Time to recap.

Two European carmarkers have illustrated the problems facing the industry as it transitions to electric cars.

Volkswagen told staff it has “a year, maybe two” to adapt to a slump in European car sales, as it seeks to justify proposals to close factories in Germany for the first time in its history.

Volvo has abandoned its ambition to sell only fully electric cars by 2030. It is now aiming for 90-100% of its global sales to be either pure electric or plug-in hybrid at that point.

Global stock markets have stabilised after a rough patch. The S&P 500 index is broadly flat today, while the UK’s FTSE 100 has dropped by 0.35%. That followed heavy losses in Asia, where Japan’s Nikkei lost over 4%.

There are fresh signs that the US economy is cooling, with job openings falling to their lowest level since 2021 in July.

The UK government has reportedly dropped plans for a British Isa…

…while also approving Thames Water’s Water Resource Management Plan, including a new reservoir in Oxfordshire.

JP Morgan chief Jamie Dimon has met with Rachel Reeves, as the chancellor works on the autumn budget.

The UK payments regulator has confirmed it is proposing to slash the amount that banks will have to refund to fraud victims – from £415,000 to about £85,000.

Britain’s competition regulator has cleared Microsoft’s arrangements with Inflection AI, which included a licensing deal and the hiring of former Inflection employees.

After a choppy day, London’s stock market has closed in the red.

But it wasn’t the brutal selloff that was feared after heavy losses on Wall Street yesterday, and in some Asia-Pacific markets earlier today.

The FTSE 100 index has closed 29 points lower at 8269 points, a drop of just 0.35% today.

European stock markets had a rougher day; the Stoxx 600 has lost around 1% today.

The UK government has reportedly dropped plans for a “British Isa” that would have channelled savers’ cash into London-listed stocks.

The plan, pioneered by former chancellor Jeremy Hunt, has been ditched over concerns that it would “complicate” the investment market for individuals, the Financial Times reports.

The FT says two people close to the process said Labour considered pushing ahead with the new Individual Savings Account product drawn up by the last Conservative government, which would have allowed an extra £5,000 for UK-listed equities only, but had since abandoned the plans.

One government figure said:

“We are not planning to complicate the Isa landscape even further.”

The British ISA was never really going to revitalise the UK stock market scene, anyway.

As my colleague Nils Pratley explained in March:

Only about 800,000 people are now wealthy enough to use their £20,000 allowance in full in any year.

On the generous assumption that all of those people have another £5,000 to invest, the extra cashflows into UK assets would equate to £4bn a year. That is equivalent to only 0.2% of the current £2tn-plus value of the UK stock market.

The number of job vacancies at US companies has fallen, which may intensify concerns that economic growth is fading.

There were 7.673m job openings on the last business day of July, the US Bureau of Labor Statistics reports.

That’s down from a downwardly-revised 7.9m at the end of June, and the lowest level since the start of 2021.

That’s below expectations – economists had expected around 8.1m vacancies to be reported.

The JOLTS total surged in 2021, when companies struggled to hire workers as pandemic restrictions were lifted, but is now dropping back to pre-Covid levels.

It’s a sign that the labor market is softening, says Kathy Jones, chief fixed income strategist at Charles Schwab & Co.

The Bank of Canada has cut interest rates for the third time in a row, as central bankers continue to ease monetary policy.

The BoC has cut its benchmark rate to 4.25%, down from 4.5%.

It acted after Canadian inflation fell to 2.5% in July.

The BoC says:

The Bank’s preferred measures of core inflation averaged around 2 ½% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.

High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services.

The government has agreed to Thames Water’s plans for a new reservoir in Oxfordshire and a project to replace water from the Thames with treated sewage, the water company has announced.

Thames says that the Secretary of State for Environment, Food and Rural Affairs, Steve Reed MP, has approved Thames Water’s Water Resource Management Plan.

The plan includes two major infrastructure projects:

• A new 150 Mm3 reservoir in Oxfordshire, known as the South East Strategic Reservoir Option (SESRO).

• The Teddington Direct River Abstraction project, a new abstraction on the River Thames upstream of Teddington Weir, which Thames says will provide up to 75 million litres of water per day in drought conditions.

Thames says both projects will play “a crucial role in securing drinking water supplies for millions of households and businesses across the region”.

But plans for the new 150bn-litre reservoir to the south-west of Abingdon are unpopular with local residents and campaigners.

As my colleague Phillip Inman reported last year:

The Abingdon reservoir is the cornerstone of plans to build a resilient network of water sources – ones that can be easily deployed when shortages hit. Yet local residents and politicians say they remain confused by it.

What was going to provide Oxfordshire with a degree of drought resistance when it was put forward in 2010 became a solution for London in 2019. Then Thames, Affinity and Southern, the three water companies that plan to build the reservoir, said its water would be piped south to Portsmouth.

The Teddington plan is also controversial. It involves drawing off tens of millions of litres of water a day from the Thames, to refil reservoirs in east London, and replace it with treated effluent from the Mogden sewage works.

The idea has been rejected once by the Environment Agency, because of the anticipated unacceptable impact – it could increase water temperatures and change the salinity of the river.

The Chancellor Rachel Reeves’ is gearing up for a meeting with the CEO of Wall Street banking giant JP Morgan this afternoon.

It’s the government’s first meeting with Jamie Dimon since Labour took office, and will continue the party’s charm offensive on the City that began in the run up to July’s general election. The meeting coincides with Dimon’s own business trip to London.

The Treasury was contacted for comment. JP Morgan declined to comment.

It comes as the Treasury faces scrutiny over whether it caved to pressure from banks and financial firms over payment regulations due to come into force in early October, which would have forced them to compensate fraud victims up to £415,000.

The Payment Systems Regulator announced on Wednesday that it was consulting on new threshold that would cap mandatory compensation at a much lower level of £85,000 (see earlier post for details).

Volkswagen isn’t the only car maker struggling with the transition to electric vehicles.

Volvo has just announced that it has abandoned its target to sell only electric cars by 2030.

The Swedish auto maker insists that full electrification remains a key pillar of its product strategy. But it has decided to “adjust its electrification ambitions”, a move blamed on “changing market conditions and customer demands.”

This means Volvo will only aim for between 90% and 100% of its global sales volume by 2030 to consist of electrified cars. That means either plug-in hybrid models – which have a fossil fuel engine as well as an electic motor – or fully electric ones.

The remaining 0-10% of sales would be filled by mild hybrid models – which uses a battery-powered electric motor to support a conventional petrol or diesel engine to improve efficiency and reduce emissions – if needed.

Volvo says that by 2025, it expects the percentage of electrified products to come in between 50 and 60 per cent, adding:

Well before the end of this decade Volvo Cars will have a complete line-up of fully electric cars available. That will allow Volvo Cars to make the move to full electrification as and when the market conditions are suitable.

Volvo’s moves follows signs that demand for electric cars has slowed. In July, sales of battery electric and plug-in cars fell by 10.8% and 14.1% respectively, while those of hybrid-electric cars jumped 25.7%, according to industry body ACEA.

Just in: the US trade deficit jumped in July, new figures from the Bureau of Economic Analysis and the Census Bureau show.

The deficit increased to $78.8bn, from $73.0bn in June, as imports increased more than exports.

The US goods deficit increased $5.6bn in July to $103.1bn, while America’s surplus in services decreased $0.2bn to $24.3bn.

The US ran its largest deficit with China, and followed by the EU and Mexico.

Here’s more details:

• The deficit with China increased $4.9 billion to $27.2 billion in July. Exports decreased $1.0 billion to $11.5 billion and imports increased $3.9 billion to $38.7 billion.

• The deficit with Canada increased $3.0 billion to $7.6 billion in July. Exports decreased $1.4 billion to $27.3 billion and imports increased $1.7 billion to $35.0 billion.

• The deficit with Vietnam decreased $1.4 billion to $9.5 billion in July. Exports increased $1.0 billion to $2.1 billion and imports decreased $0.3 billion to $11.6 billion.

The UK payments regulator has confirmed it is planning to slash the amount that banks will have to refund to fraud victims – from £415,000 to about £85,000.

The Payment Systems Regulator (PSR) is proposing that the maximum refund for victims of authorised push payment (APP) scams should be capped at £85,000, as was reported last night.

That would bring it into line with the protection available for bank savings. But it’s a dramatic cut on the PSR’s previous proposal, that refunds would be capped at £415,000.

Lenders, fintechs and some politicians had protested that a cap of £415k was simply too high.

According to the PSR, the proposed lower cap will still see over 99% of claims (by volume) covered.

It says that in 2023 there were 18 instances of people being scammed for more than £415,000, and 411 instances of more than £85,000, out of over 250,000 cases.

David Geale, the PSR’s managing director, says:

“We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach. As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance.

Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”

The PSR has launched a consultation on its proposal, which closes in just two weeks on on 18 September. You can take part here.

Back in the UK, the competition authorities have cleared Microsoft over its hiring of former employees from artificial intelligence startup Inflection.

The Competition and Markets Authority has decided not to refer the situation to an in-depth probe, having examined it.

The hiring was controversial, as MS hired Mustafa Suleyman, Inflection’s co-founder, along with most of the startup’s staff. In response, the CMA eamined whether the deal actually constitutes a merger under UK rules.

It has now concluded that the deal is unlikely to lead to a significant loss of competition.

Volkswagen’s problems come amid a wider crisis in the German economy.

The Kiel Institute for the World Economy has predicted that Germany’s GDP will shrink this year, as the gloom in Europe’s largest economy refuses to shift.

Kiel predicts Germany will shrink by 0.1% over the course of 2024, having slipped 0.3% last year. It had previously expected growth of 0.2% in gross domestic product over the year.

For 2025, growth expectations have been more than halved; down from 1.1% to 0.5%.

In its sutumn forecast, Kiel says:

Positive signals in the middle of the year have not been confirmed, which is why the Kiel Institute is revising its expectations for this year and the coming year significantly downwards.

Recent economic data has confirmed that German GDP fell by 0.1% in the second quarter of this year, putting it on the brink of recession.

Volkwagen staff held a protest before the start of today’s works meeting, where they were warned that time is running out to turn its fortunes around.

Around 16,000 workers squeezed into the packed hall, Reuters reports, with another 5,000 outside watching on a screen,

German carmaker Volkswagen has warned its staff that it has “one, maybe two” years to cut its spending and adjust its output to lower demand, as it ponders shutting factories in Germany for the first time.

At a briefing with staff this morning, VW warned that its main brand needs to make deep cost cuts if it is to succeed in the transition to electric cars.

Chief financial officer Arno Antlitz told workers, gathered at Volkswagen’s Wolfsburg headquarters:

“If we carry on like this, we won’t succeed in the transformation.

It is our joint responsibility to improve the cost efficiency of the German sites.”

Antlitz warned that Europe’s car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.

But the meeting was stormy – Reuters reports that staff whistled and shouted “Auf Wiedersehen” when Antlitz took to the stage.

On Monday, VW warned that it was considering shutting two German factories, in what would be the carmaker’s first closures ever in its home country.

VW’s problems show the difficulties traditional European carmakers are having in switching from profitable but polluting petrol and diesel cars to cleaner but currently less profitable electric vehicles.

VW’s unions, though, are resisting efforts to close plants in Germany.

Daniela Cavallo, head of Volkswagen’s works council, told workers at the carmaker’s main plant in Wolfsburg that management had failed to do its job and needed to come up with a plan without shutting factories.

Cavallo pledged:

“With me ... there will be no plant closures in this country.”

UK-based banks are stepping up lobbying efforts against possible tax hikes in the government’s inaugural Budget on 30 October, Reuters reports.

Senior banks are concerned that Rachel Reeves could tap the banking sector to boost Britain’s finances.

Reeves is due to meet senior representatives of the banking sector in the coming days, where bankers expect a rise in taxes on lenders’ profits will be discussed, two sources have told Reuters.

Reeves could potentially increase the bank surcharge, which the sector pays on top of corporation tax.

Another option is to cut the interest paid to lenders on their Bank of England reserves. Those reserves have swelled thanks to the BoE’s quantitative easing programme, which created new money to buy assets from the banks (to encourage them to lend).

Threadneedle Street is now paying 5% interest on £700bn of bank reserves at a cost to the exchequer of £35bn a year – which is more than the £22bn ‘black hole’ the government says it has found in the public finances.

Airline Cathay Pacific is continuing to repair its fleet of Airbus A350 planes, following the problem suffered by a flight from Hong Kong to Zurich on Monday.

Cathay says today that maintenance activity on its Airbus A350 fleet “continues to progress well”.

It has identified 15 planes that need replacement engine fuel lines – six have been repaired and are cleared to fly again.

The remaining nine aircraft will be repaired and are expected to resume operation by Saturday.

Barratt Developments has suffered a 75% drop in annual profit and a double-digit decline in home completions after a “challenging” year for Britain’s biggest housebuilder.

The company said the past year had proved tough for the housebuilding industry and potential buyers, as cost of living pressures, much higher mortgage rates and weak consumer confidence weighed on the housing market.

Those factors hit Barratt’s annual pre-tax profits, which tumbled 75% to £171m in the year to the end of June, down from £705m a year earlier.

Barratt said it had completed 14,004 new homes over the period. While that was at the upper end of the company’s expectations, it marked an 18.6% fall on a year earlier when it completed more than 17,200 homes.

Economic slowdown fears are also sweeping Germany.

The BGA trade lobby group has warned this morning that German exporters face a recession in foreign trade, as sentiment in the sector deteriorates.

The BGA are forecasting a 0.3% fall in German exports this year, while imports are set to shrink by 2%.

BGA president Dirk Jandura called the forecasts a wake-up call for the German government, adding:

“German foreign trade is facing a recession.”

The UK economy picked up pace in August, according to the latest poll of purchasing managers at British firms.

Activity at UK firms rose at the fastest pace since April, data firm S&P Global reports.

Higher levels of output were seen in both the manufacturing and service sectors, it says, which led to “a sustained upturn in private sector employment”.

Encouragingly, firms reported the weakest rise in input costs since November 2020, a sign that inflationary pressures are cooling.

Tim Moore, economics director at S&P Global Market Intelligence, says:

“August data highlighted a recovery in UK service sector performance as improving economic conditions and domestic political stability helped to bolster customer demand.

New business again increased at a robust pace after a lull in decision-making earlier this summer. This fuelled the fastest upturn in service sector activity since April and extended the current period of growth to ten months.

The S&P Global UK Composite PMI rose to 53.8 in August, up from 52.8 in July, while the UK services PMI has jumped to 53.7 in August, up from 52.5 in July.

The Paris Olympics have helped give the eurozone economy a short-term boost, new data has confirmed.

The latest survey of eurozone purchasing managers shows that the euro area economy grew at the fastest pace in three months in August.

This was mainly due to a strong performance by France, where private sector output rose at the quickest rate since May 2022.

But, new orders, employment and business confidence across the eurozone deteriorated last month, S&P Global’s PMI survey shows, in a sign that the recovery is not robust.

The HCOB Eurozone Composite PMI Output Index increased for the first time since May to a three-month high of 51.0 in August, from 50.2 in July. Any reading over 50 signals an expansion.

While equities take a tumble, bond prices are strengthening as investors seek out safe havens.

This is pushing down the yield, or interest rate, on UK, US and eurozone government bonds – good news for finance ministers looking to fund budget deficits.

Britain has already had good news on that front, with record-breaking demand for an auction of UK government debt yesterday.

Bill Blain, strategist at Wind Shift Capital, says the rising confidence of the market in the UK shows that the government has wider options than just austerity.

He explains that it gives chancellor Rachel Reeves a wider range of options for the October Budget.

Blain writes:

The stunning success of yesterday’s 14x covered 2040 Gilt confirms the new Labour Government has a wider range of options for the October Budget.

It nails the lies fictitious “Bond Vigilantes” having been pouring in the market’s ear – the fact is the global bond market has just demonstrated confidence in Sir Keir Starmer and Rachel Reeves.

Labour need to understand this opportunity, Blain adds:

The 2040 Gilt success directly contradicts a stream of recent articles, posts and comments in the market press alleging Bond Vigilantes (crashing minor chords and blood-thirsty scream) threaten to impose harsh controls on the new UK government by selling the bond market on any sign of fiscal wavering by the new government. These have proved utter Bollchocks.

Japan’s Nikkei 225 share index has fallen to its lowest level since mid-August, after its 4.2% tumble today.

That’s its biggest one-day fall since its 12% plunge on August 5th, which was its biggest fall since the crash of 1987.

Britain’s FTSE 100 index has opened in the red, with most stocks falling.

The blue-chip share index is down 51 points, or 0.6%, at 8247 points, which is a three-week low.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

‘’Fresh worries about the health of the global economy have gripped markets, with the FTSE 100 far from immune given the international leaning of the index. London-listed stocks are set for another downbeat session, after deep concerns rippled out from Wall Street over the risks of an American recession.

This is the second time in just over a month that the markets have had a growth wobble.

At the start of August, shares suffered a sharp tumble, before investors recovered their nerve and pushed equities up again.

September (often a rough month for markets) has begun gloomily too.

Kathleen Brooks, research director at XTB, says:

If you have déjà vu, it is no surprise. A month ago, a sell off happened, and it looks like the same thing is happening this month. A mixture of fears about global growth, a commodity market sell off, shifting monetary policy cycles and seasonality, with stock markets typically doing badly in September, has been given a helping hand by the Department of Justice in the US, who has subpoenaed Nvidia as it seeks evidence that the AI giant broke anti-trust laws.

Nvidia, still the top performing stock on the S&P 500 so far this year, toppled nearly 10% on Tuesday, and the semiconductor sector in the US was the second worst performer of the day. There were few safe harbours in the latest financial market storm.

Tech was the most impacted, and the Nasdaq dropped more than 3%. However, even the Dow Jones Industrial Index lost 1.5%, with defensive sectors like healthcare and consumer staples just about managing to eke out a gain.

Chipmaker Nvidia led the selloff yesterday, slumping by 9.5% – that wiped $279 billion off its market capitalization, the largest one-day drop in history for a US company.

This selloff suggested that the boom in AI stocks was fading.

But after the Wall Street market closed, news broke that the US Department of Justice has sent a subpoena to Nvidia, as its investigation into the company deepened.

According to Bloomberg, the antitrust watchdog had previously delivered questionnaires, and has now sent legally binding requests to Nvidia. Other companies had also received subpoenas, they added.

Nvidia’s processors are currently incredibly popular with tech firms building artificial intelligence systems; DoJ officials are reportedly concerned that the chipmaker is making it harder to switch to other suppliers and penalizes buyers that do not exclusively use its AI chips.

Nvidia, though, denies any wrongdoing. A spokesperson for the company said:

“Nvidia wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them.”

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

Another bout of growth fears is sweeping through the markets, as the spectre of a US downturn spooks investors.

After a rough day on Wall Street yesterday, Asia-Pacific markets are a sea of red today.

Japan’s Nikkei 225 index has lost 4.2% today. South Korea’s Kospi has lost 3.4% so far, and Australia’s S&P/ASX 200 index is 1.9% lower.

Investors across Asia took their lead from New York, where the S&P 500 index fell by over 2% yesterday and the tech-focused Nasdaq Composite shed almost 3.3%.

The trigger (as we blogged yesterday) was a set of weak manufacturing data from the US. The Institute for Supply Management’s monthly factory survey showed that manufacturing contracted at a moderate pace in August, with new orders, production output and employment levels falling.

“Summer’s over, and the bears are back with a bang,” says Michael Brown, senior research strategist at Pepperstone.

European markets, which fell yesterday, are set for further losses, with London’s FTSE 100 expected to drop 0.7%.

The agenda

• 9am BST: Eurozone services PMI for August

• 9.30am BST: UK services PMI for August

• Noon BST: US weekly mortgage applications data

• 1.30pm BST: US trade balance for July

• 2.45pm BST: Bank of Canada sets interest rates

• 3pm BST: JOLTS survey of US job openings

• 3pm BST: US factory orders for July

• 7pm: Federal Reserve publishes its Beige Book summary of economic conditions