Trade row between world’s two biggest economies rumbles on; US central bankers defend Federal Reserve’s independence after Trump criticisms
President Donald Trump offered to buy Italian sovereign bonds when he met prime minister Giuseppe Conte at the White House last month, according to the Corriere della Sera newspaper.
Rome is scheduled to issue about €400bn worth of debt in 2019, and recent political uncertainty has seen a jump in Italian borrowing costs as investors move out of the country’s bonds.
EUROPEAN MIDDAY BRIEFING: Italian stocks lead Europe higher after Trump reportedly offers to buy Italian bonds, Australian Dollar rebounds on PM change . . . pic.twitter.com/tx5X4YnEPh
Three senior executives at TSB, which suffered a disastrous IT meltdown beginning in April, are leaving the bank, according to the Financial Times.
Ian Firth, Rachel Lock and Nigel Gilbert – TSB’s treasurer, head of human resources and chief marketing officer – are all set to depart, says the report (£).
ScottishPower has become the fourth of the big six energy suppliers to announce a second price rise this year, in response to rising wholesale prices.
Around 900,000 customers on the firm’s default tariff will be hit with a £46 price hike from 8 October, pushing up their annual dual fuel bill 3.7%, to £1,257. The bad news for consumers comes on top of a 5.5% hike by ScottishPower in June.
Oil is being lifted again amid signs that US sanctions on Iran are beginning to have an impact on supplies.
Brent crude is up 0.8% at $75.33 a barrel while US crude has climbed 0.9% to $68.45.
Multiple third-party reports indicate that Iranian tanker loadings are already down by around 700 kbd in the first half of August relative to July, which if it holds will exceed most expectations. We expect that by the fourth quarter the market will be dealing with either undersupply, dwindling spare capacity – or both.
The UK mortgage figures are weighing on housebuilders, with Berkeley Group, Persimmon, Barratt Developments and Taylor Wimpey all down around 1%. A downgrade on Persimmon from analysts at Canaccord is not helping the sector. Chris Beauchamp, chief market analyst at IG, said:
In thin August trading housebuilders have taken a knock as a double whammy of lower new approved mortgages and a five-month low in net mortgage lending weighed on the sector. Fortunately, the lower weighting for the likes of Taylor Wimpey in the FTSE means that these losses have been easily countered by gains for mining stocks off the back of a weaker US dollar.
The number of mortgage approvals by the main high street banks slipped last month compared to a year ago.
Approvals in July fell by 0.8%, but within this there was a 2.8% rise in existing households remortgaging ahead of the well-flagged interest rate rise earlier this month, according to data from industry body UK Finance.
July saw steady growth in gross mortgage lending, driven largely by remortgaging as homeowners locked into attractive deals in anticipation of the recent base rate rise.
Card spending has also strengthened, reflecting increased expenditure during the holiday period and an uplift in retail sales due to the World Cup and warm weather.
With the European Central Bank being the latest to warn of the dangers of growing protectionism (in Thursday’s minutes), here’s an interesting chart from HSBC (hat-tip Ransquawk):
What countries are most exposed to a rise in protectionism? via HSBC pic.twitter.com/mL1n8SoZD0
So would the markets crash if Donald Trump was impeached, as the president suggested? Paul Donovan, global chief economist at UBS Wealth Management, thinks not:
Impeachment (by the House) may be more likely than conviction (by the Senate), but neither seems highly probable. A conviction would lead to President Pence. Pence’s economic track record gives no grounds for assuming a negative equity reaction.
The markets may be fairly subdued at the moment, but it could be a lot worse, says Spreadex financial analyst Connor Campbell:
There wasn’t a lot to Friday’s open, the lack of progress between the US and China following the latest round of trade talks leading to a muted start to the session.
Given the amount of bad news out there at the moment – from Thursday’s trade talk-undermining tariff tit-for-tatting between the US and China, the ominous clouds of a no deal Brexit, and Trump’s potential legal problems – the markets have done well to not lose their heads this week.
News of the latest prime ministerial appointment in Australia has seen a recovery in the country’s currency. Neil Wilson at Markets.com said:
Australia’s dollar rose after Scott Morrison was voted the next prime minister. The Australian dollar/US dollar had sold off as Malcolm Turnbull was forced to resign, briefly touching on 0.720, its lowest since the start of 2017, before paring losses to trade around 0.7280. But the longer-term downtrend remains in play with trend resistance seen at 0.73750. Politics won’t be a factor for long for the Australian dollar, which tends to ride this kind of shenanigans –forex traders should be pretty used to a changing Australian prime ministers and will shrug it off quickly.
With the continuing trade row between the US and China, Trump’s travails and the spotlight on US interest rates, markets are making a cautious end to the week.
The FTSE 100 is virtually flat, Germany’s Dax is up 0.25%, France’s Cac has climbed just 0.12% while Italy’s FTSE MIB is up 0.1%.
With the US mulling $200bn in additional 25% tariffs, this is not going away. The real worry is what does China do then. While Beijing cannot match the US in terms of raw firepower as it imports far less from the US, it can respond with ‘qualitative’ measures, which could seriously impede US firms doing business in China.
The German GDP figures show that the country’s economy has not yet been hit too badly by the current trade tensions, says ING Bank economist Carsten Brzeski, although this could of course change:
German growth data suggest that at least in the second quarter, the ongoing trade tensions were a threat but did not leave any significant marks on the economy. Obviously, this could change in the coming months. Even though the EU seems to be off US radar screens at least for the time being, the series of German export partners being hurt by sanctions, tariffs or economic crises is getting longer. Just think of China, Russia, Turkey, Iran or potentially the UK. The strength of the German export sector has always been its diversity and the fact that it is not dependent on a single export partner. And while the weak euro should cushion any adverse effects stemming from tariffs or sanctions, the list of troubled countries should obviously not get too long.
While risks from the external side are increasing, the domestic side of the German economy offers both challenges but also opportunities. Just think of an increasingly complicated political landscape, too few new investments and structural reforms and supply-side constraints in the manufacturing sector. Many potential risks ahead but at least for now, there is only one good reaction to today’s growth data: enjoy and savour.
Here are IG’s opening calls for European markets:
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There was little expectation that this week’s talks between the US and China to resolve their trade tensions would make much of a breakthrough. And so it proved, as they ended on Thursday with no real progress. President Trump had already set the tone, suggesting there was unlikely to be any quick resolution, and discussions can hardly have been helped by the two sides slapping a new range of tariffs on each others’ goods as the talks were underway.
China doesn’t wish to engage in a trade war, but we will resolutely respond to the unreasonable measures taken by the United States.
A spokesperson for the Beijing administration described the meeting as ‘constructive’, but it sends a message to traders that this situation won’t be resolved quickly. The negative press surrounding President Trump isn’t boosting investor confidence either.
Esther George, the Kansas City Fed President issued an upbeat view of the US economy, as she believes the Federal Reserve can hike interest rates several more times before it can get to a ‘neutral’ position. Ms George made it clear that President Trump’s views regarding the hiking cycle, will not influence the central bank. Robert Kaplan, Dallas Fed President, reiterated the independence of the Federal Reserve, making it clear that Mr Trump’s won’t influence decisions in relation to interest rates. The stimulus effect is boosting the economy, but it will start to fade in 2019, according to Mr Kaplan.