And finally, European stock markets have ended the day with modest losses.

In London, the FTSE 100 has ended 0.67% lower, losing 41 points to 6250, after a subdued day (as summarised here)

Stocks particularly vulnerable to the Covid-19 crisis were among the fallers, with manufacturing group Melrose down 4%, hotels and eateries chain Whitbread losing 3.1% and catering supplier Compass losing 2.5%.

Although China’s sliding stock market caught the City’s eye, as did the UK and US unemployment numbers, it was a somewhat dull day.

The European Central Bank supplying few fireworks, with its governing council pledging to maintain stimulus measures - and quietly hoping Europe’s politicians deliver the much-needed Recovery Fund.

David Madden of CMC Markets sums up the day:

Stocks handed back some of yesterday’s gains amid a sluggish trading session. The mixed data from China overnight ensured that equities got off to a negative start. On a quarterly basis, the Chinese economy grew by 11.5%, and that was a massive rebound from -9.8% registered in the first quarter. The June retail sales figures showed there was negative growth of 1.8%, and that undershot the 0.3% forecast. Some people questioned the headline growth reading in light of the poor retail sales numbers – which have been in territory in the quarter in question - hence why stocks didn’t drive higher on the back of the growth number.

The uninteresting update from the ECB didn’t inspire traders. Rates were kept on hold, and so was the PEPP – meeting forecasts. Christine Lagarde, ECB chief, said the rate of the bond buying has eased a little, but she added that unless there is a big surprise in terms of an economic rebound, the full stimulus package will be used. European governments are divided over the €750 billion rescue fund, as some are in favour the 2:1 grant to loan ratio, while others are opposed. Getting approval would be crucial to the region’s recovery. Ms Lagarde said the ECB is working on the assumption that it will be approved.

We’ll find out over the weekend. Goodnight! GW

More bad news for the UK economy -- 1,000 jobs could be at risk at Pizza Express, as the restaurant chain prepares to close up to 75 outlets.

My colleague Sarah Butler has the details:

The restaurant chain is lining up a company voluntary arrangement (CVA) – an insolvency process which allows it to exit stores and cut rents – linked to talks with bondholders over its heavy debt burden.

Founded in 1965 in Soho, London, Pizza Express is now ubiquitous on British high streets, with 470 UK restaurants and a further 150 outlets internationally. It employs 8,000 people in the UK.

Hony Capital, a Chinese company, bought Pizza Express in 2014 in a £900m deal, made shortly after the restaurant chain opened its first branch in Beijing. The investment firm hoped to drive the growth of Pizza Express in China.

But Hony could lose control of Pizza Express to bondholders under a debt-for-equity swap....

The pandemic has also shown the dangers of loading a company up with debt. It can boost profits and payouts for private equity owners - but if your sales dry up, you can’t service the borrowing any more...

The US stock market has opened in the red, with the Dow Jones industrial average losing 162 points or 0.6% to 26,707.

Wall Street had rallied yesterday, on optimism that Covid-19 vaccine work was going well.

Today, though, investors are digesting the latest high weekly jobless figures, the slump in China’s stock market, and the accelerating pandemic in the US.

Worryingly, the recovery in US unemployment seems to have fizzled out.

As Bloomberg’s Joe Weisenthal shows, the number of people losing their jobs and filing fresh welfare claims has only been falling slowly for weeks. There was virtually no improvement at all last week.

That suggests alarming churn in the US economy, with swathes of workers losing their jobs each week. Before the crisis, the initial jobless claims figure was hovering in the low 200,000s. It’s now hovering around 1.3m....

Economists are disappointed that so many Americans are being forced to file new claims for unemployment welfare, four months after the lockdown began.

Here’s some snap reaction to the initial claims report:

Economists reckon the European Central Bank is slipping into ‘wait and see’ mode, while it assesses the state of the eurozone economy.

The ECB also wants to see the results of tomorrow’s EU summit on the Recovery Fund. Can politicians square their differences and agree a €750bn package, or will arguments about shared debts and whether to hand out grants or loans scupper it?

Anna Stupnytska of Fidelity International says:

“As the ECB switches to the ‘wait-and-see’ mode for the rest of the summer, the focus shift towards the Recovery Fund and the long-term budget. This week’s Summit might not bring a final agreement just yet, but any progress on the most contentious issues, including governance and conditionality, would send a strong signal on the prospects for the breakthrough in the near future.”

Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank, agrees:

“The decision to leave interest rates unchanged and keep the powder dry was no surprise to FX markets. The main area of focus remains on the upcoming leaders meeting in Brussels and the form in which the blocwide support package will take, until then we can expect the euro to keep testing it’s recent upward momentum, particularly against the dollar. “

ING economist Iris Pang has hiked her growth forecasts for China, while also warning that the recovery could be bumpy.

She writes:

The biggest risk we see is the technology war, not just with the US but also with the rest of the world. China has put a lot of money into R&D in advanced technology to achieve self-reliance on the most advanced semiconductor chips but it will take time to yield results.

But even so....ING have now raised the GDP forecasts upwards to 0.5% YoY for 3Q20 and 5.0%YoY for 4Q20, from our previous forecasts of -0.5% YoY and +4.5% YoY, respectively.

The full year 2020 forecast is revised upwards to 0.48% due to:

1. Better foreign demand from countries coming out of Covid-19 lockdowns
2. Faster implementation of infrastructure investment projects
3. Better job market situation in the manufacturing sector when foreign demand improves

Ed Moya of OANDA thinks investors are being too pessimistic about the drop in Chinese retail sales:

China’s economy is back into growth territory following steady stimulus and relatively strong success in battling COVID-19. The rebound in China however is mostly on the industrial side and not the consumer. The Chinese retail data however is not as bad it seems, as automobiles, catering, jewelry, and petroleum goods were the main categories that posted declines.

The decline in cars, which is about 10% of the retail sales value was mainly attributed to the strong base it had a year ago.

Reuters is reporting that Nissan will cut its car production worldwide sharply this year, due to the pandemic.

It’s another sign that the world economy is weak, with the lockdown denting demand for travel, consumers nervous about big purchases, and production lost to factory shutdowns.

Here’s the story:

Nissan Motor Co is planning a 30% year-on-year cut in global vehicle production through December as falling demand due to the coronavirus complicates its efforts to recover profitability, two sources with knowledge of the matter have told Reuters.

Japan’s No. 2 automaker plans to produce around 2.6 million vehicles between April and December, down from 3.7 million during the same period last year, the sources said.

Global automakers are struggling after factories were shuttered earlier this year to stem the spread of the coronavirus outbreak.

Car dealerships were also closed in many countries, pummelling vehicle sales in March through May, although the fall in sales slowed in June.

Nissan employs around 6,000 people at its UK factory in Sunderland, where one worker tested positive for Covid-19 this week.

Here’s my colleague Richard Partington on today’s worrying UK jobs data:

Paid employment in Britain has plunged by almost 650,000 employees since the onset of the coronavirus pandemic in March, official figures show, as growing numbers of companies cut jobs.

According to the Office for National Statistics, the number of payroll employees fell by 2.2%, or 649,000, from March to June. However, it said the rate of decline in employment slowed in June compared with May.

In a reflection of the shock to the economy during lockdown as businesses were forced to temporarily close, the latest snapshot showed the number of hours worked in Britain plummeted between March to May 2019 and March to May 2020 at a record pace. Hours worked each week dropped by 175.3m, or 16.7%, to 877.1m in total, marking the steepest fall since records began in 1971....

More here:

Analysts at trading firm XM also see a V-shaped recovery in China’s GDP figures today:

As far as V-shaped recoveries go, China’s economic recuperation from the coronavirus couldn’t look more V-shaped. Gross domestic product (GDP) jumped by 11.5% over the quarter to June after collapsing by almost 10% in the first quarter.

Year-on-year growth also returned to positive territory, with GDP rising by 3.2%, well above forecasts of 2.5%.

But the markets continue to shrug. US crude oil, a decent gauge of growth prospects, is down 1% today at $40.74 per barrel.

XM, like other economists today, blame the surprise drop in Chinese retail sales in June....

But rather than be reassured by the upbeat headline numbers, investors finally seem to be touching base with reality as the warning signs that the global recovery will be a bumpy one continue to grow. Up until now, the resurgence of virus infections in several countries had failed to dent hopes of a speedy and robust recovery. But the slow pickup in domestic demand in China appears to have dealt a major blow to those expectations.

Retail sales in China fell on an annual basis for the fifth straight month in June, suggesting consumers are not yet feeling confident enough to revert to their pre-pandemic spending habits.

Getting back to the Chinese growth figures, economist George Magnus argues that China is enjoying a V-shaped recovery.

He’s written an interesting Twitter thread analysing the 3.2% annual growth recorded in April-June:

The UK is gearing up for a record-breaking year for government debt sales.

The Treasury announced this morning that the Debt Management Office will raise £385bn through sales of gilts, from April to November this year -- more than in any year before.

The DMO had previously been aiming to raise £275bn in April to August, so this implies another £110bn will be raised in September to November.

The Treasury adds:

The higher volume of issuance seen so far this year due to COVID-19 is not expected to persist over the final four months of the year.

Yesterday, chancellor Rishi Sunak warned of ‘tough choices’ to address the deficit, which is going to hit a peacetime record in 2020-21.

But with bond yields around record lows, the UK can borrow for a decade at just 0.15% per year. That suggests it’s a good time to fund long-term investment projects.

Covid-19 has also taken a chunk out of Europe’s trade surplus.

Exports from the EU shrank by 29.7% in May, year-on-year, to €129.8bn. France and Greece suffered the biggest plunges, according to new data from Eurostat this morning.

Imports from the rest of the world also shrank, by 26.2% to €122.6bn.

As a result, the EU recorded a €7.1bn surplus in trade in goods with the rest of the world in May 2020, compared with €18.6bn in May 2019.

The EU’s trade surplus with the UK has also narrowed this year.

In January to May, exports to Britain from European Union members are down 22.2%, to €107.4bn from €138.1bn in the first five months of 2019.

Imports into the EU from the UK are down 16.9%, to €68.9bn from €82.9bn.

This has shrunk the EU-UK trade balance from €55.2bn to €38.5bn. You can see the data here.

Hong Kong’s stock market also had a rough day, dropping 2% - its worst drop in a month.

Neil Wilson of Markets.com reckons geopolitical jitters are hitting stocks:

US-China tensions are bubbling away – plans by the White House to impose travel restrictions on millions of Chinese Communist party members is the latest in the saga.

The markets continue to demonstrate a one step forward, one step back behavioural pattern,says Russ Mould, investment director at AJ Bell.

“Weighing on global markets was new data from China which showed its economy returned to growth in the second quarter of 2020, but domestic consumption and investment remained weak.

“On the UK market, technology, miners and consumer stocks were the main culprits for the index retreating. Energy, telecoms and utilities were the only sectors making any progress.

European stock markets are being dragged down today too.

The main indices are all in the red, with Britain’s FTSE 100 losing 0.8% or 50 points at 6243.

Medical devices firm Smith & Nephew (-3.5%), online supermarket Ocado (-2.8%) and fashion group Burberry (-2.5%) are among the fallers in London.

The EU-wide Stoxx 600 is down 1%, with losses in Paris, Frankfurt, Milan and Madrid.

The sell-off in China is spooking the City a little, with concerns that relations between Washington and Beijing may be weakening.

Yesterday, markets had rallied sharply on hopes for a Covid-19 medical breakthrough , with reports that Oxford’s vaccine is showing good results.

Mark Haefele, chief investment officer at UBS Global Wealth Management, spies a tug-of-war between vaccine optimism and geopolitical angst:

“Progress on vaccines and drug treatments is one of the reasons we retain a positive outlook on equities, as it helps underpin the case for controlling the virus without a return to full lockdowns.

However, we continue to see geopolitical risks generating volatility, including the US election and US-China tensions.”

Ironically, China’s better-than-expected growth in the last quarter could also be hurting stocks today.

The economic rebound in Q2 could encourage Beijing to tighten policy, having hiked government spending and poured money into the economy to ward off the slump.

That splurge has helped to drive equities up, so some traders may be tempted to take profits while they can.....

Nathan Chow, economist at DBS Bank in Singapore, explains:

Policy will remain supportive, but the pace of loosening may moderate given the strong credit expansion of the past months and the recent market surge.

Today’s slump means China’s stock market has now lost over 7% since Monday, when it hit a five-year high.

But remarkably, the CSI 300 index is still up 10% this year, following a surge since late March that fuelled fears of a stock market bubble.

This chart from Bloomberg shows how China’s economy returned to growth in April-June, but still weak in historic terms:

Stephen Innes, Chief Global Markets Strategist at AxiCorp, has put his finger on the problem with today’s Chinese economic data -- consumers aren’t really spending yet.

China’s Q2 GDP growth beat consensus expectation, which is unambiguously positive for risk sentiment. But its what under the hood that matters most.

China’s economic data for June and Q2 show that it’s easier for it to normalize the supply side of the economy with industrial production +4.8% y/y, than the demand side with retail sales -1.8% y/y, after the covid-19 shock.

No matter how much stimulus and fiscal sugar you try to entice consumers with, they will not leave their apartment and go on a spending spree until they feel confident the landscape is virus-free.