Pound falls sharply as Boris Johnson prompts hard Brexit fears – as it happened

Julia Kollewe Jasper Jolly and Kalyeena Makortoff

from on 2020-02-03 14:57 (#4YTE5)

Sterling hit by tough talk on trade deal while investors count coronavirus cost

2.57pm GMT

The Chinese stock market suffered a 7.7% fall when it reopened today after the extended lunar new year break, while Japan's Nikkei fell by 1%.

However, in Europe and the US markets traded higher after steep losses last week, as traders took some comfort from measures taken by Chinese authorities to contain the deadly coronavirus (even as its death toll rose further), alongside the People's Bank of China's injection of liquidity into money markets.

2.44pm GMT

Wilson has summarised the two positions.

The EU position is as follows:

2.42pm GMT

Neil Wilson, chief market analyst at Markets.com, has looked at the Barnier-Johnson clash, which caused sterling to sell off. The pound is now down 1.3% against the dollar and 0.96% lower against the euro, as Brussels and London set out their negotiating positions ahead of trade talks next month.

The way the two sides have come out, traders are starting to consider no-deal risks again. No deal is not the base case by any means but the EU and UK look in very different places right now at the start of talks. It's going to be a very long and rocky road to get there and the shape of the deal will hinge on some important concessions on both sides. The British government has come out swinging over the weekend with plenty of fighting talk, but they're up against a tough opponent.

There are several sticking points we can see right now, some of the most obvious ones are outlined but can be summed up as simply that the EU wants the UK to adhere to its rules and its courts, which the UK won't do. So we are left at present at something of an impasse before the talks even begin. What we should remember is that, as in all negotiations, these views are the starting point, not the final destination.

2.38pm GMT

On Wall Street, the Dow Jones has opened more than 60 points higher at 28,319, a 0.23% gain - not quite as buoyant as hoped. The S&P 500 rose some 10 points, or 0.31%, to 3235 while the Nasdaq climbed almost 40 points, or 0.43%, to 9190.

2.32pm GMT

Meanwhile, Hong Kong's economy shrank by 1.2% last year, according to official figures, when months of pro-democracy protests and global trade wars pushed the city into its first annual recession since the height of the financial crisis in 2009.

GDP declined at an annual rate of 2.9% in the fourth quarter, accelerating from the previous quarter's 2.8% fall. The coronavirus, which has infected at least 15 people in Hong Kong so far, will put further strain on the economy, after Hong Kong's authorities imposed restrictions on movement between the city and mainland China.

2.22pm GMT

On trade, the BBC has done a useful explainer of what a Canada-style free trade agreement is, as one of our readers points out.

The CBI, which represents the UK's biggest businesses, has responded to Boris Johnson's speech. CBI president John Allan said:

Business optimism is returning. The right signals about the UK's future relationship with the EU will turn confidence into investment.

The prime minister's clear, vocal commitment to global free trade and maintaining high standards through a thriving relationship with the EU will help.

A tale of two texts

Today is first working day after Brexit

EU publishes 33 pages of guidelines for next stage of Brexit: https://t.co/hxuCuA1KCE

Johnson makes a tub-tumping speech about free trade: https://t.co/4U59H1QFt0

In a year's time, which text will be more relevant?

2.15pm GMT

However, the death toll from the Wuhan coronavirus has passed that of the 2002-03 Sars virus in mainland China, reaching 361 today. The number of infections also jumped, passing 17,200.

2.07pm GMT

On the markets, US stock index futures are pointing to a rebound when Wall Street opens in half an hour. On Friday, the Dow Jones and the S&P 500 index recorded their worst weekly losses in at least five months as the deadly coronavirus spread.

Today, Chinese stocks fell 7.7% when Chinese stock markets reopened following the extended lunar new year holiday, as they caught up with stocks around the world.

1.55pm GMT

You can watch Barnier's speech here:

1.54pm GMT

As a reminder, you can follow the latest on the Barnier-Johnson clash on our Brexit live blog.

1.46pm GMT

The UK prime minister later said he would walk away from the talks if the EU did not agree to the UK's demands. Triggering fresh fears of a no-deal Brexit, he said:

There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar, any more than the EU should be obliged to accept UK rules.

1.42pm GMT

.... further evidence that next month's trade talks between London and Brussels are not going to be easy.

Sterling is on the back foot today, sinking more than 1% against the dollar after Boris Johnson, the UK prime minister, and Michel Barnier, the EU's chief negotiator in the Brexit talks, set out their stalls. The pound is down 1.1% at $1.3054 and 0.84% lower against the euro, at a1.1799.

1.22pm GMT

Turning back to trade, Angela Merkel, the German chancellor, has said that she would be prepared to back changes to the EU's Lisbon Treaty, the bloc's legal cornerstone, to strengthen the EU's competitiveness.

She said during a joint press conference with the Austrian chancellor, Sebastian Kurz in Berlin:

I could well imagine treaty changes should this be necessary.

We are required in view of Britain's exit to strengthen our competitiveness and to act more quickly.

1.12pm GMT

Britain's manufacturing sector showed signs of stabilising last month to emerge from the longest downturn since the financial crisis, according to the latest PMI survey, as reported earlier. Here is our full story:

12.53pm GMT

Just landed: Here's the UK's written statement on what it wants from a trade deal with the EU https://t.co/MF8f9c1PAY pic.twitter.com/Dw0Jh4010b

12.45pm GMT

Opec is reportedly considering cutting oil output by around 500,000 barrels per day in order to boost the slump in crude prices, according to Reuters.

Demand for oil has fallen amid the coronavirus outbreak, causing prices for benchmark Brent crude to fall by around $10 to $56.47.

The technical panel is likely to make a recommendation on any further action to support the market, the sources said.

OPEC+ has been reducing oil supply to support prices, agreeing in December to cut output by 1.7 million bpd until the end of March. Its next meeting is scheduled for March 5-6.

12.03pm GMT

At midday, sterling has fallen by as much as 1.1% against the US dollar, having briefly dropped below $1.305.

The FTSE 100 is up by 0.34% at about 7,310 points.

10.55am GMT

The EU has published its draft negotiating guidelines for the Brexit trade talks, setting out its stall ahead of discussions starting in earnest.

The latest update from Michel Barnier suggests the EU will be "very demanding" in setting level playing field conditions for any trade deal.

10.52am GMT

A quick update on UK stocks: there's not much happening on the blue-chip or mid-cap indices.

The FTSE 100 has gained 0.4%, likely aided by sterling's weakness. The highest riser is Auto Trader, up by 2.8%.

10.39am GMT

Phillip Inman, one of the The Guardian's economic writers, who wrote about the likely impact of the Coronavirus on the Chinese and global economies at the weekend, says some of the optimism among City analysts of a quick bounce back are beginning to evaporate.

Diana Choyleva, a respected China expert who leads the consultancy Enodo Economics, says 2020 is going to be a bad year for China, however much credit it pumps into the economy to keep businesses and consumers borrowing. She says:

The economic fallout from the Wuhan coronavirus, which is more contagious than SARS, is set to be severe. Importantly, investors hoping for a decisive growth rebound once the outbreak is contained are likely to be disappointed.

Beijing will have no choice but to throw money at investment. Even so, the authorities are unlikely to be able to re-energise the economy as they did post-SARS in 2003.

10.35am GMT

The pound is now down by 1% to $1.307 against the US dollar, with tough talk from both sides of the Channel.

Michel Barnier, the EU's chief negotiator, has laid out some new red lines for a trade deal which appear to contradict Boris Johnson's positions.

NEW: EU's chief negotiator Michel Barnier says trade deal is dependent on 2 things (both of which Boris Johnson has ruled out):

1. Level playing field on standards (as expected)
2. It must include fisheries - continued access to UK waters

This will be the focus of negotiations.

Brexiteer politicians are moving from celebrating the exit to sounding bold as the trade talk verbal jousts begin. The foreign exchange market is likely to be nervous and with positioning data still suggesting an excessively long speculative position in the market, sterling is vulnerable.

9.59am GMT

The British manufacturing sector performed slightly better than initial figures suggested - the sector's output was steady rather than the decline seen in early data.

The final reading of the UK manufacturing purchasing managers' index (PMI) came in at 50.0 in December, compared to a flash figure of 49.8, according to IHS Markit. The 50 mark is the point where contraction turns to expansion.

The start of 2020 saw the performance of the UK manufacturing sector stabilise, as receding levels of political uncertainty following the general election aided mild recoveries in new order intakes, employment and business confidence.

Improvements were mostly seen via rising consumer demand and renewed input buying by businesses, suggesting that the reduction in uncertainty following the election has encouraged households and businesses to step up spending. In contrast, an ongoing downturn at investment goods producers suggests that the economic certainty required to achieve a full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit road-map in the coming year.

9.29am GMT

Speaking of Brexit, Nissan is worth a mention this morning after the Financial Times () reported that the Japanese carmaker had drawn up plans to "double down" on the UK in the event of tariffs on car exports following the end of the transition deal.

We deny such a contingency plan exists. We've modeled every possible ramification of Brexit and the fact remains that our entire business both in the UK and in Europe is not sustainable in the event of WTO tariffs.

We want our UK team of more than 7,000 people to have the best possible chance of future success, which is why we continue to urge UK and EU negotiators to work collaboratively towards an orderly balanced Brexit that will continue to encourage mutually beneficial trade.

9.17am GMT

That sterling selloff is gaining momentum. The pound has now lost 0.7% against the US dollar and 0.5% against the euro.

8.45am GMT

The government's majority may have allowed it to "get Brexit done" at the end of last week, but there appears to be little respite for anyone hoping the UK's exit from the EU will not define 2020 as well.

Sterling has started the week on the back foot, down by 0.5% against the US dollar and 0.3% against the euro, with positioning around the Brexit trade deal thought to be one of the factors in play.

Britain won't align; the EU demands it. The scene is set for a showdown and a rocky path for negotiations that introduces new headline risk for the pound - think back to last year and the way GBP pairs were moving around wildly on any report about deal or no deal.

8.27am GMT

Ryanair reported profit after tax of a88m euros (74m) for the three months to the end of December, the third quarter of its financial year.

What is likely is they will push out that delivery profile with Boeing by at least 12 months. At best that means we will have to roll forward our plans to fly 200m passengers per year ... by at least 12 months, possibly 24.

This is a strong set of results in a seasonally weak part of the year for Ryanair. The reduction in seat capacity across the sector as a result of the failure of a number of airlines should enable Ryanair to maintain strong pricing into the key summer months. The European airline industry faces a large challenge should the coronavirus spread to Europe, and Ryanair would not be immune to such a development.

8.10am GMT

In Europe, where traders have had some time to react to the coronavirus outbreak, shares have gained at the open.

The FTSE 100 is up by 0.27%, Germany's Dax gained 0.3%, and France's Cac 40 rose by 0.15%.

8.04am GMT

Chinese stock markets plunged on Monday in a delayed investor reaction to the coronavirus outbreak that has seen increasing numbers of confirmed cases.

Shares on the Shanghai stock exchange composite index fell by 7.7% to a one-year low, while the CSI 300 index, which tracks the biggest shares in both Shanghai and Shenzhen, fell by 7.9%. Japan's Topix index fell by 0.7%.

While the severity of the onshore sell-off will dominate news headlines on Monday, the flat trade in offshore China equities (Hang Seng -0.1%) backs our thesis that today represents more of a catch-up. If anything, we think the magnitude of the sell-off appears less severe than market bear cases ahead of the open.

PBoC: China Stock Plunge Today Is Panic Triggered By Herd Effect

China's authorities have demonstrated their determination to deal with the economic implications of the coronavirus by cutting the key reverse repo rates by 10 basis points [o.1 percentage points] as soon as markets have reopened after the New Year. The move may help sentiment but there is still no urgency to rebuild risk exposure as the virus continues to spread.

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