Article 48YJJ Mark Carney says Brexit is 'acid test', as world economy slows - business live

Mark Carney says Brexit is 'acid test', as world economy slows - business live

by
Graeme Wearden
from Economics | The Guardian on (#48YJJ)

Bank of England governor is warning that the global recovery is slowing, trade wars are hard to win, and Brexit will be an important test

Earlier:

5.40pm GMT

Finally, those Brexit worries 'helped' the London stock market to underperform vs other exchanges.

The FTSE 100 ended the day up 4 points at 7,133, while Germany's DAX gained 1% and France's CAC picked up 0.8%.

3.22pm GMT

Here's our economics editor, Larry Elliott, on governor Carney's speech:

Brexit is an acid test of whether it is possible to reshape globalisation in a way that offers the benefits of trade while allaying public fears about the erosion of democracy, the governor of the Bank of England, Mark Carney, has said.

Speaking in London, Carney said the ramifications of the UK's departure from the EU would be felt around the world and would determine whether it was possible to shrug off rising protectionism in favour of a new era of international cooperation.

Related: Mark Carney: Brexit is the first test of a new global order

"We are 45 days before the possibility of [no-deal happening] . . . we should not be under any illusions - no-deal Brexit would be a shock for this economy and send a signal globally about the prospects of refounding globalisation," he said at the event, which was hosted by the Financial Times.

Asked whether Brexit was a canary in the coal mine for the new global order, Mr Carney replied: "The bird may be towards the bottom of the cage, but it is still fluttering."

Two striking charts from Mark Carney today illustrating just how much business investment has disappointed since the Brexit referendum vote in 2016 pic.twitter.com/1y06FtTD03

This credit conditions heat map remains relatively cool, says Mark Carney. I'd go so far as calling it's positively psychedelic pic.twitter.com/QRZ0pAEgtQ

Most fundamentally, the larger and the more permanent the disruption to global trade-the greater the de- globalisation-the greater the reduction in both activity and supply capacity of economies. The latter-a material hit to supply-is something that advanced economies have not experienced since the mid-1970s.

In this scenario, the combination of slower growth, smaller surpluses in Asia and higher risk premia could move global interest rates higher, increasing the burden of corporate and household debts and challenging the creditworthiness of some sovereigns.

3.08pm GMT

Charles Hepworth, Investment Director at asset manager GAM, says the Brexit deadlock is making some UK assets 'untradable'.

Here's his take on the situation as we rattle towards Brexit Day with no certainty over the future:

"Negotiations are stuck with the EU refusing to concede on any points - the already agreed deal is the final deal as far as they are concerned. And to be honest it's probably the same view that May is taking - both essentially running down the clock to the final vote date. Thursday sees the start of extended debate in Parliament as to what happens next as they vote on 'Plan B' and the rest of the alphabet options.

"However not much really can come next - all that she hopes will happen is that those who voted overwhelmingly against her in her first attempt to pass the original deal through Parliament may be spooked that with so little time left and with the prospect of no-deal being so disastrous that they will have to switch to support her original deal. This uncertainty would be reflected in increased sterling and market volatility and, cynically, the government could use market turbulence to its advantage to push through a deal. It's a supremely high stakes game of chicken she is playing with both the EU and the UK parliament. She reaffirmed her promise to allow the final vote on her 'probably unaltered' original on the 27th of this month. Einstein's definition of lunacy was to keep doing the same thing over and over again and expecting a different result.

2.51pm GMT

Back in the markets, Wall Street has opened higher, on relief that another US government shutdown has probably been averted.

The Dow Jones industrial average has gained around 1%, with the broader S&P 500 and the tech-focused Nasdaq also posting gains.

U.S. markets open higher https://t.co/mthDWhnw5K pic.twitter.com/QJrnsAChX4

Related: Theresa May asks MPs to hold their nerve on Brexit talks

1.56pm GMT

Back on Brexit, governor Carney is hammering home the need for certainty, warning that the situation could go "quite badly".

.@ftlive Mark Carney 'there is a need for certainity in this world,' #FTMarkCarney #Brexit #globaleconomy pic.twitter.com/bJXSPRscsA

"You have to recognise that actually, this could go quite badly" Mark Carney discusses the prospect of a no-deal Brexit at a special event hosted by the FT @ftlive #FTMarkCarney

1.54pm GMT

Carney also suggests that global conflicts could be the trigger that ends the global expansion.

1.53pm GMT

Mark Carney is now taking some questions about his speech (highlights start here).

The FT's Chris Giles whizzes a fast delivery at the governor:

The bird may be towards the bottom of the cage, but it's still fluttering.

The fundamental issue at the heart of the Brexit discussions - ". are ones which the global economy needs to grapple with.

1.45pm GMT

This is why the Bank of England is concerned about China's slowing economy:

Carney points to this chart and warns of a Chinese slowdown, adding: "The Bank of England estimates that a 3% drop in Chinese GDP would knock one per cent off global activity, including half a per cent off each of UK, US and euro area GDP" pic.twitter.com/5tOMnuRwtr

1.37pm GMT

During his speech, Mark Carney also cites the idea that globalisation has created an impossible "political trilemma". Basically, that we can't have democratic accountability, national sovereignty AND be fully integrated in the global economy.

Any two is fine, but the hat-trick is impossible (ie - a eurozone country surrenders some sovereignty when it joins the single currency, while any country loses democratic accountability if the IMF imposes bailout conditions).

Globalisation leads to imbalances of democracy and sovereignty, leading many to lament a loss of control and to lose trust in the system. As Dani Rodrik has argued, there is a trilemma between economic integration, democracy and sovereignty.

Common rules and standards are required for trade in goods, services and capital, but those rules cede or, at best pool, sovereignty. To maintain legitimacy, the process of agreeing those standards needs to be rooted in democratic accountability.

1.26pm GMT

Superb speech by the Governor on the Global Outlook @ftlive @MarkCarney_BOE pic.twitter.com/2oP5924bXg

1.18pm GMT

From Mark Carneys' conclusion to his speech at the Barbican, which he's currently giving: "Risks from China and from de-globalisation are significant and growing. Could they be how the expansion ends?"

1.16pm GMT

Mark Carney also warns that Brexit has hurt the UK economy - and is a warning of the damage that global trade uncertainty can cause.

Citing yesterday's weak UK GDP report, he says:

UK business investment has fallen 3.7% over the past year despite the ongoing expansion, high business profitability and accommodative financial conditions.

With fundamental uncertainty about future market access, UK investment hasn't grown since the referendum was called and has dramatically underperformed both history and peers

1.06pm GMT

Mark Carney rounds off his speech with a pop at Donald Trump, telling his audience at the Barbican that "Contrary to what you might have heard, it isn't easy to win a trade war."

And he concludes with some eye-catching comments on Brexit, saying it's important to reach a "solution" in the coming weeks.

If the UK has been somewhat more inwardly focused of late, it has been for good reason.

In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability. Brexit can lead to a new form of international cooperation and cross-border commerce built on a better balance of local and supranational authorities. In these respects, Brexit could affect both the short and long-term global outlooks.

It is in the interests of everyone, arguably everywhere - from Frobisher's grave to Frobisher's Bay - that a Brexit solution that works for all is found in the weeks ahead.

1.06pm GMT

Some tweets from Mark Carney's speech:

Mark Carney takes the stage @ftlive #FTMarkCarney pic.twitter.com/2ZU5DPL4We

Mark Carney 'a year ago 4/5 of the world was growing above trend and now it's only 1/3' #FTMarkCarney

1.02pm GMT

Turning to globalisation, Carney says it has brought "widespread prosperity", but it has also created external imbalances - with large trade surpluses in some countries (eg Germany), and deficits in others (eg UK) (corrected!).

Plus, the benefits haven't been shared evenly:

Rather, the benefits from trade are unequally spread across individuals and time. Consumers get lower prices and new products, and further benefits from higher productivity over time.

Some workers, however, lose their jobs and the dignity of work, or see their "factor prices equalised." In plain English, their wages fall.

1.02pm GMT

Mark Carney cites the risk of China's slowing economy, the push for "de-globalisation", and rising protectionism as key threats.

He also warns that policymakers may struggle to spot a recession, until it happens:

Given the confluence of the current broad-based slowdown and outstanding downside risks, some are beginning to wonder whether the global expansion, begun in 2010, could be starting to end.

Recessions are notoriously difficult to predict. The IMF has anticipated only a sixth of the over 300 recessions in member countries since 1991. Financial markets are more likely to cry wolf, making Paul Samuelson's observation fifty years ago that "the stock market has predicted nine of the past five recessions" as relevant today as it was then.

1.01pm GMT

Mark Carney says the deceleration in the world economy is partly because central bankers have begun tightening monetary policy (through higher interest rates), as they (slowly) unwind the stimulus packages created after the financial crisis.

But there is another culprit -- trade wars.

Potentially more seriously, the slowing in global momentum may also be the product of rising trade tensions and growing policy uncertainty.

1.01pm GMT

Over in the Frobisher Hall at London's Barbican, Mark Carney is delivering his speech on the global economy.

The Bank of England governor begins with a nod to his Canadian homeland, telling his audience that their location is named after Sir Martin Frobisher, an English navigator who scoured Canada's eastern arctic coast in the 16th century looking for new trade routes.

Martin Frobisher is perhaps more famous in Canada than in his native land. One of the great bays in the eastern arctic is named after him. The capital of Nunavut, Iqaluit, lies at the innermost end of Frobisher Bay.

Nine years ago this month Iqaluit hosted the G7 meeting that marked the start of the euro crisis. Events that still reverberate today including in the environs of the Barbican.

Related: Mervyn King goes dog sledding but all avoid seal meat at G7 summit in Canada

While the debate in the United Kingdom has been understandably dominated by Brexit, the world has been otherwise engaged.

When the Referendum was being held, the global economy was emerging from a long period of financial repair and lacklustre growth. Over the subsequent two years, a widespread and increasingly vigorous global expansion took hold. For the first time since the financial crisis, business investment and foreign trade grew strongly across all major regions. Economic uncertainty diminished, and consumer and business confidence firmed. In economies close to full employment, real wages finally began to grow.

12.46pm GMT

Heads-up. Bank of England governor Mark Carney will be speaking in London shortly, about the world economy, and key risks to the global outlook.

We're gathering the City of London's senior executives to hear Mark Carney speech and Q&A with @ChrisGiles_ in a few minutes... #FTMarkCarney pic.twitter.com/REaRQ8b66Q

12.01pm GMT

The oil price has also risen today, on hopes of a trade breakthrough in Beijing. US crude is up almost 2% at $53.37 per barrel.

US index futures and WTI crude taking some solace in positive noises by officials arriving in Bejing for trade talks. Usually trump deals a tough hand heading into top-level negotiations but hasn't happened yet, will history repeat itself and we get a WSJ source this afternoon?

11.58am GMT

An aeroplane carrying top US officials had landed in Beijing, ready for their crunch meeting with China vice-premier Liu He (president Xi's top economic advisor) later this week.

U.S. Treasury Secretary Steven Mnuchin told reporters that his team are "looking forward to several important days of talks".

11.35am GMT

Wall Street is expected to open higher in three hours time, following those gains in Asia and Europe.

U.S. stock futures pointing to a higher open, with the Dow set for a triple-digit gain amid positive developments on the political front and as investors continued to monitor U.S.-China trade talks $DIA $SPY $QQQ pic.twitter.com/RoALH3ah3T

APAC Closing Prices:#ASX 6079.1 +0.30%#NIKKEI 20864.21 +2.61%#HSI 28171.33 +0.10%#HSHARES 11044.65 +0.25%#CSI300 3330.33 +0.72%

Asia-Pacific equity indices were in the green overnight, led by Japanese stocks which rallied over 2%, amid growing risk-on sentiment after President Trump's optimistic remarks about China in a rally in Texas saying he would "make great deals on trade" and that he doesn't want China "to have a hard time". This speech came soon after an advisor told Fox the president might hold talks in Florida with Xi Jinping next month.

Adding to the positive risk-on sentiment, lawmakers have agreed to a provisional border security deal in order to avoid another government shutdown. The plan includes $1.375 billion for border fencing, however, falling short of Trump's $5.7 billion, according to Bloomberg reports.

10.50am GMT

Although stocks are up today, there's still plenty of nervousness out there about the long-term prospects for equities.

Bank of America Merrill Lynch's latest fund manager survey, just released, shows that the US-China trade war is the top 'tail risk' worrying investors, followed by a Chinese economic 'hard landing'.

Investors remain bearish despite rally, BofAML Fund Manager Survey shows. Investors rotated into cash this mth, taking net cash allocation to 44%, up 6ppt MoM, biggest overweight since the depths of the Global Financial Crisis in Jan'09. Positioning still a Q1 pos for risk assets pic.twitter.com/LiTTilEcuh

Blimey. From BAML's latest fund manager survey:
"Long EM (18%) is cited as the most crowded trade for the first time in survey history, marking a major reversal from short EM as #3 last month" #sohotrightnow pic.twitter.com/EnvgCoSfMF

10.38am GMT

Maybe it's something to do with the weather (the sun was spotted over the City this morning), but City experts are in an optimistic mood.

I got to work with markets in a pleasant mood and spring threatening to break out in London. It was all going swimmingly until Word froze..... ah well, nothing lasts for ever....

The US government shutdown seems to have been averted and there's a strong chance that import tariffs on Chinese goods will be postponed. Risk is on.

Good news flows from the US. US President Trump has indicated (albeit not with the majesty of a tweet) that great trade deals are just around the corner. An administration official hinted at a meeting between Trump and Chinese President Xi "soon". As trade taxes are effectively a tax on equities, this has been well received by Asian risk markets.

The US Congress may also be approaching the point where they do not need to shut down the government (again). A possible deal on a border wall has been agreed by negotiators from the two parties. This may reduce fears about the scale of partisan disruption later this year.

9.46am GMT

Just in: MPs and Lords are calling for Britain's "flawed" RPI inflation measure to be fixed.

"As the Treasury Committee has concluded in numerous reports and statements over the years, RPI is a flawed measure of inflation, and it is absurd for the Government to continue to use it.

"It appears grossly unfair that Government formulae affecting people's incomes, such as pensions and benefits, often use CPI, whereas formulae affecting outgoings, including student loans, often use RPI, which typically gives a higher rate of inflation.

Chair @NickyMorgan01 said the "Chancellor should at least consent to @UKStatsAuth correcting the known errors in the RPI formula." pic.twitter.com/7HnrpHK667

9.15am GMT

Back in the UK, shares in struggling retailer Debenhams have surged 40% (yay!) to the giddy heights of, umm, 4.5p, after it secured a funding lifeline.

The new 40m credit facility should help Debenhams keep operating, as it continues to negotiate with its lenders to restructure its debts.

Related: Debenhams secures 40m lifeline as it battles for survival

8.55am GMT

If the US government crisis is averted, investors will be free to worry about other issues - such as the eurozone.

And one of the front-runners to replace Mario Draghi as head of the European Cenral Bank has just warned that the euro area isn't fully protected from another crisis. He cited the fact that many eurozone banks are big holders of their own national debt, which amplifies any financial problems.

"Certain issues like the lack of credibility of fiscal rules or the harmful sovereign-bank nexus still have to be adequately addressed.

"Acting beyond the mandate would also undermine people*s trust in the central bank....At the end of the day, it could become more and more difficult for the European Central Bank to focus on its promise of a stable currency."

8.30am GMT

European stock markets have all jumped in early trading, following gains in Asia overnight.

Germany's DAX is leading the way, up almost 1%, while in London, the FTSE 100 is up 25 points or 0.35%.

No one wants to see another government shutdown, especially after a historic one which wasn't too long ago. These government shutdowns adversely impact the economic health of the country.

8.10am GMT

Donald Trump has put a brave face on his failure to get full funding for his wall with Mexico.

"Just so you know, we're building the wall anyway".

"With the eyes of the country upon us, all of us together are going to make our stand here in one of the safest cities in America. Safe not because of walls but in spite of walls."

Related: Trump and Beto O'Rourke speak at dueling rallies in Texas

7.47am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.

The agreement would allocate far less money for Trump's border wall than the White House's $5.7bn wish list, settling for a figure of nearly $1.4bn, according to congressional aides. The funding measure is through the fiscal year, which ends 30 September.

The agreement means 55 miles of new fencing - constructed through existing designs such as metal slats instead of a concrete wall - but far less than the 215 miles the White House demanded in December. The fencing would be built in the Rio Grande Valley in Texas.

European Opening Calls:#FTSE 7148 +0.26%#DAX 11097 +0.75%#CAC 5043 +0.56%#MIB 19740 +0.78%#IBEX 8980 +0.48%

"This president wants a deal. He wants it to be fair to Americans and American workers and American interests."

Trump wants to meet with Xi "very soon" in an effort to end the trade war, Kellyanne Conway says: "This president wants a deal" https://t.co/iaD8qEWJC0

Looking forward to chairing @ftlive event tomorrow with BoE governor Mark Carney speech and Q&A #FTMarkCarney https://t.co/H4rTDOcDFD

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