Beijing has alarmed investors by threatening counter-measures against the US, threatening to escalate the trade war
- Latest: Beijing says US has violated trade agreement
- FTSE 100 hits five-month low
- US yield curve inverts for second-day running
- 10-year US bonds offer lower return than 2-year – a worrying sign
- Stocks have fallen across Asia today
- Last night, Wall Street tumbled by 3%
Oil is continuing to slide today, hit by fears of a global downturn.
Brent crude has dropped by 2.5% to just over $58 per barrel.
It was already a rough day in the markets, even before China ratcheted up the trade war tensions:
Hold onto your hats, folks. The Dow Jones industrial average is now tipped to lose more than 200 points when trading begins, a drop of 0.8%.
That’s on top of yesterday’s 800-point slide.
August has been a torrid month for the markets, and we’re only halfway through it!
Britain’s FTSE 100, for example, has fallen by over 7% in the last two weeks – from 7,586 points to just 7028 right now (down another 120 points today!).
Fund manager Brent Carlile thinks China’s threat is a response to Donald Trump’s decision to delay tariffs on Chinese-made consumer goods until December.
That concession is meant to protect US consumers from pre-Christmas price hikes – but could also look like weakness from the White House.
Crumbs. Shares in Europe’s banking sector are down 1.2%, hitting their lowest level since 2012 – when the eurozone debt crisis was raging.
Mining companies are among the top fallers in London, dragging the market deeper into the red.
The FTSE 100 is now down 92 points at 7056, its lowest level since the end of February.
One for the chartists out there:
FTSE testing key multi-month support around 7060 pic.twitter.com/W9lseb1N8F
President Trump could retaliate to China’s threatened retaliation by imposing higher tariffs on all Chinese imports, suggests Jasper Lawler of London Capital Group.
Currently, the US is planning to levy a 10% tariff on the $300bn of Chinese goods that isn’t already being taxed. That kicks in next month, although some consumer goods will be spared until December.
China say “US Violates Xi-Tump Consensus With New 10% Tariff”
China smelling blood after US backed off with tariff delay, and perhaps warning shot about suggested meeting over Hong Kong protests
25% US tariffs on all China imports the likely the eventual Trump response
Ouch! The Stoxx 600 index of Europe’s top listed companies has hit its lowest level since February, down another 0.7% today.
China’s threatened retaliation is a slap in the face to Donald Trump.
Yesterday, the US president claimed that Beijing was keen to make a deal, and even suggested a personal meeting with Xi Jinping to help resolve the protests in Hong Kong.
Good things were stated on the call with China the other day. They are eating the Tariffs with the devaluation of their currency and “pouring” money into their system. The American consumer is fine with or without the September date, but much good will come from the short…..
..deferral to December. It actually helps China more than us, but will be reciprocated. Millions of jobs are being lost in China to other non-Tariffed countries. Thousands of companies are leaving. Of course China wants to make a deal. Let them work humanely with Hong Kong first!
I know President Xi of China very well. He is a great leader who very much has the respect of his people. He is also a good man in a “tough business.” I have ZERO doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it. Personal meeting?
Neil Wilson of Markets.com says the threat of a deepening US-China trade war has spooked investors, wiping out the early recovery in Europe.
This was always a very precarious bounce and it has died a quick death. Like a 1990s England Test top order it couldn’t even make it to lunch. Let’s see where we’re at by stumps.
European indices rolled over into the red to hit day lows as a series of news flashes indicated further worries about trade, with China saying the US has violated past agreements with the 10% tariffs and that Beijing will have to take countermeasures.
This does not 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.
European stock markets are sliding sharply, following Beijing’s threat to impose new trade sanctions on the US.
In London, the FTSE 100 has tumbled by 1%, losing 69 points to 7078 points – on top of the 103 points lost yesterday. That’s its lowest point since March.
Here’s Reuters’ take on Beijing’s pledge to retaliate in the ongoing trade war with America.
China has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese goods, the finance ministry said on Thursday.
The ministry also said the U.S. tariffs violate a consensus reached by leaders of two countries and get off the right track of resolving disputes via negotiation.
NEWSFLASH: China has launched a fresh attack on America over the trade war, giving investors another reason to panic.
The Chinese finance ministry has accused the US of violating the consensus drawn up between Donald Trump and Xi Jinping.
*CHINA SAYS WILL HAVE TO TAKE COUNTERMEASURES ON U.S. MOVES
*CHINA: U.S. ACTION VIOLATES CONSENSUS REACHED IN OSAKA MEETING
All eyes on USDCNH here… pic.twitter.com/GvzGcqkz48
Deutsche Bank analyst Jim Reid is so excited about the inversion of the US yield curve that he’s broken off from his holiday to explain why (in his view) it’s a very serious warning sign.
Every inversion since 1956 has seen a recession follow. Although the median length of time to a recession is 17 months, credit spreads have pretty much exclusively widened from the point of inversion onwards.
Of those 2 of the 9 recessions since the 1950s took more than 2 years to materialise after the first inversion though. The first in the mid-1960s (took nearly 4 years) was due to a Fed policy error where the Fed didn’t raise rates as expected (they actually cut) with inflation rising. The curve re-steepened and only inverted again as the Fed reversed course and hiked a few quarters later. The recession soon followed the subsequent inversion. The second, following the May 1998 inversion, took 34 months until a recession arose but the inversion was relatively brief and occurred just prior to the Russian/LTCM crisis where the Fed rapidly cut 75bps thus re-steepening the curve. The Fed then raised rates again from 1999 and the curve re-inverted in early 2000, around a year before the actual recession.
Just in: UK retail sales grew last month, as consumer shrugged off Brexit uncertainty and fears that Britain’s economy is weakening.
Retail sales rose by 0.2% in July, the Office for National Statistics says, better than the 0.2% decline which the City expected.
Department store sales increased for the first time this year with a month-on-month growth of 1.6% ️
This July’s food store sales are down by 0.5%, compared with the same month last year
This could be in part due to 2018’s prolonged heatwave and special events like the FIFA World Cup ⚽ https://t.co/QFDmkBVf1z
European bank shares are down this morning, hit by anxiety that Germany could be sliding into recession (possibly followed by the US next year, if the yield curve is to be believed).
Ouch! Deutsche Bank shares drop below €6 as German 10y yields hit fresh low at -0.65%. pic.twitter.com/NVtrnlA4Ld
The Financial Times is also concerned by the surge in bond prices, saying:
A sharp rally in government bonds set fresh records on Thursday, with the yield on 30-year US government bonds falling below 2 per cent for the first time as investors sought safety amid growing fears over the global economy.
Traders have dumped riskier assets such as stocks and crude oil and moved into perceived “havens”, including bonds, sending their yields lower. On Wednesday a closely watched metric in the US government bond market turned negative, raising new recession concerns. That indicator, the yield curve, remained inverted in Thursday morning trading in London.
In a new sign of the flight into bonds, the 30-year US Treasury bond yield dropped 5 basis points to 1.9776%, its lowest level on records that go back to the 1970s and the first time it has fallen below 2% https://t.co/XKEiyLWjPw pic.twitter.com/VOtjhwil7P
Anxiety over the global economy sent Japan’s stock market to a six-month low today.
Our new friend, the US inverted yield curve, is being blamed (although it isn’t an infallible recession indicator) .
“The yield curve inversion prompted more investors to become concerned about the growth outlook,”
Nikkei falls to 6-month low on worries about global economy https://t.co/rud3Spghzk
The UK government bond yield curve has also inverted for the second day running.
That’s because the rate of return on 10-year British gilts has dropped to 0.451%, below below the two-year bond which is yielding 0.455%.
UK yield curve inversions (2 year Gilt rate higher than 10 year Gilt rate) have been pretty much 50/50 as a recession signal since 1970. Preceded 3, falsely signalled 4 and was late to the party once. Usually tied to some major domestic or global event though. pic.twitter.com/IIrFVY7Q4x
2. Unsurprisingly, the UK yield curve often moves similarly to the US’, but post crisis the two have tracked almost identically, barring a brief split following the Trump tax cuts. pic.twitter.com/6Vw6MA7J7Z
Mark Haefele, chief investment officer at UBS Global Wealth Management, is urging us all not to get obsessed by the inversion of the US yield curve.
He points out that the tumble in longer-dated borrowing costs won’t have much economic impact on its own –it’s mainly an indicator of market sentiment. And, he argues, it doesn’t mean shares are about to crash.
The length of time the yield curve is inverted, and how much is inverted, matter. If Fed rate cuts successfully steepen the curve comfortably into positive territory, this brief curve inversion may be a premature recession signal.
Neither does a yield curve inversion indicate it is time to sell equities. Since 1975, after an inversion in the 2-year/10-year yield curve, the S&P 500 has continued to rally for nearly two years, and has risen by 40% on average until hitting a bull market peak.”
Energy and financial stocks are down in London this morning, a sign that traders are pessimistic about growth prospects
And we’re off!
European markets are open, and inching higher in early trading.
The most dangerous thing in this situation is that market fears of recession could end up fuelling further demand for safe havens, further intensifying the anxiety of stock markets.
Recession fears are also driving investors into German government debt – another safe haven (even though Germany may be sliding into recession).
The yield on German 30-year bonds has fallen below minus 0.2% for the first time ever.
Morning all. City traders are bracing for another volatile session, after European stock markets hit their lowest levels in six months yesterday.
Alarmingly, the US yield curve is inverting again this morning, suggesting investors are worried that a recession is looming.
US yield curve remains inverted for the second day….
US government still letting people store their money with the world’s most powerful institution for 30yrs, for free in real terms! Unbelievable deal. pic.twitter.com/ldMMLITeMH
I’m about to hand over to my colleagues in London but here’s what you need to know on a day when concerns about recession in the US, Germany and China have plagued markets in Asia.
Ouch. The ASX200 suffers its worst day since February 2018. It’s down 2.85% at 6,408. Around A$60bn removed from values.
The Australian market is now off 2.9%, or 187 points, at 6.408 points, but we’ll know the full damage when trading closes in a few minutes. It’s easily the worst performer in Asia Pacific where traders have reduced losses in Hong Kong and Shanghai. Japan is down 1.2%.
Meanwhile, European markets are opening in an hour.
IG are calling the market openings:
In Australia the ASX has slumped by 2.8%, a real bloodbath for a market that hit an all-time high just a couple of weeks ago.
The AMP economist Shane Oliver has been looking at today’s employment figures and he reckons the signs aren’t that great going forward.
…Aust jobs leading indicator continues to point to slowing jobs growth ahead and an upwards drift in unemployment… pic.twitter.com/NOpXHj5O8F
..ratio of employment to working age pop in Aust is strong. Only issue is that participation has gone up too and there are more part time relative to full time jobs than desired… pic.twitter.com/WArorhVk3D
..so unemployment + underemployment remains very high. As long as this remains the case its hard to see a pick up in wages growth. Even in the US where U6 is 7% wages growth is still only around 3%yoy pic.twitter.com/Q1rb2yWbzM
Not surprising that the seas adj underemployment rate bounced back up after last month’s pretty bizarre fall.
But the trend rate is now looking rather less good and makes the task of getting it to a rate that will see wage growth improve that much harder pic.twitter.com/qVsWYBZDNH
No blog is complete without a word from Holger.
Stocks spooked as bond mkts scream recession. Asia equities follow Wall St slide, but off lows as 800point drop in Dow seems overdone & US Futures bounce. Bonds push higher w/US 10y yields at 1.55%, US Inversion deepens w/US2s10s spread at -0.3bps. Oil extends drop. Bitcoin <$10k pic.twitter.com/wiWt7KjuD7
Oops! US 30y yields drop below 2% for first time in history as bond mkts scream recession. pic.twitter.com/KHTtyRdNvc
The Dutch economy seems in pretty good shape and will grow by 1.4% in 2020. But that is slower than expected because exports have been hit by weakening growth in Germany, Brexit and US trade policies, the country’s forecasting body CPB has said.
Looking beyond Australia, Stephen Innes of Valour Markets in Singapore has written a note to clients in which he says the Fed will now be forced to cut rates again and possibly “much more profoundly than they expected”. China’s central bank could also come to the party with another stimulus package.
The steep falls in Asian markets on Thursday show that shell-shocked traders are “hoping for the best on the policy front but positioning for the worst on the economic backdrop”.
Surely the world’s central bankers are not going to allow President Trump tariff threats to snatch defeat from the jaws of victory. Not yet, anyway. Not while there’s still some monetary firepower left in their arsenal.
The Fed, now out of necessity alone will need to adjust policy much more profoundly than they expected. While the threat of addition tariffs will make Beijing more accommodative to easing as policymakers have numerous avenues and a high degree for flexibility to respond. Suggesting that mainland’s accommodative policies including infrastructure, fiscal and monetary measures will be aggressively dialled up in coming months. Even as trade tensions alternate between simmer and boil, a PBOC and Fed policy deluge could go a long way to establishing risk sentiment.
Whether it’s boom or gloom, the Australian stock market is being smashed at the moment.
The benchmark ASX200 is down 2.7% today, a fall of 179 points to 6,416. That’s a loss of more than A$50bn on this morning’s opening prices and it could be the worst day since 25 October last year when shares fell 2.8% on the day.
The Australian jobs figures from earlier have, as usual, produced some difference of opinion.
In the bullish camp is Craig James, the chief economist at Commsec. He notes that overall employment has risen for the 33rd time in 34 months, up by 41,100 jobs in July against predictions of 14,000. Full-time jobs rose by 34,500 with part-time jobs up by 6,700. James writes:
What is the definition of a strong job market? We would contend that it is one where employment is rising, more people are participating in the job market and where the jobless rate remains historically low. Australia has a strong job market. While the jobless rate in Australia is higher than the US, UK and New Zealand, in Australia job growth remains strong and more people are drawing down a wage. Retailers want to see more people with jobs because that converts to more opportunities to sell their goods and services.
While jobs rebounded, our labour demand index at a 5-year low still suggests a drop ahead to ~1¼% y/y; & wages remain soft amid higher unemployment. Given the RBA will “monitor …the labour market closely & adjust monetary policy if needed” – & weak hours support our Q2 GDP forecast of 0.5% (1.4% y/y), below mkt (0.6%) & RBA (¾%) – we still expect rate cuts in Oct & Feb, with trade wars raising the risk of more.
Traders in Tokyo are back from their lunch and the Nikkei is on the slide. It’s down 1.55% to 20,333. The Hang Seng has slipped as well and is up just 0.03%.
And London is now on course to slide into the red when it opens this morning. And the Dax30 in Frankfurt. The Dow is still on the dancefloor though and looking at a modest bounce of 30 points or 0.13%.
I’m taking a quick break so here are the main developments so far today:
One factor in the pickup in Asian shares could be a reassessment of the risks of the celebrated inverted bond yield curve.
Several analysts and experts, including the former Federal Reserve bosses Alan Greenspan and Janet Yellen, have pointed out that structural market change means that the inverted yield curve might not be as important or reliable as it once was.
Yield curve inversion is flashing a warning sign – investors should check their portfolios are resilient. But it’s not a reason to panic or to lean into the sell-off.
Current yield curve inversion is unusual compared to history as it’s not associated with a high real Fed funds rate (average of past 5 recession episodes 3.2%). Currently the real rate is around zero. That either means the curve is providing a false signal (due to a structural flattening) or the “neutral” real Fed funds rate has fallen a lot and even a near-zero level (as at present) is restricting the economy. The latter is clearly US President Trump’s claim. My view is that the yield curve is structurally flatter and not providing a signal of recession… as confirmed by still positive indicators such as US jobless claims.
Trump is right on the Fed: The Fed needs to cut to 0.5% (or less) & do it soon – the boost to the economy will be material.
The blabber on the yield curve fails to note that aggressive Fed cuts will fix the issue. It’s not like the issue has crept up on them
Inverted yield curves are merely a reflection of bond market vigilantes pricing in a policy error of the central bank – nothing more or less.
The central bank can address the concerns but cutting interest rates like freaks
The Hang Seng index has climbed into positive territory. It is now up 0.5% at 25,430 points. Losses on the Shanghai Composite are just -o.5%. What a time to be alive.
Hang Seng market red to green.
Analysts at UBS in Sydney have given up on a near-term resolution of the US-China trade war and have downgraded their forecasts for the two big economies. It also means a downgrade for industrial commodities such as iron ore and coal, and a boost for gold.
Here they are:
Our investment thesis heading into the back half of 2019 was predicated on a resolution to the trade war, but unfortunately this appears to have been short lived. As a result of increased tariffs, albeit somewhat delayed, this has lead to our economists downgrading US and Chinese growth for H2 19 and 2020. In light of this we have downgraded our industrial commodity forecasts and lifted gold.
Continuing trade tensions are a headwind to global growth, but could prove positive for China stimulus.
House prices rose 0.6% in China last month, the 51st consecutive month of gains, according to Reuters calculations based on national bureau of statistics (NBS) data released today.
The gains are good news for the Chinese economy after some terrible data yesterday which showed industrial production falling to a 17-year low.
Despite all the gloom, the markets are beginning to recover some ground. The Nikkei is now off just 1.3% compared with 2% earlier, and the Hang Seng is in the red by just 0.45% after hitting -1.4% earlier. Shanghai is still on -1%.
In line with that improvement the FTSE100 and the Dow Jones are both seen opening in the black later today, according to IG Markets futures trading.
Guy Debelle, the deputy governor of the Reserve Bank of Australia, has given a speech this morning about what the global turmoil means for Australia and, not surprisingly, it’s not good news.
If this is the case, the drag from declining wealth and turnover will dissipate. Housing market conditions may even start to support consumption growth again in the period ahead.
It’s all happening now!
The yield on 30-year US treasury bonds has slumped below 2% for the first time this morning. The 30-year yield extended its sharp overnight slide and hit a record low 1.991% in Asian trade on Thursday.
Trading has started in mainland China as well and the Shanghai Composite is off 1.1%, easing earlier losses.
It follows the decision by the People’s Bank of China to set the yuan slightly higher this morning. It also announced that it was lending 400bn yuan ($56.90bn) to financial institutions via its one-year medium-term lending facility, with an unchanged interest rate at 3.3%. It rolls over a bunch of loans worth 383bn yuan and adds more cash, Reuters reports.
Unemployment stayed at 5.2% in July, according to seasonally adjusted figures from the Australian Bureau of Statistics released a few minutes ago. But the market was cheered by stats that showed 41,000 jobs were created last month against a forecast of 14,000.
The Aussie dollar picked up 0.4% to US67.75c.
https://t.co/e0cl5ktHIh AUD/USD jumps 30 pips on the upbeat Australian jobs report
The Hang Seng index has opened down 1.4% this morning. That’s a fall of 365 points today and it takes the index below 25,000 to 24,945.
The Hang Seng been battered by concerns about the growing political crisis in the city – the deepening fears about a slowdown in the Chinese economy won’t help.
China’s central bank has set the yuan higher this morning at 7.0268 against the US dollar, compared with 7.0312 the day before.
In other words, Beijing is willing to see the yuan strengthen a little. (The lower the number, the stronger it is against the greenback). In the grand scheme of things that will be seen as a small olive branch to Washington, which last week accused Beijing of wanting to manipulate the yuan downwards and force cheaper goods on the world.
The losses seem to be easing in Japan, where the Nikkei is now down 1.76% for the day. But Australia’s ASX200 is now off a hefty 2.1%, not helped by a bad result for the telco Telstra.
It has reported a 40% fall in profits this morning thanks to the mounting cost of rolling out the country’s national broadband network, or NBN. Its shares are down nearly 2% and, as one of the biggest companies on the market, that makes a difference.
The cocktail of economic news and data has been bad for the price of oil. Brent crude is down 39 cents, or 0.7%, at $59.09 a barrel this morning, after falling 3% in the last session.
US crude was down 28 cents, or 0.5%, at $54.95 a barrel, having dropped 3.3% in the previous session.
Crude oil prices getting closer to recent support levels…but companies that either produce it or provide related services appear to be discounting in 2016 lows based on current valuations pic.twitter.com/Qs9UgLoFPh
Michael McCarthy, chief market strategist at CMC Markets in Sydney, notes that although the bond market was the trigger for the trauma on stock markets in the past 24 hours, not every inversion in the US curve has led to a recession. But he says that might not be enough to prevent a rush for the exits amid a delicate geopolitical position:
Markets were in no mood for subtlety, and the damaging moves may provide their own rationale for more selling. The sell-off comes despite a better than forecast US earnings season. More than 90% of SPX500 companies have reported. Aggregate earnings are up around 2%, beating forecasts of a negative quarter.
Australian company results could add to market pressures. Telstra reported a 40% drop in profit, worse than forecast. Optimistic messages around the introduction of the 5G spectrum may not be enough to stem investor displeasure. Other misses include Blackmore’s, Cleanaway, Treasury Wine Estates and Super Retail. Both Sydney Airports and QBE Insurance delivered earnings above expectations, and funeral group Invocare surprised with a 7.5% lift.
A major factor in yesterday’s selloff was the inverted US bond yield curve – not helped by recession warnings from Germany and China. It is a very reliable predictor of recession and preceded all six of the previous US recessions.
It’s not often it becomes a topic for everyday conversation. So in case you get stuck next to the water cooler and feel like making some small talk, here’s a quick explainer.
But I am skeptical of this chart showing banks tightening loan standards when the yield curve inverting. Did banks tighten because of upside down interest rates or because they saw the same things bond traders saw that inverted the curve? pic.twitter.com/CIkS171rIr
In Japan the Nikkei index is down 2.1% this morning. Stocks are suffering amid the fears of a global downturn but are also being pushed down because the value of the yen is rising. The Japanese currency is a “safe haven” asset and goes up in times of crisis – rather like gold and the Swiss franc which are both also up today.
A higher yen is bad news for Japan’s export-reliant big manugfacturers, hence the falling stock market.
When volatility rises, dollar/yen becomes strongly correlated with [US] treasury yields, so the currency pair has more room to fall. I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data.
Market turbulence will continue over coming months, the chief executive of the Australian Stock Exchange says.
As the benchmark ASX200 took a 2% hit in early trading this morning, the ASX chief executive, Dominic Stevens, said the 2020 financial year would see “elevated volatility” because of the geopolitical situation and the changing expectations for interest rates.
Trading has started in Asia with steep falls – as expected – in Australia and Japan.
Asia begins lower after the sell-off on Wall St. where US indices fell around 3% and the DJIA posted its worst performance YTD amid recession fears after weak data from China and Germany, as well as the US yield curve inversion; ASX 200 (-1.2%), Nikkei 225 (-1.9%), KOSPI (closed)
Good morning/evening … wherever you are in the world, welcome to the Guardian’s business live blog which is starting early today before what’s expected to be a turbulent day on the financial markets.
My colleague Graeme Wearden covered all the action in the UK, Europe and the US on Wednesday and you can catch up on his blog here.
Link : Markets slide as China threatens to escalate trade war – business live