Wall Street joins market selloff as trade war hits US economy - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-05-23 20:46 (#4FPS5)

Financial markets hit as tensions between Beijing and Washington escalate, and fears of a no-deal Brexit rise

9.46pm BST

And finally...stocks have closed lower on Wall Street, as investors prepare for relations between the US and China to remain bumpy.

The Dow lost more than 1%, or 286 points, to end at 25,490. The S&P shed 1.2% while the Nasdaq lost 1.5% as tech stocks bore the brunt of the declines.

7.21pm BST

Trade wars are so good and easy to win that the US government is <checks notes> giving farmers a $16bn aid package.

AFP has the details:

United States on Thursday unveiled a new $16 billion aid package to help farmers caught in the crossfire of President Donald Trump's trade war with China.

Agriculture Secretary Sonny Perdue said the bulk of the funds will go to direct payments to farmers, while a small portion will be used to purchase food to use in US aid programs like food banks and school lunch programs.

6.56pm BST

China's call today for America to fix its 'wrong actions' has worried investors, and made them realise that the trade war may not end for some time.

Marketwatch says:

U.S. investors are beginning to adjust to the idea of a protracted standoff between the U.S. and China as increased trade friction have continued to weigh on the broader market and the technology sector in particular.

Weakness in global markets spread to the U.S. as investors digested the implications of new U.S. export restrictions placed on Chinese telecom firm Huawei Technologies Co., with The Wall Street Journal reporting that U.K.-chip design company Arm Holdings was halting business with Huawei, sparking volatility overnight.

6.51pm BST

There's no relief from the selling on Wall Street, in early afternoon trading.

The Dow is still down just over 400 points, or 1.5%, while the tech-focused Nasdaq is down almost 1.9%.

5.04pm BST

U.S. Secretary of State Mike Pompeo has ratcheted up the pressure on Huawei, dismissing the company's claim to be independent of Beijing.

Pompeo told CNBC that the company is "deeply tied" to China, and also the Chinese communist party.

"To say that they don't work with the Chinese government is a false statement. The Huawei CEO - on that, at least - isn't telling the American people the truth."

4.52pm BST

Ouch! European traders have been left reeling from another day of trade war tensions.

The FTSE 100 has just closed down 103 points, or 1.4%, at 7231. Engineering firm Babcock was the worst performer, shedding 9% - yesterday it warned that profits would be down this year.

European Closing Prices:#FTSE 7231.04 -1.41%#DAX 11952.41 -1.78%#CAC 5281.37 -1.81%#MIB 20136.39 -2.12%#IBEX 9114 -1.28%

4.40pm BST

I missed this earlier (sorry!)..... but US factory growth has slumped to its lowest rate in over nine years.

Today's report from Markit (see here) shows that the U.S. Manufacturing PMI fell to just 50.6 this month, from 52.6 in April.

New orders were stymied by reports of weaker overall demand conditions and hesitancy among clients to place orders.

The fall in new business was only fractional, but signalled a marked turnaround from the solid rise seen in April. Data suggested that demand from both domestic and foreign clients declined during the month, as exports also fell.

US manufacturing activity dives to more than 9-year low on trade war worries, survey shows: https://t.co/DfWSFpgxoF @YunLi626 $SPY $QQQ pic.twitter.com/TIrrUClGq1

4.24pm BST

European stock markets are limping to the close, with heavy losses in London, Frankfurt and Paris:

4.19pm BST

Nearly every one of the 30 companies which make up the Dow Jones industrial average is in the red today.

Tech firms are leading the way, with IBM down 3% and United Technologies losing 2.6%.

4.09pm BST

Weak economic data from Germany today is helping to pull markets down, says David Madden, market analyst at CMC Markets.

He points to this morning's PMI report, showing German factories are still shrinking.

European stock markets are suffering today as the US-China trade tensions have increased. There are no planned meetings between both sides, and that is sending out a very negative message. The 90 day delay in relation to the Huawei ban helped stocks at the start of the week, but that now feels like a long time ago.

It appears that all the progress that was made throughout 2019 has gone up in smoke in a few weeks. Adding to the selling pressure was the dreadful manufacturing numbers from Germany. If the powerhouse of Europe is suffering, that is likely to ripple out across the region.

Germany's Manifacturing PMI falls again to 44.3 from previous 44.4 in May, while analysts expected a rise to 44.8. French's business morale is higher, with PMI rising to 50.6, more than expected 50.0. Trade war seems to hit Berlin much more than Paris. @graemewearden

4.05pm BST

3.32pm BST

The sight of Wall Street plunging into the red hasn't helped nerves in the City.

The FTSE 100 is now down 110 points, or 1.5%, while France's CAC has lost almost 2% of its value.

3.29pm BST

Economic growth fears are pushing the oil price even lower - it's now down 5% today.

That cuts the US crude price to $58.23 per barrel, and Brent crude to $67.80.

Oil continuing its slide - now down 5% https://t.co/UJtIGnaEHP

3.11pm BST

NEWSFLASH: Growth across America's private sector has shows sharply to a three-year low, as trade tensions batter the economy.

Data firm Markit's Flash US purchasing managers index (PMI) which measures activity at services sector firms and factories, has fallen to just 50.9 this month.

....a struggling manufacturing economy was accompanied by a notable downshift in gear in the service sector.

Flash US PMI tumbles to 3-yr low of 50.9 (53.0 - April), on the back of marked slowdowns in both manufacturing and services. #PMI consistent with annualised growth of approx. 1.2% in May. Business confidence slumped to lowest since '12. Read more: https://t.co/cVdRBx45Tb pic.twitter.com/a7D6DNoszE

"Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence. ....

Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets

2.57pm BST

Make that 400 points off the Dow!

The DJIA has now sunk by 1.5% to 25,377, as gloom grips the markets.

Dow drops 400 points, continuing this month's slide on trade-war fears https://t.co/AMZ14mHVdC pic.twitter.com/YnDmypf3ul

2.44pm BST

Traders are racing to sell stocks as the opening bell rings out in New York.

2.14pm BST

The International Monetary Fund has just published a blog, warning that consumers are "unequivocally the losers from trade tensions".

IMF researchers have analysed price data from the Bureau of Labor Statistics on imports from China, and discovered that tariff revenue collected has been borne almost entirely by US importers.

There was almost no change in the (ex-tariff) border prices of imports from China, and a sharp jump in the post-tariff import prices matching the magnitude of the tariff.

Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins. A further increase in tariffs will likely be similarly passed through to consumers. While the direct effect on inflation may be small, it could lead to broader effects through an increase in the prices of domestic competitors.

Failure to resolve trade differences and further escalation in other areas, such as the auto industry, which would cover several countries, could further dent business and financial market sentiment, negatively impact emerging market bond spreads and currencies, and slow investment and trade.

#BREAKING IMF warns US-China trade war will 'jeopardize' 2019 global growth

1.51pm BST

Trade war jitters are also pushing the oil price down.

US crude has dropped almost 2.5% today to a two-month low, while Brent crude (sourced from the North Sea) has hit a three-week low under $70.

WTI crude falles below $60 for first time since march - down 2.4% today pic.twitter.com/S2tJUCn1kS

1.34pm BST

Roberto Azevido, director general of the World Trade Organization, has warned that the US-China trade war is hurting the global economy.

Speaking on CNBC, Azevido said that "$580bn of restrictive measures" were introduced in the last year, seven times more than the previous year.

This is holding back investors, this is holding back consumers, and of course it is having an impact on the expansion of the global economy.

Everyone loses.... every single country will lose unless we find a solution for this.

"Every single country will lose unless we find a solution for this."

U.S.-China trade restrictions are having an impact on the expansion of the global economy at large, WTO chief, @WTODGAZEVEDO says. https://t.co/Y0dsKcxdyj pic.twitter.com/wNe2gQK9xH

1.28pm BST

Russ Mould, investment director at AJ Bell sums up the day so far:

The markets are not a pretty sight on Thursday with stocks flashing red across the UK, Europe and parts of Asia.

Investors are spooked by how relations between the US and China seem to be deteriorating, spurred by the US putting Huawei Technologies on a trade blacklist.

US Opening Calls:#DOW 25520 -0.95%#SPX 2829 -0.93%#NASDAQ 7325 -1.28%#IGOpeningCall

12.59pm BST

However bad things seem, they can always get worse.

And in the case of the trade war, Donald Trump could create a deeper crisis by imposing additional tariffs on imports of cars from Europe and Japan.

"If we get in a position of tariffs under the section 232 [national security] act that the U.S. is threatening with, for which it has given a reprieve until November, then that would be serious,"

"That would mean tariffs for car imports, for car parts imports, and that would hit Germany the most of any of the large industrial nations. That would be a first-order slap in the economic face,".

12.43pm BST

Zhu Huani of Mizuho Bank has warned clients to expect more trade war jitters, as America continues to target Chinese tech firms such as Huawei.

She wrote:

"The stalemate between the U.S. and China looks likely to last longer as both sides continued to ratchet up rhetoric.

"Despite potential significant negative spillover effect this might have on U.S. firms, the Trump administration seems determined to curb China's rise in technology advancement.

12.41pm BST

The US stock market is expected to suffer fresh losses when trading begins in two hour's time.

The Dow Jones industrial average is tipped to fall by almost 1%, with the broader S&P 500 index called down 0.9%.

12.05pm BST

Germany's DAX index is on track for its biggest one-day drop since February, Reuters points out.

12.03pm BST

Donald Trump's famous claim that trade wars are "good, and easy to win" is looking increasingly mistaken.

A year on, Beijing has not backed down, and US farmers are suffering the impact of higher tariffs on crucial products such as soybeans.

His trade war with China has hurt almost every segment of the US economy and created very few winners. The losers include not only consumers but also firms and the workers they employ, from farmers losing their export markets to manufacturers forced to pay higher input costs. Even the US auto industry, which did not ask for Trump's "protection", is worse off overall because it has to pay more for imported steel and auto parts.

As a result, Trump has come close to accomplishing something seemingly impossible: tariffs that benefit almost no one. Protectionism is usually explained as the result of special interests wielding disproportionate power. Trump's tariffs against Chinese goods do not fit this theory. And a theory that does explain them may not exist.

11.53am BST

Seema Shah, senior global investment strategist at Principal Global Investors, has warned that the US-China trade war is likely to intensify.

She is sceptical that the impact of the dispute will be limited to only Chinese firms, saying the impact on US business should not be understated.

Several U.S. technology sub-sectors have significant exposure to China via supply chains. For many large U.S. chipmakers, more than 30% of their sales are in China, and for a few that number is closer to 60%. If the U.S. government chooses to roll out this "export control" strategy to more companies, the effect on U.S. tech - and the knock-on effect on the wider market - could be devastating.

"First, when it comes to technology and defence related issues, not only is there a fair degree of consensus across Congress to be tough on China, but many large economies share America's concerns about China's practises. Second, U.S. demands around technology and defence will be very difficult to meet given that they are focused on containing China's aspirations to be a global technology leader, and therefore too existential for China to concede.

"While a compromise on tariffs is still possible, investors should prepare for a longer, more hostile, technology war-with some meaningful collateral damage."

11.47am BST

European stock markets have slumped deeper into the red, as hopes of a trade war breakthrough fade.

Britain's blue-chip FTSE 100 has now shed more than one hundred points, or 1.35%, in a wide-raging rout.

U.S equity futures and European bourses are again under pressure, following Asian stocks lower, as Sino-U.S trade tensions show little sign of easing.

The street is now officially worried that what started as a 'tiff over tariffs' is turning into a full-blown trade war. U.S Treasuries are steady while the 'big' dollar remains King.

11.23am BST

Chinese state media are ramping up their criticism of America today too, another sign that the trade war is escalating.

My colleague Lily Kuo reports from Beijing:

An editorial in the People's Daily on Wednesday accused the US of "bullyism", while a bulletin on the state broadcaster CCTV said the US was "delusional" if it believed "technological bullying" could contain China. "This shows some American politicians are extremely narrow-minded and cannot tolerate the normal pursuit of development and progress of other countries," the announcer said.

The harsher sentiments appear to be resonating with the public. Earlier in the week, a song written by a former Chinese official about the trade war, set to the tune of a fight song featured in an anti-Japanese wartime film, had been viewed thousands of times on We Chat.

10.56am BST

China's Commerce Ministry has raised the stakes in the trade war with America.

Ministry of Commerce spokesperson Gao Feng has declared that negotiations can't continue unless Washington changes its position, and amends its mistakes.

"If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.:

The U.S. ... crackdown on Chinese companies not only seriously damages the normal commercial cooperation between both countries, but it also forms a great threat to the security of the global industrial and supply chain.

China is firmly opposed to this. We will closely monitor developments and make adequate preparations."

China says U.S. is unilaterally escalating trade dispute and impacting trade talks as well as putting a drag on world economy

Only if Washington corrects its mistakes and shows sincerity can trade talks continue, MOFCOM spokesman Gao Feng says at Thursday's briefing pic.twitter.com/KQCti8tKqo

10.48am BST

Metro Bank shares are a rare bright spot across European markets this morning, up nearly 7%. Its shares have jumped more than 80% since successfully raising 375m in a share placing last week.

But it's not all good news at the challenger bank, which has been warned it will face renewed pressure to give its chairman the boot:

The fight to oust Metro Bank chairman Vernon Hill isn't over. Shareholder @RLAM_UK confirms it will keep pushing for a "new independent chairman" after 12% of investors voted against his re-election & over 3.5m abstained at last week's AGM

"The high number of votes against directors at Metro Bank's AGM should send a strong and clear signal that many of the company's shareholders want to see decisive governance reform.

"We support the move by the board to review the contract with InterArch, the company run by the chairman's wife. However, we still strongly believe that the appointment of a new independent chairman to lead governance reforms would go some way towards strengthening oversight, and restoring investor and customer confidence in the bank.

10.17am BST

Asian stock markets ended the day solidly in the red, after Panasonic ditched ties with Huawei and China warned it would "fight to the end" in the trade war with the US.

Asian markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 1.65% while China's Shanghai Composite is off 1.36% and Japan's Nikkei 225 is lower by 0.62%. pic.twitter.com/OlAjBDdn4I

10.13am BST

Bad news for Brits heading to Europe this summer -- sterling is continuing its record-breaking losses against the euro.

Brexit anxiety has pushed the pound down by another 0.2% against the euro again to just a1.1307, the lowest since January.

9.55am BST

The UK's deepening political crisis is hurting sterling again today.

The pound has slumped to $1.262 against the US dollar, down another half a cent.

"Investors should not be complacent about the threat of a no-deal exit, which we believe would take the pound as low as $1.15 and 0.97p versus the euro."

"Despite mounting public impatience over the process, many top officials and lawmakers remain fearful of the economic damage from a no-deal exit.

"Lingering uncertainty would likely cause firms to delay investment, and keep sterling under downward pressure."

9.33am BST

Britain's FTSE 250 has fallen to its lowest level since the end of March, as the market selloff deepens.

The index, which contains more UK-focused companies than the blue-chip Footsie 100, has shed 235 points, or 1.2%, to 19,072.

9.20am BST

Back in the City, shares in holiday firm TUI have now slumped by 5% to the bottom of the FTSE 100 leaderboard.

Brexit fears are partly to blame. The slump in the pound in recent days may be deterring people from heading to Europe this summer, and a no-deal Brexit would disrupt its operations.

A staycation it is then... pic.twitter.com/IzKbDaFsJE

9.12am BST

Newsflash: European companies continue to suffer from the trade war.

Data firm Markit has reported that eurozone factory sector is shrinking again this month. Output fell for the fourth month in a row, while new orders shrank for the 8th consecutive month.

"A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months.

Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern.

8.59am BST

South-East Asian countries such as Vietnam are emerging as unlikely winner from the US-China trade war.

Vietnam is benefitting from the US tax increases; exports to the US surged. Anecdotal evidence suggests Chinese companies are shifting part of their production to Vietnam, Indonesia and Thailand.

The shift may be small, but if it is the final stage of production the boxes are labelled "made in Vietnam" and trade taxes are evaded.

8.36am BST

European stock markets are taking a bath too, as investors worry about a full-blown trade war.

Germany's DAX has slumped by 1%, with nearly every share in the red. It's being dragged down by major exporters such as steel maker Thyssenkrupp, chemicals firm BASF and carmaker Volkswage and Daimler.

With the Tory party in turmoil, and Huawei waving goodbye to another supplier, the markets were in a bad way after the bell.

Panasonic become the latest company to deal a blow to the Chinese tech giant, joining EE, Vodafone, Qualcomm, Intel and, most importantly, ARM on the list of firms scaling back or outright severing their relationship with Huawei following the US blacklisting.

8.23am BST

It's taken a while, but City economists do seem to have woken up to the fact that the US and China are in a trade war.

Many analysts had confidently expected a deal by now. But those hopes have faded since negotiations all-but-collapsed earlier this month.

After months of predicting a trade deal between the world's two largest economies, economists at some of the biggest financial institutions are growing increasingly pessimistic.

Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those that have rewritten their forecasts as U.S. President Donald Trump threatens to impose a 25% tariffs on around $300 billion of additional Chinese imports.....

A full-blown trade war is quickly shifting from tail risk to the "baseline" scenario. China calls US a threat to the world. Relations are so strained that a Chinese company wouldn't be able to buy a "trash can" in the US right now, JPM quipped. https://t.co/I9VtSNQYzC pic.twitter.com/WQPMOFciuB

8.14am BST

Shares in many Chinese firms have fallen sharply today.

Trade is still front and centre for equity markets with the mood looking increasingly downbeat.

It rather seems the US and China are hunkering down for the long haul - a new long march, to borrow the phrase from yesterday.

8.02am BST

Panasonic's decision to ditch Huawei shows that a 'tech cold war' is breaking out, says my colleague Martin Farrer.

"We've stopped all business transactions with Huawei and its 68 group companies ... that are subject to the US government ban," Joe Flynn, a Panasonic spokesman, said.

Panasonic joins Google, Intel, Qualcomm and Lumentum among the leading companies to turn their backs on Huawei in what is beginning to shape up as a tech cold war between the US and China.

7.59am BST

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

Tensions between Beijing and Washington continue to deteriorate, as the crackdown on Huawei adds fuel to their ongoing trade war.

Panasonic announced in [an] internal notification that it should suspend transactions with Huawei and its 68 affiliates that were banned by the US government.

"Some people in the United States do not want China to enjoy the legitimate right to develop, and seek to impede its development process.

"This extremely presumptuous and egocentric American approach is not able to gain the approval and support of the international community."

"If the United States is willing to negotiate on an equal footing, then on the Chinese side, the door is wide open. But if the United States opts for a policy of maximum pressure, then China will take them on and fight to the end."

Weak sentiment across Asia this afternoon: KOSPI -0.02%, ASX200 -0.2%, Nikkei -0.7%, Shanghai -0.84%, Hang Seng -1.41%.

And we thought the front pages were brutal yesterday for Theresa May... pic.twitter.com/jQoMAOej7i

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