German factory orders slump; US-China trade breakthough – business live

Europe’s ‘fear index’, which measures volatility across the markets, has dropped to its lowest point since 1 August.

That shows traders are more optimistic about a trade breakthrough in October — despite warnings to be cautious, given previous hopes have been dashed.

Germany’s government has blamed the trade war for the slump in factory orders this summer.

Berlin’s economy minister says:

“New orders for industry have overall made a weak start to the third quarter.

“Given still-smouldering international trade conflicts and restrained business expectations, there is no sign of a fundamental improvement in the coming months.”

The slump in German factory orders raises the risk that Europe’s largest economy is in recession.

German GDP fell by 0.1% in April-June, and there’s little sign of a bounce-back in July-September.

Carsten Brzeski, chief economist at ING, blames the US-China trade war.

Foreign orders from outside the eurozone fell by a dramatic 6.7% MoM, showing once again Germany’s exposure and sensitivity to the ongoing trade conflicts and increasing global uncertainty…..

Since the start of the year, domestic orders have actually dropped more than foreign orders, suggesting that global woes have reached the domestic economy.

Oxford Economics warn that problems in Germany’s car industry, and Brexit uncertainty, is also hurting:

German industry is suffering the worst slump since the financial crisis. Ailing global trade and elevated uncertainty have been obvious drags. But the looming no-deal Brexit and especially the car sector’s malaise were the key triggers of German industry’s historic underperformance relative to European peers.

The latest surveys provide no hope of a swift rebound in global trade. Moreover, there’s no clear sign that uncertainty stemming from no-deal Brexit risks and US trade policy will abate, so prospects of a manufacturing rebound are dim.

A trade war breakthrough can’t come soon enough for Germany.

New figures show that German factory orders fell by 2.7% during July, nearly twice as much as economists expected. On an annual basis, orders were an alarming 5.6% lower than a year ago.

That means the slump in German manufacturing has not ended, as the global slowdown and trade tensions hit demand for goods.

Destatis, the German statistics offices, says orders from beyond the eurozone fell sharply in July:

Domestic orders decreased by 0.5% and foreign orders fell by 4.2% in July 2019 on the previous month. New orders from the euro area were up 0.3%, new orders from other countries were down 6.7% compared to June 2019.

The decline was felt across German industry, with capital goods orders down 3% and consumer goods orders down 2.4%.

Just in: China’s commerce ministry has told reporters that the overnight phone call with top US officials went “very well”.

Spokesman Gao Feng explained that China opposing escalation in the trade war, and will try to make “real progress” when they visit US in October.

So far so good!

But Gao also said that China hopes the US still stop taking “wrong actions” against Chinese companies (such as Huawei).

Europe’s stock markets have hit their highest levels in a month, lifted by trade war hopes.

Here’s the early moves:

• Germany’s DAX: up 96 points at 12,121, up 0.8%
• French CAC: up 43 points at 5,576, up 0.8%
• Italy’s FTSE MIB: up 100 points at 21,833, up 0.5%

Technology companies and industrial firms, who are particularly vulnerable to trade conflict, are leading the rally.

Neil Wilson of Markets.com says the decision to restart trade talks “sent a rocket under equities globally”. But he also advises caution, as we’ve been here before….

On trade – we’re getting more jaw jaw, but just as much war war as before.

The news of face-to-face high-level talks between the US and China next month has been seen as a positive but needs to be taken with a good dose of salt. It wasn’t that long ago the market was rallying as we thought a deal imminent, now it’s moving on nothing more than confirmation of talks.

It highlights the headline risk that traders must contend with and suggests there is very little by way of a strong trend in the markets right now, just a lot of short-termism and uncertainty. A trade deal is a long way away.

The chances of a US-China trade deal anytime soon are thin, warns Ipek Ozkardeskaya, senior market analyst at London Capital Group.

She suspects Donald Trump could be tempted to inflame the situation, to encourage US central bankers to cut interest rates.

With only a slim chance of a trade deal, all investors ask is at least the continuation of the trade talks.

It is uncertain whether Trump would attempt to cool down the trade war moving into the presidential election year, or he would continue fanning the flames and using it as a tool to exercise an increased pressure on the Federal Reserve for lower interest rates

Japan’s stock market has hit its highest level in a month, on hopes that the US-China trade war could be easing.

In Beijing, every stock market sector rallied – led by technology companies (+2.1%), financial stocks (+1.4%) and consumer stocks (+1%). This lifted the Chinese market by around 1%.

Traders are clearly welcoming the prospects of new face-to-face talks between the US and China soon.

Han Tan, market analyst at FXTM, says “seasoned investors” will be cautious, though. Getting a deal will not be easy, at all.

The lift in risk sentiment appears mitigated by the concern that the latest positive developments surrounding the US-China trade impasse may prove fleeting and do not yet fully nullify the downside risks to the global economy.

In order for risk sentiment to push significantly higher, markets will need to be shown material signs that US and China are indeed drawing closer to a meaningful and lasting trade deal. Existing tariffs need to be dismantled in order to alleviate pressures on the global economy.

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

The clouds of gloom that have enveloped the markets recently are lifting this morning, as rays of optimism over the trade war break through.

Overnight, America and China have agreed to restart face-to-face negotiations, in an attempt to defuse the trade war that is hurting the global economy.

The breakthrough came following a call between China’s vice-president Liu He and the US trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin.

Lighthizer’s office announced:

“They agreed to hold meetings at the ministerial level in Washington in the coming weeks.

In advance of these discussions, deputy-level meetings will take place in mid-September to lay the ground work for meaningful progress.

Crucially, China also announced the breakthrough, revealing that Beijing will send a delegation to Washington in early October.

This is the first significant breakthrough since June, when Donald Trump and Xi Jinping agreed in principle to restart talks following the collapse of negotiations in May.

Since then, both sides have imposed additional tariffs on their goods, raising concerns about an escalating trade war. Yesterday, Bank of England governor Mark Carney said the dispute was hurting the global economy, so investors will be hoping that October’s talks actually happen, and deliver progress.

Stocks have jumped in Asia overnight, with Japan’s Nikkei gaining 2% and China’s CSI 300 up 1%. European markets are expected to rally too, with the STOXX 600 called up almost 1%.

The agenda

• 7am BST: German factory orders for July
• 8.30am BST: German construction PMI for August
• 1.30pm BST: US weekly jobless figures
• 3pm BST: US Composite PMI for August