Germany recession fears grow, but trade war optimism boosts markets - as it happened

All the day's economic and financial news, as Germany's factories suffer a 4.7% annual drop in output

• Latest: Trump's trade war tweet
• Introduction: German industrial output slumped in November
• Analysts: Recession risks have increased
• ING: German economy still strong
• Minister: Don't badmouth Germany

9.13pm GMT

PS:

Related: World Bank warns of wider no-deal Brexit fallout

9.11pm GMT

And finally, the US stock market has closed higher for the third day running.

Tuesday was another strong day on Wall Street as investors become cautiously optimistic about trade talks between the U.S. and China. The Dow closed more than 250 points higher, with the S&P gaining .9%. pic.twitter.com/3QlnR2aYQN

9.10pm GMT

Uh oh. The World Bank has just cut its growth forecasts.

In a new report, the World Bank has warned that dark clouds are gathering menacingly over the global economy.

NEWS: Our latest Global Economic Prospects report says that in 2019, the world will see solid but slower growth due to softening of #globaltrade and manufacturing: https://t.co/KRjSkXqjXE #WBGEP2019 pic.twitter.com/N4BstrhLcC

8.49pm GMT

Bloomberg has the lowdown on what's moving on Wall Street today, with the main indices up around 1% in late trading.

All major indexes were higher, led by the small-cap Russell 2000 Index for a second day.

The S&P 500 Index gained, as transportation companies, telephone stocks and technology hardware makers pushed the benchmark higher.

7.46pm GMT

Brexit uncertainly is clouding over the UK economy, but today's data suggests Germany, not Britain, is more likely to slide into recession in the months ahead.

News that German industrial production fell by 1.9% in November came as a nasty shock. The stock response to the contraction in the third quarter was that it was due to the tightening up of European vehicle emission standards which led to one-off problems for its carmakers that would quickly be overcome.

While the bounce-back has been delayed rather than cancelled, Europe's biggest economy faces significant headwinds. The growth spurt generated by monetary stimulus from the European Central Bank has run its course.

Related: It's not Brexit Britain most likely to suffer recession. It's Germany

6.35pm GMT

Hopes of a trade war breakthrough are keeping shares higher in New York.

If you think what was plaguing the market at that time, you had a strong dollar that was choking off not only U.S. earnings but also the global economy. Oil was plunging"You had a Fed that was ending quantitative easing and they were projected to do four rate hikes in 2016. and then lastly you had very weak Chinese economic data."

6.18pm GMT

In other news, Brexit may mean millions of pound of lost revenue for telecoms giant BT.

Our Brussels bureau chief Dan Boffey explains:

BT is facing a post-Brexit battle to maintain access to a number of multimillion-pound EU contracts and avoid the premature termination of a 24m deal with the European parliament.

The BT Group has won a slew of contracts with the EU's institutions in the last decade worth more than 150m.

Related: BT could lose millions of pounds of EU contracts after Brexit

5.22pm GMT

Trade Optimism Trumped Weak European Economic Sentiment today, says Fiona Cincotta of City Index.

She explains

Global markets bounced higher on Tuesday as optimism grows over a US - Sino trade deal. A strong Asian session spilled into Europe, although markets pared gains as Wall Street opened owing to increasing tech concerns.

US and China extending trade talks for another day has been interpreted as a positive sign by the markets. Whilst no reason was given for the extension, Trump's tweet that the talks "were going very well" was sufficient to lift sentiment boosting appetite for riskier assets such as stocks, whilst safe haven gold declined.

With US and China working to resolve their issues, the Fed promising to remain flexible and the US economy firing on all cylinders it is easy to see why sentiment is on the up. Obviously, this is not the end of US - China trade tensions by a long shot, ad there will almost certainly be further bumps and twists along the way but for now the markets are happy with the slow steady progress which it perceives has been achieved.

This comes hot on heels of downbeat German factory orders, which dropped by -4.3% in November. These are the latest signs that the eurozone economy is slowing, as trade tensions sap momentum for the powerhouse of Europe.

4.54pm GMT

Britain's FTSE 100 index of top shares has closed 50 points higher at 6861 points, a gain of 0.75% today.

Optimism that Beijing and Washington are making progress in their trade negotiations lured investors into buying shares, following the recent sell off.

FTSE 100: The percentage of traders net-long is now its lowest since Sep 19 when FTSE 100 traded near 7343.4. https://t.co/8uGQ7iiKO5 pic.twitter.com/mR1klOf9uC

3.08pm GMT

Top US banker Jamie Dimon has added to the optimism on Wall Street, by suggesting that investors got carried away with recession fears in recent weeks.

CNBC has the details:

Markets from equities to high-yield bonds that have been flashing warning signs are probably an overreaction to slowing growth rather than a precursor of imminent recession, according to J.P. Morgan Chase CEO Jamie Dimon.

"I think markets are overreacting to short-term sentiment around a whole bunch of complex issues," Dimon said in a Fox Business interview released Tuesday. He quickly added that the market moves were a "rational response" to slower growth and the U.S.-China trade dispute.

Jamie Dimon says that recent market moves don't mean a recession is on the immediate horizon. https://t.co/1RTaevT5Yc

2.56pm GMT

Reuters' Jamie McGeever tweets:

The S&P 500 is course for a positive first 5 days trading of the year. If the "5-Day Rule" holds, there's an 80% chance it will close the 2019 up. Is this a useful guide, or mumbo jumbo?
COLUMN-Back to school, keep an eye on the "5-Day Rule"https://t.co/GDOUHmds5u pic.twitter.com/oMZrqRXm98

2.53pm GMT

US stocks are now trading at a three-week high, Bloomberg flags up.

2.50pm GMT

Boom! The New York stock market has opened higher, as traders try to claw back recent losses.

The Dow Jones industrial average has jumped by nearly 300 points, or over 1%, at the open. Hopes of a trade war breakthrough are lifting technology stocks.

Dow jumps more than 270 points in early trading amid renewed trade optimism; Amazon rallies 2.5% https://t.co/VMRV7lFxZw pic.twitter.com/FOvFLms9Kj

2.29pm GMT

European stock markets are all surging higher, after president Trump tweeted that the trade negotiations with China were going "very well".

The French CAC is leading the charge, up almost 2%.

1.52pm GMT

Hu Xijin, editor of China's Global Times, tweets:

China-US trade talks haven't concluded after two days of tough work. I heard they will continue tomorrow. This sends a signal: The two sides are in serious talks and working hard to solve the disagreements between them. https://t.co/PDunt3xx4Z

1.37pm GMT

Trump's trade war optimism is pushing the stock markets up.

The FTSE 100 is now up 70 points, or 1%, at 6880, and Wall Street is expected to open higher too.

1.27pm GMT

Newsflash: Donald Trump has declared that negotiations with China to resolve the trade impasse are going well.

Trump also tweeted that the US economy is looking strong, and promptly taken aother pop at the US Federal Reserve for raising interest rates over the last couple of years.

Economic numbers looking REALLY good. Can you imagine if I had long term ZERO interest rates to play with like the past administration, rather than the rapidly raised normalized rates we have today. That would have been SO EASY! Still, markets up BIG since 2016 Election!

"The President is the biggest and best supporter of the Steel Industry in many years. We are now doing really well. The Tariffs let us compete. Was unfair that the Steel Industry lost its jobs to unfair trade laws. Very positive outcome." Mark Glyptis, United Steelworkers

Talks with China are going very well!

1.13pm GMT

JP Morgan has now voiced its alarm over Germany's economy.

J.P.Morgan economist Greg Fuzesi fears that the economy may not have grown in the last quarter, following its small contraction over the summer.

The very bad run is continuing and it is now possible that German gross domestic product (GDP) stagnated in the fourth quarter of 2018,"

"Of course, the German industrial production data are very noisy, but even with a big rebound in December, it is no longer possible to rule out even a small GDP contraction in the fourth quarter of 2018."

1.04pm GMT

In another worrying sign, eurozone economic confidence has dropped to its lowest level since Donald Trump became US president.

The European Commission's economic sentiment indicator has fallen to 107.3, down from 109.5 in November. That's a 23-month low, adding to concerns about the eurozone following this morning's slide in German factory output.

In December 2018, the Economic Sentiment Indicator (ESI) decreased markedly in both the #euroarea (by 2.2 points to 107.3) and the EU (by 2.0 points to 107.6).

Press release aihttps://t.co/09M59i7Kvc pic.twitter.com/gwQva1B4Cn

Recession word is getting louder as European data continues to weaken, both soft & hard data. Eurozone economic confidence in December shows a bigger than expected decline. Headline fell to 107.3 vs 108.2 expectations and 109.5 prior. industrial confidence underperformed services pic.twitter.com/3UtrlrGwN0

11.58am GMT

Germany's once fast-pumping economic engine is misfiring, says Mihir Kapadia, CEO and founder of Sun Global Investments.

Kapadia blames the ongoing trade war between the US and China, which has hurt economic demand:

Industrial output from Europe's largest economy has been slowing down each consecutive month, since September 2018, with the drop accounting to 4.7% on an annualised basis. The shortfall in the output underscores the impact on the global economy - wounded and reserved under hostile trade rhetoric. The German economy is expected to be strained in the last quarter of 2018 as the weakness from Industrial output has also matched with a slump in German factory orders, down by 4.3% year-on-year in November.

This is in line with global trends, as global risk factors have led to a cautious undertone in the markets. Unless a more welcoming approach is led, especially from the US, the cracks will only widen further globally.

11.25am GMT

The UK economy isn't looking too hot either.

Economist Sam Tombs of Pantheon has flagged up that business morale has hit a five-year low, which probably signals a slowdown.

Another day, another downbeat survey on the UK economy. A weighted-average of the industrial, construction, retail and services Economic Sentiment Indicators fell in Dec. to its lowest level since May 2013. It supports the PMI's steer that GDP growth slowed sharply late last yr: pic.twitter.com/vz9ZYlxbjR

11.08am GMT

David Madden, analyst at CMC Markets UK, spies optimism over the US-China trade talks:

Traders are hopeful that some sort of progress can be made, and the fact China sent, Liu He - a top tier trade negotiator, the market is viewing this as a sign that Beijing means business. The FTSE 100 is enjoying a broad based rally, as financial, mining, and consumer stocks are all higher this morning.

EUR/USD is the red after Germany revealed poor industrial output figures. The November report showed a 1.9% decline, while economists were expecting a 0.3% rise, and the October report was revised lower to -0.8%, from -0.5%.

This is a poor update from the largest economy in Europe, and it doesn't bode well for the region.

10.55am GMT

Kit Juckes of Societe Generale says today's German industrial output figures are "terrible".

This morning's main piece of new economic news was a 1.9% [month-on-month] fall in November industrial production, accompanied by a downward revision to October that leaves Q4 GDP growth looking close to zero.

10.20am GMT

European stock markets are pushing higher this morning, despite the growing fears that Germany could be sliding into recession.

All the main indices are in positive territory, although Frankfurt's DAX (+0.2%) is lagging behind.

A troublesome German industrial production figure, one that suggests the country could be slipping into a technical recession, was the most overt challenge to sentiment after the bell. However, it only ended up impacting the euro, sending the single currency down 0.4% against the dollar and 0.3% against the pound.

Celebrating this euro pull-back instead of lingering on Germany's economic woes, the DAX added half a percent, once again climbing back towards the 10800 it failed to burst past at the start of the week. The CAC was even more chipper, rising 0.8% to tickle 4750. As for the FTSE, a 0.6% helped push the UK index above 6850.

9.29am GMT

Back to Germany.... and Chris Williamson of data firm Markit also fears weak growth in the final three months of 2018 (following a 0.2% contraction in July-September).

Industrial production in #Germany is running 1.8% below Q3 so far in Q4, with #manufacturing output down 1.4%. Bodes ill for Q4 GDP and even worse than the disappointing #PMI numbers pic.twitter.com/PMzsn9nGa8

9.20am GMT

Back in the UK, house prices have unexpectedly jumped in December - at least according to the Halifax bank.

Halifax reports that prices spiked by 2.2% in December, up from a 1.2% drop in November.

Related: UK house prices take pre-Brexit hit, says Nationwide

8.36am GMT

Germany's economy minister, Peter Altmaier, insists that its economy remains healthy.

The German economy is in a good shape and order books are full, German Economy Minister Peter Altmaier said on Tuesday, adding that he expects the economic upswing to continue.

"As economy minister, my role is not to badmouth the good current economic mood but to contribute so that there are more investments in Germany and new jobs are created," Altmaier said to German broadcaster ARD.

8.10am GMT

Here's Bloomberg economist Jamie Murray:

A simple mapping between industrial production and German GDP growth points to recession (even assuming a December rebound). Not good. Full analysis on terminal here: https://t.co/bKB9rywdFH pic.twitter.com/2z7uP57UsN

8.00am GMT

ING economist Carsten Brzeski also sees a significant risk that Germany is heading into a recession, following the unexpected slide in industrial output.

However, Brzeski also argues that Germany's economy is fundamentally sound:

At face value, today's industrial production data has clearly increased the risk of a technical recession in Germany in the second half of 2018. Watch out for tomorrow's trade data. Another disappointment, combined with the high inventory build-up in 2Q and 3Q, would clearly increase the likelihood of a technical recession. On the other hand, private and public consumption still have the potential to offset recession forces.

Looking ahead, however, even a technical recession should be nothing to be too worried about. It should be technical, without any significant marks on the labour market. In fact, there are still plenty of reasons to remain optimistic, even for German industry: despite the recent deflation of new orders, order books are still richly filled and companies still report assured production close to record highs and while capacity utilisation has dropped to its lowest level since the third quarter of 2017, the lack of equipment still is a more limiting factor to production than the lack of skilled workers.

Industrial production data today has clearly increased the risk of a technical recession in Germany in the second half of 2018, says @carstenbrzeskihttps://t.co/7jCP3zC8sx

7.56am GMT

Teis Knuthsen of Kirk Kapital is also worried by the sharp slump in German factory output:

German industrial production fell by 1.9% in November, down 4.7% y/y, the worst result since 2009. Points to negative GDP-growth for Europe's largest economy. pic.twitter.com/iUAU8ksFOf

7.54am GMT

Bloomberg says the decline in German industrial output underlines "the subdued pace of expansion in Europe's largest economy during the final quarter of 2018".

It adds:

7.49am GMT

Several financial analysts fear that November's 4.7% tumble in German industrial output could signal a technical recession (two quarters of negative growth).

Here's Jan von Gerich, chief analyst at Denmark's Nordea bank.

The German economy has likely hit a (technical) #recession. Very weak industrial production data from November do not support hopes of a rebound after the weak Q3. pic.twitter.com/2o0OjLwOkR

Very weak German IP across the board (-1.9% MoM in Nov), which in isolation would be consistent with another quarter of real GDP contraction. pic.twitter.com/FY8fa9SCCn

Uh-oh! #Germany's industrial production fell a whopping 4.7% YoY, the most since December 2009. Could Germany be heading for a #recession? pic.twitter.com/rXOFIKvwjJ

7.36am GMT

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

Hmmm... those German Industrial Production numbers were pretty rubbish.
-0.5% in October and an even bigger decline in November of 1.9%.
Doesn't bode well for Q4 GDP numbers

German industrial production down 1.9% m/m in Nov. The y/y decline was worst since 2009. And every major category saw a drop on the month. In a nutshell, not good. pic.twitter.com/cghdGZm9PW