China fears drag markets down
A big splosh of electronic red ink has hit European stocks at the close of trading today, and Wall Street is lower too.
Britain’s FTSE 100 has ended 27 points lower, or 0.4%, at 7,026, with this morning’s drop in retail sales doing little for sentiment. Mining stocks also got dented, following China’s tumble to a four-year low overnight.
Germany’s DAX fell around 1%, while Italy’s FTSE MIB had a poor day, down almost 2%, as the EU signalled it would reject Rome’s 2019 budget.
Wall Street is also back in the red, as the optimism in evidence earlier this week fades.
Here’s the damage:
Investors also noted the WTO’s warning that a full-blooded trade war would eliminate millions of jobs, and take a chunk off global growth.
Fiona Cincotta of City Index fears over China’s economy weighed on stocks:
The UK mining sector has been falling across the session, as concerns are growing over the health of the Chinese economy. Chinese stocks fell heavily overnight as a toxic combination of factors saw the CSI 300 drop 2.2% to its lowest close in 31 months.
Miners could be in for another difficult session on Friday, as China’s GDP is expected to decline to 6.6% in Q3, down from 6.7% in Q2. This will be the weakest level of growth in almost a decade for China, and the first indication of the impact of Trump’s trade tariffs on the economy.
Given that the full scale of the impact of the ongoing trade war is not expected to be seen until Q4 and 2019, a surprise to the down side for Q3 GDP is going to sound loud alarm bells for investors.
That’s probably all for today....
It’s not been a thrilling day in the markets, alas. After the wild volatility of last week, trading seems to have calmed down.
Here’s Connor Campbell of SpreadEx’s take:
A mixed, muted session became slightly more negative after the US open, as Wednesday night’s Fed meeting minutes came into play.
In the record of September’s get-together the central bank signalled ‘further gradual increases’ to interest rates, ignoring the repeated criticisms made by Donald Trump without ever mentioning the President by name (the comments came before the market freak-out seen in October). This, relatively gently, reignited the markets concerns about such a course, with the Dow Jones dropping between 70 and 140 points as the bell rang on Wall Street.
This failed to make a floaty set of European indices follow the same narrative. The CAC managed to rise 0.2%, while the DAX reversed its initial gains to sink 0.3%. The FTSE added 20 points able to eke out some growth as sterling’s decline compensated for the index’s commodity losses.
The City of London is getting a new guest - Fearless Girl.
The defiant sculpture has proved highly popular since appearing on Wall Street, and she could soon take a holiday outside the London stock exchange instead.
The Evening Standard reports:
New York’s Fearless Girl sculpture is coming to London. Hailed as a symbol of female resilience, it has been seen by millions of people in New York’s financial district and is likely to be placed outside the London stock exchange.
Members of the City of London’s Culture, Heritage and Libraries Committee are expected to approve the plan for the 4ft (1.3 metre) high bronze, which weighs 110kg, to go on show for six months from March.
The artwork, showing a young girl with her fists on her hips, became an over night sensation when it was placed opposite a large sculpture of a charging bull near Wall Street.
New York's Fearless Girl sculpture is coming to London https://t.co/4chM8JfycQ
— Evening Standard (@standardnews) October 18, 2018
So take your daughters. And your sons!
Updated
Wall Street opens lower
As predicted, shares in New York have fallen into the red in early trading.
The Dow Jones industrial average has dropped by over 0.6%, or 160 points, as the prospect of further interest rate hikes continues to worry Wall Street....
Dow slides more than 160 points in early trading https://t.co/nibntUQFc6 pic.twitter.com/GOBORUEDro
— CNBC Now (@CNBCnow) October 18, 2018
Stocks opened lower on Thursday as fears of rising interest rates overshadowed strong corporate earnings. The Dow was down 100+ points. https://t.co/g52HP6UGaQ
— CNBC (@CNBC) October 18, 2018
Last night’s hawkish Fed minutes, indicating further rate hikes in the coming quarters, have depressed sentiment in New York.
Lukman Otunuga, Research Analyst at FXTM, explains:
One of the most interesting takeaways from the minutes released by the Federal Open Market Committee (FOMC) is a suggestion from the Federal Reserve that it could raise interest rates beyond market expectations.
This would of course come across as disappointing to President Trump, but would also be considered as positive news for Dollar buyers as it stresses the Federal Reserve is completely independent from the White House.
CBI urges Brexit progress
British businesses are watching the lack of progress over Brexit with increasing alarm.
Carolyn Fairbairn, CBI Director-General, has warned that jobs are already at risk, and urged both sides to agree a withdrawal deal pronto.
She says:
“Business’ patience was already threadbare and is nearing an end. The need for compromise on both sides to agree the Withdrawal Agreement and secure the transition period is long overdue.
“The risk of no deal is already biting hard. With each week that passes, firms are accelerating their contingency planning, diverting investment and costing jobs. And many firms, especially smaller businesses, simply have no time to prepare. All efforts should focus on securing transition to relieve pressure on firms, protecting people, wages and living standards across Europe.
“If extending the transition period makes the Withdrawal Agreement easier to agree it should be welcomed. Securing the transition period remains the top priority for business to protect jobs and investment.”
However, Theresa May still opposes the EU’s Irish backstop agreement, and many pro-Brexit MPs are unhappy about potentially extending the Withdrawal Agreement. So businesses face more uncertainty....
Shares fell in New York yesterday, after the latest minutes from the Federal Reserve showed further rate hikes are likely.
Traders don’t expect a bounceback today, though, with the main indices all a little lower in pre-market trading.
US Opening Calls:#DOW 25663 -0.17%#SPX 2803 -0.23%#NASDAQ 7260 -0.26%#IGOpeningCall
— IGSquawk (@IGSquawk) October 18, 2018
US jobless claims hit 45-year low
Just in: America’s labour market remains remarkably strong, as companies shake off any trade war worries.
The number of US citizens filing new claims for unemployment benefit fell last week, new data show, to just 210,000.
That’s down from 215,000 in the previous seven days, and not far from a 49-year low [202,000, set last month]
The number of Americans receiving jobless support for more than one week (the ‘continuing claims’ figure) has hit a new low. At just 1.64 million, its the lowest since August 1973.
🇺🇸 (USD) Initial Jobless Claims (OCT 13),
— DailyFX Team Live (@DailyFXTeam) October 18, 2018
Actual: 210k
Expected: 211k
Previous: 215k https://t.co/F0epTenDMe
Overnight, the US found a new way to hurt Chinese companies.
The White House said it was pulling out of a United Nations treaty that offered low rates for foreign postal deliveries of small packages in the US. That could make it much pricier for Chinese firms to send goods to America.
Stephen Innes of trading firm OANDA says this helped drive Chinese stocks down to a four-year low today:
Fragile doesn’t describe just how delicate Asia investor sentiment is as any sliver of optimism from US earnings gave way to that reality that trade tension and geopolitical unrest continues to gurgle...
To make matters worse, President Trump has found in the US postal service, a way to cripple China e-commerce which sent mainland equities into the tank.
Britain’s pub industry is fighting its own battle against rising taxes, which it blames for forcing locals to close.
Six publicans, including former model Jodie Kidd, have dropped off a petition at Downing Street today, calling for a cut in beer duty in this month’s budget.
Organised by the “Long Live the Local” campaign, it warns that 12% of pubs could close in the next five years unless the chancellor cuts the duty (currently three times the EU average).
Kidd, who runs The Half Moon, Kirdford, says another rise in beer duty would cripple the industry:
“Local pubs like my own bring people together and are at the heart of communities. However, mounting financial pressures mean that for many it is already a struggle just to keep their doors open.
“I am at Downing Street today to deliver the Long Live the Local petition because, along with 105,000 other people, I believe the Chancellor must act now to protect our local pubs.
Chancellor Philip Hammond is currently scrambling around, trying to find ways to raise revenue so he can meet Theresa May’s pledge to end austerity. So he may not be amenable to cutting the levy.
However, pubs could certainly use some help - with supermarkets under-cutting them on price, and an increasing number of young people shunning alcohol.
Heads-up for UK travellers: Cypriot airline Cobalt cancelled all its flights and indefinitely suspended operations, after failing to agree a new funding package.
So if you were due to fly Cobalt from, say, Heathrow, Stansted, Gatwick and Manchester, I’m afraid there’s no point heading to the airport.
More here:
Domino’s Pizza hasn’t been caught up in the retail slowdown.
The fast food chain has reported a 6.1% jump in sales in the UK and Ireland in July-September.
David Wild, Chief Executive Officer, says the sizzling summer weather didn’t help (is it ever too hot for pizza, though?!)
“Our businesses continue to trade well, despite the evident uncertainty among UK consumers, and hot weather across Europe for much of the quarter.
Shares have jumped 7.5%, after Domino’s reiterated its profit guidance and announced a new £25m share buyback programme.
Retail sales: full story
Here’s our economics editor Larry Elliott on today’s retail sales figures:
A strong summer for Britain’s retailers came to an abrupt end in September as weaker demand for food dragged down spending overall.
The latest snapshot of spending from the Office for National Statistics showed that the volume of sales for shops and online businesses dropped by 0.8% – a bigger monthly fall than analysts had been expecting.
September’s fall was not enough to outweigh rising activity in July and August, leaving sales for the quarter – a better guide to the underlying trend than one month’s data – up by 1.2%.
Although consumers have only recently started to see their wages rise faster than prices, the ONS said the quantity of goods bought last month was 3% up on the same month a year earlier. All sectors apart from department stores, which underwent the collapse and partial rescue of House of Fraser in the past year, achieved growth.
More here:
Updated
Andrew Westbrook, head of retail at audit, tax and consulting firm RSM, reckons some retailers have been slashing prices, to shift stocks:
There continue to be signs of distress on the high street, with deep discounting evident in some stores. The big rise in the sales of watches and jewellery over the last three months may be linked to discounting on big ticket items in an attempt to reduce stock levels.
For many retailers, the run-up to the all-important Christmas season when stock can be converted to cash can’t come soon enough.
Updated
This chart shows how retail sales growth has been levelling off recently (the blue line, which gives a better picture than the more volatile monthly stats):
Updated
Ian Gilmartin, Head of Retail & Wholesale at Barclays Corporate Banking, says UK retailers are in a gruelling scrap:
“It’s still tough out there for the UK’s retailers, so solid 3% growth compared with last September is welcome news, despite being slightly below expectations. Every sale continues to be hard-won and retailers are having to find creative ways to lure customers through their doors and onto their websites, but it seems from today’s data that they are persuading the public to keep spending. Although the dip in food sales from August is eye-catching, it was expected given the exceptional performance achieved over the summer and shouldn’t cause undue concern.
He also singles out Brexit as a key worry:
Any growth is significant given the plethora of challenges facing retailers – they are being hit from all sides, with business rates, the continued weakness of sterling and persisting uncertainty around Brexit combining to thwart investment and push up costs. Retail CEOs will be hoping to see some white smoke from Westminster and Brussels as soon as possible, and for solid assurances that they will be able to maintain their existing supply chains and frictionless trading arrangements with EU partners and consumers.
Here’s Channel 4’s Helia Ebrahimi on the retail sales figures:
High Street retail sales show a “stark slowdown” dropping 0.8% fr August - as summer parties give way to a hangover Autumn
— Helia Ebrahimi (@heliaebrahimi) October 18, 2018
Food down 1.5%,steepest fall in 3yrs
Strong growth in jewellery: some people annoyingly efficient at Xmas shopping or perhaps stockpiling for brexit?
Today’s report also shows the impact of inflation, particularly at petrol stations where fuel is a lot pricier than a year ago:
Fidelity: Brexit uncertainty hits retailers
The sharp drop in retail sales last month shows that consumers are being squeezed, argues Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International.
She explains:
“Today’s UK retail sales numbers confirm what we all fear about the state of the high street, with the latest figures showing a decline in sales of 0.8% in September compared to August 2018. The drop in sales in September is a reflection not only of clouds starting to form in the sky, but also our pockets.
Food stores were the largest fallers contributing to this decline, with sales falling by 0.6%.
Uncertainty over Britain’s exit from the EU is one factor, she adds:
“While some retailers may be pinning their hopes on the recent news that consumers are likely to see a boost to their pay packets after this week’s data revealed that our earnings growth is currently outstripping inflation, UK consumers are unlikely to be splashing out just yet given the current climate of uncertainty around the Brexit negotiations.
Unlike most common colds we are suffering at this time of year; UK households are still unable to shake off the prolonged symptoms of inflation and poor wage growth since the Brexit vote.
With no breakthrough at last night’s EU leaders’ meeting, and mounting political pressure at home, that uncertainty hasn’t lifted yet....
Ben Brettell, senior economist at Hargreaves Lansdown, says today’s UK retail sales figures are a concern:
Retail sales fell 0.8% in September as shoppers cut back on spending after a bumper summer. Food sales suffered their biggest monthly drop in three years.
The monthly data is notoriously volatile, but the year-on-year figure of 3.0% undershot economists’ forecasts of a 3.6% rise, and September’s drop dragged the three-month number down to 1.2%, the third fall in a row.
It looks like consumer spending – along with the weather – peaked in early summer and has been declining ever since.
Where we go from here is highly uncertain. Brexit is hitting consumer confidence hard, but on the plus side wage growth has hit a decade high while inflation is falling. So consumers look likely to have more spending power – the issue is whether they choose to use it, or keep their powder dry until more clarity over Brexit emerges.
Retail sales: instant reaction
Philipp Gutzwiller, head of consumer at Lloyds Bank Commercial Banking, says shoppers cut back last month, after a summer splurge.
“After a summer of spending boosted by the long, hot weather, September saw shoppers tighten their belts to catch up.
“As a result, retailers have had to redouble their efforts, focusing on either steep discounts or creating the theatre that makes going shopping an experience consumers can actually enjoy.
Craig Erlam of trading firm OANDA agrees that the retail sales report is disappointing;
#UK retail sales disappoint in September, falling 0.8% month of month, core also, and rising only 3% year on year, 3.2% core, well below expectations.
— Craig Erlam (@craig_forex) October 18, 2018
James Hughes of Axitrader says the summer spending burst couldn’t last....
After strong readings during the bumper summer months in the UK Retail Sales it's no surprise that the upside couldn't be sustained. Monthly figure falls to -0.8% with Yearly at 3% vs 3.5% expected. $GBP off slightly, $GBPUSD 1.3108.
— James Hughes (@James_HughesUK) October 18, 2018
Updated
One month’s data can be volatile, of course. On a three-month basis, the quantity bought in retail sales increased by 1.2%
ONS Head of Retail Sales Rhian Murphy said:
“Retail continued to grow in the three months to September with jewellery shops and online stores seeing particularly strong sales. This was despite a stark slowdown in food sales in September, following a bumper summer.”
UK retail sales fall as customers cut back on food
Newsflash: UK retail sales shrank by 0.8% in September, a bigger fall than expected.
The Office for National Statistics reports that customers bought less food after a strong August.
The ONS says:
In September 2018, the quantity bought declined by 0.8% when compared with August 2018, due mainly to a large fall of 1.5% in food stores; the largest decline in food store sales since October 2015.
Economists had only expected retail sales to dip by 0.4% month-on-month.
UK Retail Sales (MoM) (Sep)
— Chronos Caerus (@ChronosCaerus) October 18, 2018
-0.8% ! ugly
On an annual basis, retail sales in September were 3% higher than a year earlier (or 3.2% higher if you strip out petrol sales).
More to follow...
China down 25% this year
It was another rough trading session in China today.
Nearly every stock fell, as today’s 3% slump means the Shanghai index has lost almost 25% of its value this year alone.
Bloomberg says that some speculative traders are being forced to put up more more money to cover their losses. This leads to more selling, and thus more losses, in a destructive cycle also seen in the 1929 crash.
Chinese shares extended the world’s deepest slump and the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market calm as risks mount for Asia’s largest economy.
Fears of widespread margin calls fuelled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose
Shares in Europe have opened a little higher, despite the WTO’s trade war gloom.
The FTSE 100 has gained 19 points, or 0.3%, 7,073. France’s CAC and the German DAX are both up around 0.45%.
Multinational European companies are benefiting from the stronger dollar (a weaker euro makes their US earnings more valuable).
The Chinese yuan is also weakening this morning, hitting its lowest level since January 2017
Yesterday, the US Treasury resisted labelling China a ‘currency manipulator’, in a new report on the foreign exchange policies of major US trading partners.
President Donald Trump has previously accused China of keeping its currency weak to make exports more competitive, but the Treasury has now shied away from taking action.
Trump’s complaints were ironic, though, that Beijing has actually been intervening to prevent the yuan falling too much.
Today, the yuan has dipped to 6.9422.
Many other currencies are also dropping against the US dollar this morning, after last night’s hawkish Fed minutes. A weaker currency could help Chinese firms swallow tariffs on their sales to the US.....
Chinese yuan very near now to a 10-year low. pic.twitter.com/qcU0dv4ue9
— David Ingles (@DavidInglesTV) October 18, 2018
China's stock market hits fresh four-year lows
Roberto Azevedo’s warning of the perils of a trade war will have resonated in China’s stock exchanges today.
Shares are sliding sharply AGAIN today, as traders fear that the dispute with America will escalate further.
The Shanghai composite index has just closed, down 3%, at its lowest level since November 2014.
And the Shanghai Composite closes 3% down and below 2,500 for the first time in four years. pic.twitter.com/ynDlogXj8w
— David Ingles (@DavidInglesTV) October 18, 2018
How bad would a full-blown breakdown of trade relations be?
According to WTO chief Roberto Azevedo, “a complete breakdown in international trade cooperation” would drive tariffs higher, knocking up to 17% off global trade growth.
That worst-case scenario could knock 1.9% off overall global economic growth, WTO economists reckon.
The agenda: WTO warns of trade war risks
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Trade wars are on investors’ minds this morning, after the World Trade Organisation fired a broadside at the US and China over their deepening dispute.
Roberto Azevedo, WTO director-general, told an audience in London that we are facing a crisis in global trade.
Calling for a cease-fire in the current trade ware, Azevedo warned that:
“Without action to ease tensions and recommit to cooperation in trade, we could see serious harm done to the multilateral trading system.
The long term economic consequences of this could be severe.”
Currently, the US imposes tariffs on $250bn of Chinese imports, as it tries to force Beijing to change its trade policies. Instead, China has retaliated with its own tariffs.
Azevedo says a political solution is needed, before “serious harm” is incurred by the multilateral trading system. Potentially, it could force millions of people to seek new jobs, he explained:
“These effects would cause significant disruptions for workers, firms, and communities as they adjust to this new reality.
“Potentially millions of workers would need to find new jobs; firms would be looking for new products and markets; and communities for new sources of growth.
Also coming up
New UK retail sales data are expected to show Brits cut back last month. Retail spending is expected to have fallen by 0.4% last month.
Jasper Lawler of London Capital Group says:
Once again groceries are expected to continue to do well, whilst non-essential items continue to disappoint.
After a strong summer of spending from the UK consumer, and a surprise to the upside in August, there is a good chance the UK consumer is reining in their spending ahead of the Christmas period.
The City is bracing for further US interest rate rises in future months, after the Federal Reserve signalled it intends to keep hiking - despite Donald Trump’s criticism.
The agenda:
- 9.30am BST: UK retail sales figures for September
- 1.30pm BST: US weekly initial jobless data
Updated
