September 27 2012

In the broadcast today: Is U.S. Economic Data Hurting or Helping the USD? In the aftermath of this morning’s sequence of important economic reports from both sides of the Atlantic, we compare conditions in the U.S. and in the euro-zone and explore how the state of the U.S. economy could impact the future direction of the U.S. dollar, we analyze the latest trend developments in the EUR/USD currency pair, we follow up on the GBP/USD pair after the better than expected Q2 U.K. GDP revision, we continue to monitor the persistent strength of the JPY, we highlight the market’s reaction to the Spanish budget release, the U.K. GDP, the Euro-zone Consumer Sentiment, the U.S. GDP, Jobless Claims and Durable Goods Orders, we discuss new forecasts from Citigroup and Commerzbank, and prepare for the trading session ahead.

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Spanish budget expected to be released at 2pm. UK shrank less than thought in Q2, while the U.S. did not grow as much as anticipated. Euro-zone consumer sentiment falls. Italian borrowing costs decline at the government’s auction…



Powered by Guardian.co.ukThis article titled “Markets await Spanish budget – eurozone crisis live” was written by Martin Farrer, for guardian.co.uk on Thursday 27th September 2012 12.42 UTC

1.42pm:

The American economy did not grow as much as originally thought in the second quarter.

The final GDP revision shows that it grew 1.3% between April and June, not the 1.7% reported last month. The country’s worst drought for decades is getting the blame.

1.36pm:

Over to Madrid now where our correspondent Giles Tremlett says that there are some leaks coming out about what to expect in the budget bill.

He says Europa Press is reporting that civil service pay will be frozen for the third year running, and there will be other cuts to ministry spending as they try to save a further €20bn next year (much of that will come from a sales tax hike that came this month).

But he says some costs will increase because of interest payments and social security growth, with pensions rising by 1% (Brussels won’t like that). Interest payments will account for an extra €9bn, reaching €38bn.

We’re hoping for the full details shortly….

1.29pm:

As promised at 12.09, our Athens correspondent Helena Smith has more on the talks in Greece where it seems party leaders have agreed on the full package of extra austerity measures.

Emerging form the talks, Greece’s finance minister Yiannis Stournaras was keen to sound upbeat saying: “Basically, yes, we have agreed on the full package.” But he added that a “few details” remained to be resolved.

The economist, who was present throughout the meeting with the Greek prime minister and his allies, said it now remained for the nearly €12 bn package to be approved by international creditors at the EU and IMF. The cuts, among the harshest to be implemented since the outbreak of the debt crisis, would form the “basis for strong negotiation” with foreign lenders, he said. “We must agree with the troika first and our [EU] partners next,” he said.

Insiders, however, said the governing coalition appeared to be biding time. Fotis Kouvellis, the leader of the Democratic Left which is participating in the alliance, insisted that while consensus had been reached on the main points, “there are sill outstanding issues.”

Kouvellis described the measures, expected to further slash low-income salaries and pensions as “very tough.” Because of this it was essential, he said, that Greece was given a two-year extension to meet the budget targets of its gruelling fiscal consolidation programme.

“We are going to seek an … extension,” he told reporters gathered outside the prime minister’s office, adding the government would do this on “multiple political levels.” “The cuts will be a heavy burden on Greece society … an extension will lighten the load considerably,” he said.

Stournaras said he did not know when the controversial package would go to parliament for ratification by lawmakers. “We don’t know when that will happen,” he said.

Unions have vowed to stage mass protests when the measures are discussed in the 300-seat House. The ruling coalition has not hidden its angst about the possible social backlash the new round of cuts will trigger.

1.15pm:

Time for a lunchtime update from the markets which seem to be ticking along quietly ahead of the Spanish budget.

The FTSE 100 is up 0.24% while the Dax is up 0.43% and the Cac up 0.69%. Watch this space…

12.53pm:

The big news of the day – Spain’s budget announcement could be delayed. A government official has just told Reuters that the news conference on the 2013 budget will begin at 2pm BST at the earliest because the cabinet is still meeting.

12.42pm:

Our economics correspondent Phillip Inman sees signs in Thursday’s jobs figures that the German economic boom is faltering.

Five months of downbeat business surveys from Berlin have concluded this month with a first fall in seasonally-adjusted employment since early 2010.
Stefan Schilbe, an economist at HSBC Global Research, says a rise in unemployment over the last two months has now had an impact on the seasonally adjusted employment figures. The fall in employment after the latest 9,000 rise in unemployment is no blip, he says. In effect Schilbe has called the top of the market and predicts the only way is down.
Without its powerhouse economy steaming ahead, the outlook for the eurozone employment and GDP averages is poor.
Schilbe says: ‘The positive momentum of the German labour market has finally come to an end. For the first time since early 2010, seasonally adjusted employment fell.’
The slowing world economy is to blame, he says, while the struggle in Spain and other peripheral economies doesn’t help. That said the unemployment rate remained at 6.8 % in September, which is the lowest rate since the German reunification.
‘In a slowing global growth environment, German companies are becoming more and more cautious on future hiring plans which should result in even more redundancies in the next few months,’ he says.

12.09pm:

Back to Greece again where Helena says that the talks have broken up. More soon …

12.08pm:

Over to Greece again where Helena Smith reports more demonstrations are taking place with both police officers and people with disabilities protesting against further austerity measures.

As reported earlier, the prime minister, Antonis Samaras, is meeting his two junior coalition partners for talks aimed at finalising a controversial €11.9bn package of cuts that are key to unlocking further aid for the debt-stricken country.

Helena writes:

Thousands of disabled Greeks have taken to the streets in what union organizers are describing as a “panhellenic rally” against the proposed cuts. Gathering in Omonia Square, one of the capital’s central plazas, the protestors – many in wheelchairs – issued a plea for benefits, including medicines, not to be slashed in the package of measures the government will almost certainly announce next week. The demonstrators, who will make their way up to the finance ministry in central Syntagma Square, are also demanding that they be spared from mass lay-offs in the public sector that the government has also come under pressure to enforce by international creditors. Police, holding banners decrying the measures, have also been protesting today outside the headquarters of the conservative New Democracy, the coalition’s predominant force and the offices of the main opposition radical left Syriza party.

Meanwhile, Helena adds, talks aimed at clinching the package do not look set to be wrapped up on Thursday.

Hopes of the measures being approved without further ado were dashed almost before this morning’s meeting (which is still ongoing) began. Speaking on Greek television, Nikos Tsoukalis, a leading MP with the Democratic Left, one of the three parties supporting the governing coalition, said “the mix of measures is not the one suggested by our party [DIMAR]. The package of measures has not been finalised and it will not be finalised today.” The savings are essential to Greece being given a good grade in an upcoming assessment of the country’s fiscal progress by lenders at the EU, ECB and IMF. The Greek finance minister had hoped to present the cuts in detail to his counterparts at a euro zone finance ministers meeting on 8 October in the hope that Athens could then draw down a fresh installment of cash – now seen as vital to kick-starting the recession-plagued economy – from the €130bn bailout it signed with the EU and IMF earlier this year. That now looks increasingly unlikely. Mission chiefs representing the troika return to Greece at the weekend. They have made clear that they want the package wrapped up by then to allow them enough time to work on their assessment of the economy.

12.04pm:

As Mariano Rajoy and François Hollande prepare to reveal their austerity budgets (Spain goes on Thursday and France on Friday), they might be forgiven for casting an envious eye towards Australia where government statisticians revealed that the country is A$325bn (£200bn) better off than they’d thought.

The lucky country, as it is sometimes known, is not exactly short of a few bob anyway as it rides the resources to China boom. So the unexpected windfall in overall national wealth must stick in the craw of the eurozone strugglers. How Messrs Samaras, Rajoy etc must wish that they could find such riches down the side of the proverbial sofa.

here’s how Reuters reported it earlier:

Australians are suddenly a whole lot better off after the government statistician ‘found’ A$325 billion ($338 billion) in share assets previously unrecognised.
The Australian bureau of statistics on Thursday released its latest report on household assets which included massive upward revisions to estimates for equity holdings. Total financial assets were now put at A$3.1 trillion at the end of March, compared to the originally reported A$2.77tn.
The revision is worth roughly A$14,380 for every one of the country’s 22.6 million people.
‘This issue incorporates new estimates for households holding of unlisted shares and other equity in other private non financial corporations,’ the statistician drily noted.
The value of such equity is now put at A$383bn at the end of March, compared to the original A$91bn.
‘The bureau of statistics has effectively “found” A$325bn in household wealth,’ said Craig James, chief economist at CommSec.

11.39am:

The Bank of England thinks that British banks should raise more capital. That’s the verdict of the bank’s financial policy committee, whose 14 September minutes show that it believes banks should take advantage of the calm in the euro storm (well, it was two weeks ago) to bolster their defences.

That’s slightly surprising given that Uk banks have recapitalised quite extensively since the crisis broke. it does raise the question, if UK banks need more money what on earth do Spain’s need? We will find out more about that on Friday when its finance minister, Luis de Guindos, reveals the verdict of an independent audit of the Spanish banking sector and how big their black hole really is.

10.58am:

Comment rolling in on the GDP figures.

Rachel Reeves MP, Labour’s shadow chief secretary to the Treasury:

While any small upward revision is clearly better than the opposite, these figures confirm our economy is in the longest double-dip recession since the second world war. And that is the reason why the deficit is rising – up by 22% so far this year.

David Cameron and George Osborne’s plan is clearly failing. While they promised to secure the recovery, our economy has shrunk by 0.4% since the spending review in 2010. And Britain is just one of two G20 countries in a double-dip recession.

Thank goodness the ticket sales, TV rights and extra visitors from the Olympics will have a positive effect on the next quarter’s growth figures, but this short term boost is not the long-term strategy we need. We urgently need a change of course and a plan for jobs and growth to stop permanent damage being done, as the IMF has warned.

The longer our complacent and out of touch prime minister and chancellor cling on to their failing plan, the heavier the price our country will pay.

10.55am:

The experts reckon that the Italian auction has been a bit of a score draw – ie good that yields have come down but disappointing because they didn’t sell the maximum amount of €7bn.

Marc Ostwald from Monument Securities says:

They haven’t quite sold the complete amount but they got pretty darn close … Demand still very much more domestic than anything else. The issue for the time being is not Italy, the issue is Spain, but they will be pleased they managed to get this one away.

10.44am:

Some better news. Italy’s borrowing costs fell on Thursday after successful bond auctions for 10- and 5-year money amounting to €6.6bn.

The yield on 10-year bonds was 5.24%, down from 5.82% in August, while 5-year bonds went for 4.09%, down from 4.73%.

10.19am:

More ugly numbers. Economic sentiment in the eurozone slipped gain in September. Figures from the European commission on Thursday say that it fell to 85 in September from 86.1 in August. Figures also show that the business climate was its worst since October 2009 last month. And consumer sentiment in the eurozone fell to -25.9 from -24.6.

9.44am:

A slew of figures from the Office for National Statistics for Thursday morning including this shocker – Britain’s current account deficit is the highest on record in a second quarter at £20.8bn. The march of the makers still has some way to go.

9.34am:

Britain is still in recession. The final revision of Britain’s output for the second quarter puts it at -0.4%, down from the -0.5% in August. The first estimate in July was -0.7%.

So, following a negative quarter in the first three months of this year, Britain is officially still in the red. But as Paul Fisher says today, we’re going to do much better next time.

9.27am:

German unemployment rose by 9,000 in September, with the rate unchanged at 6.8%. That was pretty much as expected but the feeling is that the German chancellor, Angela Merkel, can’t afford much of an increase as she goes into an election year.

8.54am:

Developments in Greece where our correspondent Helena Smith says its prime minister, Antonis Samaras, is about to meet his two junior coalition partners for talks aimed at finalising the draconian €11.9bn package of cuts the country’s EU, ECB and IMF creditors are demanding in return for bailout instalments.

Helena writes:

With Wednesday’s mass anti-austerity demonstrations hanging over them, and tensions between Greece and its troika of creditors on the rise, the prime minister, Antonis Samaras, will meet his two leftwing junior partners at 10:30am local time. The hope is that all three will – finally – agree to the cuts that have caused such hand-wringing over the long, hot summer. Samaras, say aides, will say “it is now or never” and impress upon both men that the time has come to bite the bullet: either Athens accepts the measures on which further aid instalments are now dependent, or default on its debt load – which at nearly 165% of GDP, is by far the highest in Europe.

The ever-energetic Greek finance minister, Yiannis Stournaras, spent much of Wednesday evening running through the details of the package’s latest amendments (which now makes up for a €2bn shortfall with extra taxes) with the Democratic Left leader, Fotis Kouvellis, and the socialist Pasok leader, Evangelos Venizelos.

Stournaras, a technocrat, is believed to have told the leaders that €7.5bn of cuts in the package (the equivalent of more than 5% of GDP) will be implemented next year, with the remainder due in 2014.

But with the EU, ECB and IMF still insisting on mass layoffs in Greece’s bloated public sector, it was far from sure if the measures will finally be given the go-ahead. Leaks suggest that lenders are demanding some 15,000 civil servants be immediately sacked – a red line for both parties.

Dimitris Hadjisokratis , who oversees economic policy at the Democratic Left, emerged from the talks late on Wednesday, saying progress “would be difficult”. Politicians have been left in no doubt by the turnout for Wednesday demonstrations, that Greeks almost three years into the crisis, Greeks are adamantly opposed to making yet more sacrifices.

8.25am:

Interesting comments this morning from the Bank of England director Paul Fisher ahead of the revised UK growth figures at 9.30am. He tells the Sun newspaper that he expects a very strong GDP number for the third quarter due out on 17 October. So does that mean that today’s revision is going to show the economy still well and truly in negative territory (it was put at -0.5% last time)? Stay tuned to find out …

He is also trumpeting the funding for lending scheme which he says could pump £60bn-£100bn into the UK economy. There are “credit hungry businesses out there”, he says.

8.08am:

The stock markets are duly up a bit.

The FTSE 100 in London has climbed 0.6% to 5803 while the Cac 40 in Paris, which took a battering on Wednesday, is up 0.8%. The Dax in Frankfurt is up 0.5% while the Ibex in Madrid has perked up 0.6%.

8.00am:

Just waiting for the markets to open there a couple of bits of corporate news of some interest today. Compass, the global catering company, says it is cutting back on its operations in southern Europe because of what it calls worsening trading conditions in the region.

That’s bad news for the Club Med countries but the travel group Tui says it had a much better summer this year than last so perhaps the eurozone strugglers of Spain Greece and Portugal will find they took more tourist euros this year.

7.49am:

Good morning and welcome to the eurozone crisis live blog. Today promises to be a crucial one in Spain’s struggle against its mounting economic and political crisis with the details of its austerity budget due to be unveiled at around 2pm BST. Our correspondent in Madrid, Giles Tremlett, will help to guide us through while we’ll also have updates from around Europe on the problems in other countries.

Markets rebounded a little overnight in Asia after a big sell-off in Europe on Wednesday. Markets are expected to open up around 0.6% here in a few minutes.
Key events of the day are:
• Spanish budget at 2pm
• German unemployment figures coming up at 8.55am
• UK Q2 GDP revision at 9.30am
• US Q2 GDP revision at 1.30pm

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