What to Watch: US-China trade deal, UK inflation falls, Persimmon woes

Tom Belger
Finance and policy reporter
A TV screen on 13 December as the US and China said they had reached an initial deal on trade. Photo: AP Photo/Richard Drew

Here are the top business, market and economic stories you should be watching today in the UK, Europe, and abroad:

Markets tread water as US and China set to sign deal

US president Donald Trump and Chinese vice premier Liu He prepared to sign an initial trade agreement on Wednesday, but the breakthrough failed to lift markets worldwide.

Several leading indices have hit record highs in recent weeks as hopes of an easing of trade tensions have grown, with the deal set to boost many US exports to China previously hamstrung by tariffs.

But the market mood was hampered by US Treasury secretary Steven Mncuchin’s statement that tariffs on Chinese goods would remain in place until the next phase of the agreement was completed.

"The phase one deal had pretty much been priced in so (his) comments took some steam out of the market last night and that's feeding through into today," Justin Onuekwusi, a portfolio manager at Legal & General Investment Management, told Reuters.

READ MORE: EU wants ‘zero tariffs, zero quotas’ trade deal with the UK

The FTSE (FTSE) was up 0.2% in London, the German DAX (^GDAXI), the French CAC 40 (^FCHI) and Euro Stoxx 50 (^STOXX50E) were all down 0.1%.

The news hit shares overnight in Asia, with the Hong Kong Hang Seng Index (^HSI) sinking 0.4%, the Nikkei (^N225) falling 0.5% and China’s Shanghai Composite index (000001.SS) dropping 0.6%.

US stocks also looked set for a lower open, with Dow Jones futures (YM=F), S&P 500 futures (ES=F) and Nasdaq futures (NQ=F) all 0.1% lower.

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UK inflation hits three-year low

Falling hotel prices pulled down inflation. Photo: Matt Crossick/ EMPICS Entertainment

Inflation in December came in lower than expected at 1.3%, hitting a new three-year low and coming in well below the Bank of England’s 2% target.

Analysts had predicted that prices grew by 1.5% in December compared to the same month in 2018.

READ MORE: UK property prices rise at fastest rate in a year

The sluggish inflation, the lowest since December 2016, puts further pressure on the Bank of England to cut interest rates later this month, and comes after data earlier this week showed that the UK economy unexpectedly shrank by 0.3% in November.

Analysts had predicted that the economy would continue to flat-line, following the 0.1% growth seen in the previous two months.

Persimmon sales slump after ‘poor workmanship’

Persimmon has blamed falling sales on its efforts to put “customers before volume,” after a critical review on the quality of its new-build homes across Britain.

Britain’s second biggest housebuilder (PSN.L) saw its sales slide by 2.4% year-on-year to £3.65bn in 2019, while new home completions were also 4% lower than the previous year.

But the figures appeared to be better than expected by investors, with shares in the company up 1.5% in early trading after the announcement on Wednesday.

Dave Jenkinson, group chief executive, said it was making the “step change necessary” to improve home quality and customer service in a trading update.

Flybe bailout a ‘blatant misuse of public funds’

Willie Walsh, the CEO of British Airways-owner IAG (IAG.L), on Wednesday blasted the government’s decision to rescue regional airline Flybe, calling the move a “blatant misuse of public funds.”

Ministers on Tuesday evening announced a bailout that could end up being worth more than £100m ($130m) for Flybe, saving more than 2,000 jobs.

The government is still in negotiations regarding a potential £100m loan and the possibility of giving the airline an extension on unpaid air passenger duties.

But business secretary Andrea Leadsom said that the government had reached an agreement with shareholders to keep the company operating.

Germany’s economy grew by just 0.6% in 2019

Data from Germany’s federal statistics office on Wednesday revealed that Europe’s biggest economy expanded by 0.6% in 2019.

This was in line with analysts’ expectations, but highlights how the global slowdown, including China’s cooling economy, and the US-China trade war have taken their toll on the export-reliant German economy.

"The golden decade Germany has seen for growth is gradually coming to an end," Holger Schmieding of Berenberg bank told AFP.

Strong domestic consumption and an unabated boom in construction both buoyed the German economy in 2019, and helped it narrowly avoid a recession for the year.

However, its key manufacturing sector is technically in recession and struggling with shrinking orders from abroad.