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European shares end the session with solid gains

Most major indices up over 1%. UK FTSE lags as they digest PM Johnson

The major European shares are ending the session with solid gains, with most of the indices enjoying gains over 1% on the day.
The provisional closes are showing:
  • German DAX, +1.8%
  • France’s CAC, +1%
  • UK’s FTSE, +0.7%
  • Spain’s Ibex, +1.5%
  • Italy’s FTSE MIB, +1.01%
In the European debt market, the 10 year benchmark yields are ending the session with mixed results:

Most major indices up over 1%. UK FTSE lags as they digest PM Johnson

In other markets as it European traders look for the exits:
  • spot gold is down $-2.80 or -0.20% at $1422.20
  • WTI crude oil futures are trading unchanged at $56.22
In the US stock market, the major indices have given up some of their gains. The Nasdaq is trading above and below the unchanged level currently
  • S&P index +0.16%
  • NASDAQ index, -0.02%
  • Dow +0.17%

In the forex, the USD is the strongest of the majors with solid gains vs the EUR, AUD and NZD, the NZD is the weakest:

IMF lowers global growth forecast to 3.2% from 3.3%

The latest forecasts from the IMF

The latest forecasts from the IMF
The previous round of forecasts were in April:
  • 2020 global growth to 3.5% from 3.6%
  • US to 2.6% vs 2.3% prior
  • 2020 US growth 1.9% vs 1.9% prior
  • Eurozone 1.3% vs 1.3% prior
  • 2020 Eurozone raised to 1.6%
  • China 6.2% vs 6.3% prior
  • 2020 China 6.0% vs 6.1% prior
  • Canada 1.5% vs 1.5% prior
  • Germany 0.7% vs 0.8% prior
  • 2020 Germany to 1.7% vs 1.4% prior
  • Italy +0.8% vs +0.1% prior
  • Advanced economies 1.7% vs 1.8% prior
  • Emerging markets 4.7% vs 4.4% prior
  • 2020 emerging markets 4.7% vs 5.0% prior
  • World trade volume lowered to 2.5% vs 3.4% prior
  • Full report
In April, the IMF lowered its forecasts. Since October, this is the fourth downgrade in global growth and the statement said downside risks have intensified going forward, noting trade.
“The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the report says.
They noted that fixed investment is particularly soft, even in places where growth has surprised to the upside. They note high inventories in the UK and US.

Analysts warn Johnson victory has increased no-deal Brexit risk

Moody’s and Goldman Sachs have both warned that Boris Johnson’s victory in the race to become the UK’s next prime minister has increased the likelihood of an economically damaging no-deal Brexit.

The rating agency, which earlier this month warned no-deal would likely lead to a recession, said the risk of a credit-negative crash out of the EU has risen.

“Any Brexit compromise now seems less likely,” Moody’s said in a report released soon after Mr Johnson was named as the UK’s next prime minister at an event in central London, securing nearly two-thirds of votes from Conservative party members.

“Our view remains that a no-deal Brexit would have significant negative credit effects for the UK sovereign and related issuers,” the ratings group said.

US bank Goldman Sachs raised its forecasts of a no-deal Brexit from 15 per cent to 20 per cent following Mr Johnson’s election. “With Boris Johnson at the helm, the tail risks are likely to intensify ─ well into October,” said the bank’s economists.

Goldman sees the odds of a negotiatied Brexit deal at 45 per cent and no Brexit at all at 35 per cent. (more…)

Chinese carmaker BAIC takes 5% stake in Daimler

China’s BAIC has bought a 5 per cent stake in Daimler for about €2.5bn in a move analysts said was aimed at cementing the carmaker’s partnership with the German luxury automotive group and preventing rival Geely from undermining the alliance.

BAIC chairman Xu Heyi said in a statement that the investment was intended to strengthen the company’s ties with Daimler, which has held a stake in the Chinese carmaker’s Hong Kong-listed arm, BAIC Motor, since 2013.

Chinese carmaker Geely, which owns Volvo Cars and Lotus, acquired a 9.69 per cent stake in Mercedes-Benz-manufacturer Daimler for $9bn in early 2018 in a sign of the group’s global ambitions.

“BAIC sees Geely as a threat. The joint venture between Daimler and BAIC is the core of the group’s business,” said John Zeng, managing director of research group LMC Automotive Shanghai.

China’s passenger vehicles market, the largest in the world by sales of new vehicles, shrank last year for the first time since the 1990s because of a reduction in buyer subsidies and weak consumer confidence.

Sales have continued to decline in the first half of 2019. But luxury foreign brands have been less affected by the downturn than cheaper marques, making Chinese manufacturers increasingly dependent on foreign joint ventures for profits.

Mercedes-Benz sold more than 650,000 cars in China last year and just under 350,000 in the first half of 2019.

Although BAIC manufactured Daimler’s combustion engines in China, Geely’s involvement with the German carmaker represented a long-term threat, Mr Zeng said.

Geely and Daimler formed a smart car joint venture in March, which will build electric Smart cars in China to be sold globally. (more…)

Russia says that its aircraft did not violate South Korean airspace

Comments by Russia’s defence ministry

  • Russian strategic bombers did not violate airspace of other countries
  • Says that South Korean military planes crossed the path of Russian aircraft
  • That created a threat to their security
  • Says South Korean pilots did not communicate with Russian strategic bombers
  • Adds that it is not the first time South Korea has tried to interfere with Russian military flights over neutral waters
As is always the case with these geopolitical incidents, it’s a “your word versus mine” kind of thing. I doubt this will escalate into anything too serious but it’s good to stay abreast of the developments just in case.

China only a hair away from US in Fortune Global 500

China is now neck and neck with the U.S. in Fortune Global 500 members, reflecting a shift in economic power that lies at the heart of trade tensions between Beijing and Washington.

This year’s ranking of the world’s 500 largest businesses by year-earlier revenue includes 119 Chinese companies, up from 111 in 2018. U.S. enterprises declined to 121 from 126. Two decades ago, Chinese entries numbered in the single digits. So “though China has a stronger presence near the bottom of the roster than the top, it’s clear where the momentum is,” wrote Clifton Leaf, editor-in-chief of Fortune magazine.

Among the 39 Chinese companies in this year’s top 150, all but five are state-owned enterprises. They include banks, automakers, and such energy giants as Sinopec Group, China National Petroleum and State Grid, which have solidified their positions in the top 10.

Major Chinese major technology companies are rapidly moving up the ladder, with Alibaba Group Holding and Tencent Holdings climbing 118 and 94 rungs to No. 182 and No. 237. Hong Kong-listed Xiaomi debuted on the list at No. 468.

These patterns highlight core issues underlying the Sino-American trade war: China’s rising economic prowess, a technology race where it is rapidly catching up, and a clash of economic paradigms. (more…)

With election over, US wants Abe to deliver on Iran and trade

Having scored a sound victory in the upper house election Sunday, Japanese Prime Minister Shinzo Abe is back to confronting thorny diplomatic issues as Washington presses for tangible results on global security and trade.

U.S. President Donald Trump had signaled that he would wait until the Japanese election is over to push for a trade deal. Now Washington is certain to step up pressure to put together an agreement palatable to U.S. farmers ahead of the 2020 presidential election. Japan is increasingly alarmed by the U.S. bringing Trump style deal-making to diplomacy and trade.

John Bolton, the U.S. national security adviser, was in the Japanese capital Monday, seeking Tokyo’s support amid rising tensions with Iran. Bolton told Japanese Defense Minister Takeshi Iwaya that their two countries “are at an extremely critical juncture to strengthen the bilateral alliance.” He likely called on Tokyo to participate in a coalition that would safeguard ships passing through the Strait of Hormuz.

Iran’s Revolutionary Guard seized a British oil tanker in the strait on Friday. A Japanese-owned oil tanker also suffered an attack in the area in June.

Discussions about the future of the Japan-U.S. alliance will continue over the next several days and weeks, Bolton told reporters after his meeting with Iwaya, adding that he was very “optimistic” about the outcome.

Abe told reporters on Monday that he first wanted to focus on what Japan could do to ease tensions in the Middle East. “The peace and stability of the Middle East are critically important for Japan’s energy security,” Abe said. (more…)

North Korean media announcement on new “strategic” submarine

NK media, KCNA, report on

  • submarine designed and built to be capable of fully implementing the military strategic intention of the Party

“Strategic’ is being read as a euphemism for nuclear missile capable. Its the first time NK has used the word in miliarty related press reports for more than a year, Pretty much highlights the end of any pretence of “denuclearization” .

Not much yen response – its been flat for hours and just lost a few points in past minutes.

Trump promises tech CEOs quick decision on supplying Huawei

Donald Trump has promised major US companies his administration will
process their applications to supply Huawei quickly.

The president on Monday met with chief executives from seven large technology
companies, including microchip makers Qualcomm, Broadcom and
Micron, as well as Google, which sells its Android operating software
to Huawei for use on its smartphones.

According to the White House, the chief executives asked the president
to swiftly process their applications to export to Huawei, following
Mr Trump’s announcement that a ban on selling to the Chinese company
would be relaxed.

A spokesperson for Mr Trump said: “The CEOs expressed strong support
of the President’s policies, including national security restrictions
on United States telecom equipment purchases and sales to Huawei. They
requested timely licensing decisions from the Department of Commerce,
and the President agreed.”

Companies have been seeking clarity on US policy since Mr Trump
said the ban he previously announced would be eased, following a
meeting with Xi Jinping, the Chinese president.

Meanwhile the Trump administration has been urging companies to submit
applications since that decision, according to people briefed on the
situation, in the hope of pleasing Beijing amid US-China trade talks.