Markets volatile after Federal Reserve surprise and ahead of Trump China meeting - as it happened

Investors nervous as US central bank says it will reduce balance sheet size and as president meets Xi Jinping

• US weekly jobless claims see biggest fall for nearly two years
• BP boss sees pay package cut by 40%
• Eurozone retail sales slip on weak performance in France and Italy
• Too soon to change ECB stance says Draghi, euro dips
• Co-op reports 132m loss
• German factory orders recover

2.49pm BST

US markets made an uncertain start to trading in the wake of the surprise hints by the Federal Reserve that it was looking at shrinking its balance sheet by the end of the year. There was also some nervousness as President Trump met his Chinese counterpart Xi Jinping.

With a fall in financial shares following the Fed news balanced by gains in energy shares as oil prices edged higher, the Dow Jones Industrial Average is currently up around 8 points. The S&P 500 opened 0.34% lower while the Nasdaq Composite added 0.11%.

2.26pm BST

And to Greece where senior European officials are voicing optimism that tortuous negotiations over the country's long-stalled bailout programme are on the verge of being wrapped up. From Athens our correspondent Helena Smith reports:

In Berlin, Brussels and Athens senior officials, including the German finance minister Wolfgang Schiuble, are expressing optimism that talks over the latest compliance review between Greece and its creditors can finally be concluded. Schiuble said he was upbeat an agreement would soon be reached. Whether it could be clinched at tomorrow's eurogroup meeting of finance ministers, however, remained to be seen, he added.

The remarks were echoed by prime minister Alexis Tsipras who used the opening this afternoon of a new stretch of motorway between Athens and Thessaloniki in the north to say completion of an all-conclusive deal was imminent. The review is key to disbursement of a7.5bn in fresh loans needed to repay maturing debt in July - crucial to Europe averting a new Greek crisis.

"Whether some want it or not, the completion of the review is very near," he told an assembled gathering of notaries including the EU's commissioner for regional policy Corina Cretu. "Greece will finally attain an all-conclusive agreement which will open the way for its exit from [bailout] programmes of economic stewardship. Despite the naysayers it will regain the power to stand on its own feet."

The agreement, he said, would not only bring interminable negotiations to an end but include the "necessary measures" Greece needs to reduce its unmanageable debt burden - at 180% of GDP the highest in the EU. The delivery of the long-awaited motorway was symbolic in that it sent out the message that "yes, we can do it, and we will do it. We are determined to get the country out of crisis and no one, in the end, will manage to prevent us."

1.53pm BST

The cut in BP boss Bob Dudley's pay and the changes to the oil company's remuneration policies have been welcomed by Royal London Asset Management, which owns 679m worth of shares in the business.

Ashley Hamilton Claxton, Royal London's corporate governance manager, said:

The 2017 pay policy looks set to significantly reduce the total pay that Mr Dudley will be awarded going forward. It is rare for a company to consult with us on proposals for reducing pay, setting an example for other companies holding binding votes this year.

We applaud the BP remuneration committee for being proactive in responding to the shareholder revolt last year and see this as a milestone in the engagement between companies and shareholders. In particular, the committee applied discretion to override the formulaic outcome of the pay policy, which is a welcome step in the right direction.

1.48pm BST

Ahead of Friday's US non-farm payroll numbers and following better than expected private sector jobs data on Wednesday comes another sign of an improving labour market.

New claims for unemployment fell by 25,000 to a seasonally adjusted 234,000 last week, the biggest drop in nearly two years. The previous week's level was revised up by 1,000 to 259,000.Claims have been below 300,000 - seen as a sign of a healthy jobs market - for 109 straight weeks.

1.31pm BST

More price rises are on the way for hard hit consumers, this time for children's goods. Zoe Wood writes:

Mothercare chief executive Mark Newton-Jones said the price of its clothing and toys would increase by 3-5% this summer following the decline in the value of the pound since the Brexit vote.

Newton Jones said it had mitigated price rises by striking better deals with suppliers but with half its goods bought in dollars the retailer was not able to absorb higher sourcing costs.

Canaccord Genuity analyst Sanjay Vidyarthi said the management's recovery strategy looked to be back on track with the UK chain turning a profit over the last six months - its first profitable half since 2011. "This is very encouraging, given how difficult and volatile trading conditions have been on the high street, particularly in clothing," he said.

1.24pm BST

The Czech koruna has jumped 1.5% against the euro after the country's central bank dropped the currency peg which had been in place for three and a half years.

But the move was not unexpected so there was little real disruption in the market. Kathleen Brooks at City Index said:

If you want to drop a currency peg, then the Czech national bank can show you how to do it... Dismantling a long-held currency regime doesn't need to be as volatile or panic-stricken as Swiss peg debacle back in 2015.

The timing of dropping the peg has been pre-emptive: the economy isn't too hot that the CNB desperately needs a stronger currency, neither are bond yields too high, which means the CNB doesn't have to worry about hiking interest rates. Instead, the CNB can keep a steady ship for now, although it will want to have one eye on inflation, which has risen to 2.5%, the highest level since the end of 2012. We don't expect the CNB to hike interest rates yet, although this could be on cards for the summer months. If the CNB does hike rates then we would expect koruna appreciation against the euro.

1.12pm BST

So far with the ECB we've had Draghi and Praet on one side and Weidmann on the other. Now this:

ECB's Constancio - Yet to secure sustained convergence in inflation towards goal.#eurusdhttps://t.co/q2EMa1lRxX pic.twitter.com/kDpnRa2ZXo

Draghi echo chamber https://t.co/7ibirpEYpY

12.39pm BST

A quick look at the markets and they have recovered from their worst levels as the day wears on. The current state of play is:

11.51am BST

Bob Dudley, the chief executive of BP, has seen his total pay package cut by 40% as the oil firm responds to the backlash against excessive executive pay.

Dudley's remuneration for 2016 including pension was $11.6m (9m) compared to $19.4m. His annual bonus was reduced from $4.2m to $2.5m. Last year some 59% of BP shareholders opposed Dudley's pay package, which rose 20% despite the company reporting record losses.

11.34am BST

Back, again, with the European Central Bank and board member and head of Germany's Bundesbank Jens Weidmann is taking a more hawkish task than the earlier comments from Mario Draghi and Peter Praet. In a speech in Berlin (in German here) he said:

I could have imagined a less expansive monetary policy, especially as many economic indicators developed positively....Given the prospect of a protracted, robust economic recovery in the euro area and an increase in price pressure, it is legitimate to ask when the ECB Council should consider monetary policy normalization and how it could adapt its communication in advance.

Laurel & Hardy of the #ECB send Euro on a rollercoaster ride: Weidmann leans hawkish, after dovish Draghi pic.twitter.com/R0H4blDUNE

10.53am BST

A day after a report that the UK lagged the rest of the G7 on productivity, the Office for National Statistics is holding a forum on the subject. My colleague Katie Allen is there:

There has been an "extraordinarily slow recovery" in productivity growth says @ons head of productivity Philip Wales at ONS forum pic.twitter.com/mqhOvhSvt7

The @ONS says it is looking at links between management and ownership of workplaces and productivity performance pic.twitter.com/Gn9v3qUeAk

The @ONS exploring if can use its prices collection to produce regional inflation data. study on it by Southampton Uni out in couple of mths

10.23am BST

As Greece continues to attempt agreement with its creditors ahead of a eurogroup meeting on Friday, new figures show the scale of the continuing unemployment problem in the country.

The jobless rate in January stood at 23.5%, while December's rate was revised up from 23.1% to - again - 23.5%. The rate for young people between 15 and 24 stood at 48%.

#Greece #Unemployment Rate at 23.5% https://t.co/zyXFTwLyhz pic.twitter.com/efPTwN9B2o

10.04am BST

Overall retail sales in the eurozone slipped back in March as a rise in Germany was offset by the falls in France and Italy.

Markit's headline eurozone retail PMI came in at 49.5 last month, compared to 49.9 in February. According to the survey, sales were down on an annual basis and in line with the monthly trend, declines in France and Italy were partially offset by a rise in Germany. Markit economist Alex Gill said:

The marginal decline in sales highlighted by the headline index covered up a divergence in underlying trends at the country level. Operating conditions in the Italian retail sector remained precarious, as evidenced by another sharp decline in like-for-like sales, compounded by a further fall in gross margins amid strong competitive pressures. Monthly sales also dropped in France for the first time in three months as political uncertainty and inflation began to weigh on consumer demand. In contrast, sales grew at the fastest pace in six months in Germany.

9.54am BST

Retail sales in Italy have also weakened:

Retail sales in #Italy fall at fastest rate for six months in March. #PMI at 45.1 (45.5 in February). https://t.co/EHPdYouYxj

9.50am BST

But it was a different story in France.

With consumer spending flagging due to uncertainty created by the country's forthcoming presidential election, Markit's retail sales PMI dropped back into contraction territory in March. It fell from 51.7 in February to 49.4, signalling the first drop in like-for-like sales since November last year. Markit economist Alex Gill said:

French retail sales eased slightly in March, thereby reversing the growth trend seen in the previous three months, as political uncertainty with regard to May's presidential elections put downward pressure on consumer spending. Inflationary pressures may also be starting to erode consumers' purchasing power. IHS Markit forecasts a 1.3% rise in consumer prices in the first quarter this year, markedly up from the level seen throughout 2016.

9.44am BST

After reasonable industrial orders figures from Germany earlier, come positive construction and retail sales numbers.

According to Markit, the German construction PMI climbed from 54.1 in February to 56.4 last month as optimism hit a record high. This was the strongest rise in construction activity since February 2016, said Markit.

The German retail sector continued to recover in March from a weak start to the year. Sales rose at the fastest monthly rate since last September, and returned to growth on the year-on-year measure.

The latest survey results also signalled a trend of destocking in the retail sector at the end of the first quarter on a seasonally-adjusted basis, the first contraction in warehouse levels since January 2016. This partly reflected further strong upward pressure on purchase prices as firms looked to protect margins.

9.34am BST

Back with the European Central Bank and board member Peter Praet has referred to the overlap between his speech in Frankfurt and that of president Mario Draghi:

Praet: "if you find similarities between my speech and Mario's, it's not a coincidence. If you find differences, I'd warn you."

Praet and Draghi comments suggest imminent ECB policy change unlikely and QE the first lever to be pulled - our expected path unchanged pic.twitter.com/PyGZ0FzPpZ

9.10am BST

Back with the corporate world, and Unilever has started restructuring in the wake of the failed bid from Kraft Heinz. Julia Kollewe writes:

Unilever has put its margarine division, which makes Flora and Stork, up for sale, as it shakes up its business after fending off a $143bn (115bn) takeover bid from US rival Kraft Heinz.

The Anglo-Dutch consumer group's underperforming spreads business could fetch up to 6bn in a sale, according to analysts. Private equity firms including CVC and Bain Capital are reportedly circling the division and Kraft could also be interested.

Related: Unilever to sell off Flora and Stork in shakeup after Kraft Heinz bid

9.03am BST

Praet defends the #ECB guidance that rates will go up only after tapering ends.Shows governors arguing otherwise have much explaining to do.

9.00am BST

Still with the European Central Bank and board member Peter Praet has echoed president Mario Draghi's view that it is too soon to change tack on policy.

In a speech at the same Frankfurt event on "Calibrating unconventional monetary policy" he said:

Our monetary policy is working, and we see that, supported by our mutually reinforcing monetary policy measures, the euro area economic recovery is steadily firming. The cyclical recovery is gaining momentum and the expansion is broadening across sectors and countries, showing the effectiveness of the transmission of our measures throughout the entire euro area economy. Yet, the risks to the growth outlook remain tilted to the downside, even though their balance is improving. And, importantly, inflation dynamics continue to be conditional on the present, very substantial degree of monetary accommodation.

In our expectation, the policy interest rate will remain at present or lower levels for an extended period of time and well past the horizon of our net asset purchases. This forward guidance implies a sequencing between the interest rate policy and the quantitative policy that can most efficiently internalise and exploit the intimate complementarities between these two key components of our current stance.

8.26am BST

The European Central Bank is not planning to reassess its current monetary policy of low interest rates and bond buying, says its president Mario Draghi.

In a speech in Frankfurt he said the current stance was still appropriate and before making any alterations, the bank needed to see more signs that inflation was approaching its target. So far there was not enough evidence to significantly change its forecasts although there were signs of recovery:

Though the risks to the growth outlook remain tilted to the downside - mainly on account of [geo-political factors] - the balance seems to be shifting upwards. This is reflected in recent sentiment indicators, which suggest that the recovery may be gaining momentum.

Despite.. signs of progress, it is clearly too soon to declare success.

We are confident that our policy is working and that the outlook for the economy is gradually improving. As a result, the forces that are currently weighing on domestic price pressures should continue to wane.

But even so, we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook - which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage.

Draghi speech sounds like accomodative stance here to stay for time being comes in context of Fed mins talking balance sheet.. $EURUSD lows

8.10am BST

The weakness on Wall Street and in Asia has carried over to Europe, as uncertainty over the Federal Reserve's plans and the Trump/Xi meeting unsettle investors.

The FTSE 100 is down nearly 60 points or 0.8% in early trading, while Germany's Dax, Spain's Ibex, Italy's FTSE MIB and France's Cac have all opened down around 0.6%.

7.57am BST

On the corporate front we have results from the Co-op Group, which has just reported a loss after the well-documented problems at its banking business. Julia Kollewe reports:

The Co-op Group has slid into the red for the first time since 2013 after writing off the value of its 20% stake in the Co-op Bank to zero, as expected. This resulted in a 140m hit, which was partially offset by one-off gains.

The mutual, which now focuses on its grocery chain, funeral homes and insurance services, posted an annual loss before tax of 132m, against a 23m profit in 2015. It had 4m active members at the end of 2016 and has recruited a further 350,000 this year. Overall revenues were up 3% to 9.5bn, with the Co-op supermarkets enjoying like-for-like sales growth of 3.5%.

7.49am BST

We've already had some fairly positive news from the eurozone, with German factory orders rising in February after a sharp decline in the previous month.

New orders climbed by 3.4% month on month after the surprise 6.8% drop in January, although it was still below expectations of a 4% increase. ING economist Carsten Brzeski said:

The increase in new orders was exclusively driven by stronger domestic demand. Foreign demand remained stable. A bit worrisome is the fact that new orders from other Eurozone countries have dropped for the second consecutive month. The surge in new orders from other Eurozone countries at the end of last year has now entirely vanished into thin air, adding a slightly disappointing note to the current picture of a Eurozone recovery.

Obviously, new orders have always been volatile but the fluctuations and size of volatility since late-summer have been almost unprecedented. German order books seem to be extremely moody, reacting sensitively to seasonal and weather moods. Looking through this high volatility, the trend for order books is slightly positive, though still not as positive and strong as current confidence indicators are suggesting.

7.40am BST

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

Investors appear nervous ahead of a meeting between US president Donald Trump and his Chinese counterpart Xi Jinping. Trump, of course, said one of his first acts as president would be to label China a currency manipulator, but he has taken a more conciliatory tone since actually coming into power. Even so, with North Korea firing another missile this week, the meeting could be a tense one.

To our surprise, the minutes to the March meeting contained extensive discussion on balance sheet policies. We had expected this discussion to take place at the June FOMC meeting, with subsequent deliberations communicated around the timing of the annual Economic Symposium at Jackson Hole in August. However, the committee moved quicker than we anticipated, and staff weighed in with various alternative scenarios during the March meeting. The desire to signal sooner than later is likely a function of the committee's wish to avoid adverse market reactions.

Our European opening calls:$FTSE 7262 down 70
$DAX 12139 down 78
$CAC 5059 down 33$IBEX 10323 down 79$MIB 20087 down 166

A disappointing Caixin services PMI number from China...showed that economic activity, though positive hit its lowest level since September last year, casting doubt on the robustness of recent officials data, which panted a far rosier picture.