EC cuts growth forecasts as trade war looms; US inflation hits six year high - as it happened

All the day's economic and financial news, as escalating trade tensions between China and Washington worry investors

• Latest: US inflation rises to 2.9%, outpacing wages
• EU trims growth forecasts
• Moscovici: Trade wars produce casualties, not winners
• Introduction: South Korea fears trade war damage
• Full story: Markets rattled by $200bn tariff threat

4.32pm BST

Fitch could also downgrade some US companies if they are hurt by the trade dispute with China.

It already has a negative outlook on the Alabama State Port Authority, due to "uncertainty over trade policy", and the likely impact on revenues.

The largest portion of the port's trade value with China is made up of wood pulp and other agricultural products, but it is also exposed more broadly to the metallurgical coal and steel markets. The port has relatively high exposure to commodities, particularly coal and steel, which comprise over 50% of revenues and nearly 50% of overall tonnage.

4.13pm BST

Ratings agency Fitch has identified the US states most vulnerable to a trade war with China.

Fitch says that Illinois, Iowa, Minnesota, Nebraska and Indiana all exported more than $1.2bn of plant products, such as soybeans, to China in 2016.

Exports to China make up more than 20% of the total agricultural output in both South and North Dakota and in excess of 10% in Iowa and Nebraska.

While Illinois is the largest producer of soybeans in the US, the state is likely to be less affected by a fall in demand for US soybeans due to its more diversified, larger economy. Total plant product exports to China as a percentage of the economy of Illinois was less than 1% 2016.

2.51pm BST

Global stock markets are recovering from yesterday's selloff, despite anxiety over a US-China trade war.

In London, the FTSE 100 is up 50 points, or 0.66%, at 7642. The French CAC is 0.7% higher while Germany's DAX has gained 0.3%.

#TradeWar update! Ongoing trade tensions result in more #volatility and little #return. #China's stock market swings are getting bigger, today up 2%, yesterday down 2%... pic.twitter.com/z7LhbsLaIO

The FTSE has staged a strong rebound, retracing nearly all of yesterday's sell-off.

All the while Donald Trump continues to play the disruptive 'cat' amongst the rest of NATO 'pigeon' allies. Sentiment improved despite continued uncertainty on whether US and China still have each other in trade cross-hairs, or if negotiators are ready to sit down again.

2.28pm BST

US washing machine prices have surged by over 13% in the last year, in another sign that protectionism can drive up the cost of living.

Donald Trump imposed new tariffs on imported washing machines and solar panels in January, saying he wanted to protect US jobs.

"Thanks to tariffs, the price of 'laundry equipment' spiked 13.1% y/o/y and 1.8% m/o/m after a rise of 7.4% in May and 9.6% in April. Consumers will always at the end of the day be eating an increase in taxes." - @pboockvar, on today's CPI number

2.14pm BST

Core US inflation (stripping out volatile factors) also rose last month, from 2.2% to 2.3%.

Andrew Hunter of Capital Economics predicts it will keep rising, especially if new levies are imposed on Chinese imports (as tariffs are paid by consumers, not producers).

with the labour market exceptionally tight and activity expanding strongly, we think that core inflation has further to rise. The prospect of further tariffs on Chinese imports will only add to that upward pressure.

2.10pm BST

The US economy is heating up, says James Knightley of ING, and that makes future interest rate rises more likely.

Here's his take on the jump in American inflation to 2.9% last month.

The US has an economy that probably grew 4% in the second quarter, has an inflation rate rapidly heading to 3% at the same time as arguably experiencing the strongest labour market for 50 years.

This suggests that even with the uncertainty generated by trade protectionism the Federal Reserve should continue tightening monetary policy "gradually". This is certainly the line that we expect the Federal Reserve's semi-annual monetary policy report to take on Friday.

1.55pm BST

The jump in US inflation to 2.9% means that American real wages are falling.

Average earnings only rose by 2.7% in June, last week's jobs report showed. That means that pay isn't keeping pace with rising prices.

US Consumer Price Index: On a year ago basis CPI is up 2.9%. Why is that important? Because inflation is now outpacing wage growth which is up 2.7%. Real average hourly earnings were flat on a year ago basis. Reduced purchasing power to be hit by rising prices linked to trade war

1.44pm BST

Newsflash: America's inflation rate has struck a six-year high, as US citizens are hit by higher prices in the shops.

The US Consumer Price Index rose by 2.9% in June, compared to a year earlier. That's te highest rate since 2012.

U.S. consumer prices rise 0.1% in June. Inflation in past 12 months climbs to 6-yr high of 2.9%. Core CPI up 0.2%. Yearly rate rises to 2.3%. Upshot: Inflation not leveling off yet.

12.57pm BST

The European Central Bank is worried that the increase in trade protectionism in recent months is hurting the European economy.

While the expected upward impact of fiscal stimulus in the United States remained in place, geopolitical risks had not abated and trade tensions were considered to have become more likely. In particular, concerns were expressed about the possibility that such tensions could lead to a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs.

Against this background, the balance of risks to the global economic expansion continued to be assessed as tilted to the downside.

In this context, risks associated with heightened volatility in global financial markets were also highlighted more broadly.

12.04pm BST

Newsflash: The UK government has given Rupert Murdoch's 21st Century Fox the green light for its attempted takeover of Sky.

This clears the way for a proper takeover battle between 21CF (which raised its offer to 14 per Sky share yesterday) and US media group Comcast (which hit back with a 14.75 per share bid last night).

Related: Rupert Murdoch wins government clearance for Sky takeover

UK govt clears 21st Century Fox's bid for Sky, says it's "now a matter for the Sky shareholders to decide whether to accept 21CF's bid". But Fox's bid is now not the offer being recommended by Sky's independent directors. That would be Comcast's 14.75/share bid, made last night

10.44am BST

Valdis Dombrovskis, Vice-President for the Euro, says Europe needs to protect itself against the threat of a global trade war:

"European economic activity remains solid with 2.1% GDP growth forecast for the euro area and the EU28 this year.

Nevertheless, the downward revision of GDP growth since May shows that an unfavourable external environment, such as growing trade tensions with the US, can dampen confidence and take a toll on economic expansion.

10.31am BST

Newsflash: The European Commission has cut its growth forecast for Europe this year, and blamed the rising threat of a trade war.

The EC now expects the eurozone and the EU to both only grow by 2.1% this year, down from 2.3% predicted three months ago. It reckons that Europe's economic momentum has "moderated" after more than a year of strong growth.

#Growth in 2018: 1.7; 1.9; 3.5; 5.6; 1.9; 2.8; 1.7; 1.3; 3.6; 3.3; 3.1; 3.5; 5.4; 2.8; 2.8; 2.2; 4.4; 3.9; 2.8; 3.8; 3; 1.6; 2.6; 4; 4.6; 4.1; 2.4; 1.3; 2.1; EA 2.1

"Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall. The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices.

Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk.

Growth is set to remain strong in 2018 and 2019, at 2.1% this year and 2% next year in both the EU and the euro area.
More in the summer interim #ECForecast a' https://t.co/Vc4u2iO9KU pic.twitter.com/vaxptbUk9x

10.14am BST

Over in Beijing, China has hit out at America's threat to impose tariffs on $200bn of its goods -- and called on US companies to help.

The Ministry of Commerce spokesman Gao Feng warned that the escalating trade dispute between the two countries would hurt the global economy, adding:

"China resolutely opposes such behaviour and will have to take the necessary countermeasures.

9.50am BST

Trade war fears have forced South Korea's central bank to cut its growth forecast today.

The Bank of Korea has trimmed its growth outlook for South Korea to 2.9%, from 3%.

"Uncertainties in growth path are higher than ever and the major source of the uncertainties is global trade conflicts.

At first we thought the trade conflicts among major economies would not grow further, but as they deepen day by day, now it's very difficult to tell where they're headed to."

9.07am BST

Stephen Roach, a senior fellow at Yale University, also thinks America will lose out if it keeps slapping tariffs on Chinese imports.

He told CNBC this morning that trade wars are not easy to win (something Donald Trump claimed earlier this year).

They're easy to lose, and the U.S. is on track to lose this trade war.

"This is live ammunition. This is not just rhetorical discussion any more,.

The US is on track to lose its trade war against China, economist Stephen Roach says https://t.co/CT86vVGt89

8.57am BST

Wayne McCurrie of South Africa's First National Bank fears that global growth will be damaged if the US-China trade dispute keeps escalating.

USA trade numbers with China. USA imports around $500bn from China and China imports $188bn from USA. USA trade deficit then $322bn. Trump now talking about additional tariffs on $200bn. This will be meaningful and will shock global trade and could reduce growth in world by 0.5%

China so far has retaliated $ for $ on tariffs. Let's hope again that level heads prevail. Stories are that according to trump logic: impose tariff on $200bn then China retaliates with $200 but then China has no more imports. Trump can still impose another $300 bn

One overlooked point on the prospective $200bn US tariffs is that they're only proposed at 10%. Given renminbi has fallen over 5% against US dollar since April, the impact on Chinese exporters appears manageable.

Trump is serious about punishing China, he is picking up the areas where it would hurt the most. Although, market participants still aren't factoring in a full trade war. The hope is that China and US would be able to resolve this matter through bilateral agreement. But uncertainty around this matter has anchored up. The sad aspect is none of the parties are ready to throw in the towel yet which makes me think that there is no resolution in insight yet. Beijing has threatened for retaliation action against the current measures.

Therefore, over the coming days, I would expect a tit-for-tat reaction from China-unless the bilateral discussions resume between the two parties. The alarming area is if China chooses to go after the multinational companies which are operating in China. Certainly, that is the area where it would create more wounds. We think that the odds are high that China would specifically pick on US firms or at least it would shift the grounds in such a way that other foreign firms would have more privileges being in China on relative perspective. After all, China isn't going to sit on its hand and see its GDP dragging lower by another 0.2% if the new tariffs become effective.

8.42am BST

The car industry is also worried by America's belligerent stance on trade.

The labour union of South Korean manufacturer Hyundai warned that tens of thousands of US jobs could be lost if China and the US don't step back from a trade war.

"If South Korean car exports to the U.S. get blocked and hurt sales, the U.S. factory in Alabama that went into operation in May 2005 could be the first one to be shut down, putting some 20,000 American workers at risk of layoffs.

8.27am BST

The South Korean trade ministry is worried that demand for its 'intermediary goods' will be hurt, if America imposes tariffs on $200bn of Chinese goods.

These are products which are assembled to create a final product (for example, memory chips and hard drives used to build a computer).

As Chinese electronics, computers and communications equipment were included in the additional list of tariffs, Korean companies are worried their exports of intermediary goods used in those items could decrease if the tariffs are imposed.

8.04am BST

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

City traders will be trudging wearily to their desks this morning after last night's gripping World Cup drama, and worrying about the impact of a US-China trade war.

"We have detailed analysis (on which products will be affected by the U.S.-China trade war),"

"The impact will be mixed. There will be both positive and negative effects. Some Korean exports could replace Chinese goods to be slapped with tariffs, for example.

South Korea says U.S.-China trade war may hit exports of intermediary goods https://t.co/Kjt4zoZy7x

Related: From eels to anvils: Trump's new China tariffs revealed

European futures pointing to a positive open...