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FTSE hits six-month low as China says US ‘seriously violated’ trade pact — live updates

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Via Yahoo Finance

The FTSE 100 has hit a six-month low after China warned the US had “seriously violated” the countries’ trade relations by announcing ramped-up tariffs.

A temporary discount on Royal Dutch Shell shares added to the drag on the blue-chip index, which hit its lowest level since late February.

Indices turned red across Europe as investor worries about a trade conflict between the world’s two biggest economies appeared to be facing a fresh escalation.

Bourses worldwide tumbled yesterday as a slew of ominous data suggested economies are ­being pushed to the brink of recession by increasing trade tensions.

One of the more business bizarre stories in recent years is that of WeWork, the office rental company that seems part-company, part-cult.

The company has grown rapidly over the past decade, and is now eyeing a mega-float, which could be as soon as next month, that would give it a valuation of up to $47bn. I’ll let the Telegraph’s US business correspondent Laurence Dodds take it from here:

Laurence has taken a closer look at that propectus, and his findings make for a reading that is probably best described as inspiring awe — and maybe a little scepticism. One choice quote from an analyst who has looked at WeWork’s proposal:

11:52AM

Ladbrokes owner raises profit forecast but will plow ahead with closures

Ladbrokes plans to close 900 shops Credit:  Simon Dawson/REUTERS

GVC, the company behind bettting shops Ladbrokes and Coral, raised its profit forecast this morning despite fears of a regulatory crackdown, but will press on with stores closure. My colleague Michael O’Dwyer writes:

The online business expanded 17pc but UK retail sales at the FTSE 250 company tumbled 10pc as betting shops face the combined challenge of falling high street footfall and the introduction of restrictions on the stakes punters can bet on fixed odds betting terminals (FOBTs), which have been described as the “crack cocaine” of gambling. 

11:47AM

Analysts: ‘Substantial change’ needed to settle markets

With the FTSE 100 extending its losses and pressure being felt across Europe, let’s take a quick step back.

RBS analysts have taken a wider look at the cocktail of factors afflicting global markets, and their conclusions aren’t the rosiest. They write:

Despite the latest twist and turns, the ‘trade war’ fought mainly by the US is causing a slowdown in global trade and is hitting particularly those countries that act as the workshop for the rest of the globe. This is mainly China and some other South East Asian countries, but also the heavily export-oriented countries of Europe, particularly Germany. The European countries are also feeling the extra strain of the increasingly acrimonious Brexit debate. This is causing a global downswing that manifests itself mainly in the manufacturing sector that produced goods that are heavily dependent on international trade and global demand.

The analysts add:

…we see little that will stand in the way of the current direction of travel for financial markets. We would think that only very large key developments can alter the bigger picture, yet none of these seems in sight in the near term. A substantial change in US trade policies comes to mind, a substantial easing of fiscal policy that eases the pressure on central banks is another. Yet, none of those seems forthcoming at this stage. We thus remain in flattening trades and are considering whether to revise our already low bond yield forecasts even lower.

11:41AM

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Explained: What’s going on in Italy, and what does it mean for Europe’s economy?

Matteo Salvini (right) is attempting to oust current Prime Minister Giuseppe Conte Credit:  VINCENZO PINTO/ AFP

Despite a poor start out of the gate, the FTSE 100 is now nearer the middle of the pack among Europe’s blue-chip indices.

The biggest faller is Italy’s FTSE MiB, which is down 2.5pc, pushing deeper into lows not seen since June. The country’s financial markets are being rocked by its latest outbreak of political disruptions, as populist Matteo Salvini makes a grab to seize power.

Deputy economics editor Tim Wallace has taken a closer look at the situation, and what it could mean in the long-run for Europe’s fourth-biggest economy. He writes:

Salvini was the driving force behind last year’s bust-up with Brussels. Favouring tax cuts and higher infrastructure spending, he says he wants to boost the economy. The EU worries the extra borrowing would be a serious hazard to Italy’s already teetering debt pile.

A long-standing eurosceptic, he raised the prospect of issuing debts with a sort of parallel currency, raising fears the eurozone’s third-largest economy could ditch the euro.

Here’s how Italian stocks have looked so far this year:

11:26AM

RBS ex-dividend drop compounded by downgrades

RBS shares are down 9.3pc Credit:  Jane Barlow/PA

The FTSE 100 is still off more than 1pc, or 83 points, with that substantial drag from Shell making up 24 points of the fall.

The blue-chip index is being weighed upon by miners, but the biggest fallers is Royal Bank of Scotland. As well as being ex-dividend (see 8:44am update), it faced a downgrade from HSBC and Macquarie analysts cut their expectations for the bank. UBS and Goldman Sachs both reduced their target price.

11:19AM

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Australia’s stock market drop was worst in 18 months

Australia’s top index closed 2.85pc down Credit:  STEVEN SAPHORE/EPA-EFE/REX

Despite a bright spot in Hong Kong, things looked very doom-and-gloom for much of the Asia-Pacific region during the past day’s trading.

Japanese shares hit a nine-day low, but the biggest loser was Australia, which suffered its worst fall since February 2018.

Its benchmark index, the S&P/ASX 200, closed to 2.85pc.

Australian finance minister Mathias Cormann played down the drop earlier today, saying: “We are heading in the right direction… We are facing some risks in the global economy and in the domestic economy.”

10:52AM

FTSE hits fresh five-month low as Europe sags

European traders aren’t waiting for Donald Trump to fire back. They’re already heading back to the hills, with losses across the board for the continent’s blue-chip indices.

The FTSE has dropped to a six-month low, extending its fall from yesterday.

On Wall Street, futures trading (basically bets on how indices will perform) has taking a turn into the red, meaning it looks like US stocks are set for a drop at open.

10:48AM

Will Trump be goaded into a snap reaction?

After China’s latest salvo in the war of words over trade tensions, all eyes are likely to be on one man in the White House. And, more specifically, what that man’s hands are doing on his phone. 

Markets.com’s Neil Wilson writes:

This does bode well and may encourage Trump to react — there is a chance he could bring forward all the tariffs to September 1st. Countermeasures suggests China is not interested in the delay to tariffs — and may have sniffed a weakness in the US position and is keen to exploit it. Retaliation by China means escalation in tensions, and diminishes the chances of a positive outcome in the near term. Risks are still to the downside. As ever, though, only a tweet away.

Fresh worries about trade compound the risk aversion we are seeing due to the macro-economic slowdown and yield curve inversion. The delay to tariffs was about the only bright spot bulls could cling to – the comments from China undermine this positivity and threaten to spook investors again.  Hong Kong lowering its growth target does not help.

10:45AM

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Beijing low on ammunition to wage a tariff war

Trinh Nguyen, a Natixis economist, says despite China’s words, it has a limited ability to take countermeasures on the tariff front:

 She adds that the Chinese Finance Ministry’s statement may be an attempt to show strength:

Of course, the counter-argument is that Donald Trump has now repeatedly followed through on threats to introduce tariffs, despite expectations to the contrary.

10:36AM

China kicks back

Trade war tensions appeared to be back with a vengeance, even though Donald Trump delayed some new tariffs on Tuesday. 

Here a reminder of what happened then: 

Christmas came early for global stock markets after the Trump administration delayed tariffs on some Chinese goods, including laptops and mobile phones, until December 15.

Shares rallied on hopes that US shoppers and Apple will be shielded from higher costs in the run-up to the festive period. Video game consoles, toys, computer monitors and clothes will also be left out of the latest tranche of tariffs, reducing the risk of American consumers feeling the pinch from the trade war. 

“We’re doing this for the Christmas season,” President Trump said.

Despite the festive spirit, new tariffs are new tariffs, and it looks like China plans to respond in kind.

Bloomberg reports the Chinese central bank has just made a substantial cash injection into its banking system, which could mean it is preparing for a protracted trade war.

10:29AM

Hong Kong slashes growth forecast

The Hang Seng index in Hong Kong actually closed up 0.76pc today, bucking recent trends in what may be seen as a dead cat bounce following days of drops.

The financial hub is hugely exposed to trade tensions between the US and China, and is feeling the impact of local demonstrations against a controversial Chinese extradition bill. The city’s international airport was brought to a standstill by protesters twice this week.

Financial secretary Paul Chan said GDP growth is now expected to be between 0pc and 1pc, down from a previous estimate of 2pc to 3pc.

10:24AM

China: US tariff announcement ‘seriously violated’ consensus between countries

US President Donald Trump (left) with Chinese premier Xi Jinping Credit:  Kevin Lamarque/ REUTERS

Time for a jump scare? The Chinese Ministry of Finance released a statement a few minutes ago that says US plans to place a 10pc tariffs on a further $300bn of goods will derail trade talks between the two economic superpowers.

Beijing says the decision, announced by US President Donald Trump two weeks ago, is a violation of agreements made between Mr Trump and Chinese Premier Xi Jinping. It said “the US side’s move seriously violated the consensus between the heads of state of the two countries”, and vowed countermeasures.

That’s been enough to immediately rattle markets, with Europe now looking distinctly in the red after its flat open. The FTSE is 0.8pc off, with Shell continuing to pull it to underperformance.

10:16AM

Worried about a market downturn? This is how to keep your investments safe

With recession worries running through the global economy,  it can be hard to know how to move as an investor. 

Telegraph Money’s Richard Evans and Jonathan Jones have taken a look at at what negative-yield bonds and falling equities mean, and prepared a list of the best defensive funds — designed to weather an storm on the markets.

10:10AM

Amazon Prime Day underpins growth

Amazon Prime Day sees the e-commerce giant roll out a slew of time-limited deals

A big e-commerce boost underpinned that unexpected rise in July retail sales figures, disguising some distinct weakening in the food sector.

The biggest driver was promotional events, suggesting Amazon Prime Day discounts were a strong driver.

Pantheon Macroeconomics’ Samuel Tombs writes:

July’s retail sales figures continue the trend of above-consensus numbers which demonstrate that consumers aren’t fazed by the Brexit deadline. Granted, Amazon’s Prime Day, which the retailer has run every July since 2015, probably was chiefly responsible for the colossal 6.9pc month-to-month rise in non-store sales, which made a 0.7 percentage point contribution to growth in total sales.  Sales volumes likely will fall back in August, given that some shoppers probably brought forward planned purchases to take advantage of the temporary discounts offered by Amazon.

9:50AM

Food sales drop without World Cup boost

This summer was always going to feel like a downgrade after 2018’s heatwave and football World Cup festivities, and the ONS thinks that may have translated into lower food sales.

9:47AM

Retail sales beat expectations as department stores rebound

Department stores shopping rose for the first time in six months Credit: Victoria Jones/ PA

UK retail sales rose by 0.2pc last month as consumers continued to perform above expectations.

A comeback of sorts by Britain’s beleaguered departments stores added to the bounce, with sales growing 1.6pc after half a year in doldrums.

Analysts polled by Bloomberg had expected a 0.2pc drop.

Non-retail sales, likely to primarily mean internet shopping, spiked amid discounting. The ONS said:

Anecdotal evidence suggests that there were a range of promotions in July 2019 from non-store retailers, which boosted sales.

Here’s how different sectors contributed:

9:21AM

Inverted bonds: Is a recession coming?

Bond yield inversion was at the front of everyone’s minds yesterday (or, at least, everyone following the financial markets).

Traders seized on the US 2yr/10yr bond spread’s negative flip, meaning it was temporarily more lucrative to hold government debts for two years than ten. The relationship is positive again today, but the drop was enough to send shivers down traders’ spines.

The inversion goes against a fundamental tenant of finance: that by reducing the liquidity of your assets (i.e., how quickly they can be turned into cash), you ought to receive a greater payback.

It’s a sign of highly-negative sentiment, and tends to presage an economic downtime: a 2yr/10yr US bond inversion has only not been followed by an American recession once in the past five decades.

There’s still plenty to question, however. Firstly, just because the yield curve is inverted doesn’t mean a recession is coming immediately — historically, downturns have arrived up to 18–24 months after the swing.

In addition, it’s possible the circumstances are different. Speaking to Fox Business Network yesterday, former US Federal Reserve chair Janet Yellen said of the inversion:

Historically, it has been a pretty good signal of recession, and I think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal. The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.

Another former Fed Chair, Alan Greenspan, told CNBC “international arbitrage going on in the bond market” was to blame, adding: “There is no barrier for U.S. Treasury yields going below zero. Zero has no meaning, beside being a certain level.”

The UK’s 2yr/10yr spread also flipped, which is less of a sure indicator (it spent most of the 1990s upside-down, for example). Economist Rupert Seggins explains:

Another economist, Duncan Weldon, has produced an excellent Twitter thread on the topic of yield curves, and what they mean. I’ll cut to his conclusions here for the sake of space, but it’s well worth reading his full thoughts:

9:00AM

Top dog: Metro Bank takes the podium in customer service ranking

Metro Bank chairman Vernon Hill is set to be replaced soon Credit:  John Stillwell/PA

There’s been a much-needed bit of good news for struggling challenger lender Metro Bank today — it  topped a competition watchdog survey for customer service. My colleague Michael O’Dwyer writes:

The challenger bank shared the top spot with First Direct, the online-only division of the HSBC group. HSBC also took the top spot in a separate survey covering Northern Ireland.

The surveys asked current account holders how likely they were to recommend their bank to friends and family. 

Nationwide, Barclays and Lloyds Bank rounded out the top five while Royal Bank of Scotland received the worst score of the 16 banks ranked. 

8:44AM

Ex-dividend shares weigh on FTSE 100

Shell is dragging the FTSE down as its shares trade at a discount Credit:  Patrick T. Fallon/ Bloomberg

The FTSE 100, now 0.25pc down, is feeling a significantly drag from a slew of stocks going ex-dividend, including Royal Dutch Shell, Royal Bank of Scotland and Evraz.

Shell, which is listed twice because of its governance structure, is single-handedly taking more than 15 points off the blue-chip index.

When a share is ex-dividend, an investor who buys it will not be entitled to the next dividend payout, meaning it sells at a proportionate discount. 

Although the weight will lift tomorrow, the overall picture remains ugly, with traders having fled to safe havens amid yesterday’s rumbles.

Here’s Deutsche Bank’s Jim Reid, with a reminder of why Wednesday’s bond yield curve inversion was particularly spooky for investors.

Although other measures of the US yield curve have progressively inverted over the last few quarters, for me yesterday’s 2s10s inversion is the one that worries me most. In my opinion, it has the best track record for predicting an upcoming recession over more cycles than any of the others.

But CMC Markets’ Michael Hewson points out that conditions may have changed:

An inversion such as this generally tends to support a view that short-term monetary conditions are too tight, and that these short rates need to be lower. That would be an eminently sensible view point if interest rates were at normal levels. As we all know they clearly aren’t at normal levels so it’s difficult to argue that historical precedents apply. 

8:25AM

FTSE falls while European markets rise at open

Arguably, the only way was up for European markets this morning, after yesterday’s losses and a quiet day in the United States set the scene for a small bounce. 

If there’s been a solid trend for the volatility of the last few weeks, it’s that the FTSE 100 tends to follow the trends of European stocks, only more weakly.

That’s not the case today, however. The FTSE is off about 0.2pc, with the latest Brexit brouhaha likely adding to negative sentiment.

(Reminder that you can use the Markets Hub tool above to check out the latest prices throughout the day)

8:02AM

Round-up: What went wrong on the markets yesterday?

A pedestrian passes the New York stock exchange Credit:  Spencer Platt/Getty Images North America

Yesterday was a torrid day across global markets, with the combination of poor German economic data and a major recession warning from the bond market combining to send equities sharply down. Here are the key moments, all from my colleague Tom Rees:

  • German GDP lands with a thud: Recession fears are mounting in Europe’s biggest economy after it was revealed that German GDP contracted in the second quarter, falling 0.1pc. 
  • Yield curve go negative: The most trusted recession indicator on bond markets  finally flashed red as storm clouds gather on the horizon for the global economy.
  • Markets react: Financial markets around the world tumbled on Wednesday as a slew of ominous data suggested economies are ­being pushed to the brink of recession by increasing trade tensions.

Indications remain that European stocks are going to open up — just barely — but given how sensitive markets have been lately, gains are likely to be quite fragile.

7:39AM

Oil on the ropes

Brent crude slid 2.97pc yesterday to $59.48 a barrel. Its only a little higher this morning. Traders are worried a general slowdown in the world economy will push down demand for energy. 

7:26AM

FTSE 100 called to open up

Will Europe pull out of the global tailspin?

FTSE 100 futures are currently indicating the blue chip index will open up 0.23pc, at 7,110.

One thing to look out for will be ONS retail sales data at 9:30am, which will show how consumer spending held up in July.

7:23AM

Asian markets in the red

The slump on Wall Street continued to Asia overnight, with the Nikkei down more than 1pc and a smaller fall on the Shanghai stock exchanges. 

As of 7am UK time, the Hang Seng was in positive territory — but just barely, up 0.1pc. It has wiped off all its 2019 gains in recent weeks amid political disruption.

7:15AM

Agenda: Five things to start your day

Retail figures will be released later this morning Credit:  ANDY RAIN/EPA-EFE/REX

Good morning. Today we’ll be looking to see if stocks can recover from an ugly day of trade and keeping our eye on upcoming UK retail figures.

1) Fleet Street veteran David Montgomery is on the brink of a comeback with plans to target struggling newspaper publishers in a takeover spree and strip out costs as he attempts to build a new digital giant. Mr Montgomery, 70, is within days of revealing a new listed vehicle set up to make a series of deals.

2) Tim Wallace has taken a deep dive into how Matteo Salvini’s reputation for riling Brussels and the markets could harm Italy’s economy and the euro. Mr Salvini is the scourge of migration, the biggest threat to the eurozone and potentially Italy’s next Prime Minister.

 3) Sports Direct was thrown into fresh crisis afterits auditor Grant Thornton resigned, casting doubt over the retailer’s future as a listed company should it fail to find a replacement. 

4) Rail commuters are set for a 2.8pc hike in fares in January as ticket prices are linked to July’s retail price index measure of inflation. It means a worker with a £3,000 annual season ticket can expect to pay an extra £84 on next year’s travel.

5)Will a no-deal Brexit compel car makers to move overseas? In part 2 of a daily three-part series the future of  major British car plants is discussed. Does a mass (Br)exodus await, or will Britain’s reputation for engineering excellence discourage vehicle manufacturers from settling elsewhere?

What happened overnight

The growing  fears about a world recession sent global stocks sliding in Asia.

Spooked investors stampeded to the safety of sovereign debt and drove yields on 30-year Treasuries to all-time lows at 1.97pc. Yields have now fallen a staggering 60 basis points in just 12 sessions to pay less than three-month debt.

Yields on 10-year paper dropped to 1.55pc, taking them under two-year paper. Such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later.

Japan’s Nikkei was still off 1.5pc but up from early lows, while Shanghai blue chips eased a relatively modest 0.5pc.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.8pc and briefly touched a seven-month low.

In Hong Kong, the Hang Seng Index inched down 0.17 percent or 42.59 points to end the morning at 25,259.69.

Coming up today

Retail sales for July are expected to show a continued bounceback, after June bucked the trend emerging from a downbeat April and May. The sector tends to benefit from hotter weather and major events, which July served up in spades — including Wimbledon, the British Grand Prix and England’s cricket World Cup glory.

“Against that sort of backdrop it would be a surprise if we didn’t see the rebound seen in consumer spending in June,” said Michael Hewson of CMC Markets.

Interim results: Kaz Minerals, Marshalls

Economics: Retail sales figures (UK), productivity, jobless claims, retail sales and industrial production (all US)

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