December 7 2012

In the broadcast today: EUR and USD to Remain in the Spotlight Next Week. With the two-day FOMC meeting and the decision on the next installment of financial aid for Greece on the horizon, we explain why the EUR and the USD will retain their center stage spot in the days ahead and explore the outlook for the single currency and the greenback, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the failure of the EUR/USD currency pair to transition into the $1.30′s, we keep an eye on the renewed strengthening of the USD vs. JPY, we note the GBP/USD pair’s test of an important support level, we highlight the market’s reaction to the U.K. and the German Industrial Production, the Canadian Employment report, the U.S. Non-Farm Payrolls and Consumer Sentiment, we discuss new forecasts from Bank of New York-Mellon and BNP Paribas, and prepare for the trading session ahead.

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Germany’s central bank warns that 2013 will be tough. Surprise slump in UK manufacturing output. Investors have until 5pm GMT today to take part in the Greek bond buyback. U.S. employment report shows the economy added more jobs than expected…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Bundesbank slashes German growth forecasts” was written by Graeme Wearden, for guardian.co.uk on Friday 7th December 2012 14.20 UTC

1.39pm:

US jobs data beats estimates

The latest US employment data has just been released, and it’s better than expected.

A total of 146,000 new jobs were created in November, beating the estimate of 93,000. This has pulled down the US unemployment rate to 7.7%.

However, October’s data was revised downwards, from the original blowout estimate of 171,000 to 138,000, and September’s non-farm payroll was also trimmed a little (from 148,000 to 132,000).

The labour-force participation rate fell, though, to 63.6% – the lowest since the collapse of Lehman Brothers. That suggests more Americans simply gave up looking for work.

Still, the markets like the look of it — the FTSE 100 has now turned positive (up 13 points).

12.48pm:

The euro has kept falling this morning, and just dropped below $1.29 for the first time this week.

The trigger is a report on Bloomberg that “a majority” of ECB policymakers favour cutting interest rates (having held them at yesterday’s meeting).

12.48pm:

Kit Juckes, strategist at Société Générale, says today’s German (11.15am) and UK (9.42am) industrial output data are “awful”.

But he takes some solace from yesterday’s better-than-expected German industrial orders (IFO), and produces a chart suggesting that there could be a bounceback coming;

12.30pm:

Greek banks were holding meetings this morning to discuss whether to take part in today’s debt buyback, and there are now reports on the wires that they will take part:

12.04pm:

Greek debt buyback deadline looms

Greek bondholders have under five hours to decide whether to accept Athens’ offer to buy back its debt for up to 40% of its face value.

The bond buyback scheme is meant to help Greece cut its debt mountain, and unlock more loans from the IMF.

However, it’s not clear yet how many investors have taken up the offer.

A finance ministry insider told Reuters this morning that the offer would not be extended – which might be designed to encourage waverers to take the money.

It’s a tricky decision. If Greece recovers then its bonds could be worth more than the offer on the table today. But if conditions worsen, Greece could default again.

The FT’s Robin Wigglesworth has written a good explanation, and concludes that investors could be wise to sign up:

Greece’s debts will be towering even after a buyback, and the official sector is likely to be forced into forgiving some of its loans eventually. Yet paymaster Germany may well seek to wipe out private sector creditors in the process.

11.32am:

Carsten Brzeski of ING says the drop in German industrial output (see 11.15am) shows Europe’s “backbone” is weakening and heading into a contraction (as the Bundesbank also warned this morning).

Brzeski writes:

The German decoupling from the rest of the Eurozone has come to an end. Strong trading ties with non-Eurozone countries had shielded the economy against the euro crisis. Now, with the global economic cooling in the second half of the year, this immunity is quickly fading away.

The thinning out of order books throughout the year is finally feeding through to the real economy.

11.15am:

German industrial output slides

Another blow to the German economy — industrial output fell 2.6% in October, from September, according to data just released by the economy ministry.

Construction (-5.3%) and Capital goods (basically large equipment) -4.3%, were the biggest fallers.

In a statement, the ministry said expected ‘subdued’ output in the last three months of 2012.

Economist had only expected a 0.5% drop in output.

The sharp fall is particularly surprising as yesterday we learned that factory orders has posted strong gains in October (as DemocratCH pointed out in the comments below).

Here’s a breakdown of the data (seasonally adjusted)

Intermediate goods: -1.1%

Capital goods: -4.3%

Consumer goods: 0.9% (durables -6.2%, non-durables +0.1%)

Energy: – 3.2%

Construction: – 5.3%

10.48am:

The financial markets have shrugged off this morning’s bad news triple-whammy, with the main indices pretty flat.

The FTSE 100 is down a lackluster 4 points (Alastair McCaig, market analyst at IG, compares it to “those traders struggling to shake off the excesses of the previous night”.)

Matt Basi, senior sales trader at CMC Markets, explained that investors are calm because they anticipate further stimulus moves from the central banks:

Reaction to the news – whilst predictably negative – has been notably calm, as traders take the view that policy makers will now be forced to pump liquidity into the markets short term.

The euro is still down, at $1.293 vs the US dollar.

10.40am:

On the demise of FT Deutschland (see also 8.45am), the paper’s chief economist, Thomas Fricke, has pinned the blame on Angela Merkel. If only she’d listened to us…..

10.24am:

Crucial meeting in Italy today

The political turmoil in Italy continues today, after yesterday’s drama (in which Silvio Berlusconi’s backers abstained from key parliamentary votes, technically leaving Mario Monti without a majority).

From Rome, Tom Kington reports:

All eyes are the meeting this morning between Angelino Alfano, Berlusconi’s party secretary, and Italian president Giorgio Napolitano, who has the power to dissolve parliament and call elections if he decides Monti’s time is up.

Alfano meanwhile confirmed that Berlusconi has definitely thrown his hat back in the ring. Prime minister Mario Monti has said he awaits instructions from Napolitano.

Napolitano has already tried to calm the waters and Alfano has said yesterday’s walk out from parliament was a sign of disapproval of Monti’s handling of the economy rather than a bid to pull the plug.

He also denied that it had anything to do with the cabinet’s issuing of a decree yesterday which will exclude from parliament politicians with certain criminal convictions, a measure that could affect Berlusconi as he plans an appeal against his conviction in October for tax fraud.

Another view is that Berlusconi wants to pressure Monti into bringing forward national elections planned for March to coincide with key regional elections in Lazio and Lombardy currently planned to be held in February.

In both regions, the authorities hitherto run by Berlusconi backers collapsed because of corruption scandals. Should Berlusconi take a drubbing in these regional elections, the fear is it could rebound on his chances in the national election if it is held shortly after.

And the negative reaction of the markets to Berlusconi’s sabre rattling? His former culture minister Sandro Bondi dismissed it as “the little games of the markets,” adding “the real situation of this country is not revealed by the spread, but by the desperation of citizens.”

10.07am:

Economists are very alarmed by this morning’s weak UK manufacturing data (see 9.42am), using words like “shocking” and “dire”. It suggests Britain’s economy is shrinking again:

David Tinsley of BNP Paribas:

The latest release was shockingly bad. Some of the weakness today is likely to reflect partly erratic, reflecting in part an unwind in the food sector from Olympic-related activity (beer sales are sharply lower).

…But overall this is very bad news at the start of the fourth quarter.

Howard Archer of IHS Global Insight

This is a dire set of data. While it has been evident that the manufacturing sector is finding life very tough at the moment, the 1.3% drop in output in October is far worse than expected and very worrying…

It is only too apparent that manufactures are facing a tough environment…..

Particular weakness was reported in alcohol output in October, but I think we all need a pretty stiff drink after this data, so that may provide a near-term boost to output in that sector

Please give generously…

9.42am:

UK manufacturing output falls

More gloom – this time in the UK, where the latest factory production data is much worse than forecast.

Manufacturing output fell by 1.3% in October compared with September, much weaker than the forecast of a 0.2% decline.

Among industrial firms output fell by 0.8%, against predictions of a month-on-month rise of 0.7%.

Economists and City traders aren’t impressed:

9.09am:

Austria also slashes growth forecasts

Breaking: The Austrian central bank has also just issued new GDP forecasts, and like the Bundesbank it has slashed its predictions.

The Austrian National Bank forecasts growth of just 0.5% next year, agreeing with the Bundesbank that 2013 will be difficult.

Here are the new forecasts:

2012: +0.4% (down from 0.9% previously)

2013: +0.5% (down from 1.7% )

2014: 1.7% (down from 2.1%)

8.59am:

And here’s economist Frederik Ducrozet’s first take on the Bundesbank’s new forecasts:

8.55am:

Bundesbank predicts higher German unemployment

The Bundesbank has also warned that German unemployment will be higher than previously forecast.

Here’s a round-up of the latest Bundesbank forecasts

Unemployment

2012: 6.8% (vs 6.7% previously)

2013: 7.5% (vs 6.5% )

2014: 7.0%

Inflation:

2012: 2.1%

2013: 1.5% (vs 1.6%)

GDP:

2012: + 0.7% (vs 1% previously)

2013: + 0.4% (vs 1.6%)

8.45am:

Speaking of German gloom, it lost a newspaper today with the closure of Financial Times Deutschland.

Their front page doesn’t underplay the moment…

8.41am:

As well as being bad for Germany, the Bundesbank’s new forecasts (see 7.53am) have worrying implications for other countries.

For example, Britain’s Office for Budget Responsibility’s latest forecasts are for UK GDP to increase by 1.2% in 2013 – this morning’s forecasts imply the German economy would grow just a third as fast.

8.29am:

The Bundesbank’s gloomier warnings could prompt Germany to do more to solve the euro crisis, or it could make Berlin politicians more wary of extra financial commitments, suggests Re-Define’s Sony Kapoor.

8.04am:

Euro drops

The euro started falling as soon as the Bundesbank’s new forecasts hit the wires. It’s down 0.3 of a US cent at $1.293.

It’s also lost ground against sterling, with one pound up 0.2% at €1.24.

7.53am:

German growth forecasts cut

Good morning, and welcome to our rolling coverage of the eurozone financial crisis and other events in the world economy.

We start with some breaking news: The Bundesbank has cut its growth forecasts for the German economy, warning that the financial crisis will have a much greater impact on Europe’s largest economy.

Next year looks particularly weak, with Germany at some risk of falling into recession in the months ahead.

The Bundesbank expects growth of 0.7% this year, down from 1%.

In 2013 it expects growth of just 0.4% (not a typo), down from 1.6% previously. It also predicts stronger growth in 2014, with GDP expanding by 1.9%.

The Bundesbank said it was clear that the core of the eurozone was feeling the full impact of the downturn in the periphery, saying:

Given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed.

The Bundesbank does not see a protracted slowdown but instead anticipates a return to growth path soon.

It also admitted that the current slowdown could turn into a full-blown recession, saying:

There are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013,

The gloomier forecasts come just a day after the European Central Bank slashed its economic forecasts.

More to follow.

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