Business

LONDON — The pound rebounded on Wednesday, but gains were capped by investor anxiety after Brexit turmoil sent the currency tumbling and set the stage for a potential snap UK election next month.

Having dived on Tuesday to $1.1959 — the pound's weakest level since 1985 except for a 2016 "flash crash" — it has since rallied on rising hopes that Britain will not exit the European Union without a deal.

The pound shot back above $1.22 on Wednesday, an increase of 1 per cent from late Tuesday. 

"Sterling was thrown a lifeline by a parliament determined to avoid a no-deal Brexit," said analyst Connor Campbell at trading firm Spreadex, but he also injected a note of caution.

"The complicating factor here, and the reason that sterling's gains... are not even greater, is the potential for a general election."

Prime Minister Boris Johnson headed into a fresh Brexit showdown in parliament on Wednesday after being dealt a stinging defeat over his promise to get Britain out of the EU at any cost next month.

The Conservative leader has threatened to seek an early general election if lawmakers vote against him again on Wednesday and force him to seek a three-month Brexit extension from Brussels.

Many economists argue that a no-deal departure would hammer the British economy, which risks already falling into recession this quarter.

British business activity shrank in August, slammed by weakness in the key construction, manufacturing and services sectors, a key survey showed Wednesday.

The purchasing managers' index (PMI) for all UK sectors dropped to 49.7 from 50.3 in July, according to IHS Markit, which compiles the data.

A figure below 50 indicates contraction.

"The PMI surveys are so far indicating a 0.1-per cent contraction of GDP in the third quarter," which would mean Britain had fallen into recession, noted Chris Williamson, chief business economist at IHS Markit.

Britain's economy unexpectedly shrank in the second quarter of the year.

The official definition of recession is two successive quarters of economic contraction.

LONDON — The British pound tumbled on Tuesday to the lowest level against the dollar in almost three years, as the UK faces a possible general election amid Brexit turmoil. 

Sterling struck $1.1959 around 07:50 GMT, as British Prime Minister Boris Johnson faces a rebellion by his own lawmakers over his Brexit strategy that could result in an early general election next month.

It was the pound's lowest level since October 2016, when sterling dived to a 31-year trough at $1.1841 in a so-called "flash crash" just a few months after Britain's referendum vote in favour of leaving the European Union.

On October 7, 2016, the pound crashed 6.1 per cent against the dollar to hit its lowest level since 1985 before quickly rebounding. 

"Ignoring the flash crash, we are very much in uncharted waters here," Neil Wilson, chief market analyst at Markets.com, said on Tuesday. 

"We could feasibly see $1.15 or even $1.10 in the coming weeks if traders decide to move against the pound." 

By mid-afternoon in Europe, the pound had come off its early lows.

The fate of Brexit hung in the balance as the UK parliament prepared for an explosive showdown with Johnson that could end in a snap election.

Members of the prime minister's own Conservative Party are preparing to join opposition lawmakers in a vote to try to force a delay to Britain's exit from the EU if Johnson cannot secure a divorce deal with Brussels in the next few weeks.

The UK leader insists that Britain will leave the EU with or without a deal on October 31.

Weak pound impact 

Markets fear that a no-deal Brexit could be disastrous for the British economy, at least in the short term, and could plunge the country into recession. 

While the pound's weakness makes imports into Britain more expensive, for example oil which is traded in dollars, it cheapens exports.

Sterling's heavy falls have meanwhile helped to boost London's benchmark FTSE 100 index, as it features many multinationals earning overseas.

However, a general election could see the main opposition Labour party win power, led by Jeremy Corbyn whose policies are widely regarded as being unfriendly towards business.

"It would appear sterling traders are in no mood to hang around for the result... in parliament," Craig Erlam, senior market analyst at Oanda trading group, told AFP on Tuesday.

"Given all the confusion on what could follow, it seems there is no good near-term outcome. We either have an increased risk of no-deal, the possibility of a Corbyn government or more uncertainty. 

"It would appear traders don't view any of these options as being particularly favourable for the pound," Erlam added.

Elsewhere on Tuesday, the China-US trade impasse was playing on equity markets.

While President Donald Trump has said negotiations between the world's top two economies would take place soon, a report said they were having trouble agreeing a schedule for any meeting.

In commodities trading, oil prices extended losses on concerns about data showing a lift in output from OPEC and Russia, despite a pledge from them to reduce production.

BEIJING — China said on Monday it had lodged a complaint against the United States with the World Trade Organisation (WTO), one day after new tariffs imposed by Washington on billions of dollars of Chinese goods came into force.

The world’s two biggest economies have been embroiled in a bruising year-long trade war which escalated further on Sunday when both sides moved ahead with fresh tit-for-tat levy hikes.

“These American tariffs seriously violate the consensus reached by the leaders of our two countries in Osaka,” Beijing’s commerce ministry said, referring to trade discussions in the Japanese city in June.

“The Chinese side is strongly dissatisfied and resolutely opposed to that. In accordance with relevant WTO rules, China will firmly safeguard its legitimate rights and interests,” the ministry added in a statement published on its website.

The complaint has been lodged with the WTO body for dispute settlement, the ministry said.

Washington’s latest levies on imports from China took effect on Sunday as it stepped up a high-pressure campaign aimed at compelling Beijing to sign a new trade deal.

The additional tariffs affected a portion of the $300 billion in goods from the Asian giant that so far had been spared.

Beijing has said it will retaliate by targeting $75 billion in US goods, beginning in part on September 1.

The trade dispute has rattled markets and hit growth across the globe, and trade negotiations between the two countries have been at an impasse for months.

US President Donald Trump and China’s leader Xi Jinping had agreed to “fully engage” on trade when they met in Osaka during the G-20 summit in Japan.

But at the recent G-7 meeting in France, Trump spoke of new communications between US and Chinese negotiators — giving financial markets a brief boost — while China’s foreign ministry said it was unaware of such contacts.

LONDON — Bank of England (BoE) Governor Mark Carney has suggested that a virtual currency, modelled on Facebook’s Libra, could one day replace the dollar as king of the foreign exchange market.

The BoE chief aired vague proposals for a so-called “Synthetic Hegemonic Currency” at the recent Jackson Hole Symposium of central bankers.

Here is a brief assessment of why the greenback is losing its lustre and the outlook for Carney’s proposed new digital currency, which would be supported by major central banks around the world.

Why dollar dominance? 

The dollar has been the world’s reference currency since the Bretton Woods agreement in 1944, when various key units were fixed to the value of the greenback. It has retained its global supremacy ever since, thanks to the economic and political clout of the United States.

“The dominant currency is always that of the world’s biggest political power,” noted Philippe Waechter, head of research at Ostrum Asset Management.

The dollar accounted for almost 62 per cent of global foreign exchange reserves in the first quarter of 2019, according to the International Monetary Fund.

The European single currency was second with 20.2 per cent, while China’s yuan comprised only 2 per cent despite the country’s rise to the rank of the world’s second biggest economy behind the US.

Why is greenback 

losing appeal? 

Although the dollar has lost its sparkle owing to globalisation and the changing world economic order, gyrations in the US unit still impact economies elsewhere.

“US developments have significant spillovers onto both the trade performance and the financial conditions of countries even with relatively limited direct exposure to the US economy,” Carney said at the recent bankers’ meet in Wyoming.

When the greenback appreciates, so do repayments for many emerging nations because their debts tend to be denominated in dollars.

The BoE chief, who steps down in January, added: “In the longer term, we need to change the game.”

Central bank role? 

The public sector, in the form of central banks, could instead provide the best support for a new virtual currency, according to Carney.

“It is an open question whether such a new [cryptocurrency] would be best provided by the public sector, perhaps through a network of central bank digital currencies,” he said.

Yet central bankers and world leaders alike remain anxious over the current crop of virtual currencies because they are unregulated.

US President Donald Trump himself has lashed out at Bitcoin and Libra for being “based on thin air” and having no standing or dependability — unlike the dollar.

Commentators believe Washington is unlikely to allow the greenback to lose its cherished status as the world’s premier reserve currency. 

“The United States will simply not allow it to happen without a fight. Nobody in its position would,” said Rabobank analysts.

What about Libra? 

The BoE governor, meanwhile, made explicit references to Libra — a future cryptocurrency unveiled by social media giant Facebook in June.

Carney avoided all mention of Bitcoin, which is the world’s most popular digital unit but has been plagued by volatility.

Libra, which aims to launch in the first half of 2020, will be backed by a basket of currency assets to avoid the wild swings of bitcoin and other cryptocurrencies.

Yet, Libra has also attracted the ire of central bankers owing to its origin in the private sector.

“Central banks are a little annoyed by this [Facebook] bid to privatise currency,” said Agnes Benassy-Quere, a researcher at the Paris School of Economics.

Whereas Bitcoin is decentralised, Libra will be co-managed by 100 partner firms including Facebook itself. 

NEW YORK — Renewed hopes for trade talks kept stock markets mostly in the black on Friday after China suggested this week it might not retaliate against the latest US tariffs.

The relative calm made for a mostly positive final day to a bruising month, when economic and trade war fears eroded gains from June and July.

European bourses posted modest gains while Wall Street swung to a split finish after a choppy session, following mixed economic news on consumers and ahead of sharp increase in US tariffs on Chinese imports planned for Sunday.

Despite recorded gains for the week, the major New York indexes finished the month in the red for the first time since May.

"We may be facing up to the reality of recession but optimism continues to flow through the veins of investors following comments from the Chinese commerce ministry on Thursday," said Craig Erlam, senior market analyst at Oanda trading group.

The apparently easing tensions helped China's yuan strengthen slightly against the dollar, having fallen to an 11-year low earlier in the week.

Milan fell after Italy's anti-establishment Five Star Movement warned that its tentative coalition deal with the centre-left Democratic Party could still fall apart.

In the government bond market, the spread between Italy's bond yields and those of rock-solid Germany widened, indicating that investors were demanding a higher risk premium in return for investing in Italian sovereign debt.

Sterling rose against the euro and traded steady against the dollar after heavy Brexit-fuelled losses earlier in the week.

The dollar was about 0.6 per cent higher against the euro, showing little reaction after US President Donald Trump lashed out at the Federal Reserve for allowing a strong dollar to make American exports less competitive.

'Relatively subdued' 

US-China trade worries were "relatively subdued" and bond yields stabilised, said analysts at Charles Schwab, but few investors seemed to have the stomach to carry big positions into the coming US three-day weekend.

Earlier, Hong Kong started Friday more than 1 per cent higher but finished with a gain of only 0.1 per cent as the arrest of activists fuelled fresh worries about violent protests in the city.

Elsewhere, oil prices slumped after a three-day surge on positivity surrounding trade talks was coupled with a plunge in US stockpiles that pointed to improving demand.

On the corporate front, shares in Airbus rose after the European aircraft manufacturer earlier said it had agreed to sell 42 planes to Malaysian low-cost airline AirAsia X in a deal worth $5 billion before expected discounts.

The Asian carrier has placed a firm order for 12 long-range A330neo aircraft and 30 medium-range A321XLR models.

WASHINGTON — US President Donald Trump confirmed on Friday that steep new tariffs on Chinese goods will kick in on Sunday and said that his economic pressure is forcing Beijing to take a more moderate line in Hong Kong.

"They're on," Trump told reporters, two days before the levies on billions of dollars' worth of Chinese imports are set to rise in the latest escalation of the trade war between the world's two biggest economies.

Trump also said that US economic pressure on China was responsible for preventing the authorities from carrying out a harsher crackdown against pro-democracy demonstrators in Hong Kong.

"Because of what I'm doing with trade that's really keeping down the temperature," he said at the White House.

Trump's tough line — and his claim that events in Hong Kong are linked to the trade war — follows his insistence over the last week that Chinese negotiators are keener than ever to strike a deal.

However, despite repeated hints that high-level communications have been reopened on the stand-off, White House officials have sparked scepticism by failing to provide details of those reported talks.

His confirmation that the new tariffs will go ahead underlines the reality that the two sides remain at loggerheads.

Trump earlier this month had called for 10 per cent tariffs on $300 billion in goods to take effect September 1 and December 15. Then Beijing retaliated by targeting $75 billion in US exports and Trump announced that the new tariffs would instead hit 15 per cent.

In addition, existing 25 per cent duties on $250 billion worth of Chinese products will rise to 30 per cent starting October 1.

Trump initiated the trade war last year because of complaints over unfair Chinese trade practices.

His comments on Hong Kong could touch political nerves in China, which bristles at anything it sees as outside interference in the restive city.

Asked if he saw a connection between the way the Chinese respond to the unrest and the difficulties their economy faces under US pressure, Trump said: "I do, I do".

"If it weren't for the trade talks Hong Kong would be in much more trouble," he said, reiterating a call for Beijing to "handle it in a humane fashion".

Trump's call fell on the same day prominent Hong Kong democracy activists including three lawmakers were arrested in a protest crackdown — a move described by rights groups as a well-worn tactic deployed by China to suffocate dissent ahead of major political events.