Contrary to earlier reports, junior Brexit minister Suella Braverman has not resigned, Reuters is reporting, citing a UK government official.
There isn’t much corporate news here in the UK this morning. As we reported earlier, Mothercare is slashing more jobs than expected and unveiled details of its planned fundraising later this month.
The German publisher Axel Springer has raised its stake in the UK online estate agent Purplebricks to 12.5% from 11.5% and did not rule out a further increase. Purplebricks ventured into the US last year, its third market after Britain and Australia, but remains deep in the red with its operating loss quadrupling last year.
Despite warnings that the tariffs imposed by Washington and Beijing on Friday in a tit-for-tat trade dispute could hit economic growth around the world, markets are sanguine – for now.
Analysts at London Capital Group said:
The actual trade tariffs are nothing new, the market has been aware of them for over a month, and for now conditions are still supportive for financial growth, allowing markets to move higher.
Sentiment could remain resilient until we see solid evidence of these trade tensions feed through to softer economic data, particularly in China.
Global stocks have hit a two-week high following the stronger-than-expected US jobs report on Friday, and as traders shrugged off rising trade tensions between America and China.
Sterling recovered quickly after a dip following Brexit secretary David Davis’ resignation as traders focused on the likelihood of a “soft Brexit”. Davis made clear this morning that he would not stand against Theresa May and would not encourage others to challenge her. The pound is now up 0.5% against the dollar.
The MSCI world equity index, which tracks shares in 47 countries, has risen 0.8% while the pan-European Stoxx 600 is 0.6% ahead.
- UK’s FTSE 100 up 0.15% at 7629.13
- Germany’s Dax up 0.2% at 12,524.87
- France’s CAC up 0.6% at 5480.75
- Spain’s Ibex up 0.4% at 9947.70
- Italy’s FTSE MiB up 0.66% at 22,0780.09
Sterling rises 0.5% after Davis comments
Sterling is now up more than 0.5% to $1.3358, after former Brexit secretary David Davis said he was not planning to challenge Theresa May’s leadership, and that he wanted her to stay as prime minister.
“I like [May]. She is a good prime minister,” he told the Radio 4 Today programme.
I’m told that the Bank of England’s deputy governor Ben Broadbent is speaking at an internal event this morning. The Bank’s chief economist Andy Haldane is speaking at townhall meetings in the North East. Again there is no text.
UK blocks aerospace sale to Chinese buyer
UK regulators have blocked the sale of aircraft parts firm Northern Aerospace to a Chinese buyer following a probe into national security concerns.
Britain’s Competition and Markets Authority launched an investigation last month into the £44m sale of the company by its UK private equity owner Better Capital to Chinese aerospace and mining firm Shaanxi Ligeance Mineral Resources. The probe came after the UK business secretary Greg Clark intervened.
Northern Aerospace is based in County Durham and employs 600 people. It designs and makes aeroplane components for carriers including Airbus, Boeing and Gulfstream.
Better Capital said this morning:
Permission to complete the sale was not obtained from the Competition and Markets Authority by the revised contractual deadline, despite requests for such permission by both parties.
Accordingly the proposed transaction has lapsed.
Mothercare shares fell more than 12% in early trading to 25.2p, and are now changing hands at 26.17p. The new shares are being issued at 19p.
On the corporate front, struggling retailer Mothercare has announced details of its restructuring and refinancing package as it fights for survival. It plans to cut 900 jobs, 100 more than previously announced, and put its Children’s World subsidiary into administration.
The move comes after landlords rejected the company’s proposals for rent reductions for Children’s World stores last month. Mothercare will now close a total of 60 out of its 137 stores, 10 more than it said in May. These will be carried out through a company voluntary arrangement (CVA), which allows companies to shut loss-making shops and secure rental discounts.
It expects to make annual savings of about £10m following the closures, and also plans to raise £32.5m from existing shareholders through a rights issue.
You can read the full story here.
Last week, German finance minister Olaf Scholz warned that Washington’s decision to impose tariffs on imports from China and the EU would damage everyone.
Donald Trump threatened last month to impose a 20% tariff on imports of all vehicles assembled in the EU. He imposed tariffs of 25% on steel and 10% on aluminium imported from the EU, Canada and Mexico at the start of June. The EU and Canada hit back with their own levies on US goods.
German trade surplus widens
German trade data this morning show that the country’s trade surplus widened in May – despite Europe’s trade dispute with the US.
Exports rose 1.8% on the month, according to data from the Federal Statistics Office in Berlin, while imports increased 0.7%. This pushed the trade surplus up to €20.3bn in May from €19bn in April – better than expected.
Carsten Brzeski at ING says:
The latest weakening of the euro should bring some relief in the coming months, more than offsetting current US tariffs on European aluminium and steel.
Looking ahead and despite the very benign impact of trade tensions so far, a fully fledged trade war would surely leave negative marks on the German economy.
Markets are hoping for further clues about a tightening to monetary policy when European Central Bank president Mario Draghi speaks at the European parliament in Brussels this afternoon.
CMC’s Madden says:
Traders will be listening carefully to the central banker’s speech as it may give away clues to possible changes to the monetary policy. Last month, the head of the ECB announced the bond-buying scheme would be wound down at the end of the year. Mr Draghi also suggested that interest rates are unlikely to be hiked until at least the back end of 2019. The currency bloc has been going through a mixed economic period, and Mr Draghi’s update could give an insight into what the central banker is thinking.
European markets have risen at the open.
- UK’s FTSE 100 up 0.4%
- Germany’s Dax up 0.4%
- France’s CAC up 0.5%
- Spain’s Ibex up 0.2%
- Italy’s FTSE MiB up 0.5%
- Portugal’s PSI 20 up 0.3%
David Madden, market analyst at CMC Markets UK, says:
The pound is holding up relatively well. This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job.
Trade remains in focus globally, with Donald Trump heading to Europe this week for the NATO summit. He has already voiced his opinion that the US pays a large share of the NATO budget.
Mr Trump is still playing the ‘America first’ card, and there is a possibility that global trading relations could take a further knock.
Last week there were signs that the relationship between the EU and the US were improving, after it was reported that the Trump administration is contemplating rowing back on the threat to impose 20% tariffs on EU cars. It was also reported that Angela Merkel is considering throwing her weight behind the proposal of cutting levies on US cars into the EU.
The embattled prime minister, Theresa May, is expected to reshuffle her cabinet sometime after 9am following Davis’ resignation. You can read the latest on our politics live blog.
Hussein Sayed, chief market strategist at online forex broker FXTM, says:
The pound was surprisingly steady after the resignation of the Brexit secretary David Davis. Trading the pound is going to be tricky in the coming days and will depend predominantly on how the negotiations with the EU develop after Davis’ resignation and the survival of Theresa May. However, from Monday’s market reaction, traders seem to believe we’re still heading towards a soft Brexit.
Introduction: Markets shrug off trade dispute, Davis resignation
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
The trade war between America and China began on Friday, when both Washington and Beijing imposed 25% tariffs on a number of imports. The US fired the opening salvo, imposing levies on $34bn of Chinese imports, including aerospace, IT and medical kit. China hit back with tariffs on products such as soybeans, chemicals and some cars.
But markets have taken the escalating trade dispute in their stride.
European stocks are expected to open higher after Asian stocks rallied overnight. Worries over the trade dispute ebbed away on Friday when non-farm payrolls data showed stronger-than-expected US job growth and steady wage gains, suggesting the Federal Reserve will stick to gradual interest rate increases, and pushing US stocks higher that day.
The pound wobbled after the shock resignation of UK Brexit secretary David Davis and Brexit ministers Steven Baker and Suella Braverman. Sterling weakened to $1.3290 when the news broke, but has since recovered and hit its highest level since 14 June this morning. It’s now trading 0.2% higher at $1.3321. Against the euro, it has been steady at 88.38p.
Central bankers including Bank of England deputy governor Ben Broadbent and European Central Bank president Mario Draghi are due to speak today.
Also coming up
8.50am BST BOE deputy governor Ben Broadbent gives opening address at BOE conference
2pm BST ECB president Mario Draghi speaks at the European Parliament in Brussels
We’ll be tracking all the main events throughout the day…