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Donald Trump launches attack on China over trade 'rip-off' – as it happened

This article is more than 4 years old
 Updated 
Tue 30 Jul 2019 10.04 EDTFirst published on Tue 30 Jul 2019 02.25 EDT
President Donald Trump attacked China as his negotiator trade talks in Shanghai.
President Donald Trump attacked China as his negotiator trade talks in Shanghai. Photograph: Alex Brandon/AP
President Donald Trump attacked China as his negotiator trade talks in Shanghai. Photograph: Alex Brandon/AP

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Comments from Boris Johnson and Donald Trump have both added to investor anxieties. Photograph: Reuters; AFP/Getty Images

Messrs Trump and Johnson have both moved markets today with their respective central concerns: trade with China and Brexit.

US stock markets have caught a cold from Donald Trump’s latest Twitter outburst, which suggests that his patience with negotiations with China is wearing thin.

Investors had not been betting that the two days of trade talks currently happening in Shanghai would reach a resolution, but some had hoped for the groundwork for more detailed talks could be laid. That hope now appears to be forlorn.

Trump’s criticisms of China will form the backdrop tomorrow for the Federal Reserve, which is expected to cut interest rates for the first time since the financial crisis – partly because of the risks to growth from the trade war.

On the British side of the pond, new Prime Minister Boris Johnson’s insistence that the EU must ditch the backstop (an insurance policy to avoid a hard Irish border) if there is to be a deal. That pushed sterling to a 28-month low against the US dollar.

Sterling has become “increasingly politicised” because of Brexit, becoming more sensitive to news from Westminster and Brussels than the economic fundamentals, according to Peter Dixon, senior economist at Commerzbank.

For all the words of warning from politicians, economists and central bankers of the dangers of a no-deal Brexit, the market judgement comes as a brutal reminder that investors are not prepared to take politicians on trust and that the balance of risks is clearly tilted to the downside.

Usually a slide in the pound and the consequent inflation would prompt the Bank of England to favour an interest rate hike, but with Brexit in play that could change very quickly.

The pound is unlikely to remain at current levels for long: Either the government delivers a no-deal Brexit, in which case sterling might be expected to fall much further, or this prospect is avoided in which case the currency retraces some lost ground.

Either way, holding for now would be the sensible option, Dixon said.

And in corporate news, Centrica boss Ian Conn will step down after announcing that the British Gas owner had slashed its dividend following a first-half loss.

Thanks for joining us today for coverage of business, economics and markets. Please do join my colleague, Julia Kollewe, tomorrow for coverage of the buildup to the Federal Reserve and the Bank of England. JJ

US stock markets have fallen after US President Donald Trump’s attacks on China, which analysts have said could scupper trade talks.

The Nasdaq composite index lost 0.68% in early trading, while the S&P 500 lost 0.52% and the Dow Jones industrial average 0.34% at the opening bell.

The FTSE 100 is now down by 0.3%, and the pain has increased for Centrica and Fresnillo after their poor results: the former has lost 17% and the latter has lost a fifth.

On the mid-cap FTSE 250 CYBG, the owner of the Virgin Money, Clydesdale and Yorkshire bank brands, is the biggest faller.

Shares in the bank have lost 12% after it reported a fall in mortgage lending and lower net interest margins, a key measure of how much money they make on their loans.

Virgin Money was bought by CYBG last year; it will become the bank’s sole brand by 2021. Photograph: Facundo Arrizabalaga/EPA

US stock market futures are pointing to a difficult time for Wall Street today, after Donald Trump’s Twitter attacks on China.

Dow Jones industrial average futures prices have fallen by 0.4% with half an hour to go until the opening bell, while futures for the S&P 500 are down by 0.5% and those on the Nasdaq 100 are down by 0.8%.

The latest German inflation data might add to the case for the European Central Bank to go ahead with an interest rate cut in September: the harmonised index of consumer prices (used by the ECB) fell to 1.1%, the lowest since November 2016.

In the previous month the inflation measure had reached 1.5%, much closer to the ECB’s 2% inflation target.

Economists had expected a drop, but only to an annual rate of 1.3%.

The data add to a picture of a European economy that is struggling to sustain its momentum. The German manufacturing industry’s travails have been a major part of that story.

German CPI - lowest Y/Y since November 2016 at 1.1% https://t.co/hBSU940daq

— Michael Hewson 🇬🇧 (@mhewson_CMC) July 30, 2019

Trump’s tweets appear to have scuppered any hopes for progress in the latest talks, barring some major concessions on the Chinese side.

Stephen Innes, managing partner at VM Markets Pte, said:

Whatever shred of optimism markets had about the ongoing trade negotiations were dealt as a severe blow when President Trump flew off the handle again at China for not buying American agricultural products.

Following another month of escalating tensions, agreement on practically anything would have been viewed positively, but I think you can throw that view out the window.

Trump’s belief that China is hanging on for a Democrat to replace him as president in 2020 could lead the US to take a more aggressive tone, Innes added.

European stocks slide after Trump's trade attack on China

European equities have suffered today after poor earnings from big companies, and the slide has accelerated after Trump’s trade comments.

Germany’s Dax is now down by 2.2% today – and has hit its lowest level in more than a year. France’s Cac 40 is down by 1.5%.

The FTSE 100 is now in negative territory after Trump’s trade interventions, down by 0.2%.

European stock markets fell further in the aftermath of Trump’s attack on China.
European stock markets fell further in the aftermath of Trump’s attack on China. Photograph: Refinitiv

An update on banking regulation: the Bank of England has today confirmed plans to make big British lenders publish plans to show that they could go bankrupt without needing the government to step in like it did with the £45bn bailout of Royal Bank of Scotland a decade ago.

The UK will become the second country to force its largest lenders to publicly disclose their “living wills” and prove they can afford to foot the bill for their own failures in order to avoid costly taxpayer bailouts, reports the Guardian’s Kalyeena Makortoff.

New rules confirmed by the Bank of England and its regulatory arm, the Prudential Regulation Authority, on Tuesday mean banks will face further pressure to lay out plans that ensure they wind down in an orderly fashion – or risk the scrutiny of both the public and investors.

The public disclosures, due every two years from 2021, will be the first made by major banks outside of the US.

With the new rules confirmed, UK’s seven largest high street banks – RBS, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander and Nationwide building society – will soon start assessing whether they are in a position to continue serving customers and fulfilling existing contracts even if they are headed for a full shutdown or major reorganisation.

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Donald Trump rails at China ahead of Shanghai trade talks

The president of the United States is awake, and he appears to be doing his best to prevent any progress in trade talks with China that are taking place in Shanghai.

Donald Trump clearly is not holding out much hope for the latest round – which will not be welcomed by jittery investors hoping for a resolution.

The trade war between the two countries has been highlighted as one of the major risks to the global economy for months.

China is doing very badly, worst year in 27 - was supposed to start buying our agricultural product now - no signs that they are doing so. That is the problem with China, they just don’t come through. Our Economy has become MUCH larger than the Chinese Economy is last 3 years....

— Donald J. Trump (@realDonaldTrump) July 30, 2019

..My team is negotiating with them now, but they always change the deal in the end to their benefit. They should probably wait out our Election to see if we get one of the Democrat stiffs like Sleepy Joe. Then they could make a GREAT deal, like in past 30 years, and continue

— Donald J. Trump (@realDonaldTrump) July 30, 2019

...to ripoff the USA, even bigger and better than ever before. The problem with them waiting, however, is that if & when I win, the deal that they get will be much tougher than what we are negotiating now...or no deal at all. We have all the cards, our past leaders never got it!

— Donald J. Trump (@realDonaldTrump) July 30, 2019

Raoul Leering, head of international trade analysis at the ING investment bank, said:

Markets could be in for another disappointment because, as of yet, there are no other concrete signs that negotiators are getting closer to a deal. On the contrary, China has demanded that the US lift all tariff hikes before a deal can be cut, which doesn’t align well with the American approach to keep the pressure on even after a deal.

However, both China and Trump could do with a deal, one to help its economy, ther other to parade his trade negotiating successes. But “Trump will need to back down”, said Leering.

Markets were yesterday pricing in a 50% chance of a Bank of England interest rate cut before the end of the year, Archer added.

However, a fiscal boost from a free-spending new government could add to pressure not to cut interest rates.

In yet another complication, the UK economy is weakening. Indeed, the influential National Institute of Economic and Social Research (NIESR) last week said there was a one in four chance the country is in a recession already.

That is backed up by recent Bank of England data, said Costas Milas, a professor at the University of Liverpool.

According to fresh Bank of England data, “divisia money” grew in June 2019 by only 3.5%, the worst rate of growth for more than seven years. “Divisia money”, which has been found to predict GDP movements quite well, weights different forms of money according to their likelihood of being spent (hence, notes and coins have a higher weight than money held in mutual funds, for example). Milas said:

The fact that divisia money is now slowing down rapidly indicates that GDP contraction is almost imminent which, of course, is hitting our currency in addition to the no-deal Brexit talk.

There has been something of an about-turn in views on the Bank of England’s interest rate path in recent weeks.

Governor Mark Carney and co had been hinting that interest rates could rise in the event of a smooth Brexit – their central assumption. But as government policy has taken on more of a no-deal flavour that is looking increasingly strained.

The Bank also runs the risk of being out of step with other major central banks – an uncomfortable feeling for policymakers who meet regularly at various economic fora. The US Federal Reserve is expected to cut rates tomorrow, and the European Central Bank’s September rate cut has already been pencilled in by investors.

It would be a “major surprise” if there is anything other than a 9-0 vote in favour of leaving policy unchanged, but the Bank could back away from its guidance that rates will rise gradually, according to Howard Archer, chief economic advisor to the EY ITEM Club.

Until very recently (including the June MPC meeting), the main focus on UK monetary policy was when the Bank of England is most likely to raise interest rates. However, there has been a marked turnaround in sentiment regarding likely Bank of England action and the key question is now whether the central bank’s next move will be to raise or cut interest rates.

We suspect that the Bank of England will acknowledge that the risks to the UK economic outlook have increased but play down the prospects of an interest rate cut unless there is a disruptive “no deal” Brexit in October.

It would probably take conciliatory noises from the government or the EU to push the pound back up, although perhaps don’t hold your breath for any change in tone any time soon, given that many key figures on either side will be on holiday in August.

Currency traders are trying to work out what it will take for sterling to fall further, given that markets appear to have finally priced in Boris Johnson’s no-deal Brexit threat.

Added to that is the complication that the Bank of England (due to meet tomorrow before Thursday’s decision) would likely have to cut interest rates if there is a no-deal Brexit.

John Goldie, a dealer at foreign exchange company Argentex Group, said:

The market finally seems to be waking up to the potential for No Deal Brexit, despite the fact that it has been the legal default for over two years now and consecutive prime ministers have maintained that they would prefer to leave without a deal than with a bad deal. The difference is that, this time, people believe Boris Johnson just might be crazy enough to carry out the threat.

The Bank of England corrected its panic cut post-referendum when they raised rates in 2017 and then took interest rates to the highest since the financial crisis in mid-2018. With this buffer, as well as a seemingly synchronised dovish shift across the major economies, the market is already pricing over 50% likelihood of a reduction in rates later this year.

There is not likely to be any change from the MPC this week but any suggestion that a cut has been considered would cement the expectation for action in the coming months and likely undermine the pound further.

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