WTO and top Republican urge Donald Trump not to launch trade war - as it happened

Graeme Wearden

from on 2018-03-05 21:08 (#3HBYT)

All the day's economic and financial news, as World Trade Organisation and House speaker Paul Ryan warn that a trade war would be very damaging

Earlier:

Italy in deadlock after hung parliament
UK car sales have fallen again
But services sector growth hits four-month high

9.08pm GMT

And finally.... Wall Street has closed, with a small but surprising rally that ends a four-day losing streak.

The Dow Jones finished the day up around 344 points, or 1.4%. The S&P 500 and the Nasdaq also finished in the green, up around 1%.

Wall Street started the week on the back foot, sinking lower as trade war fears spilled over from last week's announcement by Trump. However, stronger than forecast ISM non-manufacturing data quickly grabbed trader's attention boosting sentiment and returning risk appetite to the market. ISM non-manufacturing data printed at 59.5, ahead of tht 59 forecast, albeit a slight dip from last month's 59.9.

8.43pm GMT

Here's our news story on the unfolding battle over trade and tariffs in America:

Republican leader Paul Ryan publicly split with Donald Trump on Monday over the president's threat to impose tariffs on the US's trading partners on steel and aluminium.

The House speaker became the most senior Republican to publicly distance himself from Trump's tariffs, which have rattled stock markets worldwide and sparked threats of retaliation. "We are extremely worried about the consequences of a trade war and are urging the White House to not advance the plan," AshLee Strong, Ryan's spokeswoman said in a statement.

5.36pm GMT

BREAKING: Donald Trump isn't backing down, in the face of criticism from the World Trade Organisation and House Speaker Paul Ryan.

Trump just now in Oval Office: "I don't think you're going to have a trade war"

Trump to the press pool just now, on tariffs: "No, we're not backing down," Trump said. "We had a very bad deal with Mexico, we had a very bad deal with NAFTA." On the tariffs, the president said: "Right now, 100 percent, but it could be a part of NAFTA."

5.16pm GMT

Newsflash: The World Trade Organisation has warned that there is a real risk of plunging into a new trade war.

Roberto Azevido, the head of the WTO, told members that Donald Trump's plan for a 25% tariff on steel imports, and 10% on aluminium, could be very damaging.

"In light of recent announcements on trade policy measures,it is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe."

"We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully. Once we start down this path it will be very difficult to reverse direction.

Roberto Azevedo, @wto director-general, issues stark warning over global trade war: "An eye for an eye will leave us all blind and the world in deep recession."

5.05pm GMT

U.S. House Speaker Paul Ryan has weighed in, urging the Trump administration not to implement the new tariffs on steel and aluminum announced by the president last week.

"We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan. The new tax reform law has boosted the economy and we certainly don't want to jeopardize those gains."

House Speaker Ryan splits with Trump on tariffs: "We are extremely worried about the consequences of a trade war," a spokesman says, "and are urging the White House to not advance with this plan."

4.54pm GMT

After a late rally, European markets have closed higher mostly higher.

Not in Italy, though, where the FTSE MIB ended the day 0.4% lower at 21,819. That's a recovery from its early morning selloff.

4.28pm GMT

In other news, a former Deutsche Bank trader has been fined 180,000 for his role in the Libor-rigging scandal.

Guillaume Adolph was also banned from working in the City, having tried to influence the information which Deutsche had submitted to the Libor panel.

"Mr Adolph improperly influenced several of Deutsche's LIBOR submissions in disregard of standards governing LIBOR submissions. Mr Adolph's misconduct threatened the integrity of important benchmarks.

He should have no further role in the financial services industry."

`Gollum' fined for role in Libor rigging https://t.co/aHZ4wF54fH

4.14pm GMT

Ouch! The Canadian dollar just hit an eight-month low against the US dollar.

The 'Loonie', as it's known in the markets, has weakened to $1.2975 - a level last seen in July 2017.

All else equal, the proposed tariffs might have been expected to boost the dollar against the currencies of other major economies too, as the duties would reduce US demand for exports from those countries.

But the greenback has actually weakened on average against its "major" peers. The Japanese yen and Swiss franc, traditionally seen as safe havens, have performed particularly well.

3.51pm GMT

Goldman Sachs have predicted that the NAFTA negotiations in Mexico will fail to make a breakthrough (having been somewhat derailed by Trump's new tariffs):

3.33pm GMT

Here's confirmation that Italy is looking at a hung parliament, with Five Star Movement scooping the most votes but the centre-right parties collectively forming the largest bloc.

FINAL MAP UPDATE: With 99.4% of constituencies reporting, projections suggest hung parliament as Five Star and Northern League gain strengthhttps://t.co/36uuIDvgnG #gistribe #dataviz #elezioni2018 @jburnmurdoch @valentinaromei @FinancialTimes pic.twitter.com/N6QLkRFrxS

3.09pm GMT

Boom! America's service sector grew strongly in February, thanks to a surge in new orders.

The Institute for Supply Management's monthly US service sector PMI came in at 59.5, ahead of forecasts, and close to January's 59.9. Any reading over 50 shows growth, and these levels suggest the US economy rattled along last month.

*U.S. FEBRUARY ISM NON-FACTORY ORDERS INDEX AT 64.8 VS 62.7
*U.S. FEB. ISM NON-FACTORY ORDERS INDEX HIGHEST SINCE 2005

Strong ISM services report. Shortage of Class A commercial drivers mentioned in commentary. New orders go higher same as reported in Markit data. Services economy doing very well. $CTAS

ISM employment indices point to continued strong job growth in Friday's jobs report pic.twitter.com/oo7dreKxIb

2.36pm GMT

As predicted, shares are dipping at the start of trading in New York.

The Dow Jones industrial average has dropped by almost 150 points, or 0.6%, following Donald Trump's latest burst of tweeting.

2.32pm GMT

Just in: Credit Suisse has cut its rating on Italian shares, following Sunday's election.

+++Credit Suisse Cuts Italian Equities To Underweight+++

2.20pm GMT

Back on Italy....and Richard Carter of investment management firm Quilter Cheviot predicts that the centre-right parties will assemble a 'shaky' coalition:

He writes:

"Arguably the performance of the Five Star Movement is another leg of the anti-establishment trend that has brought us Brexit and Trump, but the market reaction has been very sanguine so far. Uncertainty and unstable coalitions is not exactly a new phenomenon when it comes to Italian politics and the likelihood is that some sort of shaky centre-right government will be cobbled together in the coming weeks.

The most important thing for investors is that Italy's place in the Euro or the EU does not look to be under threat at the current time while ongoing QE from the Eurozone Central Bank will keep a lid on Italian government borrowing costs."

2.12pm GMT

German carmakers are coming under more pressure, as investors worry about a trade war breaking out across the Atlantic (as explained earlier).

2.05pm GMT

US Opening Calls:#DOW 24428 -0.43%#SPX 2677 -0.49%#NASDAQ 6785 -0.37%#IGOpeningCall

1.49pm GMT

Here's Justin Benson, Head of Automotive at KPMG in the UK, on the latest fall in UK car sales:

"Diesel car sales continue to fall, albeit at a slower rate than recent months. However, diesel should still be a relevant choice for consumers, as the latest technology does help address air quality issues.

Whilst sales for petrol and alternatively fuelled vehicles are increasing, they are not filling the gap. Consumer confidence is low and the evidence suggests people are keeping their cars for longer before making a buying decision.

1.33pm GMT

Britain's service sector is still growing slower than major European rivals, despite the pick-up last month.

Reuters Andy Bruce has the details:

UK services PMI comes in a lot better than expected in Feb, while euro zone numbers disappoint.

Nonetheless, UK still ranks bottom across European services PMIs for 4th month running. pic.twitter.com/QviYDjs1pp

1.30pm GMT

Donald Trump certainly isn't backing down on his tariffs, despite concerns that protectionism will hurt economic growth and could trigger a trade war.

To protect our Country we must protect American Steel! #AMERICA FIRST

1.14pm GMT

A few years ago, Matteo Renzi was being hailed as the bright young hope for Italian politics. Back then, the young mayor of Florence was challenging the old guard and promising to reform Italy.

The centre-left coalition headed by Matteo Renzi did worse than expected, winning 19% of the vote according to early results.

While Renzi's leading lieutenant, Maria Elena Boschi, won a safe parliamentary seat in South Tyrol in northern Italy, two other prominent politicians, the interior minister, Marco Minniti, and the culture minister, Dario Franceschini, were defeated.

12.47pm GMT

Back over in Italy, the head of the right-wing Northern League has declared his party are ready to form the country's next government.

The markets have nothing to fear.

"We believe it unlikely that M5S will partner with Lega to form a government. Lega's ambition is to lead the center-right coalition rather than be a junior partner in an unstable alliance with M5S.

At some point, an increasingly mainstream M5S and the center-left Democratic Party may warm up to each other. A new Italian parliament needs to be convened by March 23, yet negotiations are likely to drag on beyond then. Political noise is poised to remain high until a sustainable coalition emerges.

Hung country (chart by @FT). pic.twitter.com/62ZDhpbre6

12.01pm GMT

Newsflash: President Trump has just tweeted that the new planned tariffs on steel and aluminum could be changed...if America can get a "new and fair" trade agreement with NAFTA.

He's also pushing Canada over agriculture trade, and Mexico over border controls.

We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..

...treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.

11.46am GMT

The threat of a trade war between the United Stats and the European Union is weighing on European carmakers today.

Shares in BMW are down 1%, Daimler are down 0.3% and Renault has lost 0.35%.

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it's time for a change! MAKE AMERICA GREAT AGAIN!

10.54am GMT

Back in the markets, the Italian FTSE MIB is still down 1% as traders in Milan face the prospect of a hung parliament after Sunday's election.

David Madden of CMC Markets says investor confidence in Italy has been shaken by the surge in support for Five Star Movement and the Northern League, at the expense of more mainstream parties.

The votes are still being counted, but the early indication is there will be no majority. Added uncertainty comes from the rise of the anti-establishment Five-Star Movement.

Traders fear the nation could be plunged into a period of political unpredictability, and this could delay much-needed reforms.

"A grand coalition is still possible, but smaller, traditional parties however, are in a position of weakness, and will have to strike a deal with the M5S or the Lega. More importantly, even though the Lega and the M5S will have a greater say in the political agenda, the more extreme views from either party are likely to be tamed somewhat once they get into power. Their anti-European rhetoric is already much softer than it was in the past, although they will place greater focus on fiscal easing, and a more confrontational attitude towards European partners.

"The political horse trading will now start and the first smoke will come for the election of the presidents of the chambers within the next three or four of weeks. That would be something to watch, depending on the names that are chosen, it will give a lead on where the coalition talks are going.

10.40am GMT

Britain's baby boomers should be hit with new wealth taxes, to spare younger generations from massive tax rises.

"As we baby boomers sit on so much wealth - which has continued to grow even as incomes have stagnated - one obvious source is for us to make a contribution through capital or property taxes...

"By the end of the next decade, the fiscal gap is set to grow to the equivalent today of 20bn a year and then to 60bn after another decade. That translates to an income tax hike of 15p in the basic rate by 2040, the burden of which will overwhelmingly fall on the generations following baby boomers.

Willetts says the baby boomer generation took advantage of a large cohort of workers paying tax, versus fewer pensioners and children - "we took the benefit from that by lowering taxes and holding down public spending to"

The age of tax cuts is over, Willetts says. Tories face challenge of fighting elections without pledging tax cuts. Labour cannot say the rich alone can pay.

Willetts says he realises greater wealth taxes are unpopular... but he's reluctantly come to see that they are necessary as the alternatives are even worse. He suggests lowering the threshold for inheritance tax so more people pay it, but at a lower rate - raising more

10.27am GMT

Newsflash: Greece has recorded its fourth quarter of growth in a row.... just.

#Greece's economy grew by 0.1% in the 4th quarter compared to the 3rd and by 1.9% on a yearly basis

10.09am GMT

Nathan Coe, chief finance officer of Auto Trader, reckons anxiety over Britain's exit from the EU is deterring people from buying new cars:

"The dip in new car registrations continues to reflect the serious decline in diesel sales and the broader UK economic environment.

"This is further compounded by the uncertainty car buyers have over Brexit, with over sixty per cent saying it is causing them to delay or change their car buying plans. You could call it Brexiety I suppose!

10.06am GMT

Britain's service sector was surprisingly strong last month, says Jeremy Cook, Chief Economist at WorldFirst.

He's encouraged that firms reported that their cost pressures have eased recently:

"Higher orders and higher employment buoyed the service sector in February with the global economic recovery allowing for an uptick in new business. Interestingly, price pressures weakened to their lowest in 18 months and may limit the immediate need for a rate rise from the Bank of England at the May meeting.

It is good news that the pressures on margins and costs from exchange rates have been seen to lessen in the past few months or so with UK SMEs maintaining a very 'wait-and-see' approach to hedging.

9.47am GMT

Newsflash: Growth in Britain's service sector has risen to a four-month high.

Data firm Markit reports that activity in the dominant sector of the UK economy rebounded modestly in February. Firms reported that new business jumped last month, encouraging them to take on more staff.

Growth of incoming new business picked up for the second month running and reached its strongest since May 2017. Service providers commented on particularly marked business-to-business sales growth in February, helped by the improving global economic backdrop.

However, there were also reports that stretched household budgets remained a factor holding back domestic consumer demand.

In fact it was business customers that had the confidence to forge ahead with orders, as consumers hesitated over concerns about possible rate rises impacting on their household budgets and what the future could hold.

"But it was encouraging to see job seekers were the winners as hiring levels continued to rise and at the fastest rate since September 2017. Firms were eager to reduce accumulated backlogs in part created by difficulties in finding talented, skilled staff and in a period of exceptionally low unemployment.

Service sector expansion in #Italy cools during February, but remains marked nonetheless. Headline Business Activity Index posts 55.0 in February (57.7 - January). https://t.co/wMFp0w4eh7 pic.twitter.com/i1PUZSnb8j

9.28am GMT

Today's figures also show that petrol cars now make up 60% of the UK market, up from just 51% a year ago.

Diesel sales fell 23.5% in February - now just 35% of new UK car sales.

Electric/hybrid sales up 7% to 4.4% of market.

But the big winner was petrol, up 14% and now accounting for 60% of all new sales.

Good luck with climate change folks!

9.23am GMT

Howard Archer of the EY Item Club says Britain's car industry is stuck in the slow lane.

Here's his take on the latest fall in car sales.

9.13am GMT

Newsflash: UK car sales have fallen again, as drivers continue to shun new diesel models.

The SMMT reports that new car registrations dropped by 2.8% in February, compared to a year earlier, with 80,805 models sold.

Looking ahead to the crucial number plate change month of March, we expect a further softening, given March 2017 was a record as registrations were pulled forward to avoid VED [road tax] changes."

8.56am GMT

Elliot Hentov, head of policy and research for official institutions for EMEA at State Street Global Advisors says the Italian election result should be a wake-up call to investors.

He argues that the eurozone crisis, dormant for so long, isn't actually over:

"The Italian status quo - political inertia in the face of economic decline - is simply not sustainable in the long-term and Italian voters are restless. It remains to be seen whether the Five Star Movement can actually lead a government as any other constellation looks unfeasible.

The fact that a majority of votes went to parties outside of the mainstream is likely to be a warning for markets that Italy's and Europe's core challenges remain unresolved. All roads lead to Rome, at least when it comes to boosting the Eurozone's viability, and markets will take note that euro assets need to reflect more than just the relatively buoyant economy. On the contrary, it is increasingly clear that the Eurozone drama is far from over, even if we may be enjoying the current intermission."

8.53am GMT

Italian bank stocks have hit a two-month low this morning, Reuters reports.

8.42am GMT

Mujtaba Rahman of Eurasia Group says investors are worried that Italy's populist parties would clash with Brussels over tax and spending rules, should they end up in power:

Euro exit, let alone EU exit remain very unlikely, as is a meaningful revision of the EU's treaties to Italy's favour, something both the League and Five Star have campaigned on. A bigger risk is the possibility of meaningful fiscal slippage, as either party moves to implement some of their flagship campaign pledges.

This will create more friction between Rome and the European commission. Italy is already at risk of failing to comply with EU-mandated fiscal targets, and any additional slippage may result in a new Excessive Deficit Procedure. Any attempts to roll back past reforms, most notably the 2011 pension reform, will also be seen with concern by investors

8.35am GMT

My colleagues have been live-blogging the Italian election through the night - and are covering all the reaction this morning:

8.34am GMT

Over in Milan, the Italian stock market has fallen in early trading.

"Italy looks to have taken a step to the right and moved towards populism and change.

The complexity of the Italian voting system makes it very difficult to establish what happens next and when, but neither of the anti-establishment Five star movement or League parties are an attractive option for markets or the euro."

8.14am GMT

Italian government bonds are falling in early trading, as investors worry that the country faces a period of instability.

This has pushed the interest rate (or yield) on 10-year Italian bonds up to 2.11%, from 2.03% on Friday. That suggests they're seen as as little riskier today - especially when compared to German debt.

#Italy's bond spread up 9 bps on #ItalianElection2018 result. pic.twitter.com/xnY4gULjPx

Italian/German yield spread widens 10 bps after Italian election. Country faces prolonged period of political instability after voters deliver a hung parliament, spurning traditional parties and flocking to anti-establishment and far-right groups in record numbers. pic.twitter.com/W4Ddq7gyO8

8.04am GMT

The euro has dipped in early trading.

It's down around 0.3% at $1.228 against the US dollar following the Italian election results.

The Euro found no support after Germany's Social Democratic party voted for a coalition deal with Angela Merkel's CDU party. The muted Euro reaction is mainly due to worries that the Italian elections delivered a hung parliament. The European Union would have a new headache to deal with if Italy formed a Eurosceptic coalition which would undoubtedly challenge EU budget rules.

#Euro has started on a high to the week after positive news from Germany but has since then lost steam and slipped lower as #Italy election turns out to be a messy affair. Now trades below $1.23. pic.twitter.com/YGCOqF3WNB

7.44am GMT

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

Andrea Marcucci, one of the Democratic party's senators in the outgoing parliament, wrote on his Facebook page: "Voters have spoken very clearly and irrefutably. The populists have won and the Democratic party has lost."

The exit polls showed Berlusconi's coalition - which includes the Northern League - winning up to 36% of the vote, a result that could potentially help the billionaire media magnate clinch a fourth election victory under a complicated Italian election law.

Updated European Market Opens
FTSE100 is expected to open 13 points higher at 7,083

DAX is expected to open 100 points lower at 11,813

CAC40 is expected to open 24 points lower at 5,112

- Asia's shares drop
- U.S. trade concerns
- Italy's populists surge
- Euro weaker
- Dollar stronger
- Oil above $61https://t.co/vbXxR6qSCR pic.twitter.com/P5Zeeadwhr

"The prime minister raised our deep concern at the president's forthcoming announcement on steel and aluminium tariffs, noting that multilateral action was the only way to resolve the problem of global overcapacity in all parties' interests.

Markets have a mildly risk-off tone overnight as the threat of a trade war continues to overhang.

Over the weekend, administration officials in the US said there would be no exemptions to the new tariffs and reports suggest the EU could respond with reciprocal measures as early as this Wednesday.

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