December 14 2012

In the broadcast today: JPY Outlook ahead of the Election and BoJ Meeting. As we eye the upcoming Japanese Parliamentary election and the Bank of Japan monetary policy meeting, we focus on the JPY as the main currency to watch throughout next week and explore the outlook for the USD/JPY currency pair, we list the Top 10 spotlight economic events that will move the markets in the week ahead, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the USD/JPY currency pair, we continue to monitor the EUR/USD pair’s transition into the $1.30′s, we keep an eye on the range in the GBP/USD currency pair, we highlight the market’s reaction to the EU Summit, the Euro-zone Composite PMI and HICP, the U.S. CPI and Industrial Production, we discuss new forecasts from Bank of New York-Mellon and UBS, and prepare for the trading session ahead.

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German chancellor Angela Merkel warns crisis not over, after blocking big rescue fund. UK Prime Minister David Cameron says “we can grow faster outside euro-zone”. Key issues postponed until June 2013. Disappointment over roadmap plan…

Powered by article titled “Eurozone crisis live: Merkel warns 2013 will be ‘tough’ as Summit ends with little progress” was written by Graeme Wearden (8am-3pm) and Nick Fletcher (now), for on Friday 14th December 2012 15.45 UTC


Blackadder goes Eurozone

And here’s an alternative take on the eurozone crisis, very much in the style of Blackadder.

A flavour below but the full thing here.

[Scene: A spacious drawing room in Frankfurt. A patient is strapped to a table. M Drachet in attendance, plus admirers]

M Drachet: Our diagnosis for this fellow is an excess of partying, too much of the punch-bowl, a surfeit of humours, grass corpulence and a palpable debt overhang. Our remedy? Leeches!

[Enter Mr deKrugman, a plain talking Yankee]

Mr deKrugman: Hold your hand, sir! The patient is weak. Leeches will only distress his condition further.

M Drachet: Oh that annoying fellow. Even your fellow Americans agree that leeches are the cure.

Mr deKrugman: Not any more they don’t. They’ve changed their minds.

M Drachet: Really? Never mind – bring on the leeches.

(without wishing to spoil the joke, deKrugman is US economist Paul Krugman while Drachet is an amalgam of Draghi and Trichet)


Anyone want to know Herman Van Rompuy’s schedule for next week? Well here it is:


Hollande shrugs at Fitch over AAA

My favourite quote from Brussels today comes from the French president, Francois Hollande.

Asked about Fitch’s decision to reaffirm France’s triple-A status (see 8.13am), Hollande replied that such baubles have little impact on Paris’s thinking.

As Hollande put it:

France does not determine its economic policy according to credit ratings agencies, it does it according to what is right for France.

So we shouldn’t expect any grumbling from Paris the next time a rating agency wields the axe.

That appears to be the end of the action from Brussels, so I’m going to scoot – and let Nick Fletcher see us home. Cheers all – have a great weekend…. GW


The US manufacturing sector has posted much stronger growth than expected, according to new data today.

Markit’s monthly PMI survey came in at 54.2, up from 52.8 in November. That shows that growth accelerated this month.

That’s also a much stronger figure than the 46.3 recorded by Germany (see 9.25am). This graph shows how the US is leading the way among major economies:

And separately, US industrial output jumped by 1.1% in November, much stronger than expected. That is largely due to demand picking up after Hurricane Sandy, which hit the east coast at the end of October.


Merkel: Tough times ahead

We now have the full quotes from Angela Merkel’s press conference (thanks, Reuters!), and the German chancellor was not prepared to agree that the worst of the crisis was over.

Despite the progress this week on Greece’s aid payment and single banking supervision, Merkel warned that there are years of pain ahead.

She explained:

One reason I am careful with my forecasts is the adjustment process, the changes that we are going through are very difficult and painful.

As mentioned at 12.12pm, Merkel warned that 2013 would be particularly weak:

Next year, and the ECB president said this, we will have very low growth rates, we will see negative growth in some countries, and we can expect very high unemployment levels to continue.

On the one hand we have accomplished a lot. But we also have tough times ahead of us that can’t be solved with one big step. There has been lots of talk about the one step, whether it be a debt haircut, euro bonds or some other measure that will solve everything. That won’t be the case.

Merkel’s comments are a reminder that there’s more to solving the crisis than simply preventing the implosion of the eurozone.

Experts have been scrambling to revise their predictions of Greece leaving the euro imminently. But as university lecturer Spyros Gkelis points out, Greeks face years of tough austerity:

Also worth remembering Merkel’s refusal to support a large fund for countries in trouble (see 11.39am) — her reluctance to take on more risk underlines how concerned she is about the crisis flaring up again, ahead of the German elections next autumn.


Monti tight-lipped on his plans

Italy’s technocratic PM, Mario Monti, has refused to comment on his future plans, during a press conference in Brussels.

Amid speculation that he might run in next year’s election, Monti cautioned that it was “not possible or appropriate” to comment on election prospects right now.

That won’t dampen the speculation, especially after Monti was feted by other leaders this week. Monti even played that down, saying it was only natural for people to show interest in foreign elections.

Almost every Italian feels the need to say something about the US elections.


EUCO conclusions here

The full, final conclusions from the two-day summit are now online here


Herman Van Rompuy kept off the eurozone crisis in his post-summit comments. He explained that European leaders discussed their “common security and defence policy” for the first time since 2008:

We want the security and defence policy as a whole to become more effective. This includes also our civilian capabilities, a very important aspect, as well
as a more systematic cooperation among EU Member States on defence capabilities.

We also want to see a stronger defence industry in Europe, which will contribute to more innovation and competitiveness, and to more growth and employment across our Union.

This is another slow-burner issue – HVR hopes to present recommendations in time for the December 2013 summit.

And as the meeting broke up, the Council president was in upbeat mood:

So, to conclude, this was a very positive European Council meeting, which ended a year where the European Union has covered a lot of ground and which mapped out the way forward for next year.


Cameron: Britain could grow faster outside the eurozone

David Cameron, UK prime minister, is giving a press conference in Brussels now.

After urging more action on Syria, and blasting his Labour predecessors over migration policy, the PM was asked whether Britain was wedged in the slow lane of a two-speed Europe.

Cameron denied that Britain was in an uncomfortable position “at all”, adding:

We are in a possition to maximise what we want from Europe.

Cameron argued that we now see a multifaceted Europe (thanks to factors such as the single currency, banking supervision), adding:

I believe what you’ll see is a growth of this multifaceted Europe, and we should see it as a strength.

And pointing to Wednesday’s UK unemployment data, Cameron argued that Britain had “every chance of going faster than slower” by staying outside the euro.

Cameron also reiterated his opposition to Britain joining the euro:


Another line from Angela Merkel – she warns that the reform process in the eurozone will be “difficult and painful” during 2013. And possibly for longer than that.


Merkel went on to explain that the ‘solidarity mechanisms’ on the agenda for the eurozone will be rather official in nature:


Angela Merkel is defending her approach to the pace of closer economic and monetary union now, explaining that further fiscal discipline can only come in “later years”.

Some countries (ie, in the periphery) are not in a position to embrace it yet, she explains.


Watch Angela Merkel’s briefing here.

Angela Merkel’s post-summit briefing is being streamed now (click the box above). The audio (German, no translation) is pretty jumpy, though, but she’s been explaining how the European Stability Mechanism (the new bailout fund) should protect the eurozone.


Summit over

It’s over! The second day of summit “action” in Brussels has ended. Now for the joy of the press conferences….


Merkel’s ‘carrot and stick’ approach = slow progress

These are the key quotes from Angela Merkel this morning which confirm that she blocked attempts to agree more radical cures for the eurozone’s ills, such as a really significant “shock absorber” fund to help struggling eurozone nations.

Merkel, though, would only support what Reuters dubs a “carrot-and-stick vision”. She described the proposed ‘solidarity mechanisms’ thus:

We are talking about support linked to improvements in competitiveness.

We are talking about a very limited budget. Not three digit billions, rather 10 or 15 or 20 billion euros.

No wonder the Financial Times is also disappointed by the summit, warning that all major decisions on closer fiscal and economic integration have been put off until June:

The two most controversial proposals put forward by European Council president Herman Van Rompuy – a future eurozone budget and binding economic reform contracts – were nearly stripped entirely from the summit’s communiqué.

The document, published early on Friday morning, instead said the contracts would be presented as a “possible measure” in June.


David Gow of Nucleus, the ‘eurorealist’ pressure group, (and our former European business editor), is also unimpressed by Europe’s plans for an EMU roadmap:


Alexis Tsipras to visit Latin America

With public opinion polls showing Greece’s official opposition firmly in the lead, party chief Alexis Tsipras is about to make what aides are describing as an “exceptionally important” trip to Latin America, reports Helena Smith.

Helena writes:

Tsipras’ ten-day trip to Latin America will aim to “internationalize the Greek crisis.”

His radical leftist Syriza party has long argued that early Greek elections are inevitable as a result of popular outrage over EU-IMF-mandated austerity measures that have brought Greeks to their knees. Starting tomorrow, Tsipras will take that message directly to Latin America.

“We’re developing our multi-faceted foreign policy which we will pursue once in government,” Takis Pavlopoulos, one of Tsipras senior aides, told me. “With the exception of [countries run by] by fascist regimes and dictators we’re talking with everyone about possible ways of cooperation.”

Brazil and Argentina will be the focus of the tour.

“Brazil is a rising star of the BRICS [countries] and has a lot of say in the IMF,” said Pavlopoulos. “And Argentina is a member of the G20. They are both countries with important institutional roles in the world economic system.”

Brazil, regular readers will recall, has also hotly opposed giving an advanced western economy, like Greece, continuous aid at the expense of other much poorer nation states. There is much chatter that a Syriza government might even be supported, financially, by states in Latin America.


Photos: Leaders arrive for EU Council talks

EU leaders looked in cheery form this morning as they arrived for further talks in Brussels. Here’s a few photos:


Little cheer in Greece despite aid pledge

Over in Greece, yesterday’s decision to finally unlock aid for the country may have been greeted with euphoria in government circles but, as our correspondent Helena Smith reports, the crisis is far from over on the ground.

Helena writes:

From Greece’s powerful -anti-bailout front to ordinary men and women on the street, the message is the same: away from the number crunchers in Brussels the crisis is far from over.

The country’s main opposition leader Alexis Tsipras has been quick to make the point, saying with Greeks about to enter a sixth straight year of recession, “no one is convinced” by the coalition government, and prime minister Antonis Samaras’ argument, that the bumper 52 package of rescue loans will save the day. With self-defeating austerity policies the price of the assistance, Greece was still doomed.

“The efforts of the prime minister to present himself and his government as saviours convinces no-one,” said the radical left leader. “This ’technical installlment of optimism” cannot hide the reality which the majority of society is living as a result of the memorandum’s policy of austerity,” he railed.

“[A policy] that reduces incomes, increases unemployment, spreads recession and destroys the country’s prospects of growth that is viable and fair.”

Unionists have also shot back, announcing massive strike action, Helena adds.

The union of civil servants, ADEDY, said they would stage a general strike next Wednesday against “the policies of wretchedness.” It will be the fifth general strike since September.

“Our life is not going to get better, it is going to get worse,” Ilias Iliopoulos, ADEDY’s general secretary told me. ”The measures we are about to see include cuts in wages, 20 % drops in pensions, mass firings, a dramatic decline in health and other services and huge increases in the cost of basic utilities such as electricity. No people can endure such merciless austerity.”


EU Council meeting under way

Over in Brussels, the EU Council summit is officially underway – with Herman Van Rompuy issuing a rallying tweet:

Our Europe editor, Ian Traynor, is there — and confirms that last night’s decisions don’t amount to all that much.


Rajoy: Spain doesn’t need a bailout

Spain’s prime minister has insisted that his country still does not need a bailout.

Mariano Rajoy declared this morning that Madrid would only request help if it were in the interests of the Spanish people – final confirmation that any aid package has been kicked well into 2013.

Speaking to Spain’s Cadena Ser radio station, Rajoy said:

We will use this mechanism only if it necessary to defend the interests of the Spanish people.

We do not need it today and that’s why we haven’t requested it.

Spain’s borrowing costs remain affordable today, with its 10-year bonds yielding around 5.3% (from 7.6% in mid-July).

Suspect Rajoy endorses the FT’s decision to make Mario Draghi their Man Person of the Year.


New data on car sales this morning was uniformly bad across the eurozone, and not much better in the wider EU.

The UK was the only major market which didn’t post a drop in sales in November, while total European sales slumped by 10.3%.

In Germany, sales were 3.5% lower compared to November 2011. In Greece, they were 47% lower.

As my colleague Jo Moulds reports:

Figures from the European Automobile Manufacturers’ Association, the ACEA, showed demand for new cars fell for the 14th consecutive month in the European Union, as the economic gloom spread across the continent.

It was the market’s first double-digit contraction in more than two years and comes as European leaders met for the second day of a summit to discuss closer integration of the currency bloc to address the ongoing crisis.

The UK, though, saw an 11.3% jump in new car sales. Ireland was up 13.5%, although that actually meant just 883 sales during November in its minor (mini?) market.


A mixed bag of economic news this morning, with Germany’s service sector posting its first growth since April, but its manufacturing sector performing poorly.

Here’s the highlights of Markit’s latest purchasing managers index (PMI) reports for December (in which 50=stagnation, >50=growth and <50=contraction).

German service sector PMI: 52.1 (up from 49.7 in November)

German manufacturing PMI: 46.3 (down from 46.8)

French service sector PMI: 46.0 (up from 45.9)

French manufacturing PMI: 44.6 (up from 44.5)

And the overall Eurozone private sector PMI hit its highest level in nine months – at 47.3.

Encouraging, but that still means the sector contracted — suggesting the eurozone recession is deepening. As this graph shows:


Van Rompuy rebuffed?

It’s interesting to compare Herman Van Rompuy’s opening remarks yesterday (here) with the conclusions published this morning (here).

Going into the summit, the European council president declared:

Our objective for today is to map out our next steps towards a genuine Economic and Monetary Union. We must implement our agenda on competitiveness and on growth.

But in the event, leaders simply agreed that HVR should present possible measures and a “time-bound roadmap” for the June 2013 summit (see 8.02am for the highlights).


French finance minister welcomes Fitch decision

French finance minister Pierre Moscovici has welcomed Fitch’s decision to leave the country’s AAA rating unchanged, calling it an “encouragement” and a “motivating force”.

Speaking on French radio, Moscovici said:

It’s a pointer for the way ahead. My take on this is that the French economy is solid and can be trusted, and it is absolutely essential that we keep to the path we have mapped out: European construction, budget solidity and competitiveness.

Moscovici also said that the eurozone was ‘in the process of being saved’ — echoing Herman Van Rompuy’s argument that the worst is over….


Brussels press pack verdict on last night…

Back to last night’s summit talks…. and there’s a consensus that there was little genuine progress last night as leaders tucked into their Turbot and chocolate cake*.

Reuters described the conclusions (see 8.02am) as ‘verbal commitments’ rather than ‘concrete decisions’, adding:

After more than eight hours of late-night talks at a summit in Brussels, leaders promised to push ahead with setting up a mechanism to wind down problem banks, although it was unclear when the facility would be completed.

They also launched tentative discussions on how to make countries stick to economic targets and on creating a “solidarity fund” to help member states suffering one-off economic shocks, but did not delve deeply into either issue, pushing the debate out to the middle of next year.

While Bloomberg was concerned that France and Germany were split, once again, over the way forward:

German Chancellor Angela Merkel and French President Francois Hollande, stewards of the euro area’s top two economies, promoted conflicting visions of how to revamp economic management once the fiscal crisis subsides.

“A split opened between member states that want to put in place a solidarity mechanism for countries affected by external shocks or internal negative developments and those that support national solutions,”

Luxembourg Prime Minister Jean-Claude Juncker said early today after the first session of a Brussels summit, the 22nd since Greece’s debt burst onto the agenda in early 2010. “We gradually moved closer together but in the details this was difficult.”

This has left the Brussels press pack hunkering down for the long haul…

* – Luke Baker of Reuters reports that leaders tucked into a decent meal last night:


Fitch affirms France at AAA

The other breaking story this morning is that Fitch has affirmed France’s AAA credit rating (with a negative outlook).

Fitch said France still deserved its AAA status due to its:

wealthy and diversified economy, stable political, civil and social institutions and its exceptional financing flexibility reflecting its status as a large benchmark eurozone sovereign issuer.

Fitch added that France’s “moderate household indebtedness and a relatively high savings rate” meant its economy was less threatened by private sector deleveraging than the UK or the US (which it also ranks as AAA/negative).

The UK, of course, was also cut to AAA/negative by S&P yesterday (see Thursday’s blog), prompting chancellor George Osborne to downplay the relevance of the rating agencies.

Still, Paris will be pleased to still be ranked Triple-A with one of the big three agencies….

…for now, anyway. Fitch added that there’s a ‘slightly greater than’ 50% chance of a downgrade, and predicted very weak growth in France over the next two years (+0.3% in 2013, and 1.1% in 2014).

Fitch’s statement is online here.


Leaders agree to draw up a roadmap

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

It’s the last day of the final European Council meeting of 2012, with leaders gathering in Brussels again today to discuss the crisis – and the route forwards.

Overnight, progress has been made towards a stronger Economic and Monetary Union. Leaders endorsed the banking supervision deal hammered out by their finance ministers this week, and also agreed a “roadmap” for the currency union.

Herman Van Rompuy, European Council president, presented the conclusions a few hours ago – they’re online here. That roadmap includes:

drawing up plans to work closer together on economic reform. Participating Member States discuss, and co-ordinate “all major economic policy reforms that they plan to undertake”.

“solidarity mechanisms” for weaker members who are prepared to “enter into contractual arrangements for competitiveness and growth”

Improved governance within the eurozone.

But as the roadmap won’t be presented until June 2013, we’re in for more waiting….

More analysis of Day 1 of the summit to follow, along with all the latest action from Brussels today. © Guardian News & Media Limited 2010

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