European markets end lower
Investors have been rattled by the escalation of the trade dispute between the US and China, pushing stock markets lower once more. On top of that come concerns about the political situation in Germany, with the issue of immigration putting pressure on the country’s coalition government. But signs of optimism over the issue has seen markets come off their worst levels. The final scores showed:
- The FTSE 100 finished virtually unchanged, down just 0.03% or 2.58 points at 7631.33
- Germany’s Dax dropped 1.36% to 12,834.11
- France’s Cac closed down 0.93% at 5450.48
- Italy’s FTSE MIB fell 0.41% to 22,099.27
- Spain’s Ibex ended 0.83% lower at 9769.4
On Wall Street the Dow Jones Industrial Average is currently down 168 points or 0.67%.
Elsewhere, on a quiet day for corporate and economic news, Britain’s bosses warned the UK economy was facing its weakest growth since 2009, a bigger UK challenger bank emerged as Clydesdale and Yorkshire Bank Group took over Virgin Money, and the boss of VW’s Audi division was arrested following the Dieselgate scandal.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Joshua Mahony, market analyst at IG, said:
Global markets have started the week on a weak footing, as trade fears continue to play the primary role in determining market sentiment. With both the US and China set to impose a raft of tariffs on 6 July, there is likely to be an increasingly unstable and anxious market environment as we progress towards that deadline....
However, equally as important is the huge uncertainty we are seeing build in Germany, with Angela Merkel clashing with the leader of their coalition partner (CSU) over her stance on immigration. It is no doubt that immigration remains Merkel’s Achilles heel, and with the chancellor desperate to maintain a coalition to maintain her dominance over German politics, markets are understandably jittery at the thought of any political upheaval in the biggest economy in Europe.
Markets are still in the red, amid US-China trade fears and worries about the political situation in Germany. Connor Campbell, financial analyst at Spreadex, said:
Things got pretty ugly after the US open, the Dow Jones following in the footsteps of its Eurozone peers by posting some heavy losses.
The Dow plunged 240 points as the session got underway, a sharp decline that took it back below 24850 and to its worst price in 12 days. The index is struggling under the weight of the escalating US-China trade war, with Trump’s decision to push forward with tariffs on Beijing last Friday causing another nasty flare-up of international posturing.
The Eurozone indices, softened up by the trade war stuff, found themselves incredibly susceptible to the political problems in Germany, with the clash between the CDU and CSU bloodying the region’s trading rooms. The DAX dropped 1.8%, wiping out the post-ECB growth seen last week, and leaving it struggling to hold above 12800; the CAC was in-step with its German sibling, falling 1.6%, with the IBEX down 1.1% and the FTSE MIB slipping 0.6%.
Though still at its worst intraday price since the end of May, shedding half a percent to return to 7600, the FTSE managed to avoid the pain seen elsewhere. That’s likely because Brent Crude rebounded by 1.3%, lifting BP and Shell alongside it, while the pound fell 0.3% against both the dollar and the euro as it speculates about Thursday’s Bank of England meeting.
The pound has come under pressure amid the latest Brexit developments - peers are currently debating the EU withdrawal bill which can be followed in our politics live blog - and ahead of the latest Bank of England meeting on Thursday.
With the Bank widely expected to leave interest rates on hold, the pound has slipped 0.32% against the dollar to $1.3240 having earlier fallen as low as $1.3227. Dan Smith, investment analyst at Thomas Miller Investment, said:
The Bank of England (BoE) holds a monetary policy meeting this Thursday (21 June) and is widely expected to make no change to interest rates. Incoming data continues to show that the UK economy is not firing on all cylinders. Consumer spending, employment and business confidence surveys have been fairly solid and supportive of growth, whilst industrial production and manufacturing have been exceptionally weak.
The minutes of the meeting will be closely scrutinised to see whether policy members sit on the optimistic or pessimistic side of the fence in regards to recent data, with the tone of the minutes likely to set expectations over the possibility of an interest rate rise in August.
Wall Street opens lower
The increased trade tensions between the US and China continue to unnerve investors, with Wall Street falling sharply at the open.
The Dow Jones Industrial Average is down 238 points or 0.95% while the S&P 500 and the Nasdaq Composite both opened almost 0.7% lower.
Oil prices rise by 1% ahead of Opec meeting
Elsewhere the oil price is heading higher ahead of a key meeting of Opec later this week.
Brent crude is currently up 1% at $74.18 a barrel, recovering some of its recent losses. Saudi Arabia and Russia had been widely expected to agree to increase production, boosting supplies and lowering prices. But talk that this may not happen after all - or perhaps not by as much as previously expected - has halted the slide in crude.
On top of that, the escalation of the trade dispute between the US and China has also helped lift prices by raising new concerns about its effect on global growth, and thus demand for oil.
The arrest of Audi’s chief executive does not mean the truth about Dieselgate is any closer, says consumer rights law firm Your Lawyers, which is leading the steering committe for a group litigation order against Volkswagen. The firm’s director Aman Johal said:
Audi CEO Rupert Stadler’s arrest and investigation over fraud and false advertising indicates that we may still be no closer to the full extent of the truth behind the Volkswagen Group’s Dieselgate scandal.
Stadler is one of 20 suspects being investigated at Audi for false claims about its diesel vehicles. Perhaps the widening probes will lead to greater clarity on how the automotive giant was able to cheat customers around the world, and which individuals within the VW Group are personally responsible.
There are around 60,000 people in the UK that are calling for justice against Volkswagen as part of a class action claim that our firm is on the Steering Committee for, but owners only have until 26 October 2018 to make their case. Unless Volkswagen chooses to do the right thing by its customers and pay compensation, we will pursue them for justice in the High Court.
We will be closely monitoring Stadler’s case and will continue to fight for justice for Volkswagen’s victims.
German newspaper Frankfurter Allgemeine Zeitung reports that Audi’s board will soon appoint an interim chief executive, following Rupert Stadler’s arrest this morning.
The appointment will be made at a supervisory board meeting convened at short notice on Monday.
Audi insists that “the presumption of innocence remains in place for Mr. Stadler”, but the company also recognises that an interim replacement is now needed. More here
The Volkswagen emissions scandal centred on the use of “defeat devices,” which allowed VW cars to recognise when they were being tested in the lab and enter a low-emissions mode.
Otherwise, they would generate more pollution than permitted under EU and US rules, but also provide higher performance.
Volkswagen tied to pin the blame on a couple of rogue software engineers, but prosecutors believe the scandal runs deeper.
Last summer, VW engineer James Liang was jailed for 40 months in America, and fined $200,000, after admitting helping to design software to cheat US emission tests. Liang had led VW’s Diesel Competence unit in the US.
Associated Press reports that 20 people are under suspicion in the Audi probe, adding:
Volkswagen has pleaded guilty to criminal charges in the United States and nine managers, including former CEO Martin Winterkorn, were charged there. Two are serving prison terms; Winterkorn and the others remained in Germany and are unlikely to be extradited.
German news agency DPA is reporting that German prosecutors arrested Rupert Stadler on fears that he might undermine the ongoing investigation into the VW diesel emissions scandal.
The investigation is focused on claims that Audi sold at least 210,000 diesel-engine cars fitted with cheat software in the United States and Europe over several years.
Last summer, Audi diesel engine engineer Giovanni Pamio was arrested by Munich’s prosecutors, and then charged by US authorities over the scandal.
Shares in Volkswagen have fallen 2% in Frankfurt, following Stadler’s arrest (Audi is one of VW’s biggest divisions)
More details of Audi CEO Rupert Stadler’s arrest are coming in.
He was detained at his home in Ingolstadt, the Bavarian city, in the early hours of this morning, prosecutors say.
This makes Stadler the most senior Volkswagen executives arrested since the German carmaker was caught rigging diesel emission tests.
The Munich prosecutor’s office says:
“As part of an investigation into diesel affairs and Audi engines, the Munich prosecutor’s office executed an arrest warrant against Mr Professor Rupert Stadler on June 18, 2018,”
Updated
Audi boss arrested
Newsflash: Over in Germany, the boss of automaker Audi has been arrested by police investigating the emissions scandal.
Audi chief executive Rupert Stadler was detained this morning, according to parent company Volkswagen.
A VW spokesman told Reuters:
“We confirm that Mr Stadler was arrested this morning. The hearing to determine whether he will be remanded is ongoing.”
The arrest comes a week after prosecutors raided Stadler’s apartment, as they widened the investigation into how Volkswagen used ‘cheat software’ in its cars to trick emissions tests.
Last month, Audi admitted that another 60,000 A6 and A7 models with diesel engines have emission software issues -- further deepening a scandal that began in 2015.
David Madden, CMC Markets analyst, says investors are “caught in the middle” between the US and China.
Stock markets are broadly lower today as traders are increasingly worried about the prospect of a trade war. Tensions between the US and China are escalating, and we are not any closer to an agreement being reached.
We are expecting the Dow Jones to open down 115 points at 24,975 and we are calling the S&P 500 down 9 points at 2,770.
Back in the UK, the takeover battle for Virgin Money is over -- putting hundreds of jobs at risk.
Clydesdale and Yorkshire Bank Group (CYBG) has sealed a £1.7bn deal to merge with Virgin, turning two small challenger banks into one larger one. The move could be a blow to the North East economy, where Virgin owns many of Northern Rock’s assets.
My colleague Julia Kollowe explains:
Clydesdale and Yorkshire Bank Group (CYBG) and Virgin Money have agreed to create the UK’s sixth-largest bank, with 6 million personal and small business customers and total lending of £70bn.
The banks expect to make £120m of annual savings by by 2021 by reducing overlap between their operations. This will result in a 16% reduction in the combined group’s 9,500-strong workforce that CYBG hopes to achieve by attrition – that is, when people leave they will not be replaced. It declined to say how many of the combined group’s 250 branches will be closed.
However, the plan is to retain Virgin Money’s head office in Gosforth, Newcastle, for at least three years.
More here:
Markets hit by trade war worries
European stock markets have started the week on the back foot, as fears of a global trade war intensify.
The Stoxx 600 index, which tracks Europe’s largest companies, has dropped by 0.5% after America and China imposed tit-for-tat tariffs on Friday.
Chinese media have launched a stinging attack on Trump, calling his government “selfish” and “rude” for imposing new charges on imports from China
China’s Global Times said Beijing had no choice but to retaliate:
“It reinforces the difference in images of the two countries: one challenges the foundation of global trade through sudden attacks; and one that is prepared to defend itself in a trade war that it cannot avoid.”
Rebecca O’Keeffe, Head of Investment at interactive investor, says markets are finally beginning to wake up to the risks of a global trade war.
The negotiating style of President Trump had allowed investors to assume that his threats were hyperbole and part of his unique diplomatic style, and that he would step away from the brink rather than risk undermining the positive impact his previous policies have had on the stock market.
However, the US decision to press forward and take on China makes the risks far more pronounced and the real danger is that the Chinese retaliation may start a chain reaction that is difficult to stop – especially as Trump likes to have the last word.
The current position on tariffs is unlikely to cause a full-blown rout for markets, but the prospect of further escalation and reprisals could cause considerable damage to the global economy, increasing the risks and anxiety.
In another sign of economic weakness, London house prices have fallen for the 10th month in a row.
Rightmove reports that asking prices in the capital are down 0.9% compared with May, and are 1.0% lower than a year ago. That’s the 10th monthly fall in a row, as the once-hot London property market continues to cool.
London is particularly vulnerable to the threat of a ‘hard Brexit’, as tens of thousands of financial jobs could be lost.
Prices have dropped particularly sharply in the centre over the last 12 months (although the average property is still priced north of £1.3m).
Property prices in the north are still rising, though, helping to push the national asking price up by 0.4% this month.
Lack of supply in Northern areas is helping to keep prices up, says Miles Shipside, Rightmove director and housing market analyst:
“The reduction in property choice for buyers in the north compared to a year ago is a result of property for sale being snapped up, meaning it’s more of a sellers’ market there.
In marked contrast the jump in buyer choice in southern regions shows there are signs of a sellers’ market in some areas.”
Here are all the key points from the British Chamber of Commerce’s new economic forecasts:
- UK GDP growth forecast for 2018 is downgraded from 1.4% to 1.3%, down from 1.5% to 1.4% in 2019, rising to 1.6% in 2020 (unchanged)
- Quarter-on-quarter GDP growth is forecast to rise by 0.4% in Q2 2018, from 0.1% growth in Q1.
- Growth in household consumption for 2018 is expected to slow to 1.0%, before rising to 1.4% in 2019 and 1.7% in 2020
- Inflation will continue to ease, but will not fall below the 2% target until 2020.
- The next interest rate rise, by 0.25%, is forecast to occur in Q4 2018, followed by a further increase to 1.0% in Q2 2019, with no further rises expected over the remainder of the forecast period
- Unemployment will remain at 4.4% in 2018, rising to 4.5% in 2019 and 2010
- Average earnings growth will continue to slightly outpace inflation over the forecast period, with growth of 2.7%, 2.9%, and 3.0%, compared with inflation of 2.5%, 2.3%, and 1.9%
- Export growth of 2.8% in 2018, 2.9% in 2019, and 2.9% in 2020 is expected. This compares with import growth of 1.7% in 2018, 2.5% in 2019, and 3.0% in 2020
- Growth in the construction sector is expected to slow significantly in 2018, with 0.7% growth, compared to 5.7% in 2017. The sector picks up slightly in the remainder of the forecast period, with 1.3% and 1.5% in 2019 and 2020 respectively
- Services sector growth is expected to slow to 1.2% in 2018, before picking up to 1.5% in 2019 and 1.9% in 2020
- Business investment is expected to remain weak, with growth across the forecast period of 0.9% in 2018, 1.2% in 2019, and 1.7% in 2020
The BCC’s gloomy forecasts could actually be too optimistic, if the Brexit process ends messily or if Donald Trump manages to create a full-blown trade war.
Suren Thiru, head of economics at the British Chambers of Commerce, explains that the UK is vulnerable to external shocks:
“While Brexit uncertainty and the weakness in sterling have weighed on overall UK growth, it is the failure to deal with the longstanding structural issues from weak productivity to the deep imbalances in the UK economy that continue to undermine the UK’s growth potential.
“The risks to the outlook are on the downside. A messy departure from the EU would likely slow UK GDP growth further over the medium term. The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth than implied by the current forecast.
The agenda: BCC cuts UK growth forecasts
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain is facing its weakest growth since the financial crisis, as uncertainty over Brexit and fears of a global trade war hit confidence.
So warns the British Chambers of Commerce (BCC), which has just downgraded its growth forecast for the UK. It fears that consumer spending, business investment and trade are all weakening, leading to weak wage growth and stretched households.
In short, Britain is trapped in a ‘torpor’, it warns, with growth expect to fall to just 1.3% this year. That would be the weakest performance since 2009 (down from a previous forecast of 1.4%).
The service sector is expected to struggle, with growth slowing to 1.2% in 2018 (that would be the weakest outturn since 2010.)
The BCC has also cut its forecast for 2019 from 1.5% to 1.4%. It predicts that Britain’s net trade position will weaken in the next few years, as exporters struggle but imports pick up.
Adam Marshall, director general of the BCC, says the government must act to help businesses through the ‘testing times’ ahead:
“A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty.
“Our forecast should serve as a wake-up call to government - as it demonstrates that ‘business as usual’ is not an option when it comes to the economy.
“With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment.
Marshall also warns that MPs can’t simply fixate on Brexit, given the other problems in the country:
Businesses across the country want to see far more urgency around fixing the fundamentals here at home and a concerted effort to lower the high costs of doing business.
Also coming up today...
Tensions between the US and China are rising, after president Trump approved tariffs on $50bn of Chinese goods last Friday. China swiftly hit back by imposing its own tariffs on US products.
These geopolitical tensions are weighing on the markets; Europe’s Stoxx 500 index has dropped by 0.3% in early trading after losses in Asia.
European investors should also keep an eye on Germany, where a deepening row over migration could bring down the government. Angela Merkel is refusing to bow to pressure from her own interior minister to turn away asylum-seekers who have registered in other European countries.
Merkel hopes to find a Europe-wide solution, but pressure is building on the chancellor.
Otherwise it looks like a quiet day, leaving the City free to anticipate England’s opening World Cup game (KO: 7pm BST).
Updated
