US retail sales stronger than expected, calming nerves
Just in: US retail sales were stronger than expected last month, calming fears of an imminent recession.
American shoppers spent 0.7% more in July than in June, beating expectations of a 0.3% rise.
As in the UK (see earlier post), internet shopping provided a big boost — again, Amazon Prime Day is a likely reason.
It’s hard to keep track of all the maneuvers in the US trade war.
But helpfully, the Peterson Institute’s Chad Brown has explained America’s latest move – to impose higher tariffs on clothing, shoes and technology products made in China:
Wall Street isn’t even open yet, but the futures market has been pretty darn lively – hit by recession worries and trade war tensions.
China: Hope to meet US half-way
Newsflash: China has now made some more conciliatory comments about the trade war with the US.
The Ministry of Finance has said that it hopes to meet America “half-way” to resolve the dispute, and that presidents Xi and Trump are in touch through phone calls and letters, as well as their recent meeting at the last G7 summit.
This is helping the markets to recover some ground – European stock markets are now a little higher again, and Wall Street is tipped to recover some ground too. What a day!
How might China retaliate against the US’s latest tariffs on $300bn of its exports?
It can’t simply respond in kind. China only bought $120bn of goods from America in 2018, and has already imposed tariffs on them, in response to earlier US sanctions.
Beijing could raise its existing tariffs, I suppose but that would badly hurt Chinese consumers and companies (who would pay the tariff).
Instead, policymakers could use non-tariff measures. It could allow the yuan to fall in value, or cut off purchases from America altogether in favour of other countries (Brazilian soybeans, anyone?).
The nuclear option, as Eleanor Creagh of Saxo Bank points out, would be to stop buying US government debt. That would shake the markets, as China has been such a huge buyer of US Treasuries.
Ironically, such a move might drive down the prices on US debt, pushing up yields and ending the yield curve inversion…..
Oil is continuing to slide today, hit by fears of a global downturn.
Brent crude has dropped by 2.5% to just over $58 per barrel.
It was already a rough day in the markets, even before China ratcheted up the trade war tensions:
Hold onto your hats, folks. The Dow Jones industrial average is now tipped to lose more than 200 points when trading begins, a drop of 0.8%.
That’s on top of yesterday’s 800-point slide.
August has been a torrid month for the markets, and we’re only halfway through it!
Britain’s FTSE 100, for example, has fallen by over 7% in the last two weeks – from 7,586 points to just 7028 right now (down another 120 points today!).
The Footsie is still up 5% this year, so it’s not disastrous. Plus, August is notoriously volatile (liquidity is lower as investors take their holidays).
Fund manager Brent Carlile thinks China’s threat is a response to Donald Trump’s decision to delay tariffs on Chinese-made consumer goods until December.
That concession is meant to protect US consumers from pre-Christmas price hikes – but could also look like weakness from the White House.
Crumbs. Shares in Europe’s banking sector are down 1.2%, hitting their lowest level since 2012 – when the eurozone debt crisis was raging.
Mining companies are among the top fallers in London, dragging the market deeper into the red.
The FTSE 100 is now down 92 points at 7056, its lowest level since the end of February.
Anglo American are down 5.7% and Glencore has lost 4.5%. Demand for coal, copper and iron ore will all decline if a trade war creates a global downturn.
Financial stocks are also suffering from recession fears, with Royal Bank of Scotland and Standard Life Aberdeen both losing 3.5%.