In a busy day for geopolitical worries, Greece – the euro zone’s perennially weak link - is also back in the spotlight.

In a hotly awaited report the EU Commissioner for economic and financial affairs, Pierre Moscovici – usually a stalwart supporter of all things Greek – had some tough words for the country today.

Moscovici warned that Athens was lagging dangerously behind in implementing pre-agreed reforms with the foreign lenders that in the past decade have bailed it out three times and to the tune of almost €300bn.

If Athens doesn’t press ahead with the measures by the next euro group meeting of euro area finance ministers in March, €750m in monies due from bond profits will have to be forfeited, according to the Commission which has been monitoring Athens’ post-bailout progress. The report is expected to be high on the agenda of the euro group when it next gathers on March 11.

“Concerning Greece, the second Enhanced Surveillance Report … shows significant progress but also some areas in which further efforts are needed, and I urge the authorities to complete these in time for the next Euro Group,” Moscovici tweeted.

The installment is part of €4.8bn of profits on Greek bonds held by the euro zone.

There are 16 reforms the leftist government has failed to complete, not least developing a fully functional legal framework to deal with the economy’s biggest problem: non-performing bank loans.

Newsflash: US trade representative Robert Lighthizer has just given the markets a jolt, with a downbeat assessment of the US-China trade war.

Testifying to a Congressional committee, Lighthizer says China represents the most severe challenge ever faced by US trade negotiations.

Much work still needs to be done, he warns - another example of the geopolitical issues facing the global economy.

Lighthizer says it’s “too early” to predict the outcome of recent negotiations, although “significant progress” has been made. This suggests the two sides are still further away than hopes.

Significantly, Lighthizer says that China can’t simply address America’s concerns by agreeing to buy more US goods, and that any deal must be properly enforceable as previous deals haven’t been complied with.

This isn’t being well-received in the markets; the Dow is now down almost 150 points at 25,907 points.

In another worrying sign (which I missed earlier) growth in corporate lending within the eurozone has slowed dramatically.

New loans to businesses only grew by 3.3% in January, down from 3.9% in December and sharply below forecasts of 4%.

That suggests that banks are becoming more reluctant to lend to businesses, or that bosses are too nervous to seek new loans to fund their plans. Either way, a bad sign - especially as the European Central Bank has just halted its stimulus programme.

It could encourage the ECB to launch a new loans programme, to spur banks into lending again (a so-called TLTRO, in which banks can borrow cheaply from Frankfurt to support the real economy).

Economist Sean Richards says today’s money supply figures suggest the eurozone’s economic outlook is deteriorating.

He points out that ‘narrow money’ (the amount of cash in circulation or on overnight deposit) has also slowed:

The narrow money supply measure proved to be an accurate indicator for the Euro area economy in 2018 as the fall in its growth rate was followed by a fall in economic (GDP) growth. It gives us a guide to the next six months and the 0.4% fall in the annual rate of growth to 6.2% looks ominous.

More here: The economic outlook for the Euro area looks even weaker

Following this week’s Brexit developments, asset manager Columbia Threadneedle reckons the UK is highly unlikely to crash out without a deal next month, Reuters reports.

Columbia’s asset management team reckons No-Deal only a 5% probability, down from 10%-20% previously.

They also suspect the PM’s Withdrawal Deal only has a 20% chance of success (despite signs that hard-line Brexiteers are softening), making an Article 50 extension a 75% shout.

Citigroup has a similar view:

Hope that Britain will avoid crashing out of the EU without a deal have pushed sterling to a new 10-month high against a basket of currencies.

The pound just burst through $1.33 against the US dollar for the first time since last July, when Theresa May outlined her Chequers plan, leading to the resignation of Brexit secretary David Davis and foreign secretary Boris Johnson.

It also just hit €1.17 against the euro, a new 21-month high.

Theresa May’s u-turn yesterday, agreeing to let MPs vote on an Article 50 extension, has reassured the City by lowering the risk of a disorderly Brexit next month.

And perhaps significantly, leading Brexiter Jacob Rees-Mogg has softened his opposition to her Deal.

Amid a flurry of Latin, Rees-Mogg suggested the Irish Backstop doesn’t need to be abandoned altogether. Instead, a new appendix setting an end-date might be sufficient, he said.

Could this help May get her deal through? Maybe.... but we should remember the EU has previously refused to make the backstop time-limited.

Just in: Economic optimism in the UK, and across the eurozone, has fallen again as Brexit, trade wars and economic slowdown fears all bite.

The European Commission has reported that economic sentiment in the UK fell sharply last month, hitting its lowest level in over five years.

It slumped from 103.7 points to just 99.2, a fall of 4.5 points, dragged down by weak consumer confidence and a jittery services sector.

Economic sentiment in the euro area hit a two-year low, dragged down by Italy and France.

The EC reported that industry confidence deteriorated for the third month in a row, with managers more pessimistic about their production expectations, order books, and stocks of finished products.

Services firms became more confident, though, while consumer confidence also edged up a bit. You can see the results here.

Emerging markets have been nudged lower since Pakistan announced it has shot down two Indian jets today.

It’s not a major selloff, though. The Karachi index is still the worst performer, down over 1%, while India’s Sensex is down 0.2%

Pierre Veyret, technical analyst at ActivTrades, say investors worry that the Kashmir crisis could escalate.

Geopolitical tension between Pakistan and India have strongly impacted equities from Tokyo to London today, with investors fearing a further escalation.

Almost all European indices are trading in negative territory, especially in Athens and London, where benchmarks are breaking significant support levels. In Frankfurt, the DAX-30 index is still trading inside its short-term bullish trend started at the beginning of this month.

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

After yesterday’s surge in sterling, the City is rather more subdued this morning as investors return to worrying about geopolitical issues.

And there’s plenty to concern us all today.

The tensions between India and Pakistan in Kashmir have escalated, with Pakistan claiming to have shot down two Indian jets this morning. This follows Delhi’s attack on what it claims was a terrorist training camp over the border.

With the two sides exchanging mortar fire across the border, the situation is rapidly becoming more serious.

The Karachi stock market has plunged 3.3% so far today, following the reports of jets being downed (Delhi hasn’t yet confirmed that it’s lost the planes). The Karachi 100 index of top Pakistani companies shed around 1,300 points to 37,531, as traders worried that the conflict could worsen.

Delhi’s stock market is also in the red, down 0.5% this morning.

Elsewhere, Donald Trump will be sitting down with his “friend”, North Korea’s Kim Jong-un, at their summit in Vietnam. The US president is hoping for a denuclearizion breakthrough....

...However, that meeting has been dramatically overshadowed by new testimony from the president’s former lawyer, Michael Cohen.

Cohen is due to tell Congress that Trump - who he dubs “a racist, a conman and a cheat” - was aware that WikiLeaks would publish emails stolen from the Democratic National Committee and Hillary Clinton’s campaign.

My colleagues Sabrina Siddiqui and Adam Gabbatt explain why it matters:

The remarkable allegations by Cohen go further than what has been made public thus far by the special counsel investigation into potential collusion between the Trump campaign in Moscow.

Cohen will also suggest his instructions to lie to Congress about a possible Trump Tower deal in Moscow during the 2016 campaign came from the president – albeit not directly.

So, this could easily overshadow the meeting:

City trader will also be watching parliament closely, as MPs prepare for next month’s votes on whether to pass Theresa May’s Brexit deal, extend Article 50, or leave without a deal.

Sterling is hovering close to yesterday’s 21-month high against the euro, at €1.165, as investors expect Brexit to be delayed.

But Lukman Otunuga, research analyst at FXTM, warns that there could be more volatility ahead:

While the Pound is likely to extend gains amid the current optimism, the question if for how long? It is quite frightening how sensitive and explosively volatile the Sterling has become to Brexit headlines, and this is likely to intensify as the March 29 deadline looms.

We’ll also get new economic data from the eurozone, US trade data, and another appearance by top US central banker Jerome Powell.

The agenda

• 10am GMT: Eurozone consumer and economic confidence stats for February
  
• 1.30pm GMT: US advance trade balance for December
  
• 3pm GMT: Fed chair Jerome Powell testifies to Congress