China fears overseas market ‘bubble’; German exports to UK down 30% in January – as it happened

Graeme Wearden

from Economics | The Guardian on 2021-03-02 19:12 (#5ETJS)

Rolling coverage of the latest economic and financial news

7.12pm GMT

And finally, here's our economics editor Larry Elliott on Wednesday's Budget:

Rishi Sunak will use tomorrow's budget to signal that the government's unprecedented and continuing support for jobs and businesses must end once the economy has emerged from the Covid-19 pandemic.

The chancellor will pledge to use all the tax and spending firepower at the government's disposal to limit joblessness and business failures as the UK gradually lifts the restrictions that have left the economy almost 10% smaller than it was a year ago.

7.11pm GMT

Shares in UK engineering group Renishaw surged to a record high, after the group's two founders and main shareholders put the company up for sale.

Shares closed almost 19% higher, the biggest riser in the FTSE 250 index, valuing the company at around 5bn.

Renishaw, the engineer regarded as a throw-back to a golden age of British manufacturing, was today put up for sale by its two octogenarian founders.

Sir David McMurtry, the executive chairman of and John Deer, the deputy chairman, said: We are both grateful for our continued good health, however we recognise that neither of us is getting any younger. Now finding ourselves in our 80s, our thoughts have increasingly turned to considering the future of our shareholdings in the Company."

4.55pm GMT

After a late dip, the FTSE 100 index has closed 25 points higher at 6613 points, a gain of almost 0.4% today.

Pershing Square Holdings, which tracks Bill Ackman's hedge fund, was the top riser, up 3.7%.

Even though stocks had a soft start to the session, the mood improved throughout the day and they are now showing respectable gains. The relativity subdued moves in government bond yields have emboldened traders to buy into stocks - so it is a similar situation to yesterday.

Last week, dealers were a little fearful on account of the upward moves in bond yields, in particular, the US-10 year yield, as it hit a one year high, but as the stability has returned to the bond market, that prompted the buying of equities. The FTSE 100 is clawing back the losses it incurred last week, while the DAX 30 hit a level last seen before the recent sell off. Rio Tinto, BHP Group and Anglo American are showing solid gains in terms of index points in the FTSE 100, higher copper prices are underpinning the rally in mining stocks.

4.07pm GMT

The US dollar is dipping back too, sending the pound back to $1.396 - up a third of a cent today (sterling was down half a cent this morning)

$USD on offer into the fixing - eur, cable new highs

4.00pm GMT

Wall Street has slipped a little lower, with the Nasdaq now off 0.6% and the Dow slightly in the red.

?????#DOW 31488.29 -0.15%#SPX 3887.56 -0.37%#NDX 13179.5 -0.78%#RTY 2252.79 -0.99%#VIX 23.83 +2.06%

3.47pm GMT

The 0.7% jump in UK house prices last month (according to Nationwide) suggests that some buyers hope the stamp duty holiday to be extended in tomorrow's budget... and that others were pressing on regardless.

Nicky Stevenson, Managing Director at national estate agent group Fine & Country, says pressure for larger homes is driving the market:

Record high agreed sale prices are a sign that the market is still being buffeted by the unshakeable desire of many to move to larger, more spacious and more expensive homes. For these buyers, the prospect of losing out on the maximum 15,000 stamp duty tax break just isn't so important and these properties will continue to skew the overall picture for at least the next couple of months due to their price tag.

Even those who were partly relying on the tax giveaway to stretch their offer in February couldn't have failed to notice that the usual rounds of pre-Budget briefings by insiders were pointing increasingly to an extension of the scheme.

Confidence in the housing market may be under pressure but this is clear evidence of the market's flexibility where shifting to suit behavioural changes is concerned.

The imminent end of lockdown also plays a part in helping to overshadow concerns about stamp duty, despite any extension still being in the balance."

Both the impending end of the stamp duty holiday and the pandemic-induced levels of unemployment and under-employment would be expected to hit house prices, but prices are currently being supported by strong demand and low supply. Many new-build projects were delayed last year, which is hitting the supply of new homes. And many people are now looking towards a different lifestyle after the pandemic, in a different home.

On Wednesday, the Chancellor is expected to extend the stamp duty holiday, at least for purchases that are already in progress, and to introduce new measures to encourage lenders to offer first-time buyer mortgages of up to 95% of the purchase price.

3.14pm GMT

National Grid will lead an industry rebellion against the energy regulator by taking Ofgem's plan to cut energy network company earnings to the competition watchdog.

The company said it would refer parts of Ofgem's new regulatory plan to the Competition and Markets Authority (CMA) because it does not allow large enough returns for its investment in the UK's gas pipes and electricity wires.

2.57pm GMT

Back in the UK, MPs have been hearing about the challenges of trading seafood with the EU under the Brexit deal.

Adam Payne of Politics Home has the details from the Environment, Food and Rural Affairs Committee hearing:

Big @CommonsEFRA Brexit session at 14:30:

Donna Fordyce (Seafood Scotland), Sarah Horsfall (Shellfish Assoc of GB), Martin Youell (Waterdance fishers) first

Then Nick Allen (British Meat Processors Assoc), Charlie Dewhirst (National Pig Assoc), Dan Phipps (National Sheep Assoc)

"Teething problems" was a "particularly poor choice of words," says Youell from Exeter-based fishing company Waterdance

"Large majority" of issues are "systemic"

He adds that 80% of the problems encountered earlier this yr will remain unless there's major political intervention

Shellfish companies (those that still can export to the EU) are reporting costs of 400-600 per consignment, the @SAGB's Sarah Horsfall tells MPs

The new paperwork is "unwieldly" and leading to huge problems, especially Export Health Certificates, she says

Youell warns that fish exporters he works with are "seriously considering relocating parts of their processing business to the EU b/c of difficulties they face"

He says government is "at serious risk of doing the very opposite" of what it promised for the industry post-Brexit

2.46pm GMT

In New York, stocks are dipping back in early trading.

The S&P 500 index of US stocks has lost 7.6 points, or 0.2%, to 3,894, after surging 2.4% yesterday in its strongest rally since last June.

1.51pm GMT

Just in: Canada's economy has suffered its worst year in at least six decades.

Canadian real GDP shrank 5.4% in 2020, new data shows, in a reminder of the economic damage caused by the Covid-19 pandemic.

Canadian economy posted its worst showing on record
in 2020 as the pandemic swept across the country shutting
down businesses & putting people out of work. Statistics Canada says real GDP shrank 5.4%, the steepest annual decline since quarterly data were first recorded in 1961.

Canada GDP Growth Rate QoQ at 2.3% https://t.co/GusakHZl1Y pic.twitter.com/ePzdnKHNaZ

This eighth consecutive monthly increase continued to offset the steepest drops on record in Canadian economic activity in March and April. Nevertheless, total economic activity was about 3% below February's pre-pandemic level.

Canada GDP month-on-month at 0.1% https://t.co/3lZfCVUTCg pic.twitter.com/QeAyLIWI4h

More important for Canada econ data today: @StatCan_eng estimates that GDP in January rose 0.5% from the previous month.

1.30pm GMT

European investors seem to be shaking off China's warning about dangerous bubbles in the financial markets.

The UK's FTSE 100 has now gained 0.6%, or 39 points, to 6627 points, adding to yesterday's gains after a tumble last Friday.

After a stellar session on Monday that saw the S&P enjoy its strongest day of gains in nine months, Europe opened on the defensive. Warnings over asset bubbles from Chinese officials, fresh concerns over Covid numbers and dismal German retail sales figures all briefly weighed on sentiment.

However, cautious optimism has started to seep into the markets and some European equity indices are turning higher.

Despite recent encouraging developments regarding Covid vaccine rollouts, a report from the World Health Organisation that the number of new daily infections rose last week for the first time in seven weeks is unnerving investors.

Vaccine developments and optimism surrounding the reopening of economies has driven global stock markets higher since November. However, today's WHO report is a stark reminder that the battle has by no means been won, serving as a check on risk sentiment.

1.13pm GMT

Two of Germany's discount supermarket groups have lost market share in the UK, for the first time in over a decade.

Nearly a quarter of households bought groceries online during the past month, making the most of home deliveries especially to get hold of bulkier goods like canned foods, breakfast cereals and soft drinks. It's been an extraordinary 12 months for online."

12.31pm GMT

And here's Bloomberg's take:

German exports to Britain plunged in January, as the downward trend since the country voted to leave the European Union gathered pace.

Already curtailed by the economic impact of the coronavirus, Brexit helped trigger a nearly 30% slump in German exports to the U.K. in the first month of the year, according to a preliminary estimate published Tuesday by the Federal Statistics Office.

Brexit triggered a 30% slump in German exports to the UK in January https://t.co/dmVzfluzQx via @iaindrogers pic.twitter.com/TAtlXPVVFS

12.16pm GMT

Here's Reuters' take on the slide in German exports to the UK:

German exports to the United Kingdom fell by 30% on the year in January as the impact of Brexit turned Europe's largest economy away from the UK, exacerbating the hit to business from the coronavirus pandemic, official figures showed on Tuesday.

The UK left the European Union's orbit at the end of last year, turning its back on a tempestuous 48-year liaison with the European project for an uncertain post-Brexit future in its most significant geopolitical shift since the loss of empire.

11.57am GMT

German exports to the UK tumbled by almost a third in January, as Brexit effects" hit trade between the two countries, official data from Germany shows.

According to first provisional data on German exports to the United Kingdom, the January 2021 figures are expected to show a significant decline compared with the same month a year earlier. The Federal Statistical Office (Destatis) also reports that German exports decreased by roughly 30% compared with January 2020, according to provisional calculations.

Based on an extrapolation, exports to the United Kingdom continued to decline in January 2021 due to Brexit effects, after the year 2020 was characterised by the coronavirus pandemic.

Year-on-year #exports to the United Kingdom expected to be down by 30% in January 2021. https://t.co/vDwe1dscpC #Brexit

In 2020, German exports fell to 66.9bn. Since 2016 - the year of the Brexit referendum - German exports to the United Kingdom have steadily declined. In 2015, the year before the referendum, German exports amounted to 89.bn.

While imports from the United Kingdom only declined slightly by 2.5% in the first half of 2020, German imports from there fell sharply in the second half of the year (-16.2%).

10.49am GMT

In the auto world, Volvo has announced plans to sell only electric cars by 2030.

10.24am GMT

Inflation across the eurozone remained steady last month, new figures show.

Statistics body Eurostat reports that annual inflation is expected to be 0.9% in February, matching January's reading.

Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in February (1.4%, compared with 1.5% in January), followed by services (1.2%, compared with 1.4% in January), non-energy industrial goods (1.0%, compared with 1.5% in January) and energy (-1.7%, compared with -4.2% in January).

Euro area #inflation stable at 0.9% in February: food +1.4%, services +1.2%, other goods +1.0%, energy -1.7% - flash estimate https://t.co/QIa35rMmUy pic.twitter.com/RjTuWpPoFZ

10.09am GMT

German joblessness unexpectedly rose for the first time in eight months in February, in another sign that the ongoing Covid-19 lockdown is hurting its economy.

The number of people out of work rose by 9,000 in February, on a seasonally-adjusted basis, to 2.75 million, leaving the unemployment rate at 6%.

Kurzarbeit (shortened working hours) continues to secure employment on a large scale and prevent unemployment," Labour Office chief Detlef Scheele said in a statement, adding: Individual sectors are feeling the effects of the lockdown."

Germany has been in lockdown since November, and measures were tightened in mid-December, as it battles a second wave of the virus. Chancellor Angela Merkel has said new variants of COVID-19 risk a third wave of infections.

German unemployment unexpectedly rises in February https://t.co/QAM8kb3191 pic.twitter.com/rtrcGeCu5N

JUST IN: German joblessness unexpectedly rises for the first time in eight months https://t.co/goDNwNKoQh pic.twitter.com/5TaMo9VylX

According to the German labour agency, new applications for short-time work schemes dropped somewhat in February to 500,000. This is based on estimates and actual data is only available until December 2020. Here, the total number of people in short-time work had increased to 2.39 million, from 2.38m in November and 2.01m in October. In April, it stood at almost 6 million.

Looking ahead, the labour market could mirror the ongoing divergence between the manufacturing and services sector. Recruitment intentions in the manufacturing sector have improved gradually since last summer but are still slightly below the historic average. In the services sector, however, recruitment plans have dropped again since the summer, reflecting the longer-term damage in this sector as well as the impact from the second and ongoing lockdown.

German unemployment rose last month - the first February increase since 2014, writes @carstenbrzeski https://t.co/6mBdTo1G9u

9.44am GMT

Over in Germany, retail sales fell sharply during the lockdown in January.

Retail spending dropped by 4.5% month-on-month, and was 8.7% lower than a year ago.

These results can be explained by the second COVID-19 lockdown, which led to a partial retail closure starting on 16 December 2020.

Ugly German retail sales numbers. Even with the normal heap of salt required to interpret these data, it looks as if goods spending is now taking it on the chin due to sustained restrictions in non-essential retail and the VAT hike in Jan.

More dreadful retail sales data from Germany

German retail sales M/M (Jan): -4.5% vs -0.3% expected, prior -9.6%

German retail sales tumbled more than expected in January as the Covid-19 lockdown and the withdrawal of a temporary cut in sales tax hit consumer spending in Europe's largest economy, data showed today. https://t.co/Cuo3q87oci

9.34am GMT

In the UK, meanwhile, house prices have bounced back in February despite the imminent end of the stamp duty holiday, fuelled by changing housing preferences in the Covid-19 pandemic, and some buyers betting that the tax saving will be extended.

The average price of a home rose by 0.7% to 231,068, the highest on record, more than reversing January's 0.2% drop, said Nationwide, Britain's biggest building society. This took the annual growth rate to 6.9% from 6.4%.

This increase [in prices] is a surprise. It seemed more likely that annual price growth would soften further ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase.

9.23am GMT

After their best day in almost four months yesterday, European stock markets have slipped back.

In London, the FTSE 100 is currently down 10 points (-0.15%), with similar dips in Frankfurt and Paris amid cautious trading.

Tuesday has seen European investors start with uncertainty in their step.

Sentiment was undermined early on by comments from Guo Shuqing, the head of the China Banking and Insurance Regulatory Commission. He said that the financial markets are running counter to the real economy', and that he is worried that the bubble problem in foreign financial markets will one day pop'.

9.16am GMT

Steen Jakobsen, Chief Investment Officer at Saxo, says Guo Shuqing's warning about overseas stock market bubbles is weighing on traders:

A real case of whiplash for traders with a global perspective yesterday and overnight, as US equities posted one of their best days in months, while the mood in Asia was bleak and mainland Chinese shares suffered a particularly weak session as the top banking regulator in China warned of foreign market bubbles.

Elsewhere, commodities are selling off sharply, with gold nearing support at $1,690 per ounce, while the US dollar remains quite firm.

#Commodities remain in corrective mode following last weeks bond market rout. Adding to this a stronger $USD and China warning about bubbles. #Copper has retraced but so far bounced from support at $4.04/lb pic.twitter.com/VDkdrLoLg5

9.12am GMT

The strengthening dollar has also helped to push the gold price down to its lowest level in over eight months.

Bullion dropped to $1,706.70 per ounce overnight, its lowest since mid-June, extending its recent losses.

9.01am GMT

The US dollar has strengthened this morning, pulling the pound away from the three-year highs seen last week.

Sterling is down almost half a cent, to $1.3875, its lowest level in over a week.

8.43am GMT

The oil price has dropped this morning, as traders anticipate slowing demand from China.

Data released over the weekend showed that China's factory growth slowed in February.

Crude oil prices were 1% weaker in Asia and continue to pull back from multi-year highs, as worries over faltering Asian demand (inventories across the region remain elevated) and an uptick in OPEC+ supply could cap further gains.

Oil's impressive 2021 rally is coming unstuck just days before OPEC+ meets https://t.co/GrLSHSirS2 #OOTT pic.twitter.com/eP3CBaNLmI

8.30am GMT

Elsa Lignos of RBC Capital Markets says Guo's comments may show that this week's National People's Congress (when China's political elite gather to set policies) will focus on deleveraging the economy.

The Chair of China's Banking and Insurance Regulatory Commission said he was very worried" about bubbles in overseas financial markets and worried about risks in China's property sector. It reinforces expectations that this week's NPC is likely to see focus back on deleveraging.

8.10am GMT

China's CSI 300 stock market index dropped by over 1% today, with Guo Shuqing's comments about bubbles abroad worrying traders.

Other markets in the region also dipped:

Beijing calling the overseas market rally a bubble won't help sentiment in Hong Kong stocks, which had been seeing strong inflows from the mainland."

China's top banking regulator said he's very worried" about risks emerging from bubbles in global financial markets and the nation's property sector. Some "tightening guidance" ahead of China 2021 Two sessions on Thurs, 04 Mar

So far just only a minor knee-jerk reaction on risk assets. The SP 500 futures $ES_F $SPX dipped from yesterday high managed to stall at 23.6% of yesterday's rally at 3880. Hang Seng Index $HSI still above 28060 key MT support pic.twitter.com/JShaSgRih4

8.06am GMT

Guo Shuqing also warned about a bubble in China's housing market, saying it was risky to speculate in the property sector.

Bloomberg explains:

Guo also said bubbles in China's property market remain relatively big, with many people buying homes for investment or speculative purposes, which is very dangerous."

Uh-oh! #China's top banking regulator 'very worried' about bubbles in the countries property sector AND global financial markets. China house prices are an important indicator for (future) consumer spending. pic.twitter.com/tyaT7Br7Th

7.42am GMT

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

I'm worried the bubble problem in foreign financial markets will one day pop," Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission, told local media at a briefing in Beijing.

He pointed to gains in US and European markets enabled by ultra-loose monetary policy, which he said had seriously diverged" from the real economy. China's market is now highly linked to foreign markets and foreign capital continues to flow in"

Asia shares fall as China bank regulator warns of foreign bubble' https://t.co/IUo9kgMCqx

Investors now eye China's annual session of parliament beginning on Friday, which is expected to chart a course for economic recovery and unveil a five-year plan to fend off stagnation.

#Tuesday #markets seeing losses in Europe after best day since June yesterday on #WallStreet. #USD on the way up as #China data disappoints & warns of 'bubbles' - #base metals down. For more join @IGTV at 07:30amUK for #EarlyMorningCall - https://t.co/t7xbaLPqC7 pic.twitter.com/qnIrGb1bse

Wall St began March on a strong note w/the S&P 500 up 2.38%, best day since June despite weaker US Treasuries. US 10y yields nudge to 1.41%. pic.twitter.com/VEeKMxrGC4

The S&P closed out its best day since June, and the Dow & Nasdaq posted their biggest gains in nearly four months. So is this the all-clear for the markets? pic.twitter.com/bjYbUznyxc

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