Oxford Economics have just published their assessment of the US-China trade deal signed yesterday.

And having analysed the deal, they’re also not-too impressed. The deal is better than nothing, but doesn’t end the trade war that has hurt the global economy for more than 18 months.

Oxford Economics also suspect that China will struggle to buy the $200bn of US goods it has promised -- and if they do, it will come at the expense of other countries.

Here’s the key points from their note:

• Importantly, while beneficial, the US-China trade truce remains a fragile one. While the deal is a step in the right direction, any further roll back of the additional US tariffs on China imposed by the Trump Administration should not be expected until after the US presidential elections in November, and broken promises could lead to a “snapping back” of the agreed tariff reductions in the coming months. Fear of such a “snapping back” is likely to continue to weigh on businesses’ investment plans and confidence in US-China relations pending greater clarity on the long-term bilateral relationship, including on the technology front.
  
  
• We expect most of the tariffs imposed by both sides and not covered by the deal to remain in place for some considerable time. We also believe that a follow-up “phase two” deal is unlikely to emerge as outstanding issues from a US perspective – subsidies and the fundamentals of China’s state-led economic model – will be extremely difficult to resolve via a bilateral trade agreement.
  
  
• The two-year-long trade war has reduced bilateral US-China trade flows by $100bn, or 15%, since early 2018, while trimming the US bilateral trade deficit by 15%. However, most of the reduction in the US defincit stems from trade diversion from other countries. Looking ahead, China’s promises to raise imports from the US are also likely to involve trade diversion, rather than trade creation.
  
  
• The $200 billion increase in China’s imports from the US in 2020-21 stipulated by the agreement will be hard to achieve. The agreement has remarkably detailed targets as to by how much China’s purchases of US manufactured products, agricultural products, energy and services should increase in 2020 and 2021.

A late newsflash: The United Nations has warned that the global economy is weak -- which will undermine efforts to tackle the climate emergency.

The warning comes in a new report, just released. My colleague Richard Partington has read it, and reports:

The world economy risks suffering a sharp slowdown in 2020 that would derail international efforts to tackle the mounting climate emergency and heightened poverty around the world, the United Nations has warned.

In a flagship report ahead of the annual gathering of world leaders in Davos next week, the international governmental organisation sounded the alarm that trade tensions between major countries threatened to serve as a brake on growth, with damaging consequences for sustainable development.

The UN said that rumbling trade tensions between the US and China had dragged down economic growth in 2019 to the lowest level in a decade, with the prospect that a renewed flareup, financial turmoil, or an escalation of geopolitical tensions could derail a recovery this year.

The warning comes after Donald Trump signed the first phase of a new trade deal with China on Tuesday, dialling-down the trade standoff between the world’s two biggest economic superpowers.

Although the UN said that easing trade tensions should help to propel global GDP growth to around 2.5% this year from a ten-year low of 2.3% in 2019, it warned the potential for relapse was high.

Failure to keep the risks in check would mean GDP growth in 2020 slumping to around 1.8%, with a knock-on consequences for government efforts to hit their sustainable development goals, it added.

António Guterres, secretary-general of the UN, said: “These risks could inflict severe and long-lasting damage on development prospects. They also threaten to encourage a further rise in inward-looking policies, at a point when global cooperation is paramount.”

Breaking! Ryanair has launched a stinging attack on the UK government’s rescue of regional airline Flybe.

In a strongly worded letter, Ryanair’s CEO Michael O’Leary says the deal (which reportedly to include a delay to its air passenger duty bill) violates competition law and state aid rules.

O’Leary also puts the boot into Flybe’s owners, including Sir Richard Branson, saying they don’t deserve to have their ‘unviable’ airline rescued.

He says:

“This Government bailout of the billionaire owned Flybe is in breach of both Competition and State Aid laws. The Flybe model is not viable which is why its billionaire owners are looking for a state subsidy for their failed investment.

The reason why Flybe isn’t viable is because it cannot compete with lower fare services from UK regional airports on domestic and EU routes provided by Ryanair, Easyjet, BA and others; and it cannot compete with lower cost road and rail alternatives on many smaller UK domestic routes. If Flybe fails (as it undoubtedly will once this Government subsidy ends) then Ryanair, Easyjet, BA and others will step in and provide lower fare flights from the UK regional airports, as we already have to make up for the recent failure of Thomas Cook Airways.

This Flybe ‘subsidy’ cannot comply with Competition, or State Aid rules unless the same APD eco tax holiday and other Government subsidies are extended to all other UK competitor airlines including Ryanair, Easyjet, BA among others.”

Wall Street has opened at a new record high, as the bull market shows no signs of running out of energy.

The Dow Jones Industrial Average jumped by 125 points as the first buy and sell orders fly, hitting 29,155 for the firs time.

Traders can keep their “Dow 29,000” hats on (legendary trader Peter Tuchman probably slept in his.)

Relief that the Phase One trade deal is signed (despite its flaws), and today’s strong retail sales and jobless data, is cheering the markets.

Breaking: The outgoing Bank of England governor has a new job - helping to save the planet.

Mark Carney has just been appointed as Boris Johnson’s finance advisor for the COP26 climate emergency conference, being held in Glasgow this November.

Carney’s challenge is to mobilise “ambitious action from across the financial system”, to help keep global warming within the 1.5°C target set in the Paris Agreement.

This will include building a framework in which companies can report their climate impact, and manage the risk of a changing climate. That will help private investors factor in climate change when they are investing their money.

It’s a vital issue for companies -- earlier this week, BlackRock finally agreed to put climate at the heart of its investment strategy.

It’s a good job for Carney to do -- he appears to understands the scale of the crisis, recently warning that some assets will be made worthless by the climate emergency).

The governor (who leaves the Bank in March) says COP26 is vital:

The combination of these critical meetings and the UK’s global leadership in financial services provides a unique opportunity to address climate change by transforming the financial system.

To seize it, all financial decisions need to take into account the risks from climate change and the opportunities from the transition to a net zero economy. The UK has a plan to do just that, and I look forward to working with the private sector, HM Government, the Bank of England and all stakeholders to help make this promise of sustainable finance a reality.

The eurozone economy is looking a little brighter today, despite the gloom in German factories.

Car sales across the EU jumped by 21.4% year-on-year in December, new industry figures showed this morning. Demand was sharply higher in France, Germany, the Netherlands and Sweden.

The figures show a recovery compared with 2018, when the diesel emissions scandal hit sales hard.

European consumers also flocked to Primark stores; the discount chain reported a 5.1% jump in eurozone sales over Christmas, helped by “strong progress in France and Italy”.

Financial analyst and journalist Louise Cooper has analysed the US-China trade deal, and concluded that Xi Jinping and Liu He have done Donald Trump up like a kipper.

She reckons that most of China’s ‘concessions’ actually suit Beijing jolly nicely (you can read the agreement here).

For example, pledging to buy US food is a no-brainer, when China is suffering from food scandals and a swine fever epidemic.

Four whole pages of the deal relate to dairy and infant food formula - an area where China really needs US help.

In a trade agreement of just 46 written pages, four pages are for dairy and infant formula! That is extraordinary. And it reflects Beijing’s concerns not the interests of America!

FYI China had a baby milk formula scandal over a decade ago that saw Chinese babies die. 22 Chinese companies were involved and still now Chinese parents don’t trust Chinese made formula:

China has also promised to allow parties in civil dispute to call witnesses, and cross-examine them. That will help to develop its legal system - handy in a more developed economy.

And on forced technology transfers, China is pledging not to put pressure on US companies to hand over their secrets in return for approving a deal or joint venture.

Cooper reckons this commitment is rather wishy-washy:

This section is two pages long because many American companies will decide it is a worthwhile trade to do this. And it is very difficult to police. Which company would complain to Washington if they knew their complaint would get back to Beijing and they may be restricted from operating in the country for years?

In conclusion, Cooper reckons that Trump (who was crowing about his deal yesterday), has actually been easily manipulated.

I believe this trade agreement reflects the man. His inability to read much documentation, his short attention span, his inability to look into detail. But still to believe in his own brilliance and expertise.

Germany’s industrial heartland is still locked in recession, according to a fresh warning from its manufacturers.

Dieter Kempf, president of the BDI industry body, told its annual conference today that there is no sign of an upturn, following a grim 2019.

Kempf warned:

“Industry remains stuck in recession, there are no signs for the sector bottoming out.”

Overall, BDI (the Federation of German Industries) only expects Germany to grow by 0.5% this year -- partly helped by an increase in working days.

Germany has suffered badly from the US-China trade war, with weaker global growth meaning less demand for German-made heavy-duty machinery.

It has also suffered from the slowdown in the eurozone, and structural problems in its car industry (the move away from polluting diesel cars to electric models).

BDI is calling for Berlin to implement a big new public infrastructure project to boost growth (and give its members more work to do).

It also wants corporation tax to be cut, from 31% to 25%, Reuters reports.

These requests might run foul of Germany’s insistence on running a balanced budget, though.

Getting back to the US-China trade deal.... and Chinese officials have been denying that the agreement is a damp squib.

Foreign Ministry spokesman Geng Shuang told reporters that the Phase 1 agreement was good for both countries and the world, playing down concerns that China hasn’t got much out of the deal.

Chinese media have also been discouraging griping, as Reuters explains:

An editorial in the Global Times, a tabloid run by the People’s Daily, stated that debating “about who had lost or gained is shallow.”

“We urge individuals and forces to exercise some restraint in their nitpicking of the agreement and bad-mouthing future trade negotiations,” it wrote.

The Bank of England’s latest survey of credit conditions is out, and shows that demand for loans fell in the last quarter.

Demand for credit cards, mortgages and corporate loans all fell in the last three months -- a sign that households and companies were nervous ahead of December’s election and the Brexit deadline later this month.

Commercial banks reported that they expect demand for credit cards to rise in the current quarter, while mortgage demand could keep dropping.

Lenders also expected demand for corporate lending in Q1 to increase slightly for small businesses and to decrease for medium and large businesses.

Recruitment firm Hays is also among the fallers, down 3.3%, after hitting investors with a profits warning.

Hays suffered a 4% drop in fees in the UK and Ireland, with demand for permanent workers down sharply. It blamed “economic and political uncertainty” for deterring firms from hiring new staff.

CEO Alistair Cox blamed a quadruple-whammy of factors, from protests in France to the bushfire disaster in Australia.

“Growth slowed markedly in December, driven by specific events in key markets: general strikes in France, tragic Australian bushfires and the UK election. Each event impacted markets already facing challenging economic conditions and low business confidence.

Germany weakened further, with economic uncertainties driving increased client cost controls.

Hays reports that Australian firms have reined in their hiring plans - a reminder of how the climate emergency will hurt the economy.

The bushfires in Australia are a tragic and unprecedented situation and our first priority is the safety and well-being of our colleagues, temps and clients. We will do everything we can to provide any support that they need at this very difficult time.

Net fees in Australia & New Zealand (ANZ) declined by 7%, versus a tough growth comparative. Having been broadly sequentially stable in October and November, the Perm market slowed materially in December, with sentiment heavily impacted by the bushfires.

Total fees are down 4% over the last quarter:

Rating agency Moody’s has given the Phase One trade deal a modest welcome, but warned that relations between Washington and Beijing could flare up again.

Michael Taylor, managing director of Moody’s Investors Service Credit Strategy, says:

The agreement could help boost bilateral exports by the two economies and lead to an improvement in business confidence as well as investment.

“But the details of the agreement suggest that there remains considerable scope for friction between the two sides.”

Mark Haefele, chief investment officer at UBS Global Wealth Management, also sees challenges ahead:

“We believe the agreement underpins a positive outlook for risk assets, especially emerging market stocks. But it is also important for investors to understand the limitations of the deal.

So we see the deal as representing a partial calming rather than an end to trade tensions.”

American farmers may be feeling glum today.

Soybean prices have fallen to a one-month low since the details of the US-China trade deal were published. Wheat and corn prices are down too.

There’s disappointment that China hasn’t made any specific commitments to buy certain commodities - just to raise its total spending on US farm products by $32bn over the next two years.

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

Peace has broken out in the US-China trade war, but for how long?

There’s relief in the markets this morning after the two sides finally signed their long-awaited Phase One trade deal....but also concerns that the agreement won’t provide much of a boost to the global economy

As we covered last night, China has agreed to buy $200bn of US products over the next two years, including at least $32bn extra agricultural products.

Signing the deal last night at the White House, Chinese vice-premier Liu He pledged to work with Washington to implement the deal.

Liu told a room packed with US business leaders that:

“The Phase-one deal will help maintain world peace, stability and prosperity. US and China can work together to achieve win-win relationship despite differences in politics, economic model.”

Trump (never one to leave his trumpet untooted) says it’s “the biggest deal ever”.... “Momentous” was mentioned too, as the president declared a breakthough in relations with Beijing.

Here’s a breakdown of China’s commitments:

• Manufacturing goods: at least $32.9bn more in 2020, rising to $44.8bn more in 2021
• Agricultural products: at least $12.5bn more in 2020, rising to $19.5bn in 2021.
• Energy products: at least $18.5bn more in 2020, rising to $33.9bn in 2021
• Services: at least $12.8bn more in 2020, rising to $25.1 in 2021

The deal means that some planned tariffs on Chinese-made consumer electronics products have been cancelled, and others have been lowered.

The reality, though, is that tricky issues such as China’s state subsidies, and the forced transfer of technologies from US companies, haven’t been addressed yet.

And that means America is leaving tariffs in place on around $360bn of Chinese goods, including food, chemicals, industrial products and some electronics.

Rebecca Harding, trade economist and CEO of Coriolis Technologies says the deal is “entirely political”:

In an election year, President Trump can present this as a win for US manufacturers and producers.

He also retains leverage on China in any future trade deals that might be negotiated. Issues around China’s Intellectual Property “theft” and its security risk to the US economy have been kicked into a subsequent agreement which is unlikely to be signed before the US Presidential election.

Traders seem to agree that the deal, although welcome, isn’t really ground-breaking. Stocks rallied, pushing the Dow Jones industrial average to a new closing high of 29,030.

Australia’s stock market has hit a new closing high, on hopes that Chinese demand for Australian raw materials will hold up well.

But soybean prices have fallen overnight, on disappointment that China isn’t making bigger commitments -- and concerns over how the deal will be enforced.

We’ll be tracking reaction to the deal today.

Also coming up today

It’s a busy morning in the City, with several UK companies reporting weak results.

Pearson, the publishing company, has only reported flat revenues for 2019 due to a sharp drop in sales in the US. This means profits will miss forecasts.

Recruitment firm Hays have warned that operating profits have been hit by a slowdown in hiring, in the UK, France and Australia.

Fashion retailer N Brown has also warned that profits will miss forecasts, partly due to heavy discounting on the high street.

Hotel chain Whitbread is also finding conditions tough, reporting a 1.3% drop in like-for-like sales in the UK.

Halfords, though, is upbeat after selling record numbers of kids bicycles last year. And discount chain Primark has reported a pick-up in demand in the eurozone.

More on all that shortly too....

The agenda

• 9.30am GMT: Bank of England survey on UK credit conditions
• 1.30pm GMT: US retail sales for December
• 1.30pm GMT: US weekly jobless figures