prepared and has the resolve and capability to safeguard its own legitimate rights and interests.”
Deadline reached, increased tariffs come into effect
Tariffs of 25% on $200bn worth of Chinese goods have come into effect, as we passed the midnight deadline without a deal reached by the US and China.
All eyes are on the markets to see how they react to the news.
Updated
It is less than 10 minutes until the increased tariffs come into effect, we will be watching the markets’ reaction carefully.
US to offer grace period on Chinese imports
Earlier on Thursday, the US Customs Office revealed that goods which set off from China to the US before the midnight deadline would still be taxed at 10%, not the new 25% rate.
That means Chinese firms are effectively getting a grace period as anything already en route by boat or air will still get the lower tariff.
That should cushion the impact of the tariffs, and perhaps also create a window of opportunity to reverse the tariffs if the two sides can achieve a breakthrough.
If you’d like to read the full memo from the US Customs and Border Protection service about the increase in tariffs to 25% that is due to come into effect on 10 May (ie. in 35 minutes), you can read it here.
Earlier, Phillip Inman reported that President Xi Jinping sent a message to Trump that he would talk to his US counterpart ahead of the deadline, though we do not know if that conversation has happened this evening.
Trump said on Thursday he had received a “beautiful letter” from Xi as negotiations on a trade deal between the two countries continued in Washington.
“He just wrote me a beautiful letter. I’ve just received it and I’ll probably speak to him by phone,” said Trump. Later he quoted Xi as saying in the letter: “Let’s work together, let’s see if we can get something done.” The US president added he believed a deal could be done this week, but accused China of sabotaging recent talks by seeking a renegotiation.
“We’re getting very close to a deal then they started to renegotiate the deal. We can’t have that. We can’t have that,” said Trump.
It is understood a day of talks with China’s vice-premier, Liu He, had made progress, but it was unclear whether the two sides were close to reaching an agreement.
Asian shares pull up from two-month low ahead of looming deadline
Asian shares inched up from two-month lows on Friday, hours ahead of the Trump administration’s plan to raise tariffs on Chinese imports, as investors waited to see if negotiators can salvage a deal and avoid a sharp escalation in the trade war, Reuters reports.
Donald Trump said on Thursday he had received a “beautiful letter” from Chinese President Xi Jinping, stoking hopes that Washington may suspend its plan to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent at 12:01 a.m.
That triggered some short-covering for stocks in early Asian trade though investors remained cautious.
Top US and Chinese trade negotiators concluded the first of two days of talks on Thursday to rescue the deal that is close to collapsing, and the White House said officials would continue discussions on Friday morning.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1%, led by gains in Chinese shares. Shanghai composite rose 3.1 percent
Japan’s Nikkei rose 0.7%, while e-mini futures for US S&P500 rose 0.3% in early Asian trade.
Yet, some still see a risk of a fresh escalation in the trade war. China has vowed to retaliate if the U.S. hikes tariffs.
“I’d say there’s 50% chance the tariffs will be raised as announced, which should lead to fresh selling in stocks later today,” said Norihiro Fujito, chief investment in Mitsubishi UFJ Morgan Stanley Securities.
Updated
Trade talks will continue on Friday
Trade talks have wrapped up for the night, but both sides have agreed to continue discussions tomorrow, the White House has confirmed in a statement:
“This evening, Ambassador Lightizer and Secretary Mnuchin met with President Trump to discuss the ongoing trade negotiations with China. The Ambassador and Secretary then had a working dinner with Vice Premier Liu He, and agreed to continue discussions at USTR.”
Fears of a full-blown trade war between the US and China have escalated today as the deadline for the two superpowers to reach a deal over trade tensions fast approaches.
US president Donald Trump had threatened to impose higher tariffs (25%, rather than the 10% tariff currently in place) on $200bn worth of Chinese goods at midnight Washington time on Thursday (in about an hour) unless Beijing’s negotiators offered a compromise.
Stock markets all over the world have tracked higher this year thanks in large part to reports of good progress in talks aimed at resolving the long-running dispute.
But those hopes were dashed when Trump issued his tariff threat on Sunday amid exasperation on the US side that China was reneging on critical parts of a 150-page draft agreement.
Speaking at a rally in Florida on Wednesday night, the US president said that the Chinese “broke the deal” and “so they’ll be paying”.
Investors now face the prospect of a damaging trade war which many fear could destabilise the already slowing global economy and escalate tensions between the two superpowers.
We’ll be bringing you the news as it comes. I’ll be steering the blog for the first few hours, before I hand over to my colleague Graeme Wearden. You can reach me on Twitter here or send me an email kate.lyons@theguardian.com.
Thanks for following.
