The pound remains under fire tonight, at its weakest level since January’s flash crash (and a two year low, if you ignore it).

Sterling is still bobbing under the $1.25 mark, currently around $1.246 against the US dollar tonight.

Brexit fears are a key factor, especially as MPs will not get the chance to block a no-deal crisis today:

Fiona Cincotta of City Index says the tide of bad news is worrying the City.

Recession concerns coupled with fears over Brexit are proving too much for pound traders to swallow. And who could blame them? The negative news keeps stacking up.

Today the BRC revealed that retail sales slumped -1.6% year on year, confirming that any wage rise UK households are enjoying is not being reflected at the tills. Adding to the bad news a contraction in the UK economy is as good as confirmed for Q2, with analysts pencilling in a 0.1% decline in GDP, down from 0%. The outlook for Q3 is equally gloomy.

Finally, the prospect a no deal Brexit is running high. The House Speaker Bercow preventing MP’s from voting on an amendment to stop the next PM from proroguing parliament for a no deal Brexit has done little for the prospect of avoiding a disorderly Brexit. In addition to the pound taking a hit, tourism stocks such as TUII, IAG and easyJet fell over 3%

ECB chief economist Philip Lane says the central bank is ready to take action to stimulate growth and inflation if needed.

Lans says he and his colleagues have the tools they need, and are keeping a close eye on the economy. Currently there are “downside risks” to growth, he adds.

That’s very much in the spirit of Mario Draghi, who steps down from the ECB this autumn,

Heads-up. Philip Lane, the European Central Bank’s new chief economist, is holding an online Q&A right now.

It’s your chance to ask about the eurozone economy, whether a fresh stimulus programme is needed, and Lane’s views on issues such as cryptocurrencies, trade wars, Brexit etc.

Perhaps Christine Lagarde’s nomination to replace Mario Draghi as head of the ECB could also come up.....

The US stock market has dipped at the open, following the small losses in Europe this morning.

The Dow Jones industrial average has dropped by 104 points, or -0.4%, to 26,701 in early trading.

Neil Wilson of Markets.com says investors are anxious about two things.

1) Are company profits softening? That’s a key risk following the profit warning from chemicals giant BASF (see opening post).

2) Will the Federal Reserve actually cut interest rates soon, as expected, to support the economy? We’ll get more clues tomorrow when Fed chair Powell testifies to Congress.

He explains:

Markets remain nervous about the Fed and with earnings season around the corner. In particular, there may just be a growing realisation that the market has banked on the Fed turning more dovish than it is inclined to right now.

Equity markets are pricing in a lot of good news, and precious little of the bad. As we approach earnings season, revisions to corporate profit guidance could undermine the positivity we are witnessing in global equity markets right now.

The market is so fixated on the Fed put, and buying into this, that they may be blind to the drop in corporate profits. The problem for bulls from here is that several rate cuts by the Fed are already priced in, meaning, in the absence of a material rerating of valuations, we would need to see an improvement in earnings to push equities higher still.

The shake-up at the top of the European Central Bank is an ideal opportunity to shake up the eurozone’s top monetary authority.

So argues Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor of the Central Bank of Ireland.

He suggests that the ECB’s inflation target - its key mandate - should be reviewed, to see if it is actually helping the eurozone economy.

Such a review could help the ECB fight the next financial crisis.

Gerlach explains:

OMT, Mario Draghi’s chosen tool for fulfilling his 2012 vow to do “whatever it takes to preserve the euro,” was controversial from the moment it was announced, with the Bundesbank president, Jens Weidmann, – one of Lagarde’s main rivals for the ECB presidency – arguing fiercely against it in public. But that was seven years ago, and OMT has never actually been used.

Is the governing council still committed to it? Or have the events – and council membership changes – of the past few years rendered that commitment obsolete?

Here’s the full piece - worth a read.

EU finance ministers have launched discussions on how to fill the shoes of Christine Lagarde at the International Monetary Fund.

Lagarde’s nomination to lead the European Central Bank from 1 November, creates a vacancy at the top of the Washington-based fund. Interest in the role is mounting, after former UK chancellor George Osborne been eyeing it up.

Finland’s finance minister Mika Lintilä, who chaired the Ecofin meeting today, told journalists the process of finding a candidate for the IMF would soon begin, but names were not discussed at Tuesday’s monthly meeting of finance ministers.

Lintilä explains:

Indeed we had a discussion about the process of nominating the next IMF director-president. The process will start, but we do not have a clear plan, a roadmap yet. We will start the work right now.

We did not discuss names yet. They will then come later.

By convention the head of the IMF is a European, while an American runs the World Bank. But the minister side-stepped a question on whether Europe means the continent, the European Union, or the 19-members of the single currency zone.

The answer to that question matters for Mark Carney, the Canadian head of the Bank of England, who has Irish and British passports.

The current governor of the Bank of England, who has run Canada’s central bank and chaired the post-crisis Financial Stability Board, has already been installed as the favourite for some bookmakers and is being considered by European officials, according to Bloomberg. But it is an open question whether Carney will deemed “European” enough, while there are plenty of candidates who missed at on the ECB that could be interested in the IMF job.

Back on the pound.... and a top advisor at asset manager BlackRock has warned that markets are underestimating the risk of volatility from the Brexit crisis.

Rupert Harrison, portfolio manager (and a former top advisor in the UK Treasury) told clients that the risks of an “extreme” Brexit outcome - either Britain leaving the European Union without a deal, or deciding to stay in the block - have risen.

Harrison said:

“It’s even more uncertain than it has been at any point in the process.

You can imagine a very, very wide range of outcomes in the next 12 months, and currently the options markets in currencies are not reflecting the scale of that potential volatility.”

Harrison, who advised former finance minister George Osborne from 2006 to 2015, also warned that Brexit continued to reduce the attraction of British assets for global investors.

“The cumulative impact of the uncertainty, as well as ... all the stocking and destocking that we’ve seen, has definitely had a negative impact on momentum, which has become significantly more negative over the last three months or so.”

The boss of BMW has warned that the Brexit crisis is intensifying,and that manufacturers don’t have the “planning reliability” they need.

Speaking at the launch of BMW’s new electric mini, Oliver Zipse warned that recent Brexit developments are a “bad progression”.

Zipse warned that BMW doesn’t know whether a hard Brexit would be a “complete disaster”, or whether it could be handled. Any new tariffs at the border would be harmful, though, he added.

Britain’s economic outlook is set to darken this autumn, as no-deal Brexit worries mount and companies struggle.

That’s according to Dean Turner, UK economist at UBS Global Wealth Management, in new analysis that helps explains why the pound is under pressure today.

Turner cites June’s weak PMI reports, showing UK companies have suffered their worst month since 2016.

A warning from Britain’s top central banker, Mark Carney, that trade wars could ‘shipwreck the global economy’ is also a worry.

Turner writes:

It has been a tough week for those of us following events in the UK. I’m not referring to the ongoing leadership contest between Jeremy Hunt and Boris Johnson. If anything that is a great source of amusement to most economists, as we wonder where in the UK we grow the “magic money-trees” that are going to pay for all the recent campaign promises. I, for one, am sitting here, spade in hand, ready to go and dig one up to plant in my backyard when they reveal their location.

No, I am actually referring to the economic data and shifting views of policymakers at the Bank of England. The message, on the whole, is one of much more challenging times ahead for the economy.

In conclusion, Britain could faces a “darker autumn”, and possibly a general election too, Turner says.

Here’s his key predictions:

• UK GDP: “Barring a significant positive surprise, tomorrow’s data is likely to confirm that the economy is on course to register a contraction for the second quarter.”
• LOOKING AHEAD: “As we enter the third quarter it is hard to see how things can improve that much for the economy. Momentum is weak, and the global backdrop is not exactly encouraging. The drop in UK manufacturing activity really brings it into line with what is happening elsewhere – UK manufacturers have been defying gravity for some time. Without a sharp pick-up in global activity, it is hard to find another catalyst to get the economy going.”
• BREXIT: A likely more dovish Bank of England meeting on 1 August could lead the new PM to soften his tone on the chances of no-deal and focus his efforts on leaving with the existing deal in place. More likely, I believe, is that it will just mean another extension to the deadline.
• GENERAL ELECTION?: “Extension would reduce uncertainty in the near term, but it would raise other concerns. The logical conclusion of all of this is going back to the ballot box.”
• “It is certainly going to be a long, hot summer in more ways than one. We should all be prepared for the darker autumn that is likely to follow.”

The pound is also suffering from worries that the UK economy could be shrinking.

Overnight, new figures showed that UK retail sales experienced their “worst June on record”, as uncertainty over Brexit continued to affect the economy.

The British Retail Consortium warned that “the picture is bleak”, with total sales falling 1.3% year-on-year in June.

BRC chief executive Helen Dickinson said consumers were too worried about Brexit to risk major purchases.

“Businesses and the public desperately need clarity on Britain’s future relationship with the EU. The continued risk of a no-deal Brexit is harming consumer confidence and forcing retailers to spend hundreds of millions of pounds putting in place mitigations – this represents time and resources that would be better spent improving customer experience and prices.

It is vital that the next prime minister can find a solution that avoids a no-deal Brexit on 31 October, just before the busy Black Friday and Christmas periods.

Simon Harvey, FX market analyst at Monex Europe, says this slump has compounded fears that Britain’s economy began to contract in the second quarter of 2019.

The final leg of support for a Brexit riddled economy looks to have been swiped away overnight as the BRC Sales Monitor points to a third consecutive decline in official retail sales figures, cementing the prospect of a negative Q2 GDP reading.”

Tomorrow we learn how the UK economy fared in the three months to May (so not the full second quarter). Economists predict GDP only rose by 0.1% in February-May; a poor reading might fuel worries that Britain’s economy is stalling.

Fears over the health of the UK economy, and worries about Brexit, are driving the pound down this morning.

Sterling has lost half a cent against the US dollar, sliding as low as $1.246.

That’s the lowest levels since early January, and 15% below its value before the 2016 referendum.

Sterling is also a little weaker against the euro, at €1.112 [corrected].

The sell-off comes as Boris Johnson, the front-runner to become Britain’s next prime minister, insists he would take Britain out of the EU on Halloween, with or without a deal.

He wrote yesterday:

“We need a change of direction. That’s why we must treat 31st October as a real deadline for leaving the EU, come what may, not a fake one.”

Larry Hatheway of Swiss asset management firm GAM says this talk of crashing out of the EU is worrying the markets.

He pointed out on Bloomberg TV this morning that a hard Brexit can’t be ruled out.

If the [31 October] deadline comes and goes, and the EU does not extend, then it happens.

I think it’s going to be another one of those ‘down to the wire’ moments.

Lee Hardman, currency analyst at MUFG, thinks the pound could fall further.

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

The world’s largest chemicals company, BASF, is taking a hammering this morning after the company became the latest victim of Donald Trump’s trade war with China.

Last night,the German chemicals giant hit investors with a nasty looking profits warning. BASF slashed its full-year profits forecast for 2019 by up to 30%, warning that profits would half in the second quarter of 2019.

Sales are now expected to decline slightly in 2019 - down from a previous forecast of growth of 1%-5%, meaning the company is pressing on with 6,000 job cuts.

BASF makes a wide range of chemicals, plastics and foams which are used in a wide range of industries, from pharmaceutical and car-making to construction and textiles.

It blamed the profits warning on slowing global economy, and the damage caused by America’s trade conflicts with other major economies, saying:

“To date, the conflicts between the United States and its trading partners, particularly China, have not eased.

“In fact, the G20 summit at the end of June has shown that a rapid detente is not to be expected in the second half of 2019. Overall, uncertainty remains high.”

Investors are worried, driving BASF’s shares price down by 6% at the start of trading in Frankfurt.

It’s another blow for Deutschland PLC, on top of the problems at banking giant Deutsche Bank which is slashing 18,000 jobs in a desperate turnaround bid.

Reaction to follow....

Also coming up

Two central bankers could move the markets today.

Federal Reserve chair Jerome Powell will discuss the Fed’s stress tests, at a conference hosted by the Boston Federal Reserve. Investors, though, will want to hear any hints on monetary policy -- and whether a rate cut is still likely in July.

They’ll also be keen to hear from the European Central Bank’s new chief economist, Philip Lane, who’s answering questions on Twitter today. Lane’s views on the state of the eurozone’s economy will be crucial, as the ECB weighs up whether to launch fresh stimulus measures.

Online grocery group Ocado and housebuilder Bovis are both reporting results - Ocado has posted a half-year loss of £142.8m after taking a £98.5m hit from a warehouse fire earlier this year.

The agenda

• 11am BST: Marks & Spencer AGM
• 1.45pm BST: US Federal Reserve chair Jerome Powell
• 3.15pm BST: ECB chief economist Philip R. Lane holds an online Q&A