UK construction strengthens; China promises not to launch currency war - business live

Graeme Wearden

from on 2018-07-03 13:52 (#3T7VG)

All the day's economic and financial news, including the latest reaction to Donald Trump's tariffs and a new survey of UK construction

5.03pm BST

European markets have closed higher, as traders welcomed a day without trade war escalation.

Britain's FTSE 100 gained 45 points or 0.6% to close at 7953, while the German DAX gained 0.9% and the French CAC picked up 0.75%.

Stocks are higher as improved political relations in Germany and constructive trade comments from China has lifted investor sentiment. Angela Merkel has brokered a deal with Horst Seehofer which will keep their alliance intact. The positive mood might not last long though, as the Social Democrats need to inspect the agreement. An official from the People's Bank of China announced they will not use the yuan as a tool in the trade spat with the US, and traders are taking this as a step in the right direct for global trading relations.

2.52pm BST

Time for a quick recap.

Chinese central bankers have vowed not to use their currency as a weapon in the trade conflict with the U.S. The People's Bank of China has pledged to keep the yuan stable, after seeing it slide to its weakest level in almost a year.

"Recently the yuan's exchange rate has shown some weakness. This is entirely due to changes in market expectations as external uncertainties rise rather than intended guidance of the central bank.

China upholds multilateralism, globalization, free trade and rule-based international guidelines, and will not make the yuan's exchange rate a tool to cope with trade conflicts."

PBOC Governor said they will keep the Yuan at a "reasonable and balanced level". This causing the Yuan to strengthen for the first time in 14 sessions (prior to his comments the currency made a new 12 month low). Expected after second set of exhaustion signals however in wave 3 pic.twitter.com/gEw9WKqfeC

The economy is doing perhaps better than ever before, and that's prior to fixing some of the worst and most unfair Trade Deals ever made by any country. In any event, they are coming along very well. Most countries agree that they must be changed, but nobody ever asked!

A day after the German interior minister offered his resignation over Germany's policy on immigrants, a move that had serious implications on the country's brittle coalition government, Chancellor Angela Merkel managed to pull Germany back from the brink with a last minute deal which has pacified the rebels in her government.

There was a collective sigh of relief across European stock markets

2.35pm BST

There's no wild dramas on Wall Street...yet anyway.

1.44pm BST

China's central bank's pledge not to use the yuan as a tool in the trade conflict with America is providing some reassurance.

But, analyst Marc-Andri(C) Fongern believes the PBOC may have to back up its words with actions, and prop up the yuan if it falls again.

#China | In the short term, the #Yuan could strengthen as traders take profit from the recent slide. But if the market ignores the #PBOC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal. @commerzbank $USDCNH pic.twitter.com/dAzILhtSyA

1.16pm BST

Indian industrialist S.M. Lodha has warned that Donald Trump's attempts to shake up global trade will backfire.

Lodha, who chairs UK insulation firm Western Thermal Limited, believes US firms will suffer as the EU, China, Canada and Mexico impose retaliatory tariffs.

"The trade tariffs imposed by President Trump on America's closest allies including Canada, Mexico, European Union and India, are strategically misplaced and self-defeating as it stands to directly weaken the US economy. The US Chamber of Commerce, the country's largest lobbying group which has been historically close to Republican administrations, have themselves gone on record to denounce Trump's erroneous idea of putting "America First" though trade wars.

As President Trump's steel tariff directly affects countries including Canada, EU and India, the EU has already warned that an estimated $300 billion worth of US goods could be hit by countermeasures. Even Canada has vowed to impose punitive countermeasures which can see over $12.6 billion worth of American goods being directly hit.

12.53pm BST

Newsflash: China's central bank has promised not to launch a currency war against America.

Bloomberg has the details:

China is committed to multilateralism, globalization, free trade and rule-based global guidelines, Sun Guofeng, director of the PBOC's financial research institute, said in a written response to Bloomberg News.

China won't use the yuan as a tool in tackling the trade conflict, PBOC official says https://t.co/8IkqSaaMr3 pic.twitter.com/j5W9ZPeDmf

PBOC reassurances and $/CNH is back down to 6.66.

Chinese Yuan Non-Deliverable Forwards React to the PBOC's Statement on Keeping the Yuan Stable, Following the CNY's Recent Depreciation: (A weakening yuan risks capital outflows; a strengthening yuan could hurt exports) {@TheTerminal Chart Link: https://t.co/uj504kFfOs } pic.twitter.com/ZYvKEy2H24

12.20pm BST

The Treasury committee has been quizzing tax experts this morning, and hearing that online giants are still getting an unfair advantage.

"Compared to Germany, our taxpayers are still being taken for a ride and Amazon are still in a position where they are not having to hand over information?"

"Small traders get very annoyed when they find themselves being investigated for VAT when big companies don't seem to get the same kind of attention.

I was told by senior officials they'd been instructed, HMRC had been instructed not to go too hard on Amazon yet."

"You couldn't sell dangerous products in a shop. You couldn't openly sell goods where there is no VAT charge in a shop" There is a huge imbalance between online retail and high street retail."

"It would introduce an extra cost on these cheap imports that would protect British retailers from an avalanche of cheap stuff".

11.59am BST

Exactly 49 days before Greece exits its third and final EU-sponsored bailout programme, the bloc's economic and financial affairs commissioner Pierre Moscovici is visiting the country - with a message of hope.

"There is no more program for Greece. There won't be any more programs for Greece."

11.43am BST

Another early start for the US president...and a chance to bang the drum for trade reform.

11.29am BST

Good news from Ireland: the country's jobless rate has hit a 10-year low.

11.12am BST

World stock markets are staging a recovery from yesterday's slides, after China's central bank tried to calm the panic.

In London, the FTSE 100 has gained 32 points or 0.44% to 7580 (it would be more, but for Glencore's slump). The other European markets are also up, with Germany's DAX leading the way after Angela Merkel resolved the migration dispute that was threatening to rip her coalition apart.

I like that China told us they're planning on stabilizing the yuan at it's equilibrium level -- without telling us where equilibrium lies.https://t.co/LKtvvdjVSG pic.twitter.com/sAZUnYUgrR

"At the end of the Asian trading day, markets in China are in a more nervous state than last week as investors fear the dispute between the United States and other nations will have a significant and serious impact on global growth. The Chinese yuan fell to an 11 month low, unsettling investors and causing the Chinese central bank to pledge to keep the currency stable.

Despite similar tensions over tariffs on EU goods, European markets saw some relief on the back of a migration deal that appears to have helped to stabilise Merkel's coalition government and has allayed fears of German political uncertainty at least for the time being.

10.44am BST

It's a little early, but we should raise a glass to Britain's gin industry, which has enjoyed a bumper year.

Sales of UK-produced gin jumped by 32.5% in 2017 to 461m, the Office for National Statistics reports. That follows a spate of new distillery openings across the country, the rise of 'craft' or artisan gins, and even special gin festivals.

UK makers' sales of gin up 32.5% in 2017 - a trade body reports that the number of gin distilleries has more than doubled in five years https://t.co/CuK7M34R0c pic.twitter.com/9pNpOL2mQM

10.01am BST

Hold on. Max Jones, global Corporates relationship director for construction at Lloyds Bank Commercial Banking, argues that Brexit is hurting the UK building sector.

He points out that large construction projects are being held back, despite the rise in activity last month:

"The industry has regained some confidence after the lows of earlier this year. The bounce-back in Q2 appears to confirm that much of the weakness in the first quarter was the result of shutdowns in the wake of the Beast from the East rather than anything more structural.

"But the sector is hardly motoring, with some large contractors blaming Brexit uncertainty for the delay or cancellation of projects. The London market also looks significantly exposed to any reduction in EU labour.

9.53am BST

Britain's construction sector appears to be shrugging off economic anxiety (despite the looming shadow of Brexit), says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.

"With the fastest rise in new orders since May 2017, it appears the brakes are off for the construction sector. Despite being hampered by economic uncertainty, firms reported an improved pipeline of work as clients committed to projects and hesitancy was swept away.

"Input prices were a challenge with the biggest inflationary rise since September 2017, so the pressure was on to build up stocks of materials rising in price and becoming more scarce. This resulted in a heavy impact on suppliers unable to keep pace as deliveries became laboured and purchasing managers were at their busiest for two and a half years.

9.45am BST

Newsflash: Britain's housing sector has strengthened, thanks to a pick-up in house-building.

Data firm Markit reports that construction activity accelerated last month, at the fastest pace since November 2017. New orders jumped, prompting companies to splash out on new materials - driving prices up.

"The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March.

A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth.

9.35am BST

The DoJ subpoena means problems are mounting up for Glencore.

Bloomberg's Thomas Biesheuvel explains:

It's been a tumultuous year for Glencore, mostly due to challenges linked to its business in the Congo, where it operates giant copper and cobalt mines. The Swiss company trader and miner is already facing the possibility of a bribery investigation by U.K. prosecutors over its work with Dan Gertler, an Israeli billionaire and close friend of Congo President Joseph Kabila, people familiar with the situation said in May.

9.18am BST

Wow. Around 5bn has been wiped off Glencore's value by today's selloff.

#BREAKING Glencore subpoenaed by the US Department of Justice - shares drop as much as 10% wiping ~5bn off its market capitalisation #OOTT pic.twitter.com/DCsbJxevqR

8.58am BST

Newsflash: The world's biggest commodity trading firm is caught up in a US investigation.

Glencore Ltd, a subsidiary of Glencore plc, has received a subpoena dated 2 July, 2018 from the US Department of Justice to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States money laundering statutes. The requested documents relate to the Glencore Group's business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to present.

Glencore is reviewing the subpoena and will provide further information in due course as appropriate.

8.49am BST

China's top central banker has blamed America for the yuan's weakness.

In a statement, Yi Gang, governor of the People's Bank of China (PBOC), says:

"Recently, there have been some fluctuations in the foreign exchange market. We are paying close attention to this,

"This is mainly due to factors such as the strengthening of the U.S. dollar and external uncertainties."

* VIETNAM DONG DROPS TO RECORD LOW, HITS 23,000 PER USD IN BANKS

8.32am BST

The People's Bank of China has launched an attempt to reassure Chinese investors and prevent the yuan falling further.

In a statement released a few minutes ago, PBOC says it is "closely watching" moves in the foreign exchange markets.

#CHINA TO KEEP YUAN STABLE AT EQUILIBRIUM LEVEL: PBOC GOVERNOR
*YI: RECENT FX MKT VOLATILITY DUE TO USD STRENGTH, UNCERTAINTIES
*PBOC'S YI REITERATES PRUDENT, NEUTRAL MONETARY POLICY

Reuters: #China's offshore yuan pares losses, trading at 6.6900 per dollar as of 0703 GMT (following jawboning by PBOC chief Yi Gang)

8.23am BST

ING's China economist Iris Pang also blames Trump's tariffs for causing the yuan's decline, saying:

"Today's depreciation is market-driven, reflecting the risks of a trade war.

This implies that the central bank is allowing market forces to dictate the speed of the depreciation when there is room to do so."

8.20am BST

Chinese banks scrambled to prop up the yuan after it fell through the 6.7 level against the US dollar this morning.

Bloomberg explains:

Chinese banks were seen selling dollars after the yuan weakened past a key level, stoking speculation that authorities were seeking to slow the losses.

The yuan was 0.5% lower at 6.6981 per dollar at 11:31 a.m. in Shanghai after earlier falling to 6.7204. Some Chinese major banks sold the dollar in the swaps market, according to four traders.

8.09am BST

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

The Shanghai Composite Index is on track to wipe out all the gains since 2016! #China #EmergingMarkets #Hedgefunds #Markets #Investments #US #TradeWar pic.twitter.com/7sEsNG9Wa3

Chinese yuan slides to fresh 11-month low. Onshore yuan as low as 6.7168/$, offshore yuan 6.7326/$. Spread between offshore and onshore yuan continues to widen - briefly widest since Feb - reflecting mounting selling pressure from international investors. pic.twitter.com/NLnIqfuG8V

In August 2015, USD-CNY appreciated from 6.21 to 6.44, a two-day gain of 3.85%. As a result, global stock markets sold off sharply as investors feared the beginning of a currency war. With trade tensions increasing day by day, Beijing might be playing this game as a tool in its trade war with the U.S. However, such a strategy will be a double-edged sword as it might also lead to a flight of capital which the PBoC is well aware of.

Although the Chinese currency depreciated 3.23% in June, it didn't sound quite so alarming, given that the Dollar appreciated against most major currencies in May and June. Going forward it's going to be about the pace and magnitude of the currency moves that will drive equity markets. CNYUSD traded at 6.70 at the time of writing and will keep a close eye on 6.96, the lowest level reached in January 2017.

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