Summary

Markets remain nervous thanks to a combination of an escalation in the US-China trade tensions, the uncertainty over how the current situation with President Trump will play out and a mixed picture from the eurozone economy.

Preliminary purchasing manager surveys for August show French business activity hitting a four month high, while Germany’s service sector did well but manufacturing slipped back and the overall eurozone figure was disappointing.

And the minutes from the European Central Bank’s July meeting showed it was concerned about protectionism and the escalation of trade disputes.

The dollar edged higher for the first time in six trading sessions, helped by the Federal Reserve’s minutes suggesting more interest rate rises were on the way despite Trump’s displeasure at such a policy.

Elsewhere UK retail sales grew more strongly than expected, thanks mainly to the heatwave boosting sales of food and drink for barbecues and outdoor parties.

On that note, it’s time to close for the day. Thanks for your comments, and we’ll be back tomorrow.

The minutes suggest a rate rise in just over a year from now, in September 2019, says one ECB watcher:

ECB accounts: "Members widely expressed satisfaction that the communication of the June monetary policy decisions had been well understood by financial markets". Sep-19 hike still the baseline. https://t.co/OlPEsUAf1l

— Frederik Ducrozet (@fwred) August 23, 2018

Strong emphasis on wage growth in ECB accounts echoing Draghi's comments in July, with one caveat though: "it remained to be seen to what extent wage inflation would translate into price inflation over time". pic.twitter.com/mX5dxTHM7h

— Frederik Ducrozet (@fwred) August 23, 2018

Trade wars and protectionism threat to eurozone economy - ECB

The threat of a global trade war and increased protectionism are the main risks for the eurozone economy, according to the minutes of July’s meeting of the European Central Bank.

Otherwise, the bloc’s growth was on track, the ECB believed which is why there was little disagreement on leaving its policy unchanged. It had already announced in June it would end its bond buying programme by the end of the year and keep interest rates steady at least until next summer. On trade tensions, the minutes said:

Uncertainties related to global factors remained prominent, in particular with regard to the threat of protectionism and the risk of an escalation of trade tensions...These tensions could generate a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs.

The dollar has rallied for the first time in six trading sessions, following the US Federal Reserve’s minutes which suggested further rate rises this year despite Donald Trump’s displeasure.

News of the new round of trade tariffs from the US and China also helped the greenback, given its status as a haven in uncertainty.

So the dollar added 0.07% against a basket of currencies, while the pound dipped 0.15% to $1.2890.

Sterling is also being affected by continued Brexit uncertainties, as the UK government spells out some of the consequences of leaving the EU without a deal.

Sainsbury/Asda deal to be investigated by UK competitions watchdog

The proposed merger between supermarket chains Sainsbury and Asda will be investigated by the UK’s competition and markets authority.

The CMA said it will begin a detailed assessment into how any deal would affect competition for UK shoppers, and whether it would lead to less choice or higher prices. It will also investigate whether the deal would allow the merged company to squeeze suppliers.

The companies have asked for a fast track inquiry, and the CMA will accept this unless there are “valid objections.”

With markets continuing to drift, Connor Campbell, financial analyst at Spreadex, said:

Thursday continued to be more notable for what didn’t happen than what did, with the FTSE avoiding the red despite a rocky set of mining stocks.

The UK index spent the morning flat at 7580, the gains from the likes of BP and Shell – Brent Crude shot up to $75 per barrel on Wednesday, though has pulled back below $74.50 this Thursday – countering the losses seen from Rio Tinto, Anglo American et al.

Helping the FTSE was a disappointing session for the pound. Having built up a head of steam against the dollar – admittedly one that is pretty paltry in comparison to its recent losses – sterling saw its rebound nipped in the bud by a hawkish set of Fed meeting minutes on Wednesday night, with cable slipping 0.3% to fall beneath $1.287. And even though the Eurozone’s manufacturing and services PMIs weren’t great, the euro also managed to have the edge over the pound, the single currency climbing 0.2%.

Turning to this afternoon, and with the US-China trade war heating up with the latest bout of tit-for-tat tariffing just as talks get back underway, the Dow Jones isn’t looking like it fancies doing much when the bell rings on Wall Street. The futures have the Dow dipping 25 or so points when the US session gets underway, a move that keeps it below the 25750 mark it has struggled to really push beyond with any longevity in the last few days.

The CBI says the hot weather in August kept people spending, but the outlook is not so positive. Anna Leach, CBI Head of Economic Intelligence, said:

The summer heatwave has kept shoppers out on the high street, with consumers splurging on food and drink for barbecues and garden parties.

That said, the outlook for retail remains challenging, with orders falling, prices rising, employment sliding, and investment drifting down.

The long-term challenges facing the retail sector are significant and won’t be resolved overnight. Subdued real wage growth and digital disruption continue to pile pressure on firms, while high street retailers continue to suffer under an out-dated business rates system.

UK retail sales stronger than expected - CBI

Signs of strength in the UK high street.

The latest distributive trades survey from the CBI shows a positive balance of 29 in August, compared to an expected fall to +13 from +20 in July. But the expected employment index - a quarterly index - fell to -35 in August, the lowest level since the fourth quarter of 2009 and down from a flat level in May.

China’s retaliatory measures following the latest US tariff move are more aggressive than expected, says ING Bank economist Iris Pang:

The $16bn revised tariff list from China includes medical equipment and automobiles when the US administration would like to help American automobiles fare better in the international market. We see this list as more punchy than the previous one even the amount involved stays the same at $16bn...

The uncertainty now lies in how China would retaliate qualitatively and this the main concern for markets rather than today’s tariffs implementation.

If the trade talks between China and the US do not yield positive results this week, the US is set to impose another 25% tariffs on $200bn of imported goods from China. The amount would be around half of the goods US imports from China, but China will only retaliate with tariffs on $60bn because the US doesn’t export as much. But China has repeatedly stated that it can retaliate qualitatively.

Qualitative retaliations could include placing administrative measures on US companies operating in China or following the US lead and leveraging ‘national security’ to prevent some American companies operating in the country. Given that ‘national security’ examination has recently been added as a clause in foreigners’ investment policies in China, this seems like a possibility.

Updated

US markets are expected to open fairly flat, as investors remain cautious in the wake of the trade tensions and President Trump’s troubles.

Most European markets are also virtually unmoved at the moment, but analysts are nervous about how long the hiatus will last. Joshua Mahony, market analyst at IG, said:

Early hesitancy for European markets reflects the ongoing political instability in the US, alongside uncertainty as the US-China trade talks come to a head ... The ongoing fears over the snowballing political picture in the US ... remain a driver of risk aversion in the US, with European markets largely outperforming in recent days. Comments from Trump that he did not break election campaign rules are far from allaying market fears, and there is a growing fear that this crisis could drive substantial losses at the mid-term elections in November ....

Today sees the US-China trade talks come to a head, with low market expectations likely to drive the response to any final announcement. There seems to be little headway being make over the months, and the inability of the Chinese to appease Trump’s demands mean that this is likely to rumble on for some time yet. However, with the bar set so low, there is also the potential for some sort of half-hearted announcement which sets out an agreement to work towards specific targets, in a similar ilk to that seen with the EU.

Updated

The trade tensions between the US and China are more likely to deteriorate this year and dampen global growth in 2019, according to Moody’s.

In its latest global outlook report, Moody’s says there are early signs that global growth has peaked. It expects the G20 countries to grow by 3.3% in 2018 and 3.1% in 2019. The advanced economies will grow 2.3% in 2018 and 2.0% in 2019, while G20 emerging markets will remain the growth drivers, at 5.1% in both 2018 and 2019.

But it added that “further tariffs, similar in magnitude to the newly proposed 25% US tariffs on $200bn of imports from China and 25% US tariffs on all auto and auto part imports, represent a disruptive downside risk to our baseline forecasts.” Madhavi Bokil, Moody’s vice-president and lead author of the report, said:

Most of the impact of the trade restrictions on economic growth will be felt in 2019. The magnitude of the macro impacts will depend on market sentiment. Tightening of financial conditions through asset price and currency adjustment and a broader hit to business and consumer confidence are now more likely than a few months ago and have the potential to derail the global economy.

Updated

Back with the trade wars, and here is our latest report on the new tariffs:

The US and China have escalated their ongoing trade war by implementing 25% tariffs on $16bn worth of imports on both sides, bringing the amount levied to a combined $100bn (£78bn) since July.

Beijing began implementing the new tariffs on Thursday, when the US said it would begin collecting extra duties in retaliation for what it claimed were unfair Chinese trade practices.

“China firmly opposes [the US tariffs] and has to continue to make necessary counterattacks,” China’s ministry of commerce said in a statement.

The latest round of tariffs comes as Chinese and US officials are due to meet in Washington for talks that few expect will bring an end to months of tit-for-tat threats and tariffs.

On Monday, Donald Trump told Reuters he did not “anticipate much” from the negotiations in Washington. The US president said any resolution would “take time because China’s done too well for too long, and they’ve become spoiled”.

The White House claims China steals foreign companies’ intellectual property or forces them to give it up, and that industrial subsidy programmes unfairly benefit Chinese businesses. The latest round of US tariffs target electronics, plastics, chemicals, semiconductors and other goods from the “Made in China” industrial plan to upgrade Chinese manufacturing capabilities.

The full story is here:

Euro area flash PMIs: output and new orders outside France & Germany weakened to 22-month lows, with future expectations hitting a five-year low. Details much less positive than headlines overall. pic.twitter.com/b5pZIlvtIX

— Frederik Ducrozet (@fwred) August 23, 2018

The eurozone data will not make easy reading for the European Central Bank or its president, Mario Draghi, suggests Balraj Sroya, sales trader at foreign exchange specialist Foenix Partners:

The ECB’s monetary policy plans could be derailed as trade war fears have impacted PMI figures from the bloc state. While both the services and manufacturing PMI prints from the eurozone showed expansion in each respective sector, the manufacturing figure fell to 20-month lows of 54.6. Recently Inflation and economic growth have exceeded the ECB’s targets. However, the central bank’s Quantitative Easing tapering strategy could be derailed if feeble data such as today’s PMI prints continue while adding fuel to an already cautious Draghi.

Updated

Eurozone's August growth slightly below expectations

Eurozone business growth picked up but at a slower pace than expected, with the prospects of a trade war hitting the outlook for manufacturers.

The IHS Markit preliminary composite PMI - which includes both the manufacturing and service sectors - came in at 54.4 in August, up from 54.3 the previous month but marginally below the forecast 54.5. The rate of expansion was one of the weakest seen over the past year and a half, said Markit.

Companies expectations of growth slipped to the lowest for nearly two years.

The services PMI rose from 54.2 to 54.4, in line with expectations. But the manufacturing index fell from 55.1 to 54.6, the lowest since November 2016 and below the expected 55.

Chris Williamson, chief business economist at IHS Markit warned of warning lights flashing. He said:

The survey data indicate that the eurozone economy looks to have continued to grow at a steady rate in August, raising hopes that the third quarter could see GDP growth match the 0.4% expansion seen in the second quarter. In fact, the survey evidence suggests that the official data so far this year could yet be revised slightly higher.

Jobs growth also remains encouragingly robust, which should help further stimulate consumer spending and help offset signs of continuing weakness in exports.

With the indicators of current activity, employment and price gauges remaining elevated, the August survey sends a hawkish signal to policymakers. But the forward-looking indicators suggest the business mood could cool as summer passes.

Warning lights are flashing. Analysis of past data indicates that demand needs to pick up to sustain current output and employment growth in coming months. Yet the risks seem tilted to the downside.

Escalating political worries, rising prices and a recent slowdown in order book growth have all contributed to the gloomiest outlook for almost two years, according to companies’ expectations of their future output. In manufacturing, optimism is down to its lowest for almost three years, as a near- stalling of exports corroborated escalating trade war worries.

With manufacturing looking the most susceptible to a trade-led slowdown in coming months, hopes are pinned on a robust service sector helping to drive economic growth as we move into the autumn, yet even here optimism is down to its lowest for nearly two years.

Back with the German PMIs:

Flash #Germany PMI 55.7 v 55.0 in July (best since Feb). PMI so far indicates Q3 GDP of c.+0.5%. Employment growth close to record highs. Services-led expansion, but new orders growth for goods slipped to the lowest since May 2016 amid smallest rise in exports for over 2 years pic.twitter.com/LRBYJIEeGk

— Chris Williamson (@WilliamsonChris) August 23, 2018

Investors remain cautious, with markets continuing to drift. Lee Wild, head of equity strategy at interactive investor, said:

Markets traded either side of breakeven in early trade as tariffs threatened by both the US and China came into effect overnight. And there’s a real risk to global economic growth if the US slaps duties on another $200bn of Chinese goods, and especially if other countries get sucked into this dispute. At a time when other economies are beginning to struggle, a sharp slowdown in US expansion could have a significant impact worldwide.

These developments come at a particularly sensitive time for a UK stock market rangebound for the past three months. September is statistically the worst month of the year for UK shares, but there have been wild swings either way in recent years, so don’t expect this stale period to last.

Updated

German economy boosted by service sector

Germany’s business activity hit a six month high, with a strong service sector making up for weakness manufacturing as global trade tensions rise.

The IHS Markit preliminary composite PMI rose from 55 in July to 55.7, better than the expected 55.2.

But the manufacturing index fell from 56.9 to a lower than forecast 56.1. The service sector rose from 54.1 to 55.2. Phil Smith, principal economist at IHS Markit said:

German business continued to display remarkable resilience during August, with the latest PMI data going some way to dispel any fears about a global trade slowdown and its impact on the health of the economy.

Buoyed by strong fundamentals in the domestic market, including rising employment and wages, the service sector enjoyed an upturn in growth in August and drove the steepest rise in private sector business activity for six months.

While the manufacturing PMI retreated slightly, it remained well inside growth territory at the mid- point in the third quarter. The top-line number is perhaps flattered by the output component, with trends in new orders and exports – the latter the weakest in over two years – pointing to a softer pace of growth.

Elsewhere, the survey’s measure of prices charged for goods and services edged closer to January’s survey-record peak, to suggest the potential for some renewed upward pressure on the headline inflation rate in coming months.

Updated

#France Markit Services PMI Flash at 55.7 https://t.co/7vBIs85sQM pic.twitter.com/2V0oQJ9Em1

— Trading Economics (@tEconomics) August 23, 2018

#France Markit Manufacturing PMI Flash at 53.7 https://t.co/IxQ6ZMYHt1 pic.twitter.com/CMClN29pDd

— Trading Economics (@tEconomics) August 23, 2018

French business growth hits four-month high

France has reported better than expected growth in August, according to a preliminary survey of the country’s manufacturing and service sectors.

IHS Markit’s composite purchasing managers index - which combines the two sectors - rose from 54.4 in July to 55.1 this month. Analysts had been expecting a figure of around 54.6. The index has been above the 50 level which separates growth from contraction for the 26th month in a row.

The manufacturing PMI rose from 53.3 to 53.7 while the service sector index increased from 54.9 to 55.7. Sam Teague, economist at IHS Markit said:

Output growth across the French private sector ticked up to a four-month high in August, with both the service and manufacturing sectors seeing stronger expansions. Robust domestic client demand, alongside a renewed upturn in exports provided stimulus for the latest acceleration in growth.

A key theme in the latest survey were the sharp inflationary pressures reported in the manufacturing sector, with many respondents blaming higher oil- related input cost burdens. This in turn placed downward pressure on confidence towards expected output growth over the next year. That said, despite optimism slipping in August, French businesses continued to hire additional staff at an elevated pace, partly reflecting rising output requirements.

Updated

Edgy start for European markets

The new round of tit-for-tat trade tariffs between the US and China, the prospect of a US rate rise next month and Donald Trump’s growing problems have cast a shadow over European markets at the open.

The FTSE 100 is virtually flat, up just 0.05%, while Germany’s Dax is down 0.07% and France’s Cac has climbed 0.11%.

Here are the opening calls for the European markets:

European Opening Calls:#FTSE 7562 -0.16%#DAX 12365 -0.17%#CAC 5418 -0.05%#MIB 20679 -0.10%#IBEX 9566 -0.15%

— IGSquawk (@IGSquawk) August 23, 2018

Weaker tone across European stock indices as fresh round of US-China tariffs kick in. #Trump issues continue to weigh #FTSE called 20 lower

— David Morrison (@DavidGKFX) August 23, 2018

Agenda: Trade, Trump, eurozone economy and ECB in focus

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

The bull run in the US market may have broken a new record on Wednesday, but investors have plenty to be nervous about at the moment.

US and Chinese negotiators are meeting to try and resolve the trade dispute between the two sides, but this has not stopped new tariffs coming into effect a few hours ago.

The US imposed a new round of tariffs on $16bn worth of imports from China, including motorcycles, locomotives and agricultural equipment. The 25% tax came into effect at 5.00 BST (noon in Beijing).

China immediately responded by saying it planned to file a fresh complaint to the World Trade Organisations, and imposing retaliatory taxes on $16bn worth of US goods. David Madden, market analyst at CMC Markets UK, said:

The US-China trade spat continues as representatives from both countries engage in low level talks in the US. The tit-for-tat tariffs conflict continues as both sides will impose tariffs on $16bn worth of each other’s goods today. The monetary size is small but the gesture is big, and traders will be eyeing developments.

The trade dispute is of course not the only thing to worry US markets. President Trump’s troubles continued after the criminal conviction of two associates, which is causing the one thing markets hate above all - uncertainty. Jasper Lawler, head of research at London Capital Group, said:

There has been a lot of negative news on Trump over the past 36 hours; the job of markets will now be to decide whether Trump can ride the storm, or whether the double blow is likely to damage the Republican Party’s election prospects at the mid terms in November and result in the extension of a criminal investigation, which is already overshadowing Trump’s presidency. The reality is that the market’s reaction so far has been limited and contained, suggesting that traders believe, at least for now, that Trump can move past this.

The latest minutes from the Federal Reserve suggested the central bank is still keen on hiking rates, with another rise expected in September despite Trump’s recent attack on the policy. But the Fed did express some concerns about the Chinese trade spat, meaning it was marginally less hawkish than some had expected.

Later today come the minutes from the recent meeting of the European Central Bank, with investors looking for further clues about the ending of its bond buying programme and the prospect of any rate rises.

Also today there are the preliminary snapshots of the eurozone economy in August, with updates from France, Germany and the bloc as a whole.CMC’s Madden said:

The flash manufacturing and services PMI reports from major eurozone countries will be in focus today. At 08.15 (UK time) France will release their numbers, and economists are expecting the manufacturing report to come in at 53.4, a slight improvement on July’s 53.3. The consensus estimate for the services report is 55.1, up from 54.9 last month. Germany will announce their figures at 08.30 (UK time) and traders are expecting a slight cooling in the manufacturing sector from 56.9 in July to 56.5. Economists are expecting the services report to be 54.3, and the July reading was 54.1.

As for the overall eurozone performance, economists at UniCredit said:

The composite PMI is likely to edge up slightly in August, to 54.5 from 54.3 in the previous month (10:00 CET). We expect both the manufacturing and the services components to contribute to the headline reading. While a pickup in global trade activity during the second half of 2018, as indicated by our own global leading indicator, is likely to bolster sentiment of eurozone export-dependent manufacturers going forward, solid domestic fundamentals stemming from robust consumer spending and record-low unemployment should keep economic activity in the services sector well supported.

Agenda:

8.15 BST French manufacturing and services PMI

8.30 BST German manufacturing and services PMI

9.00 BST Eurozone manufacturing and services PMI

11.00 BST CBI distributive trends survey for August

12.30 BST Minutes of the July meeting of the European Central Bank

Updated

Contributor

Nick Fletcher

The GuardianTramp

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