August 2012

Latest forecasts published by ECB predict just 0.6% growth next year, UK trade deficit hits £4.3bn in June, Chinese data hints at further slowdown, America’s trade deficit fell by almost 11% in June to $42.9bn, its smallest level in two and a half years…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: ECB warns of slower growth; UK trade deficit widens” was written by Graeme Wearden, for guardian.co.uk on Thursday 9th August 2012 07.25 UTC

3.05pm:

The quest to find a new governor of the Bank of England continues, after Bank of Canada governor Mark Carney insisted very firmly that he won’t take the job.

Interviewed by the BBC, Carney said he was only focusing on running Canada’s central bank, and the international Financial Stability Board. He added that he is “interested in who they pick” to replace Sir Mervyn King, who steps down in June 2013.

Questioned on whether he was saying “no” or that he would “never consider the job?” Carney said:

It’s both. How’s that?

Very clear, thank you.

The Financial Times reported in April that some kind of approach had been made to Carney, who is seen as a similar to King. It’s not at all clear who will take on the role; a number of potential candidates have seen their reputations smudged by recent financial scandals such as the Libor rate-fixing debacle.

2.13pm:

We noted yesterday that Otmar Issing, one of the founding fathers of the European single currency, had published a book on how “How we save the euro and strengthen Europe” (or Wie wir den Euro retten und Europa staerken for German readers and those with a decent education).

Well, here’s a photo of Issing holding his work, in Frankurt today.

There’s quite a lot of interest in Issing’s work, as he has admitted that he is more worried about the eurozone crisis than he possibly imagined during the late 1990s and the 2000s.

1.42pm:

US trade data was just released, putting the UK’s figures in an even worse light.

America’s trade deficit fell by almost 11% in June to $42.9bn, its smallest level in two and a half years. The improvement was partly due to a fall in oil prices, which cut the US’s fuel bill.

There was also a surprise drop in the number of Americans signing on for unemployment benefit. The weekly jobless claims number came in at 361,000, 6,000 lower than a week ago.

Good news for president Obama with re-election (or not) looming.

1.31pm:

Mark Gregory, chief economist at Ernst & Young, argues that Britain’s dire trade deficit in June (see 10.01am) can certainly be blamed on the eurozone.

Gregory says:

Looking through the monthly volatility, it is clear that the Eurozone woes are having a major impact on our exporters. Export volumes to EU countries fell by 3.7% in the three months to June, in contrast to a fall of 2.4% to non-EU countries.

In the short-term the outlook for exports remains fragile. However, we are more optimistic about prospects further out, providing that the Eurozone drags itself out of recession.

Sterling certainly staged a rally over those three months. One pound was worth €1.198 at the end of March, but had rallied to €1.257 by mid-May. Factor in the drop in demand in the eurozone’s weaker nations, and it’s been a tricky spring for exporters.

1.16pm:

And we’re back. Interesting news out of Italy in the last few minutes, where education minister Francesco Profumo has revealed that Mario Monti’s cabinet discussed whether to seek help from the European authorities.

Profumo said that ministers considered asking the European bailout funds to start buying Italian debt, before deciding there was no urgent need.

He told Bloomberg:

We still have some time to discuss it; we will see what the conditions will be…

We have a profound understanding and I believe we have the instruments to take decisions.

Italian borrowing costs are still out of the ‘danger zone’, with its 10-year bond yielding 5.8% this lunchtime.

11.30am:

Our live Q&A on the financial crisis is just starting, over here.

I’ll be taking part, hopefully bagging a couple of the easier questions. Larry Elliott and Jill Treanor are doing the serious heavy lifting :)

11.28am:

Developments in Greece where our correspondent Helena Smith says reports of yet more delays in the release of rescue funds for the cash-strapped country is causing much concern.

Helena writes:

In what would appear to be yet another stalling tactic, Greece’s troika of international creditors – the EU, ECB and IMF – have signalled that Athens may have to wait longer for the disbursement of further aid. Discussions over the release of €31.5 bn in rescue loans – delayed in the hullabaloo that followed two successive elections – will not take place until October when troika officials will present a long-awaited report on the country’s fiscal progress to Eurogroup finance ministers. With cash reserves almost completely dried up, the new postponement will mean that Greece will lurch from week to week trying to stave off default and an uncontrolled bankruptcy. It had been hoped the installment would be received in September, said officials in Athens governing coalition. Instead, Dow Jones which first reported the story, says visiting troika inspectors due to return to Athens in early September will likely spend the entire month preparing the review in time for the Eurogroup meeting in Luxembourg on October 8th.

“It’s seems the story is true and release of the report and the disbursement are going to be delayed,” a well-placed insider in one of the three parties backing the fragile coalition told me this morning. “The question is why are they doing this? It’s going to make things very difficult. Coffers are almost empty. Obviously they want to pile on the pressure to ensure that the €11.5 in spending cuts are applied.”

The new round of cutbacks – a condition of further assistance – are the focus of ongoing negotiations that in a climate of deepening recession and popular despair have proved to be far from easy. Although finance ministry sources this morning vigorously denied the delay – “we categorically reject the suggestion that the next tranche will be postponed beyond September” said one – other officials confirmed that the announcement of the EU-IMF-mandated austerity package may also be postponed until next month. Speaking to local media, the deputy finance minister Christos Staikouras said the spending cuts would have to be “finalised” by September 14 when eurozone finance ministers meet in Cyprus, the current holder of the EU presidency.

As we’ve been reporting for some time now, Greece still needs to find at least €4bn worth of cuts in the €11.5 bn package, as ministries squabble over measures that are likely to be deeply controversial.

Greece must repay a €3.2bn maturing bond to the ECB on August 20 making the credit crunch even more risky. But there is growing speculation that the ECB is already tearing up its own rule book and printing money to tide the country through the crisis over the next few months.

11.16am:

European Central Bank policy maker Christian Noyer has ruled out Greece leaving the euro, in some comments that hit the wires a few minutes ago.

Speaking to France’s Le Point magazine, Noyer also claimed that the ECB was very close to making an important new intervention. That would drive down borrowing costs for the eurozone’s weaker members.

Noyer told Le Point:

Don’t have any doubt about the determination of the governing council and its capacity to act within the terms of its mandate.

Our operations will be of sufficient size to have a strong impact on the markets. We should be ready to intervene very soon, prioritizing short-term debt markets.

Noyer added that a Grexit was “not something which we envisage”:

There is no plan to prepare for the exit of any country from the euro zone.

(with thanks to Reuters for the translations)

Curiously, Noyer’s pledge to make a “strong impact” in the markets appeared to actually knock the euro, which fell almost half a cent against the US dollar to $1.2309 after his quotes were flashed up on traders’ screens.

10.35am:

Greece’s unemployment rate has hit another record high, climbing to 23.1% in May (up from 22.6% in April). That’s more than double the eurozone average (which came in at 11.1% that month).

The youth unemployment data is particularly dire. There are now 54.9% of 15-24 year-olds out of work, up from 41.7% in May 2011. Five years ago, shortly before the crisis began, the rate was 22.8%.

This graph shows how the Greek unemployment rate has risen steadily month by month:

You can see all the data here

In other Greek economic news, industrial production rose in June by 0.3%, on a year-on-year basis.

10.01am:

UK TRADE DEFICIT WIDENS TO RECORD HIGH IN JUNE

Bad news for the UK economy: Britain’s trade deficit has widened alarmingly, due to a sharp drop in exports.

Economists are calling the data deeply disappointing.

Britain’s total deficit in goods and services jumped to £4.308bn in June, the biggest deficit for that month since 1997. The figure is worse than analysts expected, and another hard blow to the government.

George Osborne’s goal of an export-led recovery, driven by a March of the Makers, looks as far away as ever.

The poor data was due to a jump in the goods deficit (ie, the total value of all the physical objects Britain exported, minus everything that came the other way). That hit £10.11bn, up from £8.36bn, due to a 7% drop in exports.

Here’s Howard Archer of IHS Global Insight:

The June data indicate that weakened global economic activity, and particularly the problems in the Eurozone, are taking a serious toll on UK exports. Meanwhile, a third successive fall in imports points to soft domestic demand although this was partly due to lower oil prices overall.

Vicky Redwood of Capital Economics, though, reckoned we can’t just blame the eurozone:

The deterioration was driven by widening in the deficit with non-EU countries. Exports to the US fell particularly sharply.

The poor data also caused a flurry on Twitter (the part I watch, anyway):

9.50am:

The European Central Bank also issued another plea to national governments to take further steps to reform their economies “swiftly and decisively”. It said;

Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth.

It is now crucial that Member States implement their country-specific recommendations with determination.

You can see the ECB’s full monthly report here (pdf).

9.19am:

As well as the new, lower, GDP forecasts (see 9.03am) The European Central Bank also warned that the Eurozone economy faces a series of downside risks.

That’s an admission that conditions are likely to get worse rather than better.

In its August bulletin, it said:

The risks surrounding the economic outlook for the euro area
continue to be on the downside

They relate, in particular, to the tensions in several euro area
financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term.

The ECB added that it remains committed to its goal of keeping inflation slightly below 2% in the medium term.

9.03am:

The European Central Bank has cut its growth forecasts for next year, admitting the eurozone economy is in worse shape than previously admitted.

In its monthly report, just released, the ECB predicted that the eurozone will only grow by 0.6% in 2013, not 1% as previously predicted.

It also forecast a 0.3% contraction this year, slightly worse than its previous forecast of -0.2%. (The ECB reaches its forecast by surveying 50 economists and academics.)

The move comes just a day after the Bank of England was slashed its own GDP forecasts (details here).

8.57am:

To mark the 5th anniversary of the crisis, we’re also holding a question-and-answer session at 11.30am BST this morning.

It’ll take place here, and you can submit questions now.

8.50am:

Today is the Fifth Anniversary of the Financial Crisis.

August 9 2007 was the day the world changed (in the words of ex-Northern Rock CEO Adam Applegarth). That was the moment that the European Central Bank and the US Federal Reserve injected $90bn (£45bn) into the financial markets, after seeing a sudden collapse of confidence.

That coordinated action (the first of many), failed to prevent the credit crunch, the collapse of the Rock, or Lehman Brothers, the world recession or the eurozone crisis.

We’re still collecting your stories of the crisis. You can see them on this interactive map, and submit your own tales here.

8.48am:

Shares creep higher

In the financial markets, shares have extended their recent gains this morning, ahead of the ECB’s monthly report (due out in 20 minutes).

Traders are cheered by the thought of a new Chinese stimulus package (even though this indicates the world’s second-biggest economy is is weaker than expected).

Michael Hewson of CMC Markets explains:

For some time now investors have feared that the Chinese economy was at risk of a hard landing given the recent weakness in economic data, particularly in manufacturing….

Speculation has been rising that the People’s Bank of China might be minded to take further measures to ease monetary policy to stimulate the economy, by either cutting the reserve requirements for banks, or trimming interest rates again.

Spanish IBEX: up 58 points at 7209, + 0.75%

Italian FTSE MIB: up 42 points at 14709, + 0.3%

FTSE 100: up 6 points at 5851, +0.1%

German DAX: flat at 6965

French CAC: up 17 points at 3455, +0.5%

8.37am:

The main development this morning is a hefty dose of economic data from China.

Industrial production growth dipped to 9.2% from 9.5% in June, while retail sales growth slipped to 13.1% from 13.7%.

That sounds like an enviously decent performance. But with Chinese inflation hitting a 30-month low, it has renewed fears of a slowdown in China – bad news for the world economy with Europe lurching into recession and the US heading for the fiscal cliff.

The talk in the City is that this may prompt Beijing into new efforts to stimulate the econony.

Nomura economist Zhang Zhiwei wrote:

Weak industrial production growth is likely to trigger stronger policy easing….The possibility of an interest-rate cut has increased.

There are more details over on the FT.

8.29am:

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

Europe’s leaders may have scarpered on holiday, but we’re still here tracking the twists and turns in the eurozone and beyond.

Not much on the agenda, apart from the European Central Bank’s monthly report – due out at 9am BST. Italian, UK, and US trade data is also released in the next few hours, which will show how the world economy is performing.

And we’ll also be tracking the fallout from the Bank of England’s inflation report yesterday, in which it slashed its forecast for UK growth this year.

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In the broadcast today: Will the Bank of Japan Ease Policy and Weaken the JPY? As the Bank of Japan policy makers begin their two-day meeting, we explore the potential for further quantitative easing by the Japanese central bank and examine its impact as a tool to curb the persistent strength of the yen, we analyze the range-bound price fluctuations of the USD/JPY exchange rate, we follow up on the GBP/USD pair as the Bank of England cuts its U.K. economic growth forecasts, we keep an eye on the pullback in the EUR/USD currency pair, we highlight the market’s reaction to the Japanese Current Account Balance, the Bank of England Inflation Report, and the German Trade Balance and Industrial Production, we discuss new forecasts from HSBC Holdings and UBS, and prepare for the trading session ahead.

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Bank of England cut its growth projections for the UK economy and opened the door to more quantitative easing, Sir Mervyn King warns there is still some way to go before economy recovers as Bank predicts growth will flat-line this year…

 


Powered by Guardian.co.ukThis article titled “Bank of England cuts UK growth forecast” was written by Larry Elliott and Simon Goodley, for guardian.co.uk on Wednesday 8th August 2012 10.29 UTC

Sir Mervyn King, the Bank of England governor, hinted at further action to boost the ailing UK economy on Wednesday after Threadneedle Street slashed its 2012 growth forecast to zero and said inflation was back under control.

King said there was no urgent need for fresh stimulus, but signalled more money creation through the Bank’s quantitative easing (QE) programme in response to an economic performance that has “continually disappointed expectations of a recovery”.

Against a backdrop of a worsening crisis in the eurozone and tighter lending conditions imposed by UK banks, the Bank’s quarterly inflation report cut its growth forecast for 2012 from the 1.25% pencilled in three months ago and believes the bounce-back in 2013 will be weaker than previously anticipated.

King said: “The overall outlook for growth is weaker than in May, reflecting downside news in the near term and, in the medium term the possibility that the weakness in output and productivity growth that we have seen since the financial crisis persists. GDP growth is more likely than not to be below its historical average rate in the second half of the forecast period.”

The governor said it would not be until 2014 that activity returned to its pre-recession peak in 2008 and used an Olympic analogy to underline that recovery would be long and hard.

“Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness. But it is slowly healing. Many of the conditions necessary for a recovery are in place, and the monetary policy committee [MPC] will continue to do all it can to bring about that recovery. As I have said many times, the recovery and rebalancing of our economy will be a long, slow process. It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie some years ahead.”

King said it would take a “bit of time” to assess the impact of the Bank’s new funding for lending scheme (FLS), which came into force last week and is designed to encourage banks to lend more at lower interest rates. Last month Threadneedle Street announced a £50bn increase in its QE programme to £375bn by November, and the governor said further purchases of government gilts to create money was an option.

On the foreign exchanges, the pound rose slightly after King expressed strong reservations about cutting the bank rate from its historic low of 0.5%. The governor said there was a risk that such a move could prove counterproductive by making life more difficult for some banks and building societies.

Vicky Redwood, UK analyst at Capital Economics, said it would not take much to tip the nine-strong MPC towards further action. “We expect another £50bn [of QE] to be announced in November when the current purchases are completed.”

The governor strongly defended the Bank’s forecasting record against accusations that it had persistently been over-optimistic about the outlook for growth, pointing to a euro crisis that “goes on and on and on” as the reason for the latest downgrade as it pushes up costs for domestic borrowers.

King said tumbling inflation would eventually boost consumer spending by raising real incomes, while the FLS was “bigger and bolder than any initiative so far tried to get the banks lending again”.

Labour seized on the admission in the inflation report that banks might use the FLS to inflate their profits rather than lowering interest rates, and said it was time for a Plan B.

Rachel Reeves MP, Labour’s shadow chief secretary to the Treasury, said: “With growth forecasts slashed yet again, not just this year but in future years too, it is clear that we cannot go on with the same failing plan from this government. The chancellor’s policies aren’t only causing short-term pain, but long-term damage to our economy too. And despite the crisis in the eurozone, Britain is just one of two G20 countries in a double-dip recession.”

King said the Bank found it difficult to explain why the jobs market had been so resilient at a time when official figures have shown the economy deep in a double-dip recession. Threadneedle Street has lowered its longer-term growth projections for the economy in the belief that there has been permanent damage caused by the deepest and longest downturn since the second world war.

John Hawksworth, chief economist at PricewaterhouseCoopers, said: “It seems likely that we have entered a ‘new normal’ period where growth will be relatively subdued by historic standards for some years to come as the banking system remains impaired and global commodity prices remain relatively high and volatile.”

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In the broadcast today: What’s Behind the Recent EUR Rally? With the EUR managing to stage a nice rally in the last three trading sessions, we examine the factors behind the recent strengthening of the single currency and ponder the next move of the euro versus the USD and other currency majors, we analyze the latest trend developments in the EUR/USD currency pair, we take a look at the GBP/USD pair following this morning’s disappointing U.K. economic data, we keep an eye on the CHF after the Swiss inflation report, we highlight the market’s reaction to the Reserve Bank of Australia interest rate announcement, the Swiss CPI, the U.K. Industrial Production, and the German Factory Orders, we discuss new forecasts from Bank of America and Credit Suisse, and prepare for the trading session ahead.

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Italy’s GDP falls by 0.7%, U.K. Industrial output tumbles, Optimism grows that European leaders are inching towards a solution despite Prime Minister Monti upsetting Germany, where factory orders tumbled by 1.7% in June- almost twice as bad as the 1.0% drop forecast by economists…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Italian recession deepens as industry suffers” was written by Graeme Wearden, for guardian.co.uk on Tuesday 7th August 2012 07.41 UTC

3.07pm:

The National Institute of Economic and Social Research has just released its latest estimate for UK economic growth – it predicts a 0.2% contraction in the three months to July.

That’s the same as its forecast for April-June last month (when official data came in at a startlingly poor -0.7%), and means NIESR reckons the UK kept shrinking last month.

More grimly, it also estimated that Britain’s GDP will not return to its peak (seen in 2008) until 2014.

2.55pm:

Shares have opened higher on Wall Street, with the S&P 500 index rising above the 1,400 mark for the first time since May 3 this year (up 0.3% in early trading)

With the Dow Jones industrial average up by a similar amount, US investors are clinging to hopes of fresh action by the European Central Bank soon.

However, City experts aren’t convinced that the calm will last long:

2.21pm:

Another update on the Italian recession. Economists point out that the earthquakes which struck in May and June will have added to the 0.7% contraction, but Mario Monti’s austerity measures are copping more of the blame.

Vincenzo Bova of MPS Capital Services told AP:

The austerity measures are obviously weighing on the economy… Investments and consumption, both private and public, are the hardest-hit areas.

Annamaria Grimaldi of Intesa Sanpaolo can’t see any early respite for Italy, and believes growth will not return until “well into 2013″, as:

There is no sign of any change of trend for Italy.

And Raj Badiani of IHS Global Insight says Italy “continued to flounder” in the second quarter of 2012, and agrees that the recent earthquakes were a factor:

This resulted from the profound collapse of confidence, not surprising given the tougher tax regime, tighter credit conditions and rising unemployment.

Meanwhile, some of the output losses resulting from the transport and weather disruptions in the first quarter could have been clawed back in the second quarter. However, this was probably mitigated by the negative impact of the recent earthquakes in the productive Emilia-Romagna region (accounting for 1% of Italy’s GDP).

1.36pm:

Here’s a full list of the new spending measures which the Italian parliament is voting on today (see 11.31am for more details):

Via Reuters:

EARLY PENSIONS FOR ‘ESODATI’: money to fund pensions for 55,000 workers aged over 50 who agreed to take early retirement during the downturn to help to reduce costs for their companies, but who were
left without a pension after Monti reformed the pension system last
year.

EARTHQUAKE AID: €1bn in 2013 and 1 billion euros in 2014 for areas damaged by earthquakes in May and June this year.

10% CUT IN PUBLIC OFFICIALS: The bill rules that the number of senior public servants will be gradually reduced by 20 percent and ordinary public employees by 10 percent.

CUTS TO MINISTRIES: Ministerial budgets will be cut by €1.5bn in both 2013 and 2014, and by €1.6bn in 2015, with over a third coming from the Finance Ministry.

REGIONAL AND LOCAL REFORM: The bill aims to halve the number of
provincial governments, and cut €2.3bn from regional and
local government budgets in 2012, €5.2bn in 2013 and €5.5bn in 2014.

CUTS TO HEALTH SERVICE: Vumulative total cuts to the national health fund of €900m in 2012, €1.8bn in 2013 and €2bn
in 2014.

11.57am:

More reaction to the situation in Italy.

Economist Shaun Richards says the 0.7% drop in GDP reported this morning shows that the country is on a downwards spiral right now.

He writes:

If we recall Italy’s past economic history we are reminded that her essential problem in the pre-credit crunch era was a lack of economic growth. So any further declines will mean that she will be in “lost decade” territory. In fact it is probably better to debate how long such a thing will last. On numbers based in 2000 Italy had a GDP of 1.191 trillion Euros in 2000 and 1.221 in 2010 and we may be soon facing the prospect of annual numbers from the last century being repeated.

The fundamental issue here for Italy is the size of her national debt relative to her economy. This is not a new issue as at the beginning of the last decade she had a ratio of 108% (national debt to GDP ratio) but it is getting worse and was 123.3% at the end of the first quarter of 2012. In many ways she has done well to survive with such numbers but it looks as though it is beginning to slip away from her. A shrinking economy hits the numbers in so many ways. We will see a reduced GDP combined with increased benefits spending and lower tax revenue. Applying austerity as Mr. Monti’s government plans will reduce GDP more quickly than it improves the public sector finances if Greece is any guide.

Shaun was also alarmed by a report on Bloomberg TV that many Italian marinas are deserted this year (it claimed that 30,000 yachts haven’t shown up, for fear that they’ll run into a clampdown on tax evasion).

Duncan Weldon, senior policy adviser at the TUC, agrees that Monti’s austerity plan risks a repeat of the deep downturn suffered in Greece:

11.31am:

Monti wins vote of confidence over spending cuts

Over in Rome, Mario Monti’s government just won a vote of confidence in the lower house of parliament, over a bill that will deliver another €4.5bn of spending cuts.

If a second vote goes Monti’s way later today, then he will have succeeded in rushing the spending cuts through. These €4.5bn of savings are on top of his existing €10.5bn austerity package – and are meant to provide the funding to allow a 2% rise in VAT to be delayed until 2013.

11.06am:

More bad economic data – this time from Germany, where factory orders tumbled by 1.7% in June. That’s almost twice as bad as the 1.0% drop penciled in by economists*. On a year-on-year basis, orders in Europe’s industrial powerhouse were 7.8% lower than a year ago.

Looks like weak demand at home, and from other euro countries was to blame, as the crisis continues to eat into Europe’s core. New contracts from the eurozone were down by 4.9% during June.

In a statement, the German economy ministry said:

Domestic orders were slightly subdued, with the momentum coming from abroad.

Demand from overseas countries outside the eurozone rose by 0.6%.

* It’s not been a gold medal-winning performance for our dear dismal scientists this morning. They were also somewhat off the mark with their forecasts for both UK and Italian industrial production (although pretty close on Italian GDP).

10.45am:

Shrinking economy leaves Italy in ‘perilous’ position

The news that Italy’s economy shrank by 0.7% between April and June (see 10.02am) has alarmed City analysts, especially following the grim industrial production data released earlier today (9.08am)

Italy has been in recession for longer than Spain, and there’s not much sign of recovery.

Nick Spiro of Spiro Sovereign Strategy comments:

While the Monti government’s austerity policies have crimped growth even more, the dramatic escalation of the eurozone crisis since Spain requested a bail-out for its banks has damaged confidence further.

These are perilous times for Italy, particularly given the uncertainty about the credibility and effectiveness of measures to help shore up Italian sovereign debt in the likely event of a renewed deterioration in market sentiment.

10.35am:

Greece has raised €812.5m through an auction of six-month bills this morning.

The sale went pretty smoothly, with yields (the rate of return on the debt) down very slightly at 4.68%. Greece needs the money to help roll over €1bn bond that matures on Friday.

Greece is expected to raise as much as €6bn this week to address its borrowing needs – including a much-discussed €3.2bn bond which matures later this month (this FT piece has more details)

10.02am:

ITALIAN RECESSION CONTINUES

Just in: Italian GDP shrank by 0.7% in the second quarter of 2012. That means its economy is now 2.5% smaller than a year ago.

That follows a 0.8% decline in the first three months of 2012, as the eurozone’s third-largest economy continues to deteriorate. Italy has now been shrinking for the last 12 months.

The Italian statistics authority didn’t release much more detail, saying only that activity contracted in in agriculture, industry and services (so a broad-based drop in output).

The data cuts to the heart of the eurozone crisis. Italy has suffered from weak growth for many years, and its economy is riddled with inefficiencies. But Mario Monti’s efforts to push through reforms and raise the tax take must be contributing to to the drop in output, which undermines his attempt to cut the Italian deficit.

As Linda Yueh of Bloomberg points out, the Italian government’s forecast of a 1.2% contraction this year now looks rather bullish:

9.40am:

Data just released showed that UK industrial output suffered its biggest monthly fall since November 2008, but the slump isn’t as severe as economists had reckoned.

Industrial production fell by 2.5% in June (vs forecasts of -3.4%), and was 4.3% lower than a year ago. The sharp fall is partly due to the extra bank holiday in June (for the Diamond Jubilee), so could be a one-off…

…and as the data isn’t as bad as feared, it might suggest that the original estimate that the UK shrank by 0.7% in the last quarter will be revised a little higher.

9.34am:

MONTI VS MERKEL

Mario Monti hit Angela Merkel with a clear ultimatum back in June: help reduce Italy and Spain’s borrowing costs, or I’ll block every deal on the table.

That’s from a report in the Wall Street Journal this morning, in an article which outlines the “nine-hour” confrontation that took place between the two leaders during the EU Summit at the end of June.

Here’s a flavour:

“This is not helpful, Mario,” Ms. Merkel warned, according to people present. Europe’s leaders were gathered on the fifth floor of the European Union’s boxy glass headquarters in Brussels, about to break for dinner.

“I know,” Italy’s premier replied.

Full story here.

Update: That summit ended, of course, with Merkel appearing to make key concessions to Italy and Spain, caving in on issues such as banking supervision. That was a rare victory for Monti and Mariano Rajoy, although it was followed by backtracking from the German side and claims that nothing had really changed.

This also puts the yesterday’s clash between Monti and Berlin into greater context (Monti’s suggestion the EU leaders shouldn’t feel entirely bound by their national parliaments was blasted by German leaders from across the political spectrum).

I saw Monti speak in Helsinki last week (he was visiting PM Jyrki Katainen), when he was warning that the entire EU project could unravel unless EU leaders took decisive action. Monti himself only has until early 2013 to make progress, before his term as technocratic PM ends.

9.08am:

Italian industrial output worsens

Italian industrial production data for June was just released, and is rather worse than expected.

Output fell by 1.4% during the month, compared to a forecast of -1%. On a year-on-year basis, industrial production had tumbled by 8.2%, much worse than economist forecasts of -6.5%.

That’s bad news for Italy, and suggests its economy suffered badly in the last few months. We’ll find out more soon — its second-quarter GDP is released in under an hour’s time.

This graph, via Scott Barber of Reuters, shows how Italian industrial production has been sliding for the last year, dragging GDP with it:

9.04am:

One reason for this morning’s feeling of optimism – US president Barack Obama telephoned Spanish prime minister Mariano Rajoy last night to discuss the eurozone crisis.

During the call, Obama told Rajoy that America supported his efforts to guide Spain through the crisis.

Here’s the statement released by the White House:

President Obama acknowledged the difficult challenges that the Spanish people are facing, and reiterated his support for President Rajoy’s efforts to get Spain’s economy back on track.

Obama is keen to keep close tabs on the eurozone crisis, which has the potential to derail his re-election bid.

8.48am:

EUROPEAN MARKETS KEEP RISING

European stock markets are hovering around their highest levels in four months this morning, with the major markets all higher. German bunds, meanwhile, have slipped back a bit.

Traders remain confident that the European Central Bank will, sooner or later, agree a plan to push down Spanish and Italian borrowing costs.

Here’s an early round-up:

FTSE 100: up 18 points at 5827, +0.3%

DAX: up 40 points at 6959, + 0.6%

CAC: up 28 points at 3430, + 0.85%

IBEX: up 139 points at 7193. + 2%

FTSE MIB: up 190 points at 14530, + 1.3%


The City is pretty quiet, with the Olympics adding to the usual summer slowdown. The general theory is that, despite opposition from Berlin, Mario Draghi will deliver. But it seems rather likely that traders are getting ahead of themselves.

As Andrew Taylor of GFT comments:

Like many times before, when there is a lull between the drip feeds of information, traders will find themselves dissecting and questioning the validity of the move and most importantly whether the ECB will actually deliver.

8.41am:

The Agenda

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

We’ll be battling the August lull today, tracking the latest developments across Europe as the possibility of fresh action from the European Central Bank continues to dominate attention. Will Mario Monti’s call for urgent action spur things along?

Italy will be under attention this morning too, with its second-quarter GDP data being released. With the Italian economy already in recession, a weaker-than-expected number could fuel fears over the eurozone economy.

We also get new economic data showing how UK, German and Italian factories fared in June. And an estimate from the National Institute of Economic and Social Research of how Britain’s economy performed in the last three months.

So, not too much drama on the agenda, but who knows what excitements are lurking ahead?….

Here’s the schedule:

• Italian industrial production data for June: 9am BST

• UK industrial production data for June: 9.30am BST

• Italian second-quarter GDP: 10am BST

• Germany factory orders for June: 10am BST

• NIESR releases estimate of UK GDP for May-July: 3pm BST

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In the broadcast today: USD, EUR and JPY New Trading Week Outlook. After three days of important events and economic data have kick-started the month of August, we turn our attention to the week ahead and focus on the EUR, the USD, the GBP and the JPY as the currencies that will take the center stage when the new trading week gets underway, we list the Top 10 spotlight events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the short squeeze in the EUR/USD currency pair, we examine the factors behind today’s weakening of the JPY, we keep an eye on the GBP/USD currency pair ahead of a sequence of important U.K. economic data, we highlight the market’s reaction to the Euro-zone and the U.K. Services PMI, the U.S. Non-Farm Payrolls and the ISM Non-Manufacturing Index, we discuss new forecasts from Royal Bank of Canada and Lloyds Banking Group and prepare for the trading week ahead.

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The U.S. economy added 163,000 jobs in July but the unemployment rate remained stubbornly above 8% for another month with an increase to 8.3%; Rebalancing of US economy is underway but retail sales and factory orders data point to weaker jobs growth in months ahead…



Powered by Guardian.co.ukThis article titled “US jobs data less rosy than they seem” was written by Larry Elliott, economics editor, for guardian.co.uk on Friday 3rd August 2012 14.47 UTC

There are three months to go until the US presidential election so the America jobs report will cheer Barack Obama after recent signs that the world’s biggest economy was coming off the boil. But the figures were not unalloyed good news for the president.

On the upside, the increase of 163,000 in non-farm payrolls was a lot better than the 100,000 rise Wall Street had been expecting. What’s more, the detail was encouraging, with a hefty jump in private-sector employment and a 25,000 increase in manufacturing jobs. A modest and long overdue, but welcome, rebalancing of the US economy is underway.

That said, the expansion of the labour market is no great shakes more than three years into a recovery, and extremely poor by US standards – America was once the envy of the world for its ability to create jobs in the upswings after recessions.

The payrolls numbers were accompanied by a household survey of unemployment which showed the jobless rate climbing from 8.2% to 8.3%, 0.4 points higher than when Obama became president.

The U6 rate, which includes people who are working fewer hours than they would like, rose to 15%. Throw in a labour participation rate lower than it was four years ago, and tepid wages growth, and the picture is of jobs data good enough to rule out for the time being any fresh steps from the Federal Reserve to boost activity but not good enough to prove conclusively that the economy is emerging from its soft patch.

Obama would no doubt like a helping hand from the Fed, but if Ben Bernanke and his colleagues were not prepared to do more quantitative easing when jobs growth slowed between April and June, they are unlikely to do so now.

As in Britain, the labour market seems to be in slightly better shape than the economy as a whole. As Chris Williamson of Markit noted, the recent data for retail sales and for factory orders has been weak, suggesting that the economy has lost momentum since the turn of the year. That points to weaker jobs growth in the months ahead.

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In the broadcast today: What’s Next for the USD and EUR after the Fed and ECB? In the aftermath of the monetary policy meetings of the Federal Reserve and the European Central Bank, we examine the market’s disappointment due to the lack of ECB action today and explore what’s next for the EUR and the USD, we analyze the renewed selling pressure in the EUR/USD currency pair, we keep an eye on the GBP/USD pair’s move towards the bottom of it’s monthly range, we continue to monitor the USD/JPY currency pair, we highlight the market’s reaction to the Bank of England and the European Central Bank interest rate announcements, and the U.S. Jobless Claims, we discuss new forecasts from Bank of New York-Mellon and Commerzbank, and prepare for the trading session ahead.

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Mario Draghi seeks to reassure over future of euro, but financial markets are left disappointed with the lack of action today, Bank of England maintains the benchmark rate and the size of its Asset Purchases Program unchanged, Risk-off trading session ahead of the U.S. Non-Farm Payrolls tomorrow…



Powered by Guardian.co.ukThis article titled “ECB ‘willing to buy bonds of weaker EU nations’ says Draghi” was written by Larry Elliott, Economics editor, for guardian.co.uk on Thursday 2nd August 2012 13.58 UTC

Mario Draghi pledged that the European Central Bank would buy up the bonds of the weaker members of the 17-nation single currency, as he sought to make good on his pledge to do “whatever it takes” to safeguard the future of monetary union.

The ECB’s president said the governing council of the central bank would also consider other exceptional – but non-specified – steps to ease pressures that have led to speculation about a break-up of the euro.

In a press conference following an ECB council meeting, billed as one of the most crucial since the creation of monetary union in 1999, Draghi provided more details on how to bring down bond yields, as promised in a speech in London last week.

He said: “The governing council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.”

This was seen by markets as a sign that Draghi will reactivate the ECB’s Securities Market Programme, under which the bank buys up government bonds from financial institutions.

Private bond holders have voiced fears that a big bond-buying spree by the ECB would potentially leave them suffering bigger losses in the event of any sovereign default, because the Frankfurt-based central bank has insisted in the past that it will not take a “haircut” on its bond holdings. Draghi said these concerns would be addressed.

In addition, he said: “The governing council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission.”

The ECB will also think about providing fresh cheap funds for European banks, following two injections of liquidity through long-term refinancing operations in December 2011 and February 2012. Relaxation of collateral rules for banks will be discussed next month.

Financial markets were left confused by Draghi’s comments. An initial rally in the euro against the US dollar quickly petered out, while in the bond markets yields of Spanish and Italian bonds moved higher after falling initially. Shares also moved erratically – having been about 45 points higher as the ECB president started speaking, the FTSE 100 later reversed that to show a 50-point loss on the day, a fall of almost 1%, as analysts were at odds about whether the ECB president would be able convert his tough talk into action.

Jason Gaywood, director at currency specialist HiFX, said: “Markets were disappointed today as the ECB fell short of taking action to rescue Spain. Instead, Mario Draghi merely stated that the euro is irreversible.”

Jeremy Cook, chief economist at foreign exchange company, World First, said: “The most important thing about the ECB press conference is the statement about the fact that they may undertake outright open market operations, ie buying of peripheral debt to reduce yield pressures, which were described as unacceptable.

“This is almost what the markets wanted, but the emphasis is on the fact that things ‘might happen’. The fact that they will have to discuss ‘modalities’ and ‘seniority’ suggests that they know what they want to do, but they’re really not sure how to do it.”

But Nick Parsons, head of strategy at National Australia Bank, said: “I think he means it. He has said he will intervene in unlimited size.

“The bazooka has yet to be fired, but Draghi hinted at its design this afternoon.”

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In the broadcast today: How will the Fed’s Decision Impact the USD? With the FOMC announcement only a few hours away, we explore the potential outcomes of today’s meeting and examine how the Fed’s monetary policy decision could impact the future trend direction of the USD against the EUR and other currency majors, we analyze the latest trend developments in the EUR/USD currency pair, we take a look at the GBP/USD pair ahead of the Bank of England monetary policy meeting, we note the strengthening of the higher-yielding commodity currencies: AUD, CAD and NZD, we highlight the market’s reaction to the Chinese, the U.K. and the Euro-zone Manufacturing PMI, and the U.S. ISM Manufacturing Index, we discuss new forecasts from Bank of New York-Mellon, Barclays and Societe Generale, and prepare for the trading session ahead.

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