Closing summary
Before we close up for the day, here is a summary of the main developments:
- Stock markets in Asia fell heavily after China signalled it would retaliate against US tariffs. The Nikkei in Japan closed down 4.5%, while the Hang Seng in Hong Kong closed down 2.5%
- European markets followed Asia lower, as investors worried about an impending US-China trade war
- Falls on the FTSE 100 were limited by gains in Next, the index’s top performer despite its declaration that it had faced its toughest period in 25 years. Investors were relieved by a lack of nasty surprises from the retailer
- MPs published a report demanding tougher rules on night flights before parliament gives Heathrow expansion the go-ahead
- European leaders gathered in Brussels welcomed the EU’s temporary exemption from tariffs on US imports...
- ... but Belgium’s prime minister said America’s negotiating stance amounted to “a gun to our heads.” Donald Tusk, President of the European Council, called on the US to make the exemption permanent
- Back in the UK, Bank of England policymaker Gertjan Vlieghe put households on notice for borrowing costs to rise faster than previously thought over the next few years
- Wall Street opened slightly higher as investors more calmly digested China’s retaliation against US trade tariffs. The Dow was up 0.4%
That’s all from us for today. Thank you for following the blog and for all the comments.
Have a good weekend and please join us again on Monday. AM
Updated
Dow rises but most key markets fall
Time for another look at the markets.
In the US, the Dow Jones is bucking the trend across global markets and continues to rise.
Here are the latest scores on Wall Street:
- Dow Jones: +0.4% at 24,042
- S&P 500: +0.2% at 2,648
And in Europe:
- FTSE 100: +0.3% at 6,930
- Germany’s DAX: -1.3% at 11,946
- France’s CAC: -1% at 5,115
- Italy’s FTSE MIB: -0.5% at 22,277
- Spain’s IBEX: -1% at 9,398
- Europe’s STOXX 600: -0.6% at 367
Brent crude oil prices have hit $70.03 a barrel, the highest since late January.
The rise follows comments from the Saudi energy minister, who said OPEC countries would need to keep co-ordinating supply cuts with non-member countries, including Russia, into 2019.
Back to the subject of trade wars...
Ana Boata, senior economist at Euler Hermes, the trade credit insurer, has done some number crunching on what the dispute between the US and China might mean:
The trade feud between the US and China could lead to potential export losses of $15.7bn. The US’ 25% tariff on imports for $60bn Chinese goods might cost China $15bn in export losses, while retaliatory Chinese tariffs on $3bn of US agrifood and steel products could see US exporters lose up to $700m.
We expect vehicles and electronics to be next on the target list, while their attentions might also turn to financial services and intellectual property.
Wall Street edges higher
US markets are slightly up after the opening bell on Wall Street:
- Dow Jones: +0.3% at 24,029
- S&P 500: +0.2% at 2,649
- Nasdaq: +0.1% at 7,172
Expect faster rate rises, Bank of England's Vlieghe warns
Bank of England rate-setter Gertjan Vlieghe has put households on notice for borrowing costs to rise faster than previously thought over the next few years.
Using a speech in Birmingham, the member of the Bank’s monetary policy committee said he saw a need for one or two rate hikes per year over the next few years, in comments likely to be seen as putting the Bank on track for raising the cost of borrowing in May.
One of the seven MPC members who voted to leave rates unchanged on Thursday, he said he was increasingly confident that wage growth in Britain was just around the corner. “The data have shifted further in the direction that warrants a continuation of the removal of monetary stimulus,” he said.
Although he warned there was uncertainty about the strength of the economy, particularly as the UK leaves the European Union, Vlieghe said recent surveys and figures from the jobs market had convinced him of the need for higher interest rates.
But despite the good news for workers from rising pay, he warned there was also a lower “new normal” for wage growth, as pay rises are likely to be constrained by poor levels of productivity growth in the UK.
The sluggish increase in the efficiency of British workers seen since the financial crisis - which has been poorer than other advanced economies - could mean average annual wage rises worth about 3% per year compared to about 4% previously, he said.
Updated
Andrew Hunter, US economist at Capital Economics, says the durable goods data suggests business investment is in “healthy shape”.
The 3.1% rebound in durable goods orders in February was encouraging, even if that headline figure was boosted by the more volatile transport category. Equipment investment still appears to have slowed in the first quarter overall, but the data suggest that won’t last for long.
The 26% in commercial aircraft orders was in line with the stronger orders reported by Boeing last month, while orders for defence aircraft also posted a big rebound. The 1.6% gain in motor vehicle orders was, however, stronger than expected given the recent declines in sales.
Overall, business equipment investment still appears to have slowed in the first quarter, probably to between 6% and 8% annualised. But some slowdown appeared inevitable after the double-digit gains in the second half of last year and, in any case, the latest business surveys suggest that the outlook over the coming months remains bright.
US durable goods jump 3.1% in February
On a data-light Friday, we’ve just had some stronger-than-expected numbers out of the US.
Orders for durable goods - items ranging from kitchen appliances to aircraft that are expected to last three years or more - jumped 3.1% in February, as demand for transport equipment rose by 7.1%.
The headline number was expected to come in at 1.5%, and growth of 3.1% followed a 3.5% fall in January, the commerce department said.
Orders of non-defence related capital capital goods excluding aircraft - considered a bellwether for business spending plans - rose 1.8% last month. It was the biggest gain in five months and beat expectations of a 0.8% increase.
#UnitedStates Durable Goods Orders month-on-month at 3.1% https://t.co/G4gyxTou0U pic.twitter.com/xreKVSkHpH
— Trading Economics (@tEconomics) March 23, 2018
Stiglitz: China can't be seen as weak against 'bully' Trump
Joseph Stiglitz, the Nobel prize-winning economist, says China can’t be seen to show weakness against a “bully” like President Trump.
He told Bloomberg Television in Beijing:
Particularly when you have a bully like Trump, it would not be good to respond in a weak way.
We know about appeasement from Munich. It’s a different kind of a war but in a trade war, appeasement could lead to more and more demands.
Stiglitz, a Columbia University economics professor, said China was in a better position than the US to withstand a trade war:
[China is] sitting on $3 trillion of reserves that it can use to help those adversely affected. In the United States we don’t have an economic framework that is able to respond to the particular places that will be affected by a trade war. The fiscal resources of the United States are strained.
China Can’t Be Seen as Weak Against ‘Bully’ Trump, Stiglitz Says https://t.co/GMSKi92q29
— Joseph Stiglitz (@stiglitzian) March 23, 2018
US futures have reversed earlier losses suggesting Wall Street could open slightly higher.
Dow Jones futures are up about 0.1% while S&P futures are up 0.2%.
Trevor Greetham at investment company Royal London Asset Management says now could be the time to buy shares.
In a note titled “the Donald dip becomes a Trump slump”, he says:
Stock markets have fallen back sharply towards their February lows. While the initial bout of market weakness this year was blamed on rising wage inflation and fears of higher interest rates, this time round it’s in reaction to President Trump’s announcement of a range of tariffs on imports from China.
Although equities have taken a battering since the market melt-up at the turn of the year when US corporate tax cuts were the focus, these moves aren’t so unexpected. It’s quite normal for markets to remain edgy for a month or two after such a sharp reversal and a move back towards the initial lows is not surprising.
Given this weakness, we’re once again adding to equities and remain overweight stocks in the multi asset funds we manage. It’s noteworthy that commodity markets haven’t reacted particularly badly to the tariffs spat and emerging market equities are outperforming in the sell-off, both signs that global growth remains on track.
With profits growing and interest rates still below inflation in major developed economies, the fundamentals and outlook remain positive.
Our delegation @EU_aluminium meeting Commissioner @MalmstromEU today on #Section232
— EUROPEAN ALUMINIUM (@EU_Aluminium) March 23, 2018
Fruitful and constructive debate about the way forward. #Trade #aluminium pic.twitter.com/RxhaouJQIf
EU trade commissioner: US should work with us
Cecilia Malmstrom, the EU’s trade commissioner, has outlined her view on the bloc’s temporary exemption from US tariffs in a series of tweets.
The exemption was agreed after Malmstrom travelled to Washington for talks with US trade representative Robert Lighthizer and commerce secretary Wilbur Ross.
...following discussions with @SecretaryRoss and @USTradeRep in Washington D.C. and Brussels. The EU is not the source of the global problems in the steel and aluminium sectors... 2/4
— Cecilia Malmström (@MalmstromEU) March 23, 2018
Preserving the global rules-based system for trade is what we should all be working towards. The EU will also keep our options open in terms of preserving our rights in the @WTO for further action. 4/4
— Cecilia Malmström (@MalmstromEU) March 23, 2018
Updated
Belgium: PM: US is putting "a gun to our heads" on tariffs
Over in Brussels, where EU leaders are gathered for talks, positivity over the bloc’s 40-day exemption on tariffs, granted by Washington, appears to be wearing thin.
Belgium’s Prime Minister, Charles Michel, said he was not impressed at the suspension of tariffs until 1 May:
I have the impression that the US leader wants to negotiate with the European Union by putting a gun to our head.
That’s a strange way to negotiate with an ally.
Here is our latest market roundup as China reacts to US steel tariffs:
Peter Rosenstreich, a trader at Swissquote, the online bank, says markets are overreacting to “trade war hype”:
Markets are overreacting to President Donald Trump’s threats of a trade war. Trump is using the issue for political gain, rather than actual trade repositioning.
This will give him a nice bullet point for stump speeches in the 2020 campaign, but he gains little from sparking a full-blown trade conflict. Besides, the World Trade Organization is still in action.
Craig Erlam at online trading site Oanda, says investors are concerned that an impending trade war will derail the global economy:
For a person who’s been obsessed with stock market gains since his election victory 16 months ago, US President Donald Trump doesn’t appear too concerned about the impact his tariffs are having at the moment.
Trump may be prepared to add the European Union to the list of those that are temporarily exempt from the tariffs – with Canada, Mexico and Australia having been allowed similar exemptions – but that has barely cushioned the blow for investors.
Understandably, the prospect of a trade war between the world’s two largest economies is not particularly desirable for investors. The global economy is finally starting the tick along nicely after a decade of efforts to repair the damage of the global financial crisis and the issues that followed and now we’re potentially having to deal with an entirely self-inflicted and avoidable problem.
European shares fall further
Losses have widened across European market as investors digest the prospect of a US-China trade war.
Here are the latest scores:
- FTSE 100: -1% at 6,884
- Germany’s DAX: -1.9% at 11,877
- France’s CAC: -1.9% at 5,068
- Italy’s FTSE MIB: -1.7% at 22,008
- Spain’s IBEX: -1.5% at 9,345
- Europe’s STOXX 600: -1.5% at 364
Wall Street is also expected to open down:
- Dow Jones futures: -0.7%
- S&P futures: -0.5%
- Nasdaq futures: -0.9%
EU's Tusk calls for permanent exemption from US tariffs
Donald Tusk, President of the European Council, has called on the US to make permanent the EU’s temporary exemption from steel and aluminium tariffs.
He says a good trading relationship between the US and EU is essential for “security and prosperity” in both regions:
EU calls for permanent exemption from US tariffs. #EUCO recalls commitment to strong transatlantic relations as a cornerstone of security, prosperity for US, EU and underlines support for dialogue on trade issues of common concern. #overcapacity https://t.co/5is7GKxyng
— Donald Tusk (@eucopresident) March 23, 2018
China’s planned retaliation against US tariffs on steel imports includes a potential 25% levy on pork imported from the US.
As Bloomberg explains, this would hit the US agricultural sector, particularly in Iowa, a key battleground in the 2016 presidential election:
In its initial counterstrike, China announced a 25 percent levy on US pork imports - a heavy blow to Iowa, the top pork-producing state and a political battleground that swung to Trump in 2016 after going for Democrat Barack Obama in the previous two elections.
Any hit to agricultural producers’ earnings would be especially painful as falling commodity prices already are hurting rural America. US farm income is forecast to drop 6.7% this year to its lowest level since 2006, according to US department of agriculture estimates that assumed normal trade relations with China.
“Were farmers faced with falling prices for the exports and higher prices at home because of the import tariffs, the popularity of the tariffs would diminish quickly,” said Mike Jakeman, a global analyst at the Economist Intelligence Unit. “This is a high-risk strategy for the U.S. administration and one that is likely to weaken, rather than strengthen, the global economy.”
Trump country might be hardest hit by China's tariff retaliation https://t.co/mrIcG9dYdl pic.twitter.com/pN3r9RTbG6
— Bloomberg Asia (@BloombergAsia) March 23, 2018
Updated
European leaders welcome US tariff reprieve
EU leaders meeting in Brussels have welcomed President Trump’s decision to row back on plans to impose tariffs on European steel.
Washington said on Thursday tariffs would be suspended for the EU - America’s biggest trading partner - Argentina, Australia, Brazil, Canada, Mexico and South Korea. The tariffs are suspended until 1 May as discussions continue.
A spokesman for the French government said this morning:
Europe has clearly stated its intention to riposte and enter a trade war ... it’s a good thing that President Trump changed his mind on tariff increases.
Germany’s economy minister, Peter Altmaier, said:
I am very pleased that we have avoided a situation for the German steel and aluminium industry and its workers, that could have led to great uncertainty.
We don’t want further unilateral measures, rather we want sensible agreements.
European commissioner Pierre Moscovici kept it simple:
This is progress, let’s keep talking.
Theresa May has also welcomed the decision.
Next profits fall 8% after most challenging period in 25 years
Next is one of Britain’s biggest retailers and the latest results for the year ending January 2018 reflect a tough trading backdrop on the UK’s high streets.
Pre-tax profits fell 8% to £726m, reflecting a 7.9% fall in sales in its shops. The drop was not enough to offset a 9% rise in online sales.
Lord Wolfson, chief executive, said it had been an “uncomfortable year”, adding:
In many ways 2017 was the most challenging year we have faced for 25 years. A difficult clothing market coincided with self-inflicted product ranging errors and omissions.
At the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating structural shift in spending from retail stores to online.
In the end our profits were in line with the forecast we issued in January 2017 and the company goes into the coming year in good financial health.
However, investors are not perturbed by the fall in profits, given they were in line with expectations.
In the absence of any nasty shocks, Next is now the biggest riser on the FTSE 100, up 3.3% at £47.83.
Updated
Next and GSK limit the FTSE's fall in early trading
The FTSE 100 has fallen less than expected in early trading, currently down 33 points or 0.5% at 6,919.
The losses have been limited by GlaxoSmithKline and Next, which are the top two risers this morning:
Shares in the pharma giant GSK are being boosted by the decision to withdraw its interest in buying Pfizer’s consumer healthcare business. GSK had been the favourite to buy the business in a multibillion-pound deal after Reckitt Benckiser pulled out.
The rise in Next’s shares follow the publication of its annual results, which show an 8% fall in pre-tax profits. More on that soon.
Updated
European markets open lower
And we’re off... Europe’s main markets have opened down, as predicted:
- FTSE 100: -0.5%
- Germany’s DAX: -0.9%
- France’s CAC: -0.9%
- Italy’s FTSE MIB: -1.2%
- Spain’s IBEX: -0.9%
MPs demand tougher rules for Heathrow expansion
Tougher rules should be imposed on night flights and keeping costs down for passengers before parliament approves a third runway at Heathrow.
That is the verdict of the transport select committee in a report published overnight.
Concerns are centred on the environmental impact of Heathrow expansion, as Lilian Greenwood, the committee’s chair, explains:
At present, the draft national policy statement does not guarantee that passengers will be protected from the cost risks associated with the scheme. The secretary of state must set out how airport charges will be held down.
She added:
Thousands of people across London could be exposed to worse levels of noise, air quality and traffic congestion – there must be sufficient measures to protect or compensate them.
Read our full story on the report:
Jasper Lawler at London Capital Group says the stand-off between the US and China is sending a chill through the markets:
Despite Trump claiming that the tariffs would make the US “a much stronger nation” the markets are keenly aware that there will be no winners in a trade war.
Worse still, the tit for tat responses that we are now seeing - and can expect to see more of - between the world’s two largest economies, is damaging for their economies and the broader global economy.
SUMMARY
Good morning if you’re just joining us – and hello again if you’ve already been reading.
It’s been a very busy day so far on the stock and currency markets so here’s a roundup of what’s happened:
- Fears of a global trade war have intensified after China signalled it would retaliate against US tariffs.
- Beijing said it didn’t want a trade war and urged the US to pull back from the brink. But it said it wasn’t afraid of one and has drawn up a list of more than 100 US products that it will hit with duties if Donald Trump goes ahead with his tariffs on Chinese steel and aluminium.
- Stock markets in Asia have fallen sharply. The Nikkei in Japan closed down 4.51% and in Hong Kong and Shanghai, where trading is still going on, the markets are down 3.18% and 3.4%.
- European markets are set to open down as well with FTSE 100 on course to drop 0.74%
- Key industrial commodities have been hit as well, with the iron ore futures price down 5% and copper at a three-month low
- The yen is up as the US dollar continued to slump. The pound rose against the greenback to $1.415.
For a roundup here’s our news story:
Updated
European markets to open down
Spreadbetters are forecasting that the FTSE100 will lose about 0.8% when trading starts in London in an hour or so.
#FTSE100 Index called to open -70pts at 6890 pic.twitter.com/cu9OuMaxGv
— Mike van Dulken (@Accendo_Mike) March 23, 2018
Bourses are about to open in Europe though, and they too are expected to take a hefty hit. These are the predicted openings:
- Germany’s DAX -1.6%
- France’s CAC -1.5%
- S&P 0.6%
Seoul market closes down 3.29%
The Kospi index in Seoul, South Korea has closed down 3.29%, or 82 points at 2,414.
The country has a large export industry and stands to lose out if there is a trade war between the US and China. It’s largest trading partner is China and the US is its second biggest.
SE Kim, an employee at a construction company in Seoul, told AP:
I’m worried that it would affect the national economy. If the US imposes tariffs on China like that, I think there would be some damage on us in the long term as well.
Updated
Tech sector meltdown 'could get messy'
It’s been a pretty rough few days on the financial markets. Facebook’s woes are punishing the tech sector, the US Fed hiked interests rates on Wednesday and the Bank of England rate setters were split 7-2 in favour of keeping rates on hold. Only a matter of time before that changes, many believe.
And now the prospect of a trade war.
Michael Hewson at CMC Markets says the potential for a big selloff in the tech sector is especially worrying:
Investors should be rightly fearful of [the Facebook selloff] given that the tech sector has driven most of the gains in US markets over the past 18 months. A meltdown in this sector has the potential to get very messy indeed, with related ripple out effects.
This week’s Fed decision to raise rates and tweak its guidance appears to have cut the rug out further from under the US dollar as policymakers adopted a safety first approach to future rate rise expectations, leaving them unchanged for this year. This appears to have caught markets off balance sending bond yields sharply lower and the US 10 and 2-year spread back towards its previous lows, though some of these declines could also be attributed to concerns about tariffs.
#SeaOfRed #nikkei down 4.51% #devastating pic.twitter.com/BjIHpOoCZa
— Tomohiko (@bleecker0420) March 23, 2018
#SP500 -2,52%, #Nikkei -4,4%, #Shanghai Comp -4%. pic.twitter.com/xjqoHtLdoa
— Konrad Ryczko (@konradryczko) March 23, 2018
It’s worth looking again at the statement from the Chinese commerce ministry earlier today.
It said that China did not want a trade war, but it was “not afraid” of having one.
China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.
The interesting thing here is that it does leave a bit of wriggle room so might not necessarily result in an all-out trade war as noted by some of our experts. The memorandum signed by Trump on Thursday allows for a 30-day consultation period that only starts once a list of Chinese goods to be taxed is published. Trump said he views the Chinese as “a friend”, and both sides are in talks so it could be resolved.
The commerce industry said China was considering measures in two stages: a 15% hit on 120 US products, including steel pipes, dried fruit and wine worth $977m. China’s list also included close to 80 fruit and nut products. Then it would levy 25% on $1.99bn of pork and recycled aluminium.
Nikkei closes down 4.51%
The market in Tokyo is closed. It finished down 4.51%, or 974 points at 20,617.
Masses of reaction from traders so let’s try to roundup some of their comments.
Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, sounded a slightly optimistic tone to Reuters by saying that US tariffs might not be quite as bad they appear. But then he essentially says it might get worse before it gets better:
In the longer run, protectionist policies touted by the United States could be watered down, in turn limiting the negative effect on trade and the global economy. But until the United States makes such concessions, global stocks will be under pressure and the yen will appreciate, especially if China decides to confront the U.S. measures.
Similarly, Vishnu Varathan of Mizuho Bank is quoted by Associated Press saying:
Beijing is extending an olive branch and urging the U.S. to resolve trade disputes through dialogue rather than tariffs. Nevertheless, the first volley of shots and retaliatory response has been set off.
Paul Eitelman, senior investment strategist at Russell Investments, tells Bloomberg:
It’s a significant step in escalation in trade tensions between the US and China. The biggest watchpoint from here is how China responds to this and any potential escalation that creates going forward.
Sydney market closes down nearly 2%
The Australian benchmark index, the ASX200, has closed down almost 2%. The big miners, such as BHP and Rio Tinto, were among the biggest losers amid concern that demand for the country’s biggest export – iron ore – will be hurt by the tariffs.
Australia's #ASX200 ends off session lows, but only just... down close to 2% on concerns about a global trade war #ausbiz #stocks #selloff #markets pic.twitter.com/BMVzAX0GbX
— Matthew Taylor (@MattCNBC) March 23, 2018
Elsewhere it’s an even grimmer picture. In Tokyo the Nikkei is off a whopping 4.58%. The yen has risen as invesors seek a safe haven, but that’s bad news for Japan’s exporters, hence the big drop in equities.
BOOM! #Nikkei down 4.5% as trade tensions rise quickly. #China #Trump #Tariffs pic.twitter.com/O09r0z58ps
— jeroen blokland (@jsblokland) March 23, 2018
Updated
Australia fears quotas
Australia fears it could be hit by steel tariffs after it emerged that an exemption promised by Donald Trump would run on 1 May.
The White House said Friday that Australia, Europe, South Korea, Canada, Mexico, Argentina and Brazil would initially escape America’s 25% steel and 10% aluminium tariffs. But that would run out in a matter of weeks “pending discussions of satisfactory long-term alternative means to address the threatened impairment to US national security”.
The country’s trade minister, Steve Ciobo, said Australia could not have a fairer deal with the US but it may find itself in the same boat as China.
Here’s the full story:
And find out more about the EU’s reprieve – temporary or otherwise – with this story from our man in Brussels, Daniel Boffey:
China warns US to 'pull back from brink'
Good afternoon/good morning and welcome to our business live blog on a tumultuous day for the world economy.
China has wasted no time in signalling that it will retaliate against Donald Trump’s decision to impose tariffs on Chinese steel and aluminium imports. Beijing’s swift response was expected and, although Asian stock markets have been battered in the wake of Trump’s move, it left some room for negotiation with a plea for the US to “pull back from the brink”.
Here are the main developments so far:
- China will impose duties on US pork, apples and steel pipe among other things unless a settlement could be reached
- Beijing’s commerce ministry said it didn’t want a trade war but was “not afraid of having one” if the US didn’t back down
- Asian shares fell sharply along with key commodities such as iron ore
- The Nikkei is down 4.4%; Hang Seng -2.8%; ASX200 in Sydney -2%; Kospi in Seoul 2.2%; CSI in Shanghai 3.2%.
- The FTSE100 looks set to drop nearly 1% this morning, according to futures trade, while Germany’s Dax is set to drop 1.6%.
- The Dalian iron ore price is down 5% on fears of a drop in demand for steel
- Copper fell to a three-month low of $6,628.00 per tonne, but oil rose 1% on the back of more Saudi production cuts
- The yen and bond prices rose as the US dollar fell back
- The pound was up slightly at $1.416 and €1.444.
