Donald Trump has seized on Germany’s historic debt auction as another weapon to beat the Fed with:

However, the difference between US and German bond yields (and the fact the latter are negative) reflects growth prospects as well as interest rates, and the prospect of a fresh eurozone QE bond-buying programme.

After a solid day’s trading, the FTSE 100 index has closed 1% higher at 7,203, up 78 points.

The pound is still down on the day at $1.214, a drop of 0.25%.

David Madden of CMC Markets blames the “same old Brexit worries”

Sterling gave some of the gains that were made yesterday, but it is still well above the lows of last week, so traders might be getting used to the idea of a no-deal Brexit seeing as it appears we are heading in that direction.

My colleague Severin Carrell has spotted that Scotland ran a deficit seven times higher than the UK as a whole last year, despite again cutting its overspend on public services.

He writes:

The latest Government Expenditure and Revenue Scotland (Gers) figures showed there was a record gap of nearly £2,000 per person between how much was spent on public services and debt repayment, and total tax revenues for 2018/19.

Scotland’s notional deficit stood at £12.6bn or 7% of GDP, including North Sea oil revenues, compared to the UK’s total £23.5bn deficit – which includes Scotland’s figure, equivalent to 1.1% of UK GDP.

Total state spending in Scotland was £1,661 higher per person than the UK average at £75.3bn, while tax receipts were £307 less per head than the UK average, at £62.7bn. Excluding oil revenues, the deficit exceeded £14bn, equal to 22.5% of tax revenues.

More here:

US retailer Target has lifted the New York stock market, by beating profit and revenue forecasts.

Target grew earnings by 17% in the last quarter, as its in-store pickup and same-day shipping services proved popular.

It also raised its outlook for the rest of the year, suggesting it’s confident that US consumers will keep spending.

Ding ding! Wall Street has opened higher:

• Dow Jones: up 217 points or 0.84% at 26,179
• S&P 500: up 24 points or 0.83% at 2,924
• Nasdaq: up 73 points or 0.93% at 8,022.

Back in Germany, a slowdown in machinery exports has reinforced fears that Europe’s largest economy is heading into recession.

Exports of German-made equipment shrank by 1.8% in the second quarter of 2019, according to the German Mechanical Engineering Industry Association (VDMA), having risen by 3.8% in January-March.

VDMA chief economist Ralph Wiechers blamed problems overseas, saying:

“The uncertainty triggered by the trade conflict between the United States and China in particular, as well as the lack of prospects for an agreement on Brexit, are hurting our export-focused sector.”

VDMA also reports that machinery exports to China have barely risen since the start of 2019.

If this weakness continued, then it could drag Germany’s GDP down in the current quarter - following a 0.1% contraction in Q2.

Technically, the German 30-year bond auction is a failure, as Berlin sold less than half of the debt on offer.

On the other hand, if investors are paying for the privilege of lending to you, it’s hardly a complete flop.

A clarification to that earlier post: Ryanair’s Irish pilots have been blocked from striking later this week.

The budget airline is now seeking an injunction at the high court in London to prevent UK-based pilots walking out. Sorry for the confusion....

Today’s borrowing figures are the first released since Sajid Javid replaced Philip Hammond at the Treasury nearly a month ago.

They’re a reminder of the challenge facing Britain’s finance ministry, which already didn’t expect to balance the books until the mid-2020s.

The increase in this deficit this year is a “headache” for the new chancellor, says Sky News’s John-Paul Ford Rojas, as he tries to balance the books and help deliver Boris Johnson’s spending pledges.

Two important pieces of transport news:

1) The government has appointed a major critic of its High Speed 2 rail project to help lead a review into the project.

Lord Berkeley, a railway expert and Labour peer, has been made deputy chair of the review - which will decide whether the scheme linking London to Birmingham, Manchester and Leeds should go ahead.

He has repeatedly challenged the Department for Transport’s cost figures and warned that the budgets were spiralling out of control -- which perhaps gives a hint about how the probe will pan out.

More here:

2) The Dublin High Court has blocked a planned strike by Irish-based Ryanair pilots, which had been scheduled for Thursday and Friday <updated>.

The budget airline says flights from Ireland will now operate as normal - which must be a relief to passengers heading off on their summer hols.

On the other hand, Britain’s widening deficit might undermine the PM’s efforts to boost spending.

Richard Hughes, Macroeconomic Policy Unit Research Associate at the Resolution Foundation, explains:

“Borrowing was £6 billion higher in the first four months of this year than the same period last year. The Office for Budget Responsibility had been expecting a 29 per cent increase in borrowing for this year as a whole, but we’re seeing borrowing up twice that so far, at 60 per cent.

Crucially these higher borrowing figures come before recent decisions by the new government to turn on the spending taps, and complicate the government’s intention to increase public spending in the September spending round if they also want to remain committed to the current fiscal rules.”

Boris Johnson’s rash of spending pledges - including more police and more NHS funding - will also blow a hole in the deficit this year.

Josie Dent, Senior Economist at the CEBR think tank, explains:

Boris Johnson has announced several expansionary fiscal policies since becoming Prime Minister, which are likely to increase government borrowing and expenditure in the future.

Among the increased spending measures, he has promised more money for no-deal preparations and funding for an additional 10,000 prison places. He has also pledged to speed up the implementation of full fibre broadband and increase school funding. Meanwhile, the Prime Minister has also shown support for plans to raise the higher income tax band to £80,000, in addition speaking favourably about a cut to the rate of tax on company profits.

With the new Prime Minister’s apparent shift in focus away from balancing the government’s budgets, we are likely to see rising levels of borrowing in the coming months. Furthermore, with a recession possibly on the way, government intervention may be needed to stimulate the economy, which would add to the size of the deficit.

Today’s public finances also show how the government has failed to eliminate the budget deficit, in the decade since the financial crisis began.

As you can see, this year’s deficit was already expected to exceed last year’s, even before July’s unexpectedly small surplus (and a disappointingly large deficit in June).

John McDonnell MP, Labour’s Shadow Chancellor, isn’t impressed by the jump in borrowing this financial year, saying:

“With the Conservatives only interested in forcing through a No Deal Brexit, nine years of economic mismanagement have left our public services in a terrible state ahead of the Spending Review.

“Instead of borrowing yet more money to fund their failed programme of tax cuts, the priority has to be reversing the damage done to schools and social care, and stopping the rollout of Universal Credit which is causing so much hardship.

“Labour in government will deliver the radical transformation to our economy that is desperately needed to boost living standards and eliminate in-work poverty.”

Economist Rupert Seggins has spotted that higher public sector wages have helped push the deficit higher this year.

That follows the abolition of the notorious 1% pay cap on public sector pay increases last year.

European stock markets have opened higher today, despite Donald Trump’s latest attack on China.

Italy’s FTSE MIB is the top performer, gaining 1.5%, on hopes that a new coalition government can be formed.

Connor Campbell of SpreadEx reckons investors are betting on central bank stimulus measures - especially as the White House isn’t easing back on the trade war.

This firmly green open came despite Trump doubling down on his trade war rhetoric. The President appeared to dismiss the risk of a recession, shifting to an ideological stance in the face of economic warning signs, stating the need to ‘take China on’ makes the battle worthwhile and that whether the outcome is good or bad in the short term is ‘irrelevant’.

That kind of talk puts even more pressure on the Fed to safeguard the American economy, meaning investors are going to be on high alert for hints that the central bank is prepared to cut rates against relatively soon when they pour over July’s meeting minutes this evening.

Overnight, JP Morgan warned that the trade war will hit American families this autumn.

It believes that the next swathe of tariffs, starting in September, will push the total cost towards $1,000 per year per household:

It also warned that a swathe of US companies will be hit, including Apple, Harley-Davidson, Nike and Caterpillar.

Trump’s criticism of China helped to dampen the mood across Asia-Pacific markets today.

China’s CSI 300 index dipped slightly, while Australia’s S&P/ASX 200 shed almost 1% (its mining companies would suffer from a global slowdown). Japan’s Nikkei slipped by 0.3%.

Han Tan, market analyst at FXTM, says slowdown fears are weighing on investors:

Asian stocks are mixed, with markets reluctant to get ahead of themselves in hoping for a near-term resolution to the US-China conflict. The intensifying concerns over the state of the global economy have only soured the outlooks for open and trade-dependent Asian economies, with such fears feeding into the performances of risk assets.

Until there is a meaningful breakthrough in the US-China impasse, it would be a big ask for Asian assets to carve out substantial gains over the near-term. A more pronounced slowdown in the global economy will only reflect negatively in the currencies across Asia and emerging-markets.

With relations with China stretched, the US is hoping to make headway with Japan over trade.

Toshimitsu Motegi, Japan’s economy minister, is due in Washington later today to discuss a “mini” bilateral trade agreement with Robert Lighthizer, the US trade representative.

The aim is to agree a partial deal, in which Japan would give additional access to its agricultural market in return for America lowering some tariffs on Japanese manufactured goods.

The FT says such a deal could bring “some relief from the commercial tensions battering the world economy”. Japan, though, is worried that the US will impose tariffs on its auto exports, so may be reluctant to agree a partial trade deal until this issue is also settled. More here.