December 12 2012

In the broadcast today: The Fed is All In, what does this Mean for the USD? Following the Federal Open Markets Committee monetary policy announcement, we examine the details of the Fed’s historic decision and explore how it could impact the future direction of the USD against the other currency majors, we analyze the EUR/USD currency pair’s break above $1.30, we take a look at the GBP/USD pair following a disappointing labor market report from the U.K., we keep an eye on the USD/JPY pair and examine the latest polls ahead of the Japanese election, we highlight the market’s reaction to FOMC interest rate announcement, the Eurogroup meeting, the U.K. Jobless Claims and Unemployment Rate, and the Euro-zone Industrial Production, we discuss new forecasts from Bank of New York-Mellon and JPMorgan Chase, and prepare for the trading session ahead.

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USA 

Markets up on hopes of Fed boost after a two-day meeting. EU finance ministers begin talks on banking supervision in the euro-area. UK employment at record high of 29.6m. Dire euro-zone industrial production figures. Bernanke press conference later today…



Powered by Guardian.co.ukThis article titled ” Eurozone crisis live: EU finance ministers to discuss banking supervision” was written by Martin Farrer and Nick Fletcher, for guardian.co.uk on Wednesday 12th December 2012 15.01 UTC

3.00pm:

An update on Greece, courtesy of Dow Jones.

2.55pm:

Here’s a live stream of the Ecofin meeting from the council website.

2.36pm:

Here’s more Bloomberg on the EU draft proposals for this week’s summit:

European Union leaders will press for June 2013 agreement on how to handle failing banks and how to set minimum standards for deposit guarantee schemes, according to draft conclusions for this week’s summit.

Leaders will urge nations to agree on the two measures by March 31 and then reach an accord with the European Parliament by mid-year, according to Dec. 12 draft conclusions obtained by Bloomberg News. The timeline is a change from a Dec. 3 draft, which aimed to wrap up all agreement on the measures by March.

Story here.

2.27pm:

More comments as finance ministers arrive for the meeting.

Spanish economy minister Luis de Guindos said:

We hope to have a deal today, we have made a lot of progress. We have a mandate from leaders to reach a deal. We need to establish different organs for supervision and monetary policy in the ECB. It is very important to send a message that we have a plan.

Swedish finance minister Anders Borg said an agreement on banking union would be “a sad day for Europe”.

We could see an agreement today, but that’s on the prerequisite that we would have a good compromise on European Banking Authority rules so that we have safeguards against being dominated by the ECB as supervisor.

But he added:

Sweden are not likely to join the banking union. We don’t think it is likely we will achieve an equal treatment. We don’t think that we have the safeguards when it come to the Swedish banks and the Swedish taxpayers not being responsible for banking mistakes in other countries.

And we’re off…

2.19pm:

The EU council site has videos of various dignitaries arriving for the Ecofin meeting here, including Wolfgang Schaeuble.

Among other things, Schäuble said Mario Monti’s government in Italy had done better than its predecessor. Is that an endorsement Monti would want, after being accused by rival Silvio Berlusconi of being too German?

2.13pm:

Germany plays down summit expectations

While EU finance ministers haggle over the fine print of a new eurozone banking supervisor today in Brussels, the Germans have been playing down expectations of tomorrow’s Brussels summit on the euro’s future gameplan, reports Ian Traynor.

Briefing reporters in Berlin, a senior German official did not even mention Herman Van Rompuy, the summit chair and main author of the euro “roadmap”, the main points of which are eventually to introduce structural reform pledges by eurozone governments which are to be policed by the European Commission as well as the creation of a eurozone budget to help finance these reforms.

The French and Germans are predictably at loggerheads over the scale and scope of these twin proposals. The French want the eurozone budget as a Keynesian growth tool, but do not want the commission enforcing policy in France. The Germans want the control and rigour brought by the contracts or pledges, but don’t want to put up the money for the eurozone budget.

“Everyone wants to talk about money, but not about competitiveness which is the source of the problem,” said the German official. “Big pots of money are not on the German government’s agenda.”

By contrast a senior official at the Elysee Palace said that the contracts “should not only be about structural reforms, but also about growth…As soon as you sign the contract, you should get access to the fiscal capacity [eurozone budget].”

It transpires that David Cameron will be a bit of a bystander at tomorrow’s summit since the two days of talks will be consumed by not very conclusive discussions on the “architecture” of the eurozone.

That prompted Ukip leader, Nigel Farage, to quip today that there was little point in Cameron going to these summits as Britain was now so “marginalised.”

1.45pm:

EU draft document for the summit

Courtesy of Bloomberg via Newedge Strategy, some flashed from the EU draft document for the summit:

*EU LEADERS TO CALL FOR SINGLE RESOLUTION PLAN IN 2013: DRAFT
*EU DRAFT MAY BE MODIFIED AT DEC. 13-14 LEADERS SUMMIT
*EU MAINTAINS CALL FOR ‘CONTRACTUAL ARRANGEMENTS’ AS OF 2013
*EU TO START `EX ANTE’ DISCUSSION OF NATIONAL REFORMS IN 2013
*EU DRAFT SETS NO TIMELINE FOR POSSIBLE ‘SHOCK ABSORBER’ BUDGET
*EU SUMMIT DRAFT DROPS 3-STAGE TIMELINE FOR EURO-ZONE OVERHAUL
*EU COUNCIL DRAFT CONCLUSIONS OBTAINED BY BLOOMBERG NEWS
*EU TO URGE NATIONS TO AGREE ON MEASURES BY MARCH, DRAFT SAYS
*EU TO URGE JUNE 2013 ACCORD ON DEPOSIT SCHEMES, DRAFT SAYS
*EU LEADERS TO URGE JUNE 2013 BANK RESOLUTION ACCORD, DRAFT SAYS

1.41pm:

I’m handing over to my colleague Nick Fletcher now but thanks for joining the blog.

1.40pm:

And in Italy…

Over to Rome where Tom Kington has been looking at the latest twists in the political drama there.

Tom writes:

Italy may have lowered its borrowing costs at a one year debt auction on Wednesday, indicating the nervous reaction to news of Mario Monti’s resignation has calmed, but political shenanigans in Italy suggest the election of a solid, reform-oriented government in February is not a given.

The centre-left Democratic Party, which is leading the polls, may yet have trouble winning a Senate majority should Silvio Berlusconi’s anti-austerity tub thumping win votes, and it could depend on an alliance with Nichi Vendola, the leader of the Left Ecology Liberty party on the left, and with centrist Pierferdinando Casini. Vendola however has said he refuses to enter a government with Casini, and, just as importantly, would never back a government that seeks to push on with Monti’s austerity program.

It is not all plain sailing for Berlusconi either. He is counting on reforging his old alliance with the Northern League, yet League officials have said they will only ally with Berlusconi’s party if Silvio is replaced as leader.

Berlusconi may hope to tempt the League with the chance to govern the Lombardy region in place of his backer Roberto Formigoni, who has been weakened by corruption allegations.

Berlusconi meanwhile looks set to ratchet up his rabble rousing rhetoric after yesterday blaming Italy’s economic crisis – which began while he was in power — on Germany’s decision to sell off Italian bonds, an ingenious way to blame Italy’s problems on its neighbour.

“This seems like the kind of talk typical of a trattoria, very late at night,” said one union leader. The question is whether Italian voters are in a late night mood.

1.20pm:

The pain in Spain …

Spain now and Giles Tremlett has been following the latest developments in the country’s banking crisis, which on the face of it is not so bad as it was yesterday after it took delivery of nearly €40bn this morning. But the hard work might be about to start now for banks such as Bankia.

Giles writes:

Spain’s €40bn of banking bailout money has today arrived from the European Stability Mechanism (ESM) – and the shockwaves are already being felt in the largest recipient, Bankia.

The failed collection of seven former cajas, or savings banks, had already said it planned to shed 6,000 workers as part of the €18bn bailout deal for the bank. But chairman José Ignacio Goirigolzarri had said this would be done as painlessly as possible via early retirement, the sale of units and outsourcing.

Now unions say the bank has told them it wants to sack 5,000 people and reduce salaries by up to 40%. As one-third of the staff of El País newspaper found out recently, changes to labour laws give loss-making Spanish businesses, or those with falling sales, a far wider scope for sacking employees or making them accept salary reductions instead.

The rest of the bailout money goes to nationalised Catalunya Banc, Banco de Valencia, Novagalicia Banco and the new Sareb “bad” bank for toxic real estate. More may be needed for a second raft of banks that are currently trying to raise capital elsewhere.

12.55pm:

Before I do a lunchtime round-up, should just say that the FTSE100 is up 15 points at 5940, closing in on the 6,000 mark. Other markets are also up:

DAX – up 0.39% at 7,619.65

CAC 40 up 0.05% at 3,648.02

IBEX – up 0.75% at 7,980.10

12.50pm:

Cause for optimism in Greece

At the end of Helena’s last post she mentions comments by Greece’s central bank boss in which he says that the economy could rebound on the back of the latest rescue package.

Optimistic you might think for an economy set to shrink by 21.5% in the five years to 2013. But the bank governor’s upbeat tone reflects similarly optimistic remarks from the country’s powerful development minister Costis Hatzidakis.

Helena writes:

“I think the Greek economy is now standing before an economic upturn after five years of recession,” Hatzidakis told Germany’s leading business newspaper Handelsblatt. As such, he said, the country was ”thirsting” for foreign investment in areas such as energy, tourism and agriculture.

The politician based his optimism not only on the fact that talk of a Grexit had finally died down but that Greece had moved ahead with long-overdue structural reform that included deregulation of the transport system, energy sector and labor market.

But unrest still continues. Protesting municipal employees, slated to lose jobs under EU-IMF mandated austerity measures, ralled en masse outside the reform ministry today. “We are determined to continue our struggle to prevent dismissals ordered by the troika that the vile three-party government is pushing,” said the employees’ union, POE-OTA, announcing a 48-hour strike as of tomorrow. Clashes erupted outside parliament as unionists tried to jump over fencing erected around the building in Syntagma Square.

12.21pm:

Greece almost there… but not quite

Over to Greece, where our correspondent Helena Smith reports the country’s debt management agency has announced it is seeking an additional €1.29bn from foreign lenders to finalise the buy-back scheme that formally closed on Tuesday.

She writes:

Although the take up was good, Greece has not quite got there yet. If the country is to successfully complete the buy back of its own debt – a prerequisite of receiving further rescue funds from the EU and IMF tomorrow – it will need foreign lenders to cough up an extra €1.29bn.

In an announcement released at noon the agency said it had accepted to buy €31.9bn from holders of Greek debt at 33.8% of their face value. The buy back amounted to some 51.% of the total €61.44bn of government bonds held by the private sector. “The republic hereby announces that is has advised its official sector creditors that … it intends to accept all designated securities of each series validly offered for exchange,” the agency said.

The scheme will allow Greece to shave around €20 bn (once €11.9bn in repurchasing expenses are withheld) from its massive debt pile currently estimated at around €340bn or 175% of GDP. The IMF had made the buy back scheme a condition of continued financial assistance to a country that has seen its economy kept afloat by international creditors since May 2010.

Christine Lagarde, the IMF’s managing director, said while she would reserve judgment “I can only welcome the results that have been produced by the debt buy back.”

Meanwhile, Bank of Greece governor George Provopoulos, has just announced that the country’s economy could be about to see an upswing, adds Helena.

“After serious delays and uncertainties, Greece finds itself today before new circumstances which under certain conditions could give new prospects to the economy,” the central bank governor told parliament’s committee of economic affairs.

“These developments are positive and create well-founded hopes that the Greek economy can rebound perhaps even earlier that what is today foreseen,” Provopoulos said.

12.10pm:

Spain takes delivery of €39bn

The Spanish government has confirmed that it has received the €39.5bn in bailout funds for the country’s troubled banks.
AP reports that a spokeswoman for the economy ministry said the money is now in the hands of the state-run fund set up to help those banks worst hit by the property market collapse in 2008. The money will be handed out in the coming days.

One of the recipients, Bankia, said today it will sack thousands of workers to meet the terms of the bailout having said it would shed staff through voluntary redundancies and other such mutual agreements.

Greece is also expected to get its long-delayed €34bn in aid after just about completing its bond buy-back yesterday.

More from our correspondents in Madrid and Athens on these stories very soon.

11.27am:

On the same theme, figures this morning from Darty, Europe’s third largest electrical retailer, are interesting. The company formerly known as Kesa unveiled a strategic review basically saying that it’s going to focus on core markets of France, Holland and Belgium.

Fair enough but to rely on France has its own dangers. The Bank of France no less said this week that it expects the country to go into recession this quarter and there has been much speculation about how France could be the next shoe to drop in the eurozone crisis.

11.22am:

More on those poor eurozone industry figures. Germany, France and Italy, which make up two-thirds of the eurozone’s industrial production, all saw their factory output fall in October with Germany shrinking the most.

Overall, only production of consumer goods such as food and cosmetics rose in October, with all other sectors falling. Output of cars, electronics and furniture fell almost 4%.

The car industry seems especially weak with General Motors this week announcing the closure of its Bochum plant by 2016. In that same story we reported that 2012 has been the worst year for the French car industry since 1997, with sales of French cars down 28% in November from a year earlier. PSA Peugeot-Citroen, which plans to shed 10,000 jobs, is mothballing its Sochaux plant in eastern France for 19 days over the Christmas holiday period.

The problem for French car makers is that they rely more on European demand than, say, UK manufacturers such as Jaguar Land Rover who are benefiting from growth in emerging markets.

11.07am:

Some reaction to the unemployment stats. Labour’s Liam Byrne welcomes the fall in overall numbers but makes the fair point that wages are being screwed down ever tighter.

“Pay packets are taking an absolute hammering. Last month prices rose at twice the rate of wages.

10.57am:

Hard times for eurozone industry

Grim figures on the eurozone economy. Industrial production in the currency bloc fell 1.4% in October, much worse than the expected 0.2% gain.

The numbers confirm that the weakness of the eurozone is spreading from the periphery to the core.

10.33am:

Here is the unemployment story by our economics editor Larry Elliott. As usual the job market figures are full of interesting details, not least of which is that the public sector payroll is at its lowest for a decade – 5.7 million. Private sector employment is at a record high with 23.8 million.

Average wages are still rising below inflation at 1.7%.

10.07am:

UK unemployment falls

The number of Britons unemployed fell last month and the number of people in work hit a new high, the ONS said this morning.

Full story coming very soon.

9.41am:

Osborne off to Brussels this afternoon

Ian Traynor will be waiting for the outcome later today and in the meantime has sketched out the latest:

George Osborne travels to Brussels this afternoon for a crunch meeting of EU finance ministers on a new eurozone banking supervisor and looks to be facing a Franco-German stitch-up over how power in the new authority will be wielded.

“There is a Franco-German deal. The UK will still fight, but it looks pretty good,” a senior EU source told The Guardian.

The crucial point for Osborne is to secure “safeguards” protecting the UK financial sector against decisions taken by the eurozone in the shape of the European Central Bank which is to be the banking supervisor.

The detail of the voting arrangements – between the 17 countries of the eurozone and the 10 EU countries not in the single currency – remain unclear. But to judge by the last few days in Brussels, they look unlikely to accommodate Britain’s insistence on being able to block ECB decisions it deems unfavourable. Under the Franco-German pact, the London-based European Banking Authority, representing all 27, is to be given a mediation role in the event of a dispute over an ECB decision.

Ian goes on to say:

The Swedes and the Czechs are also unhappy with the arrangements and will support Britain today.

It appears that the French and German finance ministries have been beavering away on an accord for the past week and cut the deal on Tuesday evening.

Despite the agreement, the froideur between Paris and Berlin remains on a whole host of issues, with the splits certain to be on display at an EU summit opening tomorrow on the euro and the future of monetary union.

9.37am:

Divisions over plan to supervise banks

EU finance ministers are meeting today to resolve differences over plans for the European Central Bank to supervise banks. They need to crack the problem before the EU summit tomorrow and Friday.

France and Germany are at odds over the plan with Berlin resisting proposals for the eurozone’s smallest banks to be covered by the new powers. It wants a minimum of €50bn in assets to apply while Paris wants a minimum of just €2.5bn.

Divisions run deeper than just those across the Rhine with Sweden seemingly set to join Britain on the sidelines of any agreement. Its finance minister Anders Borg said yesterday that Sweden still had reservations about the lack of safeguards given to non-eurozone countries and he did not expect those problems to be resolved “for the foreseeable future”.

We’ll try to keep tabs on the talks today. And if you want to read an expert view on the whole issue, here is our Europe editor Ian Traynor on the matter last week.

9.20am:

Federal Reserve statement

Sorry for the lack of posts so far today but the blog has been hit by some technical problems. Anyway, back into it now and although it’s fairly quiet out there in euroland there is still plenty to talk about.

That’s mainly the Fed statement tonight when Ben Bernanke is expected to start outright bond purchases of around $45bn to replace Operation Twist, which ends this month. The Fed is currently buying $40bn in long dated treasuries each month, funded by selling short dated bonds. This pushes up bond prices and forces yields lower, therefore keeping interest rates lower. It’s also expected to be good for equities.

Peter O’Flanagan of Clear Currency says this morning:

The Operation Twist extension comes to an end this month that is why the market is expecting the Fed to step in a fill this void. The recent rally in US equities is evidence that market expectations are for suitable replacement to help support US growth, any form of disappointment is likely to weigh on US equities and benefit the US dollar as safe haven flows return.

8.34am:

Good morning and welcome to the euro crisis live blog.

The markets have mostly opened up this morning as investors look ahead to tonight’s expected announcement by the US Federal reserve to throw another $45bn worth of electronic money at the US economy. More of that in a bit.

The FTSE100 in London is creeping ever nearer the 6000 point mark again but it’s now down a fraction this morning 5923.

Anyway, here are the main things to look for today:

UK unemployment at 9.30am
Eurozone industrial production figures at 10am
Fed statement at 5.30pm
Bernanke press conference at 6.15pm

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