Bond market sell-off drives up government borrowing costs; China’s currency hits 16-month low on tariff fears – business live

Germany’s struggling economy has suffered another blow, with new data this morning showing a drop in manufacturing orders.

German factory orders tumbled by 5.4% month-on-month in November, statistics body Destatis reported, and were 1.7% lower than a year ago.

The fall suggests Germany’s economy may slide into “a light winter recession” says Carsten Brzeski, global head of macro at ING, adding:

In fact, notwithstanding some more technical rebounds, there is still no trend reversal in sight for the German industry. It’s bottoming out at best.

At the same time, disappointing retail sales suggest that the rebound in private consumption in the third quarter is unlikely to continue in the fourth quarter. Unless Christmas shopping brings a positive surprise, private consumption is set to drop, and ongoing political and policy uncertainty combined with re-accelerating inflation make any substantial rebound in consumption unlikely.

Anxiety that Donald Trump could trigger a trade war once he is reinstalled as US president have hit the Chinese currency today.

The yuan dipped to 7.3316 to the US dollar in trading today, its weakest level since September 2023, and below the daily ‘fix’ set by Beijing which dictates the levels where the yuan can trade.

The currency came under pressure after Donald Trump denied a newspaper report that said his aides were exploring tariff plans that would only cover critical imports.

Trump had previously indicated he could impose tariffs of 60% on Chinese goods into the US, which woud disrupt trade flows.

Wang Tao, chief China economist at UBS, explains:

The yuan is expected to face depreciation pressure, not only from tariff hikes but also from a significantly stronger dollar.

Despite these challenges, we believe the government is determined and capable of managing a relatively moderate depreciation.”

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

There are worrying rumblings in the bond markets, alarming investors and creating headaches for finance ministers including the UK’s Rachel Reeves.

The yields, or interest rates, on sovereign debt from the US, the UK and some eurozone countries has been rising in recent weeks, as bond prices have fallen.

Earlier this week, the yield on US 30-year Treasuries rose to its highest level in over a year, and yesterday the yield on 10-year Treasuries climbed six basis points to 4.69% – spooking Wall Street and prompting stocks to slide.

US Treasuries have been weakening as traders lose faith that central banks will cut interest rates as quickly as hoped. Strong data showing a surprise jump in job vacancies at US companies, and rising price pressures in the services sector, added to those worries on Tuesday.

UK debt has aso fallen out of favour with investors, on fears that economic growth will be weaker than expected.

This has pushed up Britain’s borrowing costs, with the yield on 30-year UK gilts hitting 5.242% on Tuesday, the highest in 27 years, and above the peak reached after Liz Truss’s mini-budget in 2022 sparked turmoil in financial markets, to hit the highest level in 27 years.

That eats into Reeves’s fiscal headroom and could force the chancellor to make fresh cuts to public spending to avoid breaking her own fiscal rules.

It also fuelled expectations that the UK could need more tax raises to finance its debt.

Jim Reid of Deutsche Bank explains:

The problem for the UK government is that with yields where they currently are, they are close to breaching their own fiscal rules and as such may require additional tax rises.

Donald Trump also gave investors a jolt yesterday, with a speech in which he didn’t rule out taking Greenland and the Panama Canal by force.

That may be a taste of the turbulent four years ahead, as Chris Weston, head of research at brokerage Pepperstone, explains:

Trump covered thoughts on Greenland, the Panama Canal, Mexico, Canada, the hostage situation in Gaza, Ukraine and tax and immigration policy. For the neutrals in the market, his views, if he is to be credible on the myriads of hard-hitting polices, further raise the prospect of market players navigating fast-moving, headline-driven markets. And where such an unconventional and hawkish approach is something that will soon lose its shock factor.

Whether Trump’s views impacted markets is unclear, but the totality of the speech won’t have done risk any favours, and the buyers (of risk) simply moved aside, and allowed those exiting long risk (equity etc), amid a pick in short positioning, to move prices lower with increased ease.

The agenda

• 7am GMT: German factory orders for November

• 10am GMT: Lords Financial Services Regulation Committee hearing with Bank of England’s Sam Woods

• 10am GMT: Eurozone consumer and economic confidence data for December

• 1.15pm BST: US ADP private payroll data, plus jobless claims at 1.30pm

• 1.30pm BST: US weekly jobless claims

• 7pm BST: Federal Reserve releases the minutes of its latest FOMC meeting