Graeme Wearden 

Markets rally as OECD hikes global growth forecasts – as it happened

Rolling coverage of the latest economic and financial news
  
  

Container cranes stand at a shipping terminal in Hamburg Port.
Container cranes stand at a shipping terminal in Hamburg Port. Photograph: Morris MacMatzen/Getty Images

Closing summary

Time to recap.

The OECD has hiked its forecast for global growth, thanks to Covid-19 vaccine rollouts and Joe Biden’s stimulus package.

The Paris-based group doubled its forecast for US growth in 2021, and also raised its predictions for the UK’s economy.

It warned, though, that Europe’s slower vaccine rollout could hold back its recovery.

Laurence Boone, the OECD chief economist, said:

“The world economy is doing a bit better. Firms have adjusted and some countries have accelerated vaccinations and so are reopening their economies.

“I don’t want to sound overoptimistic because a lot of the predictions are based on the assumption that vaccination will accelerate and that the race between vaccines and the virus will be won by the vaccines.”

Boone said the UK had been “doing well” on the vaccine front, adding that the eurozone – where programmes have lagged well behind that in the UK – needed to speed up. “It’s taking too long.” she said.

Markets have rallied, with the UK’s FTSE 100 touching a three-week high and Germany’s DAX hitting a fresh record peak.

European indices closed at their highest level in a year, while the US Nasdaq has bounced back after sliding into a correction yesterday. Tech stocks are roaring back, with Tesla now up over 17%.

China’s stock market had a bad day, though, prompting Beijing-controlled funds to buy up shares to cushion the sell-off.

Trade between the US and Germany has slumped at the start of 2021, as Brexit trade friction and the pandemic hit exports between the two countries.

Tens of thousands of steel workers face uncertainty tonight, after Greensill Capital, the financial backer of Sanjeev Gupta’s steel empire, collapsed into administration earlier this week.

MPs have accused the UK’s Financial Conduct Authority of failing to protect businesses and investors swept up in the collapse of specialist lender Greensill.

Goodnight. GW

MPs have accused the UK’s Financial Conduct Authority of failing to protect businesses and investors swept up in the collapse of specialist lender Greensill Capital, saying the crisis “draws yet more uncertainty” over the efficacy of the City regulator, and that it is time for a review of its powers.

Kevin Hollinrake, the Conservative MP and co-chair of the all party parliamentary group on fair business banking, criticised the regulator’s approach to Greensill (which allows businesses such as GFG to borrow money to pay their suppliers).

Hollinrake said:

“The FCA exists to protect consumers and businesses from abuses of financial institutions, but after less than 10 years, already has a string of scandals under its belt.

The fact that Greensill Capital was allowed to operate in the UK in the shadows demonstrates a failure to fulfil its requirements.”

Here’s the full story:

In other retail news, pizza chain Domino’s is planning to open more stores, and offer more drive-thru services, as the Covid-19 pandemic prompted more people to order takeaways and meal deliveries.

The firm plans to add 200 new outlets to its 1,201 stores, most of which are run by franchisees. To revive its collection business, it aims to offer drive-thru services at 450 outlets by June, up from 189 now, at stores that have a car park or are near one.

Customers order on the app, drive to the store and Domino’s will deliver the pizza to the car.

Updated

Hundreds of staff at UK cycling chain Evans are facing the threat of unemployment, even though demand for bicycles has been strong since the first lockdown.

More than 300 jobs are expected to go at Evans Cycles, and hundreds of remaining store staff are to be switched to zero-hours contracts, as Mike Ashley’s Frasers Group aims to slash costs.

The 55-store bicycle retailer, which Frasers bought out of administration in 2018 when it had 62 outlets, has told staff it intends to cut up to half of the workforce in many stores despite booming trade for bike retailers during the pandemic.

Sales of bikes have soared as people have sought an alternative to public transport and a leisure activity suitable for lockdown life.

Back in New York, the Nasdaq Composite continues to rally - now up 3.89% or 490 points at 13,100 points.

That will bring relief to technology investors, who watched the Nasdaq sink into correction territory last night (down 10% from February’s record highs).

But... could there be more pain ahead?

Peter Garnry, head of equity strategy at Saxo Bank, says that this is currently only the Nasdaq’s 15th largest drawdown since 1 January 2003 (and that’s before today’s recovery).

That makes it a benign correction by the tech-focused index’s standards, as this chart shows:

However, that could mean further losses on the cards, if past history is a useful guide this time. And that could prove an unwelcome new experience to investors who have joined the market since the pandemic began.

Garnry writes:

History suggests that the drawdown could last 121 trading days if this is an average drawdown in terms of its recovery profile. This we think would profoundly alter investor psychology as the new group of retail investors arriving at equity markets last year have never experienced slow grinding equity markets for very long. Our thesis is that growth investing and its near-term support will hinge on the drawdown length and thus is a key indicator to monitor going forward.

The Nasdaq 100 is 15 trading sessions into the current drawdown, down 10.9% [as of last night] and our bubble stocks basket is down 27.9% since the peak. Listening to many growth investors, both professional and retail, it has been a violent move, and many has been taken by surprise, or at least, many had underestimated the interest rate sensitivity and not given it much thought.

While painful for many investors, we could see our bubble stocks basket experiencing a 50% drawdown taking the basket’s total return index back to levels from September last year – if this happens it would entail a 32% decline in bubble stocks from current levels. Outsized gains typically come with subsequent volatility and potentially dramatic drawdowns. That is the lesson of history, and this is no different.

Small correction to that last post, sorry - this is the Stoxx 600’s highest closing level since 21st February 2020, just before the Lombardy lockdown started the global selloff.

So European stocks are still a one-year high, but a little further from the record peak (please refresh to get an updated graph below, thanks).

Updated

European stock markets hit one-year high

European stock markets have closed at their highest level in over a year, as they claw back their losses since the first lockdown a year ago.

The Europe-wide Stoxx 600 has closed 0.75% higher tonight at 420.41 points, with technology companies leading the rally (as in America).

That’s its highest close since mid-February 2020, when European markets were at record levels just before the global stock market crash.

This follows a strong rally yesterday, when European stocks posted their best day in four months, lifted by hopes of a global economic recovery this year.

With the OECD predicting faster global growth, and Joe Biden’s $1.9trn stimulus package imminent, investors should be more optimistic about future prospects.

David Madden of CMC Markets says that European stock markets are benefitting from the recovery in government bond prices, which slumped last month triggering market turbulence.

The dip in government bond yields has acted as the green light for the equity bulls and lately, spikes in yields have sent tremors through stock markets. The positive mood is being fuelled by the hopes the US government will implement the $1.9 trillion relief package soon.

Hopes connected to the economic recovery story have lifted sentiment too. The FTSE 100 hasn’t rallied as much as its eurozone equivalents. Declines in mining and banking stocks are holding back the British index.

Edward Moya of OANDA adds that technology stocks are rebounding after some sharp losses this year, as investors have favoured recovery stocks instead.

Wall Street is one-way street right now and it is going whichever way the Treasury market takes it. Big-tech might attract the most attention, a most needed rebound after Apple flirted with bear-market territory and Tesla plummeted over 40% from record highs set in January. The cyclical rotation has been running strong for months and today is an overdue buying the dip for technology stocks. The move in tech stocks coincides with the rally in Treasuries, so many traders will be sceptical that this rebound will stick.

The Nasdaq and meme stocks are leading the charge higher which for someone reason doesn’t surprise me. GameStop is up 18% Tesla is 11.1% higher, while Apple rose by 3.4%. It’s the return of every millennial traders’ favorite bet and it could last a little while longer until bearish bias for bonds returns.

Updated

London’s FTSE 100 index has fallen back from its earlier highs, and closed just 11 points higher at 6730 points.

That’s a modest gain of just 0.17%, but still leaves the blue-chip index at its highest closing point in three weeks.

The surge in US tech stocks lifted Scottish Mortgage Investment Trust by 5.7% (which holds stakes in major technology firms including Tesla and Amazon). Internet security firm Avast gained 5.8%

But mining stocks were a drag on the Footsie, with Anglo American (-4.4%), Rio Tinto (-3.6%) and Glencore (-2.4%) in the fallers. That follows a drop in Chinese iron ore futures prices, blamed on new anti-pollution restrictions introduced in China’s top steelmaking city of Tangshan.

Europe’s stock markets are trading at their highest level since the early days of the pandemic....

After decades of service feeding Londoners and tourists, the Covid-19 pandemic has left the long-established Angus Steak House facing an uncertain future.

The Telegraph’s Hannah Uttley reports that the meaty chain is on the brink of administration thanks to the lockdown.

It is asking landlords to waive rent until its five London restaurants reopen, and then accept payment of rent on a daily rate once customers are allowed back.

The pandemic is a bruising blow to a chain that was once pioneering, but has looked increasingly dated as the restaurants business has evolved.

The Telegraph explains:

Angus Steakhouse is run by the Noble Organisation, which has a leisure and property portfolio ranging from tanning salons to amusement arcades. Angus Steakhouse has five restaurants including a flagship at Piccadilly Circus.

The chain was founded in the early Sixties by butcher Reginald Eastwood and became a popular dining-out spot during the Seventies and Eighties.

But it has struggled in recent years in the face of changing consumer tastes and fierce competition from rivals. The most recent accounts filed for the company showed it made an operating profit of £373,000 for the year to Oct 31 2018, compared with £1.7m a year earlier. Sales fell 10pc to £32m during the same period.

Updated

Back in the UK, Marks & Spencer is to knock down and redevelop its largest UK store after a big consumer switch to online shopping during the pandemic.

The new 10-storey building, at the Marble Arch end of London’s Oxford Street, will include just two-and-a-half floors of shop space with several floors of offices and potentially leisure space such as a gym. It will have an arcade through its centre and space for 4,000 office workers on the higher floors.

The building, which has been an M&S shop since 1930, currently has five floors of retail across three different buildings that have been merged together over the years. The existing site also includes accommodation for staff training sessions, which is no longer required.

Tech stocks push Dow back over 32k

Technology stocks have also driven the Dow Jones industrial average higher.

The Dow has gained 251 points, or 0.79%, to 32,054 points, taking the index close to Monday’s intraday record peak.

Intel (+4.2%), Apple (+3.5%), Salesforce.com (+2.8%) and Microsoft (+2.8%) are leading the Dow risers.

The rally in technology firm comes as US government bond prices strengthen, pushing down yields.

Those bond yields had risen as investors priced in higher inflation, and the risk that interest rates might rise sooner than expected.

With the OECD raising its growth forecasts today, this scenario hasn’t exactly vanished -- but investors do seem more sanguine about the implications of a strong recovery.

Fawad Razaqzada, analyst with ThinkMarkets, cautions that this could be the “calm before the storm”:

Concerns over sky-high valuations in growth stocks, mainly tech names, have weighed on the Nasdaq in recent weeks, while the rally on value stocks such as banks, energy names and industrials have gathered pace.

Investors have been warming to the rising yields as we get closer and closer to coming out of lockdowns thanks to the faster vaccine deployment boosting confidence.

But what about the future - will this trend continue? Obviously, I don’t have crystal ball, but I am not too sure that US stocks will be able to maintain their pace. Granted, markets can overshoot amid euphoria, but ultimately if concerns about tighter monetary conditions intensify, then yield-seeking investors might be attracted to the “safer” returns on the bond markets instead of stocks, as yields continue to rise.

Shares in GameStop, which famously soared and then plunged earlier this year, are climbing again today.

GameStop stock has jumped by 17% in early trading to $227, adding to a surge on Monday as it recovered from its plunge at the start of February when the ‘short-squeeze rally’ fizzled out.

GameStop’s surge yesterday came after it announced it was creating a new committee to help accelerate the company’s new e-commerce strategy. It will be led by major shareholder Ryan Cohen, the cofounder of pet product e-tailer Chewy.

Cohen took a big stake in GameStop last year, and has been pushing to move away from its traditional brick-and-mortar business model to become a technology-driven business that focused on gaming and digital experiences.

Nasdaq bounces back

Over in New York, technology stocks are bouncing back from their recent wobble.

The Nasdaq index has jumped by 3% in early trading, gaining 379 points to 12,988 - just a day after officially falling into a correction (more than 10% down on February’s peak).

Electric car firm Tesla has surged by 8.8%, to $612 per share, while high-tech home exercise company Peloton are up over 10% and Chinese e-commerce platform Pinduoduo has risen by 9%.

Semiconductor giant NVIDIA is also in the risers, gaining 6%, with PayPal up 5.9%.

Meghan Markle and Prince Harry’s interview with Oprah Winfrey was watched by more than 11 million UK viewers on Monday night, taking its trans-Atlantic audience to almost 30 million.

ITV’s two-hour re-broadcast of the explosive interview, which attracted 17 million viewers when it first aired on CBS in the US on Sunday night, drew the broadcaster’s biggest audience since airing the final of the Rugby World Cup in 2019.

Princess Diana’s BBC Panorama interview with Martin Bashir in 1995 holds the record for the most watched factual programme in the UK, drawing 22.8 million viewers.

However, given Prince Harry and Meghan’s interview has been sold to broadcasters in about 70 countries, it is almost certain to achieve the status of the most-watched royal interview of all-time. ITV, which paid about £1m for the exclusive rights to air the interview in the UK, said the broadcast drew an average audience of 11.3m, and a peak of 12.3m, making it the biggest programme on TV this year outside of news.

Boris Johnson’s lockdown address to the nation in January drew 24 million people with the broadcast benefiting from being aired simultaneously to audiences watching the BBC, ITV, Channel 4 and Sky.

ITV also reported this morning that the coronavirus pandemic wiped more than £200m off ITV’s profits last year but that there are signs of a strong recovery in TV ad revenues.

ITV’s profits fell 39% from £530m in 2019 to £325m last year, with total revenues plunged 16% to £3.3bn as the pandemic caused advertising to fall at the steepest rate in its history in April, and hit shows such as Love Island were pulled from the schedule after being unable to shoot during the lockdown.

The company returned to TV ad growth in the final quarter last year, as spending rebounded in the run-up to Christmas, but it was down 6% in the first three months of this year because of the latest lockdown.

Germany: "Foreign trade with Britain has collapsed"

The slump in trade between Germany and the UK shows that ‘Brexit fallout’ is damaging commerce between the two countries, says the AFP newswire:

Germany’s exports ticked up in January on robust trade with China, but trade with another key trade partner, Great Britain, plummeted after the Britain left the EU.

The Brexit fallout has continued to hurt commerce with the United Kingdom, with federal statistics office Destatis recording a 29 percent plunge in German exports across the Channel.

Meanwhile, demand for UK goods in Germany collapsed by more than 56 percent, official data showed Tuesday.

Cross-Channel exporters have had to adapt to new customs requirements from January 1, following Britain’s 2016 decision to leave the European Union.

Firms on both sides have since complained of increased bureaucracy and shipment delays as they grapple with the new rules.

“Foreign trade with Britain has collapsed,” said LBBW bank economist Jens-Oliver Niklasch.

German news website The Local has more details:

Also on the steel crisis, Bloomberg are reporting that the GFG Alliance is trying to negotiate a reprieve on its debts to Greensill.

Bloomberg says:

Sanjeev Gupta’s GFG Alliance is in talks to negotiate a reprieve on its debt obligations to Greensill Capital and prevent a rapid collapse of the metals group that’s been shaken by the unraveling of its biggest lender.

A standstill agreement with Greensill, GFG’s largest lender which filed for administration on Monday, would help the metal magnate’s group stave off insolvency and avoid an asset fire sale, according to people familiar with the matter, who asked not to be named because the talks are private. Gupta is separately seeking to raise new financing to replace Greensill’s loans, they said.

The Sunday Times reported that Gupta owed more than £3bn to Greensill, whose collapse into administration has put 5,000 UK steel jobs at risk, and tens of thousands more globally.

Reuters: Gupta says Liberty Steel has adequate financing after Greensill insolvency

British tycoon Sanjeev Gupta told UK trade unions on Tuesday that his Liberty Steel business had adequate financing after major financial backer Greensill Capital went into administration, Reuters reports.

“We have adequate funding for our current needs while we bridge the gap to refinancing the business,” he said in prepared remarks provided by a source close to the meeting.

“Securing alternative long-term funding is progressing well but will take some time to organise.”

Markets rally on growth hopes

European stock markets have pushed higher, as optimism over the economic recovery picks up pace.

In London, the FTSE 100 index of blue-chip shares is trading at a three-week high, and currently up 46 points at 6765 points, up 0.7%.

Scottish Mortgage Investment Trust, which hold large stakes in large US tech firms, is rallying 3.6%, on signs that the technology selloff is abating. Internet security group Avast is also in the risers (up 3.3%)

Luxury goods maker Burberry, which should benefit from a pick-up in global growth and tourism, has gained 3.2%.

Mining stocks are down, though, as commodity prices have been hit by the stronger US dollar (and iron ore prices weakened after anti-pollution restrictions were introduced in China’s top steelmaking city of Tangshan).

European markets are also posting gains today, after their best day in four months yesterday, keeping Germany’s DAX at a record high.

Sophie Griffiths, market analyst at OANDA, says:

After a shaky start, European equities are bounding higher. The Dax has surged to a fresh all-time high – its second in two days – as risk sentiment is being buoyed by optimism surrounding the global economic recovery. The FTSE is ahead of the pack in Europe despite miners having a hard time on falling base metal prices.

Vaccine rollouts are keeping up pace, particularly in the UK and US, and economic reopening is going well so far. Conviction of a strong economic recovery is boosting risk sentiment and driving demand for riskier assets such as equities. Yesterday’s troubles of rising bond yields have been quashed, for now, and the US dollar is slipping lower.

An intervention by Chinese authorities into the Chinese stock market has been a tonic for investors. The authorities scooping up shares has stabilised the sell-off in tech stocks, which dominated on Monday. Looking ahead to the US open, the stateside tech-wreck looks set to recover with Nasdaq futures aiming 2% higher

Full story: Covid-19 vaccines and stimulus plans will aid global growth, says OECD

Here’s our economics editor, Larry Elliott, on today’s upgraded growth forecasts:

The OECD said the success of Britain’s vaccine programme and the fresh support for jobs and businesses provided by Rishi Sunak in the budget meant it was revising up its forecast for UK growth from 4.2% to 5.1% this year, and from 4.1% to 4.7% in 2022.

Other OECD members – especially in Europe – need to speed up their vaccine programmes or risk falling behind in what has become an increasingly two-speed global recovery, the thinktank said.

Laurence Boone, the OECD chief economist, said: “The world economy is doing a bit better. Firms have adjusted and some countries have accelerated vaccinations and so are reopening their economies.

“I don’t want to sound overoptimistic because a lot of the predictions are based on the assumption that vaccination will accelerate and that the race between vaccines and the virus will be won by the vaccines.”

Boone said the UK had been “doing well” on the vaccine front, adding that the eurozone – where programmes have lagged well behind that in the UK – needed to speed up. “It’s taking too long.” she said.

Of the eurozone’s four biggest economies, two – France and Italy – have seen their growth forecasts for 2021 trimmed slightly, while Germany and Spain have seen their fortunes improve since the OECD’s December economic outlook. Growth in the 19-nation eurozone as a whole is now expected to be 3.9% this year, up from 3.6%.

The OECD said activity in the two biggest Asian economies – China and India – had already exceeded pre-crisis levels, with the US joining them by the second quarter of this year.

President Joe Biden’s $1.9trn stimulus package will add about 1 percentage point to global economic growth in 2021, Laurence Boone, the OECD’s chief economist, told the Financial Times.

The FT explains:

The Biden package was “trying to kickstart a new episode where you have higher growth and you move away from too-low inflation”, Boone said, although she added that “it would have been nice” to see “a little more” of the money spent on investment.

The OECD has also expressed concern about the varied pace of Covid-19 vaccination programmes around the world - including in Europe.

In today interim economic outlook, the OECD points out that vaccination campaigns are proceeding at different rates around the world, adding:

The evolution of the virus is uncertain, and targeted restrictions on mobility and activity may still be implemented in event of new outbreaks.

Such restrictions would check the pace at which the most affected service sectors and tourism-dependent economies can rebound

This chart shows just how uneven the process is (with Israel, the UK and the US notably ahead of international peers).

Yahoo Finance has more details about the OECD’s worries about vaccine rollout:

While the OECD was generally more optimistic, the organisation flagged serious concerns about the speed of vaccine rollouts in some parts of the world — notably Europe.

“Countries like Germany and France, mainly in Europe, are vaccinating far more slowly,” Laurence Boone, the OECD’s chief economist, said at a press conference on Tuesday. “That makes it harder to recover.

“Not vaccinating quickly enough also risks undermining the fiscal stimulus that has been put in place.”

UK growth forecast raised on vaccine momentum

The OECD has also raised its forecast for UK growth this year and next year too, noting the fast deployment of Covid-19 vaccines across the country.

It now expects UK GDP to rise by 5.1% in 2021, faster than the 4.2% forecast in December.

And in 2022, it now sees growth of 4.7%, up from 4.1% before. That follows a contraction of 9.9% in 2020, the worst in over 300 years.

The OECD has raised its growth forecast for the eurozone this year too, but more modestly. It now expects the eurozone to grow by 3.9% in 2021, up from 3.6% previously, and then by 3.8% in 2022 (up from 3.3%).

The OECD says:

In the United States, strong fiscal support should strengthen demand substantially and enable a stronger recovery from the pandemic, with beneficial spillovers for other economies, particularly Canada and Mexico.

A more gradual upturn appears likely in the major European economies, reflecting continued containment measures in the early part of 2021 and more limited fiscal support, although the acceleration of vaccine deployment should help momentum to build, particularly in the United Kingdom.

default

OECD doubles US growth forecast thanks to Biden stimulus boost

The OECD has doubled its forecast for US growth this year, thanks to the impact of new stimulus spending.

It now predicts US GDP will expand by 6.5% in 2021, sharply up on the 3.2% growth forecast in December. For 2022, growth has been revised up to 4.0%, from 3.5%.

The OECD also believes that the US stimulus package should help other countries too (particularly Canada and Mexico):

The significant fiscal stimulus in the United States, along with faster vaccination, could boost US GDP growth by over 3 percentage points this year, with welcome demand spillovers in key trading partners.

That stimulus package includes direct checks for most American families, more funding for vaccine rollouts, and extra unemployment support. It was approved by the Senate on Saturday, and should be passed by the House of Representatives this week (perhaps as early as today).

Updated

OECD hikes growth forecasts on vaccine and stimulus optimism

The West’s leading economic think tank has sharply upgraded its forecasts for global growth this year, as successful Covid-19 vaccine programmes and president Joe Biden’s major new stimulus package boost the economic outlook.

The Paris-based Organisation for Economic Cooperation and Development said it expected the world economy to expand by 5.6% this year. That’s an increase of 1.4% compared with the 4.2% growth forecast in December.

It then sees growth of 4% in 2022, up from 3.7% forecast three months ago.

In its new interim economic outlook, the OECD says that “a global economic recovery is in sight”, with world GDP expected to return to pre-pandemic levels by the middle of this year.

But it also warns that the recovery would be stronger if vaccine production and deployment increased, given the risk of new variants which could undermine efforts to reopen economies.

The OECD says:

Activity in many sectors has picked up and partially adapted to pandemic restrictions. Vaccine rollout, although uneven, is gaining momentum and government stimulus, particularly in the United States, is likely to provide a major boost to economic activity. But prospects for sustainable growth vary widely between countries and sectors. Faster and more effective vaccination deployment across the world is critical.

Prospects have improved over recent months with signs of a rebound in goods trade and industrial production becoming clear by the end of 2020. Global GDP growth is now projected to be 5.6% this year, an upward revision of more than 1 percentage point from the December OECD Economic Outlook. World output is expected to reach pre-pandemic levels by mid-2021 but much will depend on the race between vaccines and emerging variants of the virus.

The global vaccine rollout remains uneven, with restrictions remaining in some countries and sectors. The outlook for growth would improve (upside scenario) if the production and distribution of doses accelerates, is better co-ordinated around the world and gets ahead of virus mutations. This would allow containment measures to be relaxed more rapidly and global output to approach pre-pandemic projections for activity. But consumer spending and business confidence would be hit (downside scenario) if vaccination programmes are not fast enough to cut infection rates or if new variants become more widespread and require changes to current vaccines.

More details to follow...

Updated

German DAX hits record high

Germany’s stock market has shrugged off the slump in trade with the UK in January - and surged to a new all-time high.

The DAX index of leading German companies has rallied this morning, as investors continue to anticipate a strong economic recovery once the pandemic is over.

The DAX is 45 points higher at 14,426 points, a gain of 0.3% today.

The DAX’s rally comes amid the wider move out of sizzling US tech stocks, and into companies and sectors that will benefit from the reopening of the global economy.

This rotation gave Wall Street traders the unusual sight of the Dow Jones Industrial Average hitting a new record high, and the Nasdaq falling into a correction, on the same session yesterday.

Neil Wilson of Markets.com says this divergence yesterday was striking:

In the broader market, European stock markets and the Dow Jones rallied though tech weighed on the S&P 500 as the sell-off in growth and momentum continued....

We’ve not see such a divergence between the industrials and growth in a long time.

Today’s selloff took China’s CSI 300 stock index down to its lowest levels since late-December.

China expert George Magnus fears that something is ‘brewing’....

China state funds 'intervene' as stock prices slide

It’s been a turbulent day in China’s stock market, where state backed funds reportedly stepped in to prop up share prices.

The CSI 300 index of leading Chinese shares fell into a correction on Monday (more than 10% off its recent peak), and suffered further losses today amid the wider turbulence in the markets.

At one stage, the CSI 300 was down over 3% in nervy Tuesday trading, which seemed to prompt Beijing to pile into the market with a flurry of buy orders.

Bloomberg has the details:

Chinese state-backed funds were said to intervene on Tuesday to alleviate declines in the stock market, a sign that the rout had gone too far for policy makers. The equity benchmark erased a loss of as much as 3.2%.

The funds, known as China’s “national team,” stepped in to ensure stability during the government’s key policy meeting in Beijing, according to people familiar with the matter. A Hong Kong-based trader, who declined to be identified discussing client business, said entities linked to mainland funds were actively buying shares through stock links with Hong Kong on Tuesday.

The intervention did work, initially, pulling stocks up -- but despite the “National Team” doing its bit, the CSI 300 has ended the day down another 2.2%.

In January, China’s stock market surged to its highest level since the 2008 financial crisis, as optimism about the recovery boosted stocks.

But Beijing’s regulators have expressed alarm that ‘bubbles’ are forming in the financial markets, which has sparked speculation that China’s central bank could tighten monetary policy.

Kyle Rodda, analyst at IG, explains:

While somewhat unique to the broader volatility in financial market currently, the underlying factors driving the sell-off is familiar to investors: a deterioration in financial conditions as market participants position for tighter monetary policy from the PBOC, as policymakers in the country attempt to deflate the risk of asset bubbles.

While certainly only a band-aid fix, China’s move today has at least taken some of the pressure out of the market, with market participants remaining nervous in an environment where improving global growth is raising concerns central banks will be forced to tighten policy sooner than even the central bankers themselves expect.

Thousands of steel jobs at risk in UK and Australia amid Greensill crisis

More than 35,000 jobs, including thousands at steel mills in Britain and at Whyalla in South Australia, are at risk as GFG Group, the conglomerate controlled by British entrepreneur Sanjeev Gupta, races to refinance about $4bn owed to failed finance company Greensill.

Greensill’s UK operating companies collapsed on Tuesday and the Australian company that is the head of the group, Greensill Capital, followed suit on Wednesday morning, Australian time.

About 5,000 people work for GFG Group’s British Steel and about 1,000 are directly employed by the South Australian mill, but thousands more are dependent on it either as contractors or suppliers and it underpins the economy of the entire town of Whyalla.

GFG is currently in dispute with Greensill over the debt and sources with knowledge of the situation said the steel group’s efforts to disentangle itself from its financier were made more complicated because Greensill has made loans to multiple entities within GFG, secured against sales made within the group.

“We are currently in dispute with Greensill regarding the loan facility,” a GFG spokesman said. “In the circumstances we can make no further comment.”

Here’s the full story:

The sharp fall in UK-German trade in January will intensify concerns about the damage caused to the economy last year.

A report published yesterday showed that the UK suffered a larger drop in exports than major rivals in 2020.

Sales abroad were hit badly as the coronavirus spread worldwide, with UK manufacturers slower than most international competitors to take advantage of the pick-up in global demand after the first lockdowns a year ago.

City AM has more details:

The UK’s goods exports slumped by £54bn in 2020 and Britain lost market share to its main competitors as Covid-19 hammered global trade, according to new research published this morning.

The findings, from Aston University’s Lloyd’s Banking Group Centre for Business Prosperity, showed that Britain suffered a 14.7 per cent drop in goods exports, one of the largest of any major country in 2020, and also saw a slower recovery as other nations gobbled up market share in key export destinations.

Goods exports including cars, oil and gas, machinery and pharmaceuticals all tumbled as the pandemic battered economies worldwide and supply chains broke down.

..But strong demand from China helps German exporters

Despite the ongoing lockdowns, Germany exports to the rest of the world rose on a monthly basis in January - with strong trade with China lifting demand.

Seasonally adjusted exports increased 1.4% month-on-month in January, the Federal Statistics Office [but were still 8% lower than a year ago].

However, imports from abroad fell 4.7% compared with December [leaving them 9.8% lower year-on-year].

That’s a better-than-expected export performance from the eurozone’s manufacturing powerhouse, but it probably won’t prevent Germany’s economy shrinking in the January-March quarter.

Reuters explains:

A Reuters poll had pointed to a 1.2% drop in exports and a 0.5% fall in imports. January’s 1.4% increase in exports far surpassed even the most optimistic forecast.

The trade surplus grew to €22.2bn. On the year, exports to China rose by 3.1%. Exports to other European Union countries fell 6.0% on the year, those to the United Kingdom dropped 29% and those to the United States decreased by 6.2%.

Thomas Gitzel, chief economist at VP Bank, described the overall rise in exports as “an extremely positive surprise” and expected further growth.

“Net exports will thus be able to partially offset losses in private consumption in the economy as a whole - but not completely. On balance, the German economy will shrink in the first quarter,” he said.

Introduction: UK-Germany trade slid in January

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

Trade between the UK and Germany slumped in January, new figures from Germany show, as the two countries adjusted to life after Brexit amid the Covid-19 pandemic.

Figures released by Germany’s Federal Statistics Body (Destatis) this morning show that German exports to the United Kingdom dropped by 29.0% to €4.3bn in January 2021, compared with a year ago.

German imports from the United Kingdom tumbled even more sharply - down 56.2% to €1.6bn compared with January 2020 (just before Covid-19 struck the global economy).

This was the first month in which the UK traded with EU countries under the Brexit free trade deal. Road haulage bodies had warned that exports volumes had fallen in January, following a rush of stockpiling at the end of 2020 that led to huge delays at the ports.

Destatis adds:

On 1 January 2021 the partnership agreement negotiated between the EU and the United Kingdom took provisional effect. As the United Kingdom has left the EU single market and the customs union, its withdrawal from the EU has now been completed.

Overall, German exports to the rest of the world fell by 8% year-on-year in January compared to a year ago, while imports slumped by 9.8% - a sign of the impact of the Covid-19 pandemic on global trade over the last 12 months.

This swelled Germany’s overall foreign trade surplus to €14.3bn, up from €13.7bn in January 2020.

But... trade with China picked up, as its economy emerged faster from the pandemic lockdown than the wider global economy.

Destatis reports:

In January 2021, exports to the People’s Republic of China rose by 3.1% to 7.5 billion euros compared with January 2020. Exports to the United States fell by 6.2% to 8.5 billion euros.

In January 2021, most imports to Germany came from the People’s Republic of China. Goods to the value of 10.5 billion euros were imported from there (+1.1% on the same month of the previous year). Imports from the United States declined by 22.8% to 4.7 billion euros in January 2021.

Destatis also estimates that trade with the rest of the world was down in February, although at a slower contraction than in January.

Based on provisional data, the Federal Statistical Office (Destatis) also reports that, after calendar and seasonal adjustment, exports were 3.3% and imports 5.2% lower than in February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany.

Also coming up today

Union officials are due to hold crisis talks today with steel magnate Sanjeev Gupta, amid fears that thousands of jobs are at risk after his main financial backer, Greensill Capital, collapsed into administration yesterday.

The UK stock market has opened a little higher, after a strong day on Monday. The FTSE 100 is just up 6 points at 6725, up 0.1%, having jumped 1.3% yesterday.

The agenda

  • 10am GMT: Eurozone GDP for Q4 2020 (third estimate)

Updated

 

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