German factory orders slump; Brexit fears push pound to 11-month low – as it happened

Time for a recap:

Brexit fears have dragged the pound down to its lowest level in almost a year.

Sterling slid by three quarters of a cent today to hit $1.2920, its lowest point since September 2017, as City traders fretted about the slow pace of Brexit talks.

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The selloff was blamed on international trade secretary Sir Liam Fox, and his warning that a ‘no-deal Brexit’ was a 60:40 chance. Fox also attacked the European Commission for being intransigent, declaring.

If the theological obsession of the unelected takes priority over the economic wellbeing of the people then it’s a bureaucrats’ Brexit.

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This latest sign that UK-Brussels negotiations are floundering also sent the pound down against the euro, losing half a eurocent to €1.119.

Theresa May’s spokesman, though, insists that Britain is confident of getting a good deal (which sticking to its fallback position that no deal is better than a bad one).

The EC have denied hampering Brexit talks, telling reporters that:

“We are working constructively, day and night, to reach a deal with the United Kingdom and I think this is also reflected in the fact that the next negotiation round is scheduled for 16 and 17 of August.”

City analysts are bracing for more volatility in the months ahead, as Britain heads towards Exit Day, 29th March 2019.

Analysts at Capital Economics predict that the pound could fall to $1.20, if London can’t agree a deal with Brussels (or rise to $1.40 if the no-deal threat is avoided).

Financial markets have also been jolted by a worrying drop in German factory orders. New manufacturing orders shrank by 4% in June, the biggest drop in almost 18 months.

Orders from within Germany, across the eurozone, and beyond all fell -- a bad sign for economic prospects.

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The decline may show that Donald Trump’s imposition of tariffs on China and the EU are damaging the global economy, denting confidence and cutting demand for German goods.

Economists warned that the “horrendous” data suggests Europe’s powerhouse economy is weakening. And with trade war fears escalating, the situation could worsen this autumn.

This has pulled several European stock markets into the red today, with Germany’s DAX index down 0.3%. Britain’s FTSE 100 ended the day flat, though, as the falling pound helped exporters and firms with overseas earnings.

That’s probably all for today. Thanks for reading and commenting. GW

Boom! Capital Economics have predicted that the pound could slide back to $1.20 if Britain can’t agree a deal with the EU.

Even though sterling has already fallen a long way against the dollar, it would probably drop a lot more if fears of a “no deal” materialised, says analyst John Higgins.

Higgins warns:

After all, investors still seem to be assigning a fairly low probability to this outcome. Unlike in the run-up to the vote for Brexit in June 2016, there has been no surge in the demand for options to protect against a slump in sterling. And in the past few months, it has only fallen a few cents more against the dollar than might have been expected given the shift in UK/US rate expectations. ...

The upshot is that we wouldn’t be surprised if, in the event of no deal, the exchange rate plunged towards, or even below, the level of circa $1.20/£ that it reached in early 2017.

Having said that.... Capital Economics’ “baseline assumption” is that a deal is reached, pushing the pound back to $1.40 by the end of 2018 (from $1.29 today).

6 Aug 201810.59 EDT

Reshuffle looms in Greece as bailout end approaches

Helena Smith

Over in the eurozone, Greece has received the final tranche of its bailout - as it prepares to exit the programme in a fortnight.

But there’s no celebrating in Athens, following the forest fires left a trail of death and destruction east of the capital.

Our correspondent HelenaSmith report from the Greek capital

As the death toll rose to 94 - prime minister Alexis Tsipras, whiplashed by public discontent over its handling of the fires, accepted the resignation of the head of the country’s civil protection agency this morning.

The resignation, which follows the government’s replacement of the heads of the fire and police services last night, has spurred speculation Tsipras will move ahead with a far-reaching reshuffle to boost his two-party coalition’s flagging popularity imminently.

Government sources told the Guardian the makeover will take place well in advance of the leftist leader making his annual economic address in Thessaloniki on September 9th. Tsipras says August 21st will mark the beginning of the end of debt-stricken Greece’s arduous nine-year odyssey on the frontline of Europe’s debt crisis.

“At long last we will reclaim our sovereignty,” he told Greeks claiming “political responsibility” for the fires.

But as the countdown intensifies and the trauma of the fires intensifies, it feels anything but festive among those in office in Athens amid reports this morning that even the finance minister Euclid Tsakalotos may not be around for too much longer....

Steven Barrow, strategist at South Africa’s Standard Bank, thinks the pound is falling because time is running out to agree a Brexit deal.

He warns (via the FT) that the selloff could intensify this autumn.

“We think the timescale is unrealistic and, as this starts to dawn on the market, it could just prove another factor tipping risk assets over the edge in the autumn.

Sterling caught a dose of the “Brexit blues” today, says Connor Campbell of financial spread-betting group SpreadEx.

He blames Dr Fox’s warning that a no-deal Brexit was a 60:40 shout, on top of Bank of England governor Mark Carney’s concerns.

Campbell says:

Though the Western markets were almost uniformly in the red, the day’s real loser was the pound.

Plunging half a percent against the dollar – cable is at a fresh 11 month low – and 0.3% against the euro, sterling was spooked by the apparent increase in likelihood of a ‘no-deal’ Brexit, with international trade secretary Liam Fox echoing Mark Carney’s claims last week that the chances of the UK leaving the EU without an agreement in place is becoming more and more of a reality.

Brexit worries have also pulled the pound down against the euro today.

Sterling has dropped below €1.12 today, a decline of 0.35%. Back in April it was worth almost €1.16, meaning UK holidaymakers got a little bit more for their money overseas.

Polling company ORB has bad news for the government: public support for Theresa May’s handling of the Brexit negotiations has hit a record low.

Just 24% of the public approve of the way things are going, they say, things are going well, down from 40% back in April.

European stock markets have slipped into the red today.

Investors are worrying about the decline in German factory orders in June and the lack of Brexit progress, meaning the FTSE 100 didn’t get its typical boost from the weakening pound.

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Mihir Kapadia, CEO of Sun Global Investments, says:

“European stock markets opened mixed today as the trade dispute between the US and China continues to hang over investors and stocks...

There has been an marked escalation in the trade war, with President Trump’s claiming the US was winning the trade dispute.”

The drop in the pound has been the main event on a quiet session, says Boris Schlossberg, managing director of FX Strategy BK Asset Management.

He writes:

“The biggest story of the day was the continued slide in cable which hit fresh 11 month highs as it dipped below towards $1.2950 support on renewed fears of a hard Brexit.”

Schlossberg also warned that the “waves of uncertainty” buffeting sterling will become choppier as the Brexit deadline approaches.

Marketwatch has more details.

The latest attacks on Europe from eurosceptic voices such as Liam Fox are pushing the pound down, argues Commerzbank currency strategist Ulrich Leuchtmann.

Leuchtmann says:

“The voices forecasting a hard Brexit are becoming increasingly shrill. The FX [foreign exchange] market is slowly beginning to work out that these people might successfully torpedo a constructive solution.”

The pound is continuing to drop, and is now down three-quarters of a cent at $1.293.

Over in Downing Street, the prime minister’s spokesman has denied that Britain is likely to leave the EU without a deal.

He told reporters at the regular lobby briefing that:

“We continue to believe that a deal is the most likely outcome because reaching a good deal is not only in the interests of the UK, it is in the interests of the EU and its 27 members.”

But, he also argued that Liam Fox was right to warn that a ‘no-deal’ Brexit is an option (spooking the pound to an 11-month low)

Why a no-deal Brexit worries the City:

The pound is hitting new 11-month lows, due to Brexit worries and a general move into the US dollar this morning.

UBS Wealth Management has cut its recommendation for clients to go ‘overweight’ on shares, due to the threat of a trade war.

It fears that the dispute will get worse in the months ahead, with “several painful rounds of talks and new tariff measures” on the horizon.

Caroline Simmons, deputy head of UBS Wealth Management’s UK Investment Office, warns that trade war spats could rumble along for Donald Trump’s entire presidency:

“While we expect the trade disputes to ultimately be resolved before the world is tipped into another recession, our base case now assumes things will get worse before they get better.

“The benign macroeconomic environment, and strong fundamentals, have emboldened a recent sense of market optimism. But there is a very real danger of overlooking the possibility of the trade situation getting worse, which could have significant impacts, such as supply-chain disruptions, reduced hiring, and lower investment.

“To reflect this risk and take advantage of the recent move higher in equities, we are reducing our overweight in global equities versus high grade bonds.”

The drop in German factory orders may indicate that the country’s growth rate is slowing fast, warns Mikael Sarwe of Nordea Markets:

Newsflash: The pound has hit its lowest level since last September, amid heightened worries over Brexit.

Sterling fell half a cent this morning to $1.2954. That takes it below its mid-July low to the weakest point in 11 months.

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The selloff came after Britain’s international trade secretary, Dr Liam Fox, warned that a no-deal Brexit was now more likely than not.

Fox told the Sunday Times that there was a 60:40 chance that the UK would leave the European Union without an agreement. He accused the Commission of “intransigence” putting EU rules above economic well-being.

Last Friday, Bank of England governor Mark Carney warned that a no-deal Brexit was an “uncomfortably high” risk. He was then criticised as being a “high priest” of Project Fear; presumably Dr Fox will get the same treatment?....