August 2012

In the broadcast today: EUR and USD New Trading Week Outlook. With the euro relief rally still underway, we focus on a sequence of important economic data and events from both sides of the Atlantic scheduled in the week ahead and explore what the new trading week might have in store for the EUR and the USD, we list the Top 10 spotlight economic events that will move the markets, we examine the consensus forecasts for the upcoming economic data, we analyze the factors behind the pullback in the EUR/USD currency pair, we keep an eye on the USD/JPY pair, we highlight the market’s reaction to the reports of a delay in the bond buying plans of the European Central Bank, the meeting between the German Chancellor and the Greek Prime Minister, the U.K. GDP, and the U.S. Durable Goods Orders, we discuss new forecasts from Goldman Sachs, HSBC and UBS, and prepare for the trading week ahead.

Live Broadcast from 9:00 am to 10:00 am, Eastern Time, Monday – Friday.

Listen to the archived Broadcasts


In the broadcast today: Is QE3 and More USD Weakness in the Cards? As the FOMC meeting minutes reminded the markets of the Fed’s willingness to do more easing and increased the pressure on the greenback, we examine the latest U.S. economic data and the odds of a QE3 announcement in September and explore its potential impact on the USD, we analyze the latest trend developments in the EUR/USD currency pair, we take a close look at the pullback in the USD/JPY pair, we follow up on the anticipated bullish breakout in the GBP/USD currency pair, we highlight the market’s reaction to the Chinese Manufacturing PMI, the German and French GDP, the Euro-zone Composite PMI, the FOMC Meeting Minutes, the U.S. Jobless Claims and New Home Sales, we discuss new forecasts from Bank of New York-Mellon, Citigroup and BNP Paribas, and prepare for the trading session ahead.

Live Broadcast from 9:00 am to 10:00 am, Eastern Time, Monday – Friday.

Listen to the archived Broadcasts

European PMI index contracts again- what do the economists say? German service sector shrinks; Chinese manufacturing output at nine-month low; France heads into recession; U.S. jobless claims inch higher…


Powered by article titled “Eurozone crisis live: Another recession looms as private sector keeps shrinking” was written by Graeme Wearden, for on Thursday 23rd August 2012 06.52 UTC


Another word on Antonis Samaras’s interview with Le Monde (see 11.44am): there’s a bit of excitement swirling that Samaras has apparently discussed Greece generating money from some of its uninhabited islands.

The quotes don’t appear in the section of the interview which Le Monde has uploaded. However, Associated Press has got hold of the full interview, and reports that Samaras said that:

as long as this doesn’t pose problems for national security, some of these isles could have a commercial use.

That, though, doesn’t mean Athens is looking to sell them all to the first millionaire who shows up. Samaras added;

This is not, in any way, about selling them off for cheap, but about transforming unused terrain into capital that could generate revenue, at a fair price.

As The Journal explains here, some German politicians argued two years ago that Greece should look to profit from the thousands of islands that make up the country. That was very unpopular with Greek citizens, though, so Samaras will need to treat carefully…..


Good news is in short supply so far today, particularly from Germany, where car maker Opel has said employees will work reduced hours at two of its German factories, to address lower demand for vehicles.

The division, part of General Motors. said that it had reached a deal with unions and its employee councils. Staff at two factories, at Ruesselsheim and Kaiserslautern, will work reduced hours on 20 days through the end of the year.


The news that Germany’s economy weakened this month (see 8.38am) may make it harder for Angela Merkel to make concessions to help address the eurozone crisis, economists fear.

Commenting on this morning’s data which showed Germany’s private sector shrank at the fastest pace in over three years, ING economist Carsten Brzeski said:

For German Chancellor Merkel, today’s growth numbers are not as comfortable as they might look as they complicate the next steps in the euro crisis.

Economists are forecasting that Germany’s GDP will shrink in the current quarter, which could make the German people even less receptive to the idea of bailing out Southern Europe.

On the other hand… it might also concentrate minds on the damage being caused by the crisis, and the potential for further immense economic chaos if the euro disintegrated….


QE helps the rich the most

This might interest/enrage UK readers: the Bank of England has released a report into the impact of its quantitative easing programme. It admits that the richest 5% of households benefited most from the creation of hundreds of bilions of pounds of electronic money, while young people and the poorest gained the least.

Economics editor Larry Elliott has the story here.

And here’s some reaction from Twitter:


Greece’s prime minister, Antonis Samaras, has told Le Monde that social unrest could spread across Europe if Greece were to crash out of the euro.

Samaras told the French newspaper that Greece can still be saved if European politicians “do our job”, and criticised those who claim that a Greek exit from the euro would be manageable.

Samaras said:

A “Grexit”, as it is called, would be devastating for Greece and detrimental to Europe. This would result in a further reduction of 70% of our standard of living – it has already decreased by 35% – by the combined action of a devaluation and inflation. No society can address this impact. No democracy there could survive.

Social upheaval could become very contagious in other European countries. Add, of course, the reaction of financial markets to be anticipating the release of other European countries, causing a domino effect.

Samarasalso repeated the line he gave to German tabloid Bild, that Greece just needs “air” to help it recover. More here.


No Olympic boost for UK high street

Bad news for the UK economy: high street retailers have reported that sales fell this month, and fear that the next three months will be tougher.

The monthly CBI distributive trades survey found that 27% of retailers reported an increase in their volume of sales compared to a year ago, while 31% said they had seen a fall. Allowing for rounding, that works out as a “net balance” of –3.

Somewhat optimistically, the CBI describes this as “broadly in line with expectations of +3%”. Clearly it’s worse (and also, Reuters reckons economists were expecting +15).

Most worryingly, business sentiment has weakened more than at any time since February 2009.

Judith McKenna, chair of the CBI distributive trades panel and Asda’s chief operating officer, said hopes of an Olympic bounce have been dashed.

Although this summer’s events created a mood of celebration across the nation, these figures would suggest this positivity did not extend to the high street.


Norway’s economy continues to defy the general malaise in Europe. Its economy grew by 1.2% in the second quarter of 2012, or 1% if oil revenue was excluded.

That beats all the major countries in the European Union (which shrank by 0.2% during the quarter).

Being outside the EU is not holding Norway back. This graph shows how its economy emerged from recession at the start of 2010, and has posted strong growth since:


In the bond markets, Spanish government debt has weakened this morning.

The yield* on Spain’s 10-year bonds has risen to 6.432%, up 11 basis points overnight. That’s still some way below the “danger zone”; but it means the spread between Spanish and German bond yields has widened again.

German-Spanish spreads had been closing in recent days, thanks to speculation that the European Central Bank will act to lower Spain’s borrowing costs. Today, though, there is plenty of worry that the ECB might disappoint.

Jane Foley of Rabobank commented:

The recession in Spain and the impact of slower growth in Europe on countries as far afield as China and Japan (which have recently posted poor export data) provide a good argument for the ECB to underpin the current better tone of the market.

However, clearly there are risks; the ECB may insist on more action from politicians before acting.

*- in general terms, the yield is the interest rate on the bond, so a measure of how much it would cost a country to borrow


City economists agree that this morning’s PMI data shows the eurozone is in recession (although we won’t know for sure for a couple of months).

Having shrunk by 0.2% between April and June, the news that private sector output fell again in August indicates the contraction continued in the current quarter.

Here’s a round-up of reaction (via Reuters):

Julien Manceaux of ING:

The composite PMI still indicates a contraction of activity in the euro zone as a whole. In our view, this confirms that the decline in euro zone GDP in the second quarter is likely to be the first leg of a technical recession.

Jeavon Lolay of Lloyds Banking Group:

In terms of where they are this is consistent with contraction in euro area GDP.

You could argue it was slightly better than expected but there isn’t
much to add. It could have been gloomier.

Annalisa Piazza of Newedge Strategy:

Our survey-based GDP forecast continues to point to a -0.3-0.4 percent q/q decline in euro zone GDP in Q3. However, a less gloomy scenario might emerge, should business confidence and activity stabilized in the coming months.

There was one bit of good-ish news this morning; updated GDP data confirmed that Germany grew by 0.3% in Q2 2012.


Europe’s private sector has shrunk again in August, for the seventh month in a row, driven by this morning’s weak performance from Germany (see 8.38am).

The Eurozone PMI composite output index, which measures activity in services and manufacturing firms across the euro region, hit 46.6 this month. Any number below 50 means a contraction.

The figure is slightly better than July’s 46.5, suggesting the euro economy shrank very slightly less this month. But the data confirms fears that the eurozone has dropped into recession.

Rob Dobson, senior economist at Markit said:

Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter, so it would take a substantial bounce in September to change this outlook.

The downturn is still led by the manufacturing sector, despite its pace of contraction easing a little this month. The service sector is also not out the woods, as business activity declined at an accelerated pace.

While eurozone manufacturing showed some improvement (45.3, up from 44 in July) was a little better than expected, service sector output was worse (47.5, down from 47.9).

This graph shows how the PMI data often closely tracks GDP. That backs up Rob Dobson’s point about the eurozone sliding into recession (it shrank by 0.2% in the second quarter of 2012).


Schäuble: Time will not solve Greece’s problems

Wolfgang Schäuble, Germany’s finance minister, has warned this morning that Greece’s problems will not be solved by granting it more time to hit its targets.

Schäuble just spoke to Germany’s SWR radio, and declared:

More time is not a solution to the problems

… adding that the two-year extension being sought by Greek prime minister Antonis Samaras would certainly mean “more money”.

Schäuble also argued that the eurozone had reached the limits of what is economically viable with its aid to Greek, a signal to Athens that it must deliver on what has been agreed.

In the City, Elisabeth Afseth of Investec is also unconvinced by Samaras’s argument that more time would not necessarily mean more money. She writes:

With its European partners reluctant to ‘throw money into a bottomless pit’ Samaras’ insistence that Greece requires no more money is supposed to reassure. It is blatantly obvious though that running a higher deficit for longer will involve additional debt, it may be recouped in the long run by stronger growth, but there will be extra money required initially.

Greek officials have been saying a 2 year extension will require at least €20bn of extra funding, but the plan is for this to be found though using IMF funds earlier than planned and through maturity extensions.



Germany’s private sector has suffered its weakest monthly performance in three years, data just released by Markit showed.

A worse-than-expected performance from its service sector is to blame, with output contracting (the German services PMI fell to 48.3, from 50.1).

Manufacturing output also shrank again, but at a slower pace (with a PMI of 45.1 versus 43 last month).

The overall picture is of an economy suffering from the crisis in the eurozone periphery.

Tim Moore, senior economist at Markit said:

The German economy is sailing into greater headwinds as the third quarter progresses, with PMI readings slipping deeper into territory normally associated with GDP contractions.

Outside of the 2008/09 downturn, the German composite index hasn’t been this low for this long since the time of the 2003 recession.


This is perhaps the most alarming fact in this morning’s Chinese manufacturing data (see 8.02am): stocks of finished goods jumped at their fastest rate since the survey began in 2004.

This graph shows how Chinese factories have been left with more and more unsold products since the start of the year:

With new orders falling, concern is growing that Chinese manufacturers will be left with more and more products that they can’t sell into a slowing global economy.

The Financial Times reported earlier this week that stocks of clothes, shoes, electrical goods, cars and even houses are growing to “Himalayan levels”, adding:

Over the past week, the country’s main retailers descended into a price war. It began when online retailer vowed that it would sell home appliances at a zero profit margin.

The commodities sector is also dealing with a huge inventory overhang, most graphically in the piles of coal that have built up at ports across the country.

More here.


The French private sector continued to shrink last month, data just released showed. But there are also reasons for optimism.

The composite French PMI came in at 48.9, showing that private sector output fell again. But this is an improvement on July’s 47.9, and the best figure in six months.

French manufacturing output continued to fall, as the long-running contraction in its factory sector rolled on. The PMI of 46.2 shows that output still fell, but at a less steep rate than July.

Jack Kennedy, senior economist at Markit (who compiled the report), said the data showed that France might finally slide into recession this quarter after nine months of stagnation:

While France just avoided a fall in GDP during the second quarter of 2012, according to the first official estimate, PMI data currently suggest contraction is on the cards for Q3.

Moreover, the continued declines in employment shown by the latest flash PMI data point to rising jobless levels, which would further weaken demand.


Key event

This morning’s weak manufacturing data could prompt China to launch a new stimulus package, economists believe.

HSBC, whose data shows that output dropped to a nine-month low, said the Beijing government should ease monetary policy. Otherwise, the world’s second largest economy could be knocked off course.

HSBC chief economist for China, Qu Hongbin, said:

Chinese producers are still struggling with strong global headwinds.

To achieve the stated policy goal of stabilizing growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months.

The data comes a day after some very poor trade data from Japan, which showed a slump in exports to the European Union.

Getting a clear picture of the state of the Chinese economy is tricky, but there are suggestions that some factory bosses are laying off workers or shutting down altogether.


Good morning, and welcome to our rolling coverage of the eurozone crisis.

Coming up today: fresh economic data showing the state of the European economy will be released this morning. The monthly PMI surveys are expected to show that activity in the eurozone services and manufacturing sectors fell again in August.

With eurozone GDP having shrunk in the second quarter of 2012, the data should show whether the situation has worsened.

Disappointing manufacturing data from China has already been released this morning. Output hit its lowest level since last November.

The Chinese Purchasing Managers’ Index (PMI) dropped to 47.8, compared with a final reading of 49.3 in July, according to HSBC. Any number below 50 indicates that manufacturing activity is contracting.

Here’s what’s coming next:

• French PMI for Manufacturing, and for Services 8am BST

• German PMI for Manufacturing, and for Services 8.30am BST

• Eurozone PMI for Manufacturing, and for Services 9.00am BST

The overall eurozone composite PMI is also released at 9am, which will show how the region’s private sector performed. Economists believe it will show another contraction, but will it be worse than last month’s 46.5?

We’ll also be tracking the latest developments across the eurozone, as usual.

One key event today: Angela Merkel and François Hollande will meet in Berlin tonight to discuss the situation in Greece, and Athens’ request for a delay to its financial programme. But as reported last night, it appears that the Greek government must wait until at least mid September for an answer. © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the broadcast today: EUR Relief Rally Underway But Can It Last? In light of the newly-found optimism that the EU debt crisis will be contained, we examine the factors behind the current strengthening of the single currency, we note the EUR relief rally but explain why we remain doubtful about its sustainability, we analyze the bullish breakout in the EUR/USD currency pair, we keep an eye on the range of the USD/JPY pair, we take a look at the GBP/USD currency pair’s test of an important resistance level, we highlight the market’s reaction to the statement of the warnings from Moody’s and Fitch Ratings, the drop in U.K. public finances, and the reports of ECB measures to cap borrowing costs, we discuss new forecasts from Bank of New York-Mellon and Standard Chartered, and prepare for the trading session ahead.

Live Broadcast from 9:00 am to 10:00 am, Eastern Time, Monday – Friday.

Listen to the archived Broadcasts

Moody’s: fixing eurozone is ‘at best, only halfway complete’; Bond yields fall; UK public finances weaker than expected; Spanish bond auction goes well; Fitch Ratings warns that the euro-area may face further credit rating downgrades…

Powered by article titled “Eurozone crisis live: ECB hopes drive yields down; Moody’s warns weaker nations” was written by Graeme Wearden and SImon Neville, for on Tuesday 21st August 2012 07.04 UTC


Here’s some reaction to the euro hitting seven-week highs.

David Song, Currency Analyst at DailyFX, said:

“The relief rally in the EURUSD is likely to be short-lived as the debt crisis continues to drag on the real economy.

“Indeed, Fitch Ratings warned that the euro-area may face further credit rating downgrades as the deepening recession across the periphery countries ‘are eating away at political support for austerity and political support for the euro,’ and we are likely to see the single currency face additional headwinds over the near-term as the fundamental outlook for the region remains bleak.”


Euro hits seven week high

Not content with the US markets hitting new highs, the euro is now trading at a seven-week high against the dollar, up 1% at $1.2466.

On the S&P’s new four year high, Paul Kavanagh at Killik & Co points out London has some way to go:


S&P 500 hits four year high

The New York markets all opened up this afternoon, with the S&P 500 hitting the highest level since May 2008.

Dow Jones is up 8 points at 13,279 and Nasdaq up 8 points at 3,084.

Reaction on Twitter was typically incredulous.


Brewin Dolphin: “huge policy shift underway”

“Out of the fire, back to the safety of the frying pan…”

That’s how Guy Foster, head of portfolio strategy at Brewin Dolphin, sums up the recent rally in the stock markets and in peripheral bonds (see 12.17pm for the latest bond yields).

Foster writes:

Since Mario Draghi’s famous announcement that the ECB will do whatever it takes to ensure the survival of the euro, events have been moving apace.

Even long-time eurozone sceptics must accept that a huge policy shift is underway and that Europe is making an uncharacteristic rendezvous with economic pragmatism.

As an update: primary market bond purchases by the European Stability Mechanism (ESM) are to be supported by secondary market purchases by the European Central Bank (ECB). The significance of the latter dwarfs the former. The ESM and its predecessors have never been more than one crisis away from insolvency (indeed a full bailout for Spain seems set to drain the ESM once more). The ECB’s pockets, on the other hand, could potentially be bottomless – like those of the UK’s Bank of England or US’s Federal Reserve.

Furthermore, if bond market participants believe there is a functioning secondary market they will be happy to participate in the primary market – making ESM primary market purchases irrelevant.

Foster also describes any ECB scheme to target bond yields in the secondary market as a “self-fulfilling prophecy, as:

Very few participants would be sellers at a yield of 6.4% if the ECB is a buyer at 6.5%. Likewise who would not be a buyer at 6.7% yield on the same basis?

And on that note, I’ve got to scoot off so my colleague Simon Neville will see the blog home. Cheers all.


Finland’s president: EU must solve euro’s problems

Earlier today, Finland’s president tried to reverse the tide of alarming comments from the country over the eurozone. Speaking to ambassadors in Helsinki, Sauli Niinistö declared that:

Abandoning the euro is not at all a solution.

Niinistö comments come after Finland’s foreign minister hit the headlines by telling The World At One that euro finance ministers have been privately discussing the possible collapse of the single currency (Radio 4 recording here).

Niinistö admitted that the situation was tough, saying he had no easy answers, and urged political leaders to devote all possible efforts to finding a solution:

The EU should strive to do everything in their power to solve problems. Leaving the euro is not a solution at all.

Niinistö, incidentally, was finance minister when Finland joined the euro. He was elected as president in February.


Xstrata says eurocrisis is hurting

It’s not just chocolate makers who are blaming the eurozone today. Ivan Glasenberg, chief executive of mining giant Xstrata, just told reporters that Europe’s debt crisis is having a major impact on the commodities sector.

Glasenberg said*:

We don’t see a massive slowdown of volumes into China. We’ve seen the downfall of commodity prices, a lot of that is on the back of uncertainty in the eurozone.

That changes from week to week. Those areas are very politically driven how the politicians sort out the eurozone, that is bearing heavily on metals and commodity prices at the moment.

Weaker commodity prices reflects fears that a disorderly break-up of the eurozone could hurl the world economy back into another downturn. Copper, for example, is trading around 15% lower than in February.

*- via my colleague Jo Moulds



Back in the eurozone, Spanish, Portuguese and Italian government debt continues to strengthen as traders bet on the ECB overcoming Bundesbank resistance and embarking on a new sovereign bond-buying mission.

This has pulled Bond yields down, sharply in some cases, with optimism also support by this morning’s solid auction of Spanish debt (see 10.26am).

Spanish 10-year bond yield: 6.231% (down from 6.33% last night)

Italian 10-year bond yield: 5.69% (down from 5.79% last night).

Portuguese 10-year bond yield: 9.467% (down from 9.691% last night)

Portugal’s 10-year bond is now yielding less than it did on the day that Lisbon requested a bailout, back in April 2011, as this graph cropped from the Reuters terminal shows:


Despite Britain’s economic problems (see here and here), investors are still keen to buy UK government debt.

The UK debt management agency sold £1.25bn of 17-year index-linked bonds at average real yields (after inflation) of -0.025%. That means investors would accept a very small loss on the investment, once the rise in the cost of living is taken into account.

Dr Gerard Lyons of Standard Chartered argues that the UK government should take advantage of these low yields.


More gloom for the UK economy: the CBI’s monthly industrial trends survey has fallen to its weakest level since last December.

Out of 456 UK manufacturers, 36% said their order levels were below normal for an August, while just 15% had more orders on the books than usual.

Anna Leach, head of economic analysis at the CBI, said the crisis in Europe, and Britain’s own recession, were hurting UK manufacturers, particularly those targeting consumers:

The economic environment for UK manufacturers remains challenging, with domestic demand relatively muted and the ongoing Eurozone crisis now seeming to drag on broader global economic momentum.



The prospect of new action from the European Central Bank has helped Spain to pull off a successful bond auction.

The Spanish treasury sold €4.5bn of short-term debt, the top end of its target. Borrowing costs fell, with yields much lower than at the previous auction of this type.

Here are the details:

€3.53bn of 12-month bills: average yield 3.07% (vs 3.9%).

€0.98bn of 18-month bills: average yield 3.335% (vs 4.242%)

And here’s some comment from Nick Spiro of Spiro Sovereign Strategies:

Although no news is invariably good news as far as Spain is concerned, Spanish paper continues to benefit from speculation that an ECB-backed bond-buying programme will stabilise the market. Spanish debt prices are externally driven and today’s auction result attests to the improvement in sentiment towards Spain and Italy since Mr Draghi unveiled his bond-buying initiative earlier this month….

Market expectations of aggressive bond-buying of Spanish and Italian debt on the part of the ECB are overdone. The watchword is conditionality. When the German government itself comes out in favour of ECB bond-buying, it should be crystal clear to investors that whatever ECB-backed bond-buying programme emerges is going to be a heavily conditional one and not the unlimited intervention that Madrid and Rome have been clamouring for.

Spiro concludes with a warning that Spanish and Italian bond markets are in a “perilous halfway house”, while European leaders wrestle with the challenge of creating closer political and fiscal union.

Germany is unwilling to sanction unlimited and unconditional support in the absence of a political union while Madrid and Rome are reluctant to cede more fiscal and economic sovereignty before Germany signals its willingness to commit itself to a greater level of debt mutualisation.


The Treasury has blamed this morning’s disappointing public finance data (see previous post) on a drop in production in the North Sea, and insisted that George Osborne will not change his fiscal plans.

A Treasury spokesman said the government is committed to the “credible plan” drawn up by the chancellor, adding:

Today’s numbers emphasise how risky it would be to deliberately increase borrowing.

Although, if the public finances do miss Osborne’s target, that would imply a rise in borrowing for this year – as Duncan Weldon, senior policy officer at the TUC, points out in a tweet dripping with dispair:

UPDATE: Our full round-up of economists’ reaction is online here. Some warn that the chancellor will be force to borrow much more than expected this year, while others predict more spending cuts this autumn.


Disappointing UK public finances

The latest UK borrowing data paint a bleaker than expected picture of the state of Britain’s public finances.

The UK government borrowed £557m in July to balance the books, a nasty shock to economists who had expected a surplus of £2.2bn.

July is usually a strong month for tax receipts, but corporation tax income was weak, the Office for National Statistics reported.

Today’s data means that UK has now borrowed £16.9bn in the current financial year, compared to £35.6bn a year ago.

However, if you exclude the one-off boost from taking over the Royal Mail pension fund, Britain’s public sector net borrowing requirement is actually £44.9bn so far this year.


The euro has climbed to its highest level against the dollar in two weeks, nudging $1.241 for the first time since 7 August.

This is another sign of market optimism that the European Central Bank will make mass purchases of Spanish and Italian debt. This story in today’s Daily Telegraph, which says that Mario Draghi has enlisted the key support of Germany’s Jörg Asmussen, is being credited for causing the rise.

Against the pound, the euro ticked a little higher to 78.8p.


In the City …

A quick look at the European stock markets, which are up in another morning of quiet, low-volume trading.

FTSE 100: up 34 points at 5859, + 0.6%

German DAX: up 40 points at 7074, + 0.58%

French CAC: up 23 points at 3504, + 0.68%

Italian FTSE MIB: up 212 points at 15185, + 1.4%

Spanish IBEX: up 71 points at 7542, + 0.98%.

Traders still seem to be optimistic that a) the European Central Bank will launch some kind of government bond-buying programme to help Spain and Italy, and b) other central bankers may also launch new stimulus measures soon.

Andrew Taylor of GFT Markets warns that this optimism could be punctured:

The market’s faith in Europe’s political leaders and Central Banks really has to be admired considering the amount of times they have fallen short in repaying its promises to those who believe.


Finland’s foreign minister’s admission yesterday (see Monday’s blog) that politicians are whispering about the breakup of the eurozone in the corridors of EU meetings has made it to page 2 of the Sun today:

The full story’s online here.

If you missed Erkki Tuomioja‘s comments to Radio 4′s The World At One yesterday, then you can hear the full interview here (updated with a better link).


Chocolate firm Lindt & Sprungli warned investors this morning that Europe’s debt crisis, and the weakening global economy, may hit sales later this year.

Its latest letter to shareholders, published this morning, Lindt said that “increasingly severe government debt levels” and “subdued economic performance” had hit Europe’s chocolate market this year. Although overall pretax profits were up 12%, the eurozone market was not particularly tasty:

Consumer sentiment remained rather weak and even deteriorated further, especially in Southern Europe.

Looking forward, Lindt sees further trouble ahead in Europe:

The euro crisis and general economic background conditions seem likely to become still more challenging in the second half of the year with consumer sentiment further impaired in a number of countries.


The agenda

Coming up today: Spain is holding an auction of short-term debt.

That sale will be held as the European Central Bank weighs up the possibility of a new programme to peg down the borrowing costs of weaker nations (although the Bundesbank made its opposition clear yesterday). We also have some new British economic data out this morning.

• Spain auctions 12 and 18-month bonds, from 9am BST

• UK public finances for July, 9.30am BST

• CBI UK industrial trends: 11am BST


Moody’s: fixing the eurozone is only half-done

Good morning, and welcome to our rolling coverage of the eurozone financial crisis….

…starting with news of a new report from Moody’s, which warns that the task of rebalancing the eurozone economy is, at best, only halfway though.

In a new report, the ratings agency warned that it will take many more years to complete the fiscal adjustment programs and structural reforms being implemented in several Eurozone countries to correct external imbalances. As Moody’s put it:

Adjustments, both in the periphery and the core, have already taken place — in some cases, to a significant degree,…

The correction is at best only half-way complete, depending on the country in question, and could take several years.

The report isn’t completely gloomy – Moody’s argues that, should events go well, Spain, Portugal and Italy could be in better shape by 2013.

However, it also warned that “the complete unwinding of the periphery countries’ accumulated imbalances” will still take several years.

Moody’s added that Greece and Ireland potentially need until 2016 to rebalance their economies – beyond the point where both countries’ IMF-led fiscal reform plans are meant to have ended.

Moody’s was encouraged that labour costs have fallen sharply since the crisis began in Spain (down 5.9% from their peak), Greece (-7.8) and Ireland (-13.7%). That ‘improvement’, though, was achieved through falling real wages and rising unemployment.

Bloomberg also has a good take on the report, here.

Of course, fixing the rocky finances of the eurozone’s weakest players is only part of the problem.

Moody’s is not suggesting that we’re halfway into resolving the whole crisis (creating the necessary political and fiscal framework for a stable euro could take 20 years, according to one estimate last month). © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the broadcast today: Greece and the EUR Set to Steal the Spotlight Next Week. As the August market lull continues peacefully, we turn our attention to the new trading week which could interrupt the sense of calm by marking a new phase in the EU debt crisis and explain why the EUR will maintain its center stage spot throughout next week, we list the Top 10 spotlight economic events that will move the markets in the week ahead, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we continue to monitor the bullish momentum in the USD/JPY pair, we keep an eye on the GBP/USD currency pair following the busy U.K. data week, we highlight the market’s reaction to the statement of the Finnish Foreign Minister, the German PPI, the U.S. Jobless Claims, Housing Starts and Consumer Confidence, we discuss new forecasts from Societe Generale and UBS, and prepare for the trading session ahead.

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In the broadcast today: Will the EUR Face a Tough September? With the EUR once again under pressure as risk aversion makes a comeback, we explore what the upcoming month of September will have in store for the single currency and examine the factors that will continue to weigh on the EUR as the debt crisis enters its next phase, we analyze the test of an important support area for the EUR/USD currency pair, we take a look at the bullish breakout in the USD/JPY pair, we keep an eye on the GBP/USD currency pair following a better than expected employment data, we highlight the market’s reaction to the latest news from Greece, the Bank of England Meeting Minutes, the U.K. Jobless Claims and Unemployment Rate, the U.S. CPI and Industrial Production, we discuss new forecasts from Bank of New York-Mellon and Morgan Stanley, and prepare for the trading session ahead.

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Powered by article titled “Eurozone crisis live: Greece to request more time to implement austerity” was written by Graeme Wearden, for on Wednesday 15th August 2012 06.55 UTC


Greece’s immediate future in the eurozone will be determined next month, when the Troika publishes its report into Greece’s performance against the terms of its aid package.

As Yannis Koutsomitis points out on Twitter, we don’t know for certain what that report will say:

Ten days ago, the Troika left Greece with encouraging words for its government’s efforts to cut spending and bring the deficit under control.

However, given the delays caused by the rerun general election in June, it seems very likely that Greece will be behind schedule on some of the Troika’s measurements.

Philipp Rösler, German economy minister, struck a hard line last month, saying:

What’s emerging is that Greece will probably not be able to fulfil its conditions. If Greece doesn’t fulfil those conditions, then there can be no more payments.

But it ain’t necessarily so. Back on August 1, Christine Lagarde gave Greece fresh hope by pledging to stand by the country through thick and thin.

Lagarde, the managing director of the IMF, told reporters in Washington:

The IMF never leaves the negotiation table….We are in Greece at the moment … and we are engaged in dialogue with the Greek authorities.

(thanks to Nick Panayotopoulos for reminding me about Lagarde comments. Nick, like Yannis, is a well-informed expert on the crisis)


Three interesting pieces of economic data out of the US.

1) The Empire State index, which measures manufacturing output in the New York region, fell into negative territory for the first time since last October. At -5.9 in August (following +7.4 in July), it suggests conditions have worsened. However..

2) Industrial production across the US rose by 0.6% during July, slightly better than expected.

3) Foreign buyers cut their exposure to US debt in June. A net total of €32.4bn of Treasury debt (issued by the US government) was bought during the month, down from $45.9n in May. China remained the biggest buyer.

There was a bigger drop in demand for US corporate debt – cutting their total exposure by $22bn.


Greek officials are briefing that Antonis Samaras will certainly broach the issue of an extension to Greece’s financial programme when he meets Angela Merkel, Francois Hollande, and Jean-Claude Juncker next week.

But they also say that this will not be a formal, official request for budget targets to be relaxed. More a gentle inquiry.

One government spokesman told Reuters:

The matter of extension is already being debated in Greece and abroad. Its official submission is a different matter.

He added that “Our key priority is to regain our credibility by showing our determination” to hit reform the Greek economy. That commitment, though, has already been tested by the ongoing struggle to find €11.5bn of budget cuts.


Megan Greene, eurocrisis expert at Roubini Global Economics, is concerned that Greece’s decision to informally freeze government spending could backfire (see 8.49am for details):

She also fears that Antonis Samaras will struggle to persuade the rest of the eurozone that Greece’s fiscal targets should be relaxed, calling it:

A very hard sell for the Greek government.

Germany’s position is that the Greek Memorandum of Understanding is fine as it stands.

And even if Samaras can get Berlin and Paris onside, it also has to persuade its Troika of lenders. The International Monetary Fund might refuse to accept a restructuring, on the grounds that other countries would demand similar treatment.

For example, Greene predicts that it would be very hard for the Troika to resist pressure from Dublin to restructure Ireland’s promissory notes (which were agreed under painfully high interest rates at the height of the crisis).

The Troika, she points out, made its opposition to any relaxation clear soon after June’s election.

Another hurdle for Samaras to clear…


Greek prime minister Antonis Samaras is expected to present his case for Greece’s financial programme to be relaxed next Friday, August 24, to Angela Merkel in Berlin (see 7.53am for details of his proposal)

He is then due in Paris the next day for talks with Francois Hollande.

Samaras was due to warm up for his Merkel meeting by hosting Luxembourg prime minister, Jean-Claude Juncker, in Athens on Wednesday, August 22.


The euro has weakened slightly against other currencies, and just dropped through the $1.23 mark (down half a cent at $1.228) (correction: some euro symbols crept in there briefly)

Jeremy Cook, chief economist at World First, blames a general mood of unease in the foreign exchange markets today:

market boredom = uncertainty = bearishness = today’s market


Jane Foley, Rabobank’s currency expert, reckons eurozone leaders may agree to Greece’s request for its austerity targets to be relaxed, given the deeply troubled state of its economy.

However, Germany remains the big obstacle.

Foley told clients this morning:

In view of the very significant recessionary conditions it is easy to understand why Greece wants to cut only 1.5% from its budget deficit target each year rather than 2.5%.

What is less clear at the moment is the reaction of key eurozone politicians. There have been signs of exasperation from some German politicians with respect to Greece’s fiscal outlook. In this context a two year extension to the plan may appear to be acceptable.


A thought on this morning’s UK unemployment data. At 8.0%, Britain has a significantly lower jobless rate than the eurozone (11.2%), or America (8.3%). Yet it’s the only one in recession.

Is the data faulty, or is Britain rewriting the usual rules?

Howard Archer of IHS Global Insight suggests three possibilities:

Either the economy is doing appreciably better than the national accounts data show, the labour market is doing significantly worse than the hard data show, or productivity has genuinely weakened sharply.

The jury is currently very much out as to what the actual answer is but it could very well be a combination of all three.

Another theory doing the rounds this week is that UK firms have resisted laying staff, off in case the economy recovers, but could be forced into cutting headcount if the situation gets much worse.

This graph, from Scott Barber of Reuters, shows how UK productivity per worker is pretty low in historical terms:


Surprise fall in UK unemployment rate

UK unemployment has fallen, data just released showed, in a rare boost for the government.

The number of people out of work in the three months to June fell by 46,000 to 2.564m, which pulls Britain’s unemployment rate down to 8.0%.

The more recent claimant count, which measures the number of people claiming jobless benefits in July, dropped by 5,900 last month. Economists had expected a rise of 6,000.

Most of the improvement came in London, according to the Office for National Statistics. That’s shows that the “Happy and Glorious” Olympic Games had an effect on the labour markets.


Bank of England minutes released

Just in, the Bank of England voted 9-0 to leave UK interest rates unchanged at 0.5% at its meeting this month.

The Monetary Policy Committee also voted 9-0 to leave its quantitative easing programme at £375bn (although some members of the committee came close to voting for yet more QE).

Update. The minutes also include this warning about the eurozone crisis:

The global economy had continued to slow and very substantial risks remained in the euro area. These could, if they crystallised, have a considerable impact on the stability of the global banking system and on economic activity in the United Kingdom.

Even if a disorderly outcome were avoided, it was probable that the continuing threat of such an event would weigh on domestic economic activity for some time to come.

You can see the minute here (pdf)


This is Juan Manuel Sanchez Gordillo, a member of the regional parliament for the United Left party in Andalucia, who has won fame in Spain for his role in Robin-Hood style raids on supermarkets.

Activists have visited a number of supermarkets in Andalucia, filling up trolleys with food before scooting through the exits without paying. They say the move is a response to the harsh downturn in the region, where one in three people are unemployed.

Seven people have been arrested since the practice began.

Sanchez Gordillo has become the public face of the robberies, as Reuters reports this morning;

“There are people who don’t have enough to eat. In the 21st century, this is an absolute disgrace,” he told Reuters this week in an interview in the Atocha train station in Madrid, tugging on his graying Fidel Castro-style beard.

Sanchez Gordillo says he wants to draw attention to the human face of Spain’s economic mess – poverty levels have risen by over 15 percent since 2007, a quarter of workers are jobless and tens of thousands have been evicted from their homes.

But not everyone is impressed. As government spokesman Alfonso Alonso put it:

You can’t be Robin Hood and the Sheriff of Nottingham.

Reuters interview with Sanchez Gordillo has just gone online here.


Nice piece by Greek newspaper Kathimerini this morning, explaining how Greece’s government has imposed an effective, unofficial, spending moratorium. That means a freeze on any outgoings except public sector salaries and pensions.

The move is meant to tide Greece over until it receives its next tranche of aid this autumn. Athens has already spent several billion euros less than planned, but unpaid bills are still mounting up:

From ekathimerini:

According to Finance Ministry data, the total expenditure on investment and operating expenses in the January-July period should have been at least 4.4 billion euros more than it actually was. At the same time, debts to suppliers since the beginning of the year have risen 15.4 percent, or 887 million, and have come to total some 6.6 billion euros.


After gently rallying for several days, European stock markets have taken a dip this morning.

FTSE 100: down 30 points at 5834, – 0.5%

DAX: down 22 points at 6951, – 0.33%

CAC: down 13 points at 3436, – 0.4%

Traders seem to have lost faith that central bankers might unleash another stimulus package soon – on the grounds that yesterday’s US economic data was better than expected.

Chris Weston of IG Index explains:

Where a renewed asset-purchase programme by the Federal Reserve was consensus two weeks ago, this view is probably 50/50 today and we feel there is certainly scope to for the Fed to stay put for now and wait until after the November US elections and into 2013.

It’s so quiet in the City at present, with trading volumes at their lowest levels in many years. Talking to traders, they reckon most people are sitting tight in preparation for a dramatic September.


The Greek government document obtained by the FT (see 7.53am), states that a two-year delay to its current reform plan would cost €20bn That might be optimistic – there were reports last month that such a delay would actually require between €30bn and €40bn of fresh funding (due to the deterioration in Greece’s budgets in recent months).

More here.

If true, that larger figure might well need some contribution from Greece’s eurozone partners (something which Samaras’s current plan avoids).


Elisabeth Afseth, analyst at Investec, believes that the Greek government probably has a solid case for requesting a delay to its austerity plan, but predicts opposition from Germany.

She writes:

The arguments for a delay may be sound, but patience is running very thin after serious delays to the first programme and renegotiations are coming less than 6 months into the second bailout.

Wouldn’t be surprised if we see some German politicians expressing an opinion on the proposal over the next few days, though serious discussions will come in September when the troika returns to Athens.


Good morning, and welcome to our rolling coverage of the eurozone crisis.

Greek prime minister Antonis Samaras will formally ask for the terms of the county’s aid package to be relaxed next week, the Financial Times is reporting this morning.

The FT has got hold of a document outlining Samaras‘ plans for his meetings next week with Angela Merkel and François Hollande. This shows that Samaras will insist that Greece can only recover if the pace of reform is slowed.

The proposal includes spreading cuts over the next four years (not two as currently planned), and a less pacey approach to cutting the Greek deficit (lowering it by 1.5 percentage points, not 2.5 points as under the plan agreed earlier this year.

Such a plan would be costly, though, as the FT outlines:

According to the document, Greece would need additional funding of €20bn to support the budget as the annual deficit reduction in 2013-2014 would be smaller than planned. However, Athens is proposing to find the money without seeking help from eurozone partners.

Funds would be raised from an existing IMF loan, issues of treasury bills and, Greece hopes, a postponement in the start of repayments of its first EU-IMF loan from 2016 until 2020, when it is due to begin paying back its second bailout loan.

We’ve known for a long time that the Greek government wants to relax the terms of its austerity plan; but how will Merkel and Hollande react? Several German politicians have already signaled their opposition to cutting Greece any more slack, so Samaras could face a chilly reception in Berlin next week…

We’ll be tracking reaction to this story through the day.

Also coming up: the latest UK unemployment data is released at 9.30am, along with the minutes of the Bank of England’s latest meeting. © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the broadcast today: EUR and USD New Trading Week Outlook. As another busy trading week gets underway, we continue to focus on the EUR and the USD and explore the outlook for the two currency majors ahead of a sequence of important economic data from the Euro-zone and the United States, we list the Top 10 spotlight economic events that will move the markets in the days ahead, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the range in the GBP/USD pair, we take a look at the JPY following the economic growth report from Japan, we highlight the market’s reaction to the Italian bond auction, the Japanese GDP, and the gloomy outlook on the U.K. economy by the Bank of England’s Governor, we discuss new forecasts from Morgan Stanley and Mizuho Bank, and prepare for the trading session ahead.

Live Broadcast from 9:00 am to 10:00 am, Eastern Time, Monday – Friday.

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In the broadcast today: Can the USD Defy QE3 Expectations? In light of this morning’s series of upbeat U.S. economic data, we ponder if the USD will be able to find further strength against the EUR and other currency majors by defying expectations that the Fed will deploy QE3 at its upcoming meetings, we analyze the latest trend developments in the EUR/USD currency pair, we take a close look at the USD/JPY as the pair tests an important resistance level, we keep and eye on the GBP, AUD and NZD in the aftermath of notable economic reports from the U.K. and “down under”, we highlight the market’s reaction to the Bank of Japan interest rate announcement, the Australian and the New Zealand Employment Reports, the U.K. Trade Balance, and the U.S. Jobless Claims, we discuss new forecasts from Credit Suisse and Standard Chartered, and prepare for the trading session ahead.

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