Graeme Wearden (until 2.10pm) and Nick Fletcher 

FTSE 100 at record high after trade war truce, but pound hits 2018 low – as it happened

UK stock market hits new peak after US Treasury secretary Mnuchin says the trade war with China is ‘on hold’
  
  

A worker welding steel at a shipyard in Nantong in China’s eastern Jiangsu province.
A worker welding steel at a shipyard in Nantong in China’s eastern Jiangsu province. Photograph: -/AFP/Getty Images

European markets benefit from trade news but Italy under pressure

The US-China trade truce has given a lift to stock markets at the start of the new trading week. Helped by a weaker pound, the FTSE 100 has hit a new peak, while most European markets managed to move higher.

A notable exception was Italy, where investors are growing increasingly concerned about the new coalition’s plans for borrowing and its attitude to the rest of the European Union. Italian bond yields rose sharply and the stock market fell back. Dan Smith, investment analyst at Thomas Miller Investment, said:

The Five Star Movement (5SM) and Lega progression in forming a coalition government has increased the level of political risk in Italy, particularly as both parties are interested in relaxing fiscal policy (government spending and taxes) – a result which will raise tensions between Italy and European institutions and raise question marks over the country’s commitment to the European Union.

Overall the final scores showed:

  • The FTSE 100 rose 1.03% to a new closing high of 7859.17
  • Germany’s Dax was closed for the Whit Monday holiday
  • France’s Cac climbed 0.41% to 5637.51
  • Italy’s FTSE MIB fell 1.52% to 23,092.38

On Wall Street, the Dow Jones Industrial Average is currently up 1.2% or more than 300 points.

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

FTSE 100 at new closing high

The FTSE 100 has finished at 7859.17, up 1.03% and a new record closing high. Earlier in the day it touched a new all time intra-day peak of 7868, on relief that the chances of a trade war between the US and China seemed to have receded. A weaker pound also helped, of course.

Companies dealing with China are among the gainers in the FTSE 100, not surprisingly. Chris Beauchamp, chief market analyst at IG, said:

The US-China news has been excellent for the stock of Burberry and AstraZeneca, both firms with key operations in China. The fear stalking such companies has been that any wider spat between Beijing and Washington will take a chunk out of economic growth in the former. Now, fears of a hit to middle-class incomes and GDP growth have been reduced, and we have seen six-month highs in the former and an eleven-month peak in the latter. Throw in further declines for the pound and further upside looks likely.

Corn prices have hit a two year high following the cooling of the trade dispute. Jasper Lawler, head of research at London Capital Group, said:

The prospect of more US agricultural exports to China if the communist country agrees to open up its markets helped corn prices hit a two-year high. Corn is already in a price-supportive environment of supply shortages in China, Brazil and Argentina, which make up a third of global production.

The FTSE 100 could breach the 8000 barrier soon after its boost from the US-China trade news, depending on this week’s economic news. Connor Campbell, financial analyst at Spreadex, said:

Investors seemingly haven’t been put off by the general lack of specifics surrounding what was actually agreed between the US and China, crucial details like the extent to which America’s deficit with its rival will be reduced by and how this new trading ‘framework’ will be implemented. It helps that there has been little in the way of data or other economic news to challenge these developments for headline-dominance, allowing the markets to indulge in a bit of bullishness.

That bullishness arguably most benefited the FTSE, which piggybacked on this wave of market-relief, alongside the pound’s politically fragile Brexit problems, all the way to a fresh record peak. Crossing 7850 for the first time in its history following a 1% surge, the FTSE now has 8000 in its sights – and with a pair of much-anticipated inflation and GDP readings on Wednesday and Friday respectively, the index could just get the boost it needs if sterling is dealt another dovish blow.

Here’s the AP report on the latest trade developments:

President Donald Trump on Monday hailed his administration’s temporary truce with China on trade, even as his Treasury secretary and China struck a note of caution on the latest agreement.

After high-level talks in Washington last week, Beijing has agreed to “substantially reduce” America’s trade deficit with China.

“On China, Barriers and Tariffs to come down for first time,” Trump tweeted.

Farmers, he promises, will come out on top.

“Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce,” he tweeted.

Both sides, however, have said there are no guarantees trade tensions are over. China hasn’t said how much it’s willing to reduce the U.S. trade gap. The Trump administration had sought to slash the deficit by $200 billion.

Also left unclear is the issue of intellectual property. The U.S. has long accused Beijing of secretly stealing U.S. technology from American businesses. Treasury Security Steven Mnuchin said Monday those issues “are part of our framework. These things cannot be fixed overnight.”

Commerce Secretary Wilbur Ross, who has been part of the U.S. negotiating team, is expected to go to China soon to follow up on last week’s discussions.

A day after declaring the trade war “on hold,” Mnuchin told CNBC Monday that Trump is reserving the right to reimpose tariffs against Chinese goods if the two countries can’t agree on specifics to bring down the massive trade deficit with Beijing.

Likewise, China’s foreign ministry said details still have to be worked out.

“Given the increasing interaction between the two countries, we cannot assure you they will not encounter more frictions or disputes in the future,” said spokesman Lu Kang.

Wall Street opens sharply higher

The trade talks truce has given a lift to US markets, along with a spate of acquisition activity.

The Dow Jones Industrial Average has added more than 1% to 25,016, while the S&P 500 opened 0.59% higher and the Nasdaq Composite rose 0.7%.

Among technology shares, chipmakers which supply to Chinese companies were in demand after the trade news.

Apart from relief that a trade war between the world’s two biggest economies had been averted, at least for the moment, US investors welcomed news that General Electric planned to merge its transportation business with rail equipment maker Wabtec.

Financial shares gained ground after Fifth Third Bancorp said it would buy MB Financial for $4.7bn.

A quick recap

Time for a summary, before the opening of Wall Street...

Updated

Steven Mnuchin has also predicted there will be “a 35 to 40% increase” in exports of US farm products to China in the near future.

Here’s a clip of the Treasury secretary speaking to reporters:

Mnuchin: We made progress, but....

US treasury secretary Steven Mnuchin on CNBC now.

Mnuchin says the US and China made “meaningful progress” during this month’s trade talks.

Both sides have agreed to suspend tariffs, he confirms, and US exports to China will increased “significantly” going forwards.

Mnuchin agrees that these talks now need to be turned into a proper framework - US commerce secretary Wilbur Ross will travel to China soon to help achieve this.

But what about Donald Trump’s pledge to help Chinese telecoms firm ZTE overcome sanctions imposed by America?

Mnuchin denies that there was any “quid pro quo” here.

The Treasury secretary also warns China that Trump can put tariffs back onto exports, if the US doesn’t get what it wants.

Despite Donald Trump’s optimism, we really don’t have much detail about exactly how China will help to cut the US trade deficit.

The agreement reached last weekend states that China will buy more US goods to achieve a “meaningful increases in United States agriculture and energy exports”.

But with no firm target, judging whether China is delivering (and accepting enough deliveries from America) could be tricky.

That’s why some experts predict that the dispute will flare up again.

Vincent Chan, head of China equity research for Credit Suisse, predicts that US-China trade spats could become an annual event.

He told clients:

“Any expectation of a fundamental settlement of the disputes between the both sides would be unrealistic.

The political and economic relationship between China and the U.S. has changed dramatically in the last few years.”

President Trump is also welcoming the agreement with China - saying it will help US exporters such as farmers.

Trump: Fair trade with China will happen

President Trump has just tweeted:

Chuck Schumer, a senior Democrat, warned Donald Trump last weekend not to let Chinese President Xi Jinping “play” him in trade talks.

Schumer challenged Trump not to stop pushing China over the theft of American intellectual property - something the president says has been a problem for too long.

Today’s rally means the FTSE 100 has now gained over 900 points, or 13%, since late March.

Good news for anyone who had the foresight to buy equities then, in the face of worries over a trade war.

However, this rally is partly driven by the weakness in the pound over the last month.

Sterling has dropped by almost 10 cents, or 0.6%, from $1.43 to $1.34 as the government’s failure to make progress on Brexit has worried the City.

Updated

American farmers are waking up to some good news - soybean and grain prices are up, thanks to the trade war truce.

A bushel of soybeans is trading at $10.15 this morning, up 1.7%. Corn is up 0.8% and wheat has risen by 0.5%.

Soybeans featured highly on the list of US products which China proposed imposing tariffs on. It followed up this threat by actually cancelling purchases of US soybeans, which are an important source of protein for both humans and animals.

Trade tariffs are a blunt weapon that can cause self-inflicted pain, as Paul Donovan of Swiss bank UBS explains:

China and the US have agreed not to increase taxes on their own consumers by avoiding tariffs for now.

The agreement at the conclusion of trade talks was suspiciously light on details. The overall US trade deficit is likely to grow this year.

The Chinese government has welcomed America’s decision to row back from a trade war.

Chinese foreign ministry spokesman Lu Kang told reporters in Beijing that a consensus was good for all parties.

Lu said (via Reuters):

“China has never hoped for any tensions between China and the United States, in the trade or other arenas.”.

Chinese media are also pointing out that this consensus was reached without any major concessions on their side.

For example, the China Daily newspaper says that “Despite all the pressure, China didn’t ‘fold’”. Instead it “stood firm” and negotiated with the Trump administration - without accepting demands for a $200bn cut in the US trade deficit with China.

Here’s Neil Wilson of Markets.com on today’s stock market rally:

“The FTSE 100 notched up a fresh record high, rising clear of 7800 for the first time as the feel-good factor from the trade war truce bolstered risk sentiment and a weaker pound delivered the usual shot of adrenalin for the blue chips.

It looks like progress on talks between China and the US means we are not about to descend into a punitive trade war. Whilst there is still long way to go and nothing is agreed until everything is agreed, there has undoubtedly been solid progress and the sense of relief in equity markets is palpable.

But we must note that the FTSE’s gains of late are probably more attributable to a weaker pound as the dollar rallies across the board.

The strengthening dollar is also causing pain in some emerging markets, where currencies are falling fast this morning:

FTSE 100 keeps climbing

The weaker pound is driving shares in London to fresh record peaks.

The FTSE 100 has now climbed 60 points to 7838 for the first time ever, a gain of 0.78%.

Firms with large overseas earnings, such as chemicals group Johnson Matthey and advertising giant WPP, are benefiting from the fall in sterling.

The truce between Washington and Beijing is also fuelling the rally, of course, even though they haven’t reached a detailed agreement.

Mihir Kapadia of Sun Global Investment explains:

The general positive sentiment reflects the decline of worries of a possible trade war between the U.S. and China, following weekend developments.

Packaging firm Smurfit Kappa, who would have suffered from a trade war, are up 1.5%.

Mining giant Anglo American is up 1.8%; it would have been hit by weaker commodity prices if new tariffs had been imposed between the US and China.

Bloomberg says the British pound is suffering from Brexit angst and signs that UK growth has slowed.

The main thing investors are waiting for is to see whether the latest economic figures show any upturn, after a sluggish first three months of the year when the Beast from the East snowstorm swept across the country. That could push higher the odds of an interest-rate increase as early as August by the Bank of England.....

Aside from the date, the U.K. will go into the next round of Brexit talks this week against a backdrop of euro-zone turmoil as Italy’s populist coalition pushes ahead with an agenda that’s at odds with the European Union establishment.

At home, backbench members of parliament are said to be preparing for an Autumn election as they anticipate defeats on Prime Minister Theresa May’s key piece of Brexit legislation.

Sterling hits 2018 low after Boris's Brexit intervention

The pound has hit its lowest level since the start of the year.

While traders aren’t worrying about trade wars, they are getting jittery about Brexit again.

Sterling has just fallen back to $1.3397, down 0.77 of a cent, the lowest level since 28 December 2017.

Foreign secretary Boris Johnson can take some credit, or rather blame. On a trip to Argentina yesterday, he issued a new challenge to prime minister Theresa May not to allow Britain to remain tied to the customs union after 2020 through a ‘backstop’ agreement.

Our political editor Heather Stewart is in Buenos Aires, and explains:

This backstop has been one of the sticking points in talks with the EU27 and some in Westminster believe it could become the post-Brexit norm if Brussels accepts the UK’s proposal.

But Johnson insisted: “Brexiters fearing betrayal over the customs backstop must understand that the PM has been very clear that it is not an outcome we desire; we want a deal with the EU and she will deliver it.”

Yesterday, the Sunday Times claimed that Conservative MPs are preparing themselves for a snap general election over fears Theresa May will not be able to break the Brexit deadlock. That would create even more political tension and uncertainty, just months before Britain’s exit from the EU.

Metal prices are also getting a small lift this morning.

Reuters has the details:

Copper edged higher on Monday after China and the United States put their trade row “on hold”, easing concerns that the dispute could escalate, although headwinds from a stronger dollar capped further gains.

“It appears that America and China have moved towards a trade deal, which will mean the expansion of U.S. goods purchased by China, and thus, avoiding the prospect of an out-and-out trade war,” said Kingdom Futures in a report.

Three-month copper on the London Metal Exchange was up 0.1 percent at $6,860 a tonne by 07:27 GMT, reversing small losses from the previous session. Prices have been caught in a tight $6,765-$6,900 range for the past week.

The FTSE is continuing to climb to fresh record levels, putting 8,000 points in its sights (I don’t think we’ll get there today, though!).

Connor Campbell of City firm SpreadEx says:

After intermittently fretting over signs that hostile relations were heating back up between the US and China last week, Treasury Secretary Steven Mnuchin’s claim on Sunday that a trade war was ‘on hold’ has sent a – cautious – wave of relief through the market.

Italy, though, is bucking the trend with a sharp fall. That’s partly due to nervousness over the prospect of two populist parties taking power.

But....several big Italian companies have just gone ‘ex-dividend’, meaning the deadline to buy them to receive the next payout to shareholders has passed. That has knocked their shares lower.

The US dollar has hit its highest level in five months, against a basket of other currencies.

That’s another sign that traders are comforted that the US and China have frozen tariffs on a swathe of exports - something that could have hurt the American economy.

This truce may also make it easier for the US central bank, the Federal Reserve, to raise American interest rates in the months ahead - another reason to buy the dollar now.

Hussein Sayed, chief market strategist at FXTM, reminds us that America and China haven’t actually hammered out a full agreement on trade yet.

Sayed points out that details of the truce remain vague.

This was the second round of trade negotiations without clearly defined targets, suggesting that there’s still a long way to go.

Today, a trade war may have been averted, but according to the joint statement from both countries, nothing is being guaranteed apart from China promising to increase American imports

Updated

Footsie hits new record

Boom! The UK’s FTSE 100 index has burst to a new-alltime high this morning.

The Footsie gained 35 points, or 0.45%, to 7814 points for the first time ever.

European markets are also benefiting from the easing of trade war fears. France’s CAC has gained 0.24%, while the Spanish IBEX is up 0.33%.

Shares in London are also getting a currency boost - the pound has dropped half a cent against the US dollar this morning to $1.3414.

Trade war peace: What the experts say

Although there’s relief that the US and China have stepped back from a trade war, analysts are also cautious.

Tai Hui, chief market strategist for Asia Pacific at JP Morgan, predicts further clashes between the two sides:

Historical precedents suggest the U.S. could re-engage with China on trade issues if it sees China dragging its feet on fulfilling its pledges. Moreover, the last three months have further exposed Washington’s concerns over China’s advancement in technology and its threat as a competitor, both commercially and strategically.

It’s like a back pain that never goes away. It was a shock in the first instance it happened, but then life goes on as the most acute symptoms are addressed. The good news is that markets should learn to live with it and consider its impact more rationally.”

Eswar Prasad, trade policy professor at Cornell University, says we are looking at “little more than a brief de-escalation of tensions,”

“The fundamental differences on trade and other economic issues remain unresolved.”

Konstantinos Anthis, Head of Research at ADS Securities, believes last weekend’s breakthrough will boost stock markets:

The undeclared “trade war” between US and China has been put on hold according to US Treasury Secretary Mnuchin as the two superpowers agree on a economic truce.

This development puts the planned tariffs on hold while the two countries work on a plan to re-balance their trade relations and dampens the geopolitical risk.

An easing of risks on a global scale will be a positive catalyst for the dollar and global equities while demand for safe haven assets like gold and the Japanese yen will remain subdued.

Will FTSE 100 hit a fresh record today?

Britain’s blue-chip share index of top shares is likely to smash through 7,800 points for the first time ever today.

City traders are predicting a rally in London, thanks to the new spirit of detente between the US and China over trade.

The FTSE 100 is forecast to gain around 30 points to 7815, breaching the previous intraday high.

Jasper Lawler of London Capital Group points out that the two sides haven’t resolved all their issues. But it’s a start, at least.

US and China stepping back from the brink of a trade war has lifted sentiment, boosting equity indices, putting the FTSE on track for a fresh record high.

Asian equities have bounced and Europe points to a higher start, as Trump’s administration halts plans to impose trade tariffs on China, whilst China promises to significantly increase its purchase of US farm exports and energy.

This is by no means the end of the matter, especially given the huge gap that remains between the two sides, as highlighted by the lack of any real detail in the announcement. However, this was the encouraging start to talks that traders were after.

The agenda: Relief as trade war put on hold

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

Relief is coursing through the markets today after America and China stepped back from the brink of a trade war.

Following tense negotiations, the two sides have reached an agreement that means tariffs will not be slapped on tens of billions of dollars of imports.

The news has sent markets rallying in Asia, and could push Britain’s FTSE 100 index to a fresh all-time high today. Stocks on Wall Street are all expected to gain, with the Dow Jones industrial average being called up 200 points (0.8%).

US Treasury secretary Steven Mnuchin announced the ceasefire last night.

He told Fox News that Beijing had agreed to a framework to help reduce the US’s huge trade deficit with China. This includes China buying more US products.

Mnuchin said:

“We’re putting the trade war on hold, right now, we have agreed to put the tariffs on hold while we try to execute the framework.”

Chinese Vice-Premier Liu He, who took part in trade talks in Washington, has also told the media that the two sides had agreed not to launch a trade war.

The breakthrough means that tit-for-tat tariffs will not now be imposed on good flowing between the two countries, such as robots, machinery, chemicals and soybeans

But, significantly, China hasn’t agreed to cut the deficit by a fixed amount - and certainly not the $200bn which the Trump administration were pushing for,

But still, the deescalation has been welcomed by investors.

China’s stock market has posted gains; the SSE Composite index of leading shares is up 0.8% today. Hong Kong’s Hang Seng index has gained 1%.

European markets are expected to follow suit when trading begins.

Michael Hewson of CMC Markets says:

Concerns about an escalation in tensions between China and the US appear to have been deferred in the short term after progress in trade talks at the weekend.

We’ll be tracking all the reaction through the day...

Updated

 

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