China slowdown fears rattle markets; rouble weakens amid talk of capital controls – business live

Key events

Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics has sent us his thoughts on the drop in Japanese exports last month, the first in about two years.

Demand is unlikely to pick up until the global economy rebounds or innovation convinces people of the need to buy new gadgets and upgrade existing ones.

The Bank of Japan is likely to view the July export figures as the continuation of a gentle downward decline this year. The second quarter’s 0.7% q/q GDP growth was driven by inbound tourism and falling import prices, while goods exports were weak and domestic demand fell.

This uneven picture seems to be intact as we enter the second half, while inflation is cooling more slowly than the Bank projected. Tomorrow’s national consumer prices index probably will be unchanged at 3.2% y/y in July, propped up by the lagged effect of last year’s import cost surges. We think the Bank will focus on the soggy domestic economy and falling real wages in sticking to the negative policy rate, at -0.1%, to support the economy in the second half.

Britain’s biggest weapons company BAE Systems has agreed to buy US space technology company Ball Aerospace for $5.6bn (£4.4bn), in one of the biggest takeovers involving a UK company this year.

The move comes amid a surge in government spending on global military and spying technology prompted by Russia’s invasion of Ukraine in February last year.

BAE chief executive Charles Woodburn said:

The strategic and financial rationale is compelling, as we continue to focus on areas of high priority defence and intelligence spending.

Colorado-based Ball Aerospace, a subsidiary of Ball Corporation, designs makes instruments, sensors and spacecraft, including satellite technologies. Its parent company makes beer cans.

Ball Aerospace undertakes final cryogenic testing of Webb telescope flight mirrors.
Ball Aerospace undertakes final cryogenic testing of Webb telescope flight mirrors. Photograph: PR NEWSWIRE

Foreign investors have been dumping Chinese stocks and bonds after losing confidence in Beijing’s promises of more measures to shore up the faltering economy.

Financial Times calculations based on data from Hong Kong’s Stock Connect trading scheme show that investors have almost completely reversed Rmb54bn ($7.4bn) in net purchases of Chinese equities that followed a pledge on 24 July from the politburo of top Communist party leaders to increase policy support.

Bondholdings of foreign institutional investors fell by Rmb37bn in July to Rmb3.24tn, according to figures released by China’s foreign exchange regulator yesterday, the FT said.

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

Shares across Asian markets are down, following Wall Street lower, after minutes from the US Federal Reserve’s last meeting indicated America’s central bank may keep interest rates higher for longer to fight inflation. Japan’s Nikkei fell 0.4% while Hong’s Kong’s Hang Seng slipped 0.2%, paring earlier losses.

The minutes from July’s meeting, when rates rose their highest level in 22 years, cited “significant upside risks to inflation, which could require further tightening of monetary policy.”

The prospect of higher borrowing costs for a longer period pushed yields, or interest rates, on 10-year US government bonds to their highest level sine 2008 in New York.

Concerns about slowing growth in China are also weighing on markets.

Japan’s exports fell in July for the first time since February 2021, dragged down by lower demand from China for computer chips and cars. Exports dropped 0.3% year on year, while shipments to China were down 13.4%.

Russia’s rouble has weakened again against the dollar after plummeting on Monday. The Russian central bank stepped in with an interest rate hike to 12% the following day to stem the slide past the 100 threshold, but analysts say more measures are needed to return the currency to the 80-90 range preferred by the authorities.

At the moment, the rouble is trading at 95.1 per dollar, down 0.5%, after briefly falling to close to 102 on Monday, the lowest since March 2022.

There has been speculation that capital controls could be reintroduced to help prop up the struggling currency.

Citing a Russian finance ministry proposal, the Financial Times reported yesterday that large exporters could be forced to convert up to 80% of their foreign currency into roubles in order to raise demand for the currency.

The Agenda

  • 9am BST: Norges Bank interest rate decision (forecast: rise to 4% from 3.75%)

  • 10am BST: Eurozone trade for June

  • 1.30pm BST: US Initial jobless claims for week of 12 August (forecast: 240,000)

  • 3pm BST: US Conference Board Leading Index for July