Signing off for today. We’ll be back tomorrow. Good-bye!
Closing summary
Asian, European and US stocks have drifted lower as investors remain nervous ahead of high-level trade talks between the US and China, due to start in Washington on Wednesday. The US Federal Reserve is expected to leave interest rates unchanged at the end of its two-day meeting, also on Wednesday.
- FTSE 100 index down 0.8% at 6754.47
- Germany’s Dax down 0.5% at 11,221.12
- France’s CAC down 0.7% at 4889.63
- Italy’s FTSE MiB down 0.9% at 19,631.22
- Spain’s Ibex down 1.3% at 9066.10
- Dow Jones down 1.2% at 24,436.37
- Nasdaq down 1.6% at 6680.31
- S&P 500 down 1.1% at 2634.64
Sterling has weakened ahead of tomorrow’s key Brexit vote in parliament. It is down 0.37% against the dollar at $1.3155 and down 0.4% against the euro at 86.84 pence.
Retail bosses have warned the government that a no deal Brexit would result in significant disruption to food supplies, leading to shortages and price rises.
And Tesco has confirmed that up to 9,000 jobs are at risk as it closes fresh food counters in about 90 of its stores, as well as some staff canteens, and makes cuts at its head office.
Here is our full story.
Tesco shares have fallen 2.6% on news of its latest cost-cutting drive which will lead to up to 9,000 job losses at its supermarkets and head office. Britain’s biggest retailer plans to shut around 90 fresh food counters.
On Wall Street, stocks have opened lower, mirroring declines in Europe.
- Dow Jones down 1.1% at 24,462
- S&P 500 down 0.95% at 2639
- Nasdaq down 1.27% at 7073
Tesco said customers use fresh food counters less than they used to. The remaining 700 large stores will retain their counters or operate them on a “flexible” basis, i.e. with reduced opening hours.
Some of the cuts will also affect the company’s head office in Welwyn Garden City, Hertfordshire.
Jason Tarry, chief executive of its UK & Ireland business, said:
In our four years of turnaround we’ve made good progress, but the market is challenging and we need to continually adapt to remain competitive and respond to how customers want to shop. We’re making changes to our UK stores and head office to simplify what we do and how we do it, so we’re better able to meet the needs of our customers. This will impact some of our colleagues and our commitment is to minimise this as much as possible and support our colleagues throughout.
Updated
Tesco is embarking on a fresh round of aggressive cost-cutting in its UK supermarket business and around 90 stores will close their in-store deli counters.
The retailer said it hoped to redeploy up to half of the staff affected into other customer service roles.
Updated
Tesco: up to 9,000 jobs to go
NEWS FLASH: Tesco has just announced that up to 9,000 people could be laid off as a result of restructuring.
Retail bosses issue Brexit warning
Leading retail bosses including the chief executives of Sainsbury’s, Asda, Marks & Spencer, The Co-op and Waitrose have written to the government warning of significant disruption to food supplies in the event of a no deal Brexit, our retail correspondent Sarah Butler writes.
The letter, signed by 11 retail CEOs and the chief executive of the British Retail Consortium, also warns that grocery prices are likely to rise as a nearly a third of food we eat comes from the EU and would be subject to import tariffs if the UK exits by its self-imposed 29 March deadline without a trade deal in place.
The UK could set import tariffs at zero but that would have a devastating impact on our own farmers, a key part of our supply chains,” the letter warns.
We are extremely concerned that our customers will be among the first to experience the realities of a no deal Brexit. We anticipate significant risks to maintaining the choice, quality and durability of food that our customers have come to expect in our stores, and there will be inevitable pressure on food prices from higher transport costs, currency devaluation and tariffs.
The letter raises particular concern about fresh foods saying it is “impossible to stockpile fresh produce, such as salad leaves and fresh fruit” and that 90% of lettuces, 80% of tomatoes and 70% of soft fruit is imported from the EU in March, when the UK is currently set to exit the EU.
The letter says retailers typically store no more than two weeks’ of stocks. “As prudent businesses” they are stockpiling in order to be prepared for a no deal but frozen and chilled storage is nearing capacity and there is very little general warehousing space available in the UK.
While we have been working closely with our suppliers on contingency plans it is not possible to mitigate all the risks to our supply chains and we fear significant disruption in the short term as a result if there is no Brexit deal.
The letter warns there will be “major disruption” at Calais, a key route for food imports to the UK, potentially reducing freight trade by nearly 90% as the French government has said it will enforce sanitary and customs checks on exports from the EU, measures which will cause long delays.
Oil prices fall
Crude oil prices have fallen today, after American companies added new oil rigs for the first time this year, but crude remains on track for its biggest January gain for 14 years.
The US-China trade war and its impact on the Chinese economy also weighs on oil prices.
Brent crude, the global benchmark, fell nearly $1, or 1.6%, to $60.66, while US futures lost $1.03 to $52.66, a 1.9% drop.
US energy companies last week increased the number of rigs searching for new oil for the first time since late December, to 862, energy services firm Baker Hughes said on Friday.
Amundi, Europe’s largest fund manager with €1.45 trillion of assets under management, believes that the world economy can avoid a recession.
No global recession in store: An excess of pessimism naturally results in a decline in the financial markets and renewed volatility. Based on our calculations, market participants priced in twice the slowdown risk that economic fundamentals justified. The market went too far in December, pricing in a recession, and while we think risks are skewed to the downside, we have a more balanced view.
Except in the case of an extreme shock, nothing leads us to bet on a recession in Europe or the United States for the next 18-24 months. We are more inclined towards convergence towards potential growth, with a second half of the year that is more favourable than the first.
The reporting season has to be closely monitored as it will likely shed some more light from a micro fundamentals perspective. We expect sliding revenues as diminished global trade is already translating into lower sales (in the manufacturing and wholesale sectors in particular).
Greece to issue new 5-year bond 'in near future'
Greece is preparing to issue a new five-year bond – its first attempt to tap financial markets since the country emerged from its third international bailout programme since 2010 last August, Reuters is reporting.
The bond issue will be launched “in the near future, subject to market conditions,” the Greek authorities said in a bourse filing.
Oxford Economics have sent us their thoughts on the eurozone and global economic slowdown.
James Nixon, the consultancy’s head of macro forecasting for EMEA, says:
Recent European data has been unremittingly poor, as a slowdown in external demand remains a significant drag on the continent’s manufacturing sector. That message was hammered home again today as the latest exporters’ sentiment index from the German IFO institute fell again in January. Although not a particularly closely watched indicator, the fall in German exporters’ business confidence has been precipitous, with the index now only a whisker above its lowest level since October 2012.
Perhaps more encouragingly, the latest eurozone M3 money supply numbers continue to point to a steady flow in new lending to the household sector, especially for mortgages. Combined with stronger wages and lower inflation, we continue to think that a marked increase in consumer spending power will to some extent offset the weakness in external demand.
Concerns that the global economy might be falling into a recession, fuelled by continued trade tensions between the United States and China, have so far this year largely vanquished any notion that European activity might rebound after a particularly weak fourth quarter.
Chinese growth is slowing but no more than expected, say fund managers interviewed by the Association of Investment Companies.
Dale Nicholls, portfolio manager of Fidelity China Special Situations, said:
China is facing a slowdown, but this is already well documented and the growth rates in China remain the envy of most economies. The authorities’ focus on deleverage has been the main catalyst for a slowdown as this has impacted access to funding and subsequently impacted business and consumer confidence.
There has been a slowdown in the rate of growth of consumption, particularly in larger durable goods such as cars. This has not been helped by falling markets and the sense that house prices have peaked. However, retail sales are still showing high single digit year-on-year growth despite the decline in car sales and, even with a general economic slowdown, the medium-term prospects for earnings growth remain strong.
Mike Kerley, fund manager of Henderson Far East Income, said:
Chinese growth is slowing although not by more than we would have expected. The rising base ensures that the growth of the past cannot be repeated, while the reforms of state-owned enterprises and the clampdown on non-bank credit will put pressure on growth in the short to medium term.
These headwinds are being offset by measures to promote consumer spending and by tax cuts to corporates and individuals. This should be seen as a positive as the government pursues a policy of sustainability, rather than the old model of pump priming through debt-funded investment. Ultimately, the quantity of growth may slow but the quality will improve.
Robin Parbrook, fund manager of Schroder Asian Total Return, said:
The scope for China to undertake major stimulus measures is now much more limited – unless they wish to suspend the effective renminbi peg. We expect the Chinese economy to continue to slow in 2019 as a result of the authorities’ desire to rein in excessive leverage and bring shadow banking back to balance sheets.
Given the pegged currency, a current account no longer in surplus and a leaky capital account, we view the monetary options as limited assuming devaluation is not considered an option - this would cause market chaos and global deflation.
The latest round of high-level US-China trade negotiations, which kick off in Washington on Wednesday when Beijing’s vice premier Liu He’s delegation arrives, come before the start of Chinese New Year next Tuesday, ushering in the Year of the Pig.
So how are China-focused fund managers viewing the threat of trade wars, the current state of the Chinese economy and the prospects for their investments? The Association of Investment Companies has spoken to some of them.
Robin Parbrook, fund manager of Schroder Asian Total Return, said:
We remain sceptical of any real let-up in US and China tensions despite Trump’s suggestions that a deal will be completed. As highlighted several times last year, it is clear that US-China tensions are not just about trade, but something much bigger. It involves US perceptions around China’s intellectual property theft, cybercrime, the way China projects its political and financial power via One Belt One Road and China’s desire to dominate key industries via massive state subsidies through Made in China 2025.
Howard Wang, fund manager of JPMorgan Chinese said:
We should see a resolution on tariffs as it is in the interest of both parties. However, the political dimension means we do not have strong conviction. We do think that domestic Chinese equities have discounted a very pessimistic outcome: both a trade war and growth slowdown. Consequently, we are beginning to see value in several areas of the A-share market. Whatever the outcome of current negotiations we believe China and the US will increasingly compete in areas of technological innovation from electric vehicles to artificial intelligence.
Suresh Withana, managing partner of Harmony Capital, the investment manager of Adamas Finance Asia, said:
At a macro level, the trade war between the US and China has the potential to cause continued, serious, short-term global disruption. However, this disruption may have unexpected benefits for certain regional economies. For instance, companies may seek to shift production from China to other Asian countries.
Furthermore, if volatility in public markets continues to prevail, we would expect to see both Chinese and Asian SMEs increasing their reliance on private financing sources as they will still require capital to fund ongoing regional growth opportunities. We believe the most exciting investment areas will be those driven by intra-Asian consumption.
Updated
Cash remains king among rich investors, despite low interest rates, new research from Rathbone Investment Management shows.
A quarter of high-net worth investors – those with more than £100,000 in investable assets – currently hold more than half of their wealth in cash, despite interest rates for savings remaining low.
A quarter keep over half of their wealth in cash while a further 35% of HNW investors keep at least 26-50% of their savings in cash.
One of the key reasons why HNW investors choose to hold their wealth in cash is because they believe it’s be the safest option. However, due to the low interest rate environment and high inflation, leaving too much money in cash means its value could be eroded over time.
Regular investors – those with £1,000-£100,000 in investable assets – are also heavily reliant on cash savings. 46% of investors keep more than half of their wealth in cash savings, and 20% keep 25-50% of their wealth in cash.
Robert Szechenyi, investment director at Rathbones, says:
Cash remains king as investors remain cautious. Despite the threat of low interest rates devaluing their wealth over the long term, investors still believe cash to be the safest option for their money. This is largely down to the economic and political uncertainty currently at play in the UK and wider afield. Investors are concerned about the impact that impending events such as Brexit will have on the markets and therefore are hesitant to invest a significant proportion of their wealth into the markets.
The Financial Conduct Authority is consulting on measures to stop up to 100,000 people a year losing out on pension income when they access the pension freedoms.
The City watchdog has previously expressed concern about consumers moving into drawdown and holding their funds in investments that will not meet their needs. The FCA is proposing that firms offer customers who do not take advice a range of investment solutions that broadly meet their objectives, known as ‘investment pathways’.
The FCA is also proposing that consumers’ pension investments are not defaulted into cash savings unless the customer picks this option.
The watchdog is also announcing new rules on the ‘wake up packs’ that must be given to consumers as they approach retirement, and on the disclosure of charges by pension providers.
Christopher Woolard, executive director of strategy and competition at the FCA, said:
The pension freedoms give consumers more flexibility in how and when they can access their pension savings; but that also means they have to make more complicated choices.
Our Retirement Outcomes Review identified that many consumers are focused only on taking their tax-free cash and take the ‘path of least resistance’ when entering drawdown. This can often mean that the rest of their drawn down pension pot is not invested in a way that meets their needs and intentions. We found that around one in three consumers who have gone into drawdown recently are unaware of where their money is being invested.
Our proposals on investment pathways will help non-advised drawdown consumers select from four relatively simple choices, designed to meet their broad retirement objectives so that they can maximise their income in retirement.
The FCA estimates these changes could benefit people by up to £25m a year.
Unite, Britain’s biggest union, is calling for urgent talks with Tesco bosses, following reports that Britain’s largest retailer wants to axe up to 15,000 jobs.
Unite has 1,000 members at four Tesco distribution centres, at Belfast, Didcot (Oxfordshire), Doncaster and Thurrock in Essex.
Unite national officer for retail distribution Adrian Jones said:
Our top priority this week is to arrange a meeting with Tesco’s management to get a clear picture of what the supermarket is planning.
This is a very worrying time for our members who deliver to Tesco stores across the UK. While the reports centre on job losses in-store, such as at the bakeries and deli counters, we still need to know what this could mean for our members.
We will be giving our members, who are employed directly by Tesco, maximum support in the days and weeks ahead.
Mid-morning summary
The FTSE 100 index briefly ventured into positive territory before slipping back into the red and is now down 0.01% at 6860.19. Traders are waiting for the latest round of trade talks between Beijing and Washington, due to start on Wednesday, and the outcome of the Fed’s monthly policy meeting on the same day.
- Germany’s Dax down 0.22%
- France’s CAC down 0.34%
- Italy’s FTSE MiB down 0.22%
- Spain’s Ibex down 0.08%
Asian stock markets were also lower, after data showed China’s industrial profits shrank for a second month in December.
The pound has lost 0.36% against the dollar this morning, dropping to $1.3158, and has fallen 0.26% against the euro to 86.69 pence. It’s an important week for Brexit, as MPs prepare to vote on amendments to Theresa May’s deal tomorrow.
Most of the UK’s most popular cars are at risk of theft using technology that exploits keyless entry, according to the consumer group Which?.
The Ford Fiesta, Volkswagen Golf, Nissan Qashqai and Ford Focus – four of the top five models sold in the UK – are among the popular cars that are susceptible to theft using “cheap electronic equipment bought online”.
Updated
Explainer on trade talks (part 2)
Explainer continued – courtesy of Reuters.
What has happened in the trade talks so far? In Buenos Aires in December, presidents Trump and Xi agreed to negotiate over structural issues, including “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture”. But there was little progress on these issues at a round of talks among mid-level officials in Beijing earlier in January. Instead, Chinese officials offered to substantially increase purchases of US products.
Will US officials accept a deal based mainly on purchases? Trump has been optimistic about a deal, saying a weakening Chinese economy gives Beijing incentive to negotiate. But the president’s advisers say that he will not soften his demands that China make structural reforms on IP and related issues... A key US demand is creating a mechanism for regular reviews of China’s progress on following through on any reform pledges that it makes, a plan that would maintain a perpetual threat of US tariffs.
What are possible outcomes of this week’s talks? The two sides could report some progress towards a deal though another stalemate on core structural issues would be viewed as a negative sign for a deal by March, and investors would brace for higher tariffs. But trade negotiations often go down to the wire, so a final outcome is not likely before the end of February.
Updated
Explainer on trade talks (part 1)
Reuters has done a useful explainer on the trade negotiations. The two sides are trying to resolve deep differences over China’s trade and intellectual property practices, industrial subsidies and market access – to ward off an increase in US tariffs on Chinese goods on 2 March.
What are Washington and Beijing fighting about? After years of steadily rising US trade deficits with China and US complaints that Beijing has systematically obtained American intellectual property (IP) and trade secrets through coercion and outright theft, the Trump administration last year demanded fundamental changes to China’s economic model to allow US companies to compete on a more level playing field. These include an end to policies that Washington claims effectively force US firms to transfer their technologies to Chinese partners and full protection for US IP rights.
What’s at stake in these talks? At the most basic level, a dominant position in future high-technology industries, according to the US Trade Representative’s office. China is determined to upgrade its industrial base in 10 strategic sectors by 2025, including aerospace, robotics, semiconductors, artificial intelligence and new-energy vehicles.
How does Beijing view these complaints? Chinese officials generally view the US actions as a broad effort to thwart China’s inevitable rise to a dominant position in the global economy. They deny that China requires or coerces technology transfers... At the same time, China is looking to make a deal with Trump to ease US tariffs on Chinese goods and to directly reduce the trade imbalance through increased purchases of US goods, including soybeans and energy.
What actions has the US taken? Donald Trump has imposed punitive tariffs on $250bn worth of imported goods from China so far - a 25% duty on $50bn worth of machinery, semiconductors and other technology-related products, and 10% tariffs on a broader, $200bn range of goods... Thus far, Trump has spared many consumer goods including cell phones, computers, clothing and footwear from tariffs. But if no deal is reached by 2 March, Trump has threatened to impose new tariffs on about $267bn worth of goods.
Has China retaliated? Yes. China has imposed tariffs of 25% on $50bn worth of US goods, including soybeans, beef, pork, seafood, whiskey, ethanol and motor vehicles. Beijing also has imposed tariffs of 5% to 10% on another $60bn worth of US goods, including liquefied natural gas, chemicals, frozen vegetables and food ingredients... Since Trump and Chinese president Xi Jinping agreed in December to pursue the current round of talks, China has suspended tariffs on US-made autos and has resumed some purchases of US soybeans.
Updated
Neil Wilson, chief market analyst at Markets.com, says:
All the big European indices were lower on Monday after a firm rally on Friday ran out of steam. Pause for breath or just lack of conviction in any rally? The major indices continue to make new highs from the December troughs so at present it does rather appear momentum is to the upside, albeit the FTSE 100 is a notable underperformer compared with peers.
It’s of course a massive week for pound traders as the Brexit vote round two takes place on Tuesday. Expect some real volatility around the votes as we witnessed last time – there will be lots of noise.
The price action in the spot market and markedly lower implied volatility in options looks a little complacent as the clock is still ticking and the closer we get to March 29th without agreement the higher the risk of a no-deal, albeit parliament now has a chance to ensure this is taken off the table. The amendment to delay Brexit may pass, although there is not a guarantee that the EU would acquiesce. The stalemate will either force a no-deal or a General Election, possible followed by a second referendum.
Turning to the latest round of US-China trade talks, due to begin on Wednesday, Wilson said:
Equity markets are set for a big week as we look ahead to those talks. Both sides have reason to make a deal. However I would think that with Trump reopening the government after the shutdown, he is in a strong position than he otherwise might have been had the Federal government still been shut by the time the Chinese officials landed.
Sterling falls 0.3% ahead of key Brexit vote
The pound has fallen 0.3% against the dollar to $1.3162. Against the euro, it drifted 0.1% lower to 86.57 pence.
It’s another big week in Westminster: MPs will vote tomorrow on amendments to Theresa May’s withdrawal deal with the EU.
What is happening tomorrow and why is it important?
Updated
Gold remains near 7-month peak
Gold has slipped but remains near a seven-month peak, boosted by expectations that the US Federal Reserve will keep interest rates unchanged at this week’s meeting, the first this year. The Fed lifted rates four times last year and has signalled two more hikes this year.
Spot gold is trading around $1,301.14 per ounce, down 0.17% (following a 1.8% bounce on Friday), while US gold futures climbed 0.12% to $1,299.6 per ounce.
The Fed starts its monthly meeting tomorrow and will announce its decision on Wednesday. Chairman Jerome Powell is expected to acknowledge growing risks to the US economy as the global outlook weakens.
His counterpart at the European Central Bank, Mario Draghi, warned last week that a dip in the eurozone’s economy could deepen, suggesting that the Bank’s first interest rate hike is some way off. Draghi will speak to the European parliament in Brussels later today.
Germany’s Dax, Spain’s Ibex and Italy’s FTSE MiB have opened 0.4% lower while France’s CAC is down 0.5%.
The FTSE 100 index has opened 21 points lower at 6787.094, a 0.3% drop. Ocado is the main riser, up 6.5% at 999.5p, after it emerged that the online grocer has held secret talks with Marks & Spencer over the launch of a food delivery service. Shares in M&S are also up, by more than 2%.
Ocado has had a tie-up with Waitrose for the last 20 years but the current supply deal ends in September 2020. City analysts expect the two businesses, which have always had a stormy relationship, to part ways.
Updated
The Agenda: trade talks, Brexit debate, Fed this week
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The latest round of trade talks between the US and China begins in Washington this week, where a delegation led by Chinese vice premier Liu He is due to arrive on Wednesday.
The talks will include discussions about China’s currency practices, according to US Treasury Secretary Steven Mnuchin, who will lead the American team along with US trade representative Robert Lighthizer. Mnuchin has criticised the yuan’s weakness in the past, but in recent days optimism about the trade talks has boosted the yuan against the dollar.
Asian shares gave up earlier gains to close lower. China’s benchmark Shanghai Composite fell 0.18% while Hong Kong’s Hang Seng edged down 0.09% and South Korea’s Kospi slipped 0.02%. Japan’s Nikkei lost 0.6% while Australian markets were shut for Australia Day.
The FTSE 100 index in London and other European markets are set to open lower.
In the US, Donald Trump on Friday agreed to temporarily end the 35-day government shutdown, one of the longest in US history. The news sparked a rally on Wall Street on Friday as investors were relieved.
The White House denied on Sunday that Donald Trump “caved” to Democrats in reopening the federal government despite not receiving any funding for a border wall – a deal Trump had vowed he would never make.
Also coming up this week
The next key Brexit debate in the House of Commons happens tomorrow. The pound has made some gains over the past few weeks on hopes that a “no deal” Brexit can be avoided.
Michael Hewson, chief market analyst at CMC Markets, said:
A lot of this still seems more like wishful thinking than anything else, given the parliamentary arithmetic, as well as the politics.
Markets seem to have a lot more faith in politicians than many think they deserve, nonetheless the pound hit 18-month peaks against the euro on the basis that an article 50 extension could well find its way into an amendment when parliament meets to debate the latest attempt to break the deadlock over the UK’s withdrawal agreement and political declaration tomorrow.
The US Federal Reserve, America’s central bank, holds its first policy meeting this year and is expected to leave interest rates unchanged at the end of its two-day meeting on Wednesday, after raising them five times.
The Agenda
2:30pm GMT ECB’s Mario Draghi speaks in European parliament in Brussels
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