December 20 2012

In the broadcast today: What’s Next for the JPY after the BoJ Decision? Following the Japanese election and the Bank of Japan’s monetary policy decision, we explore what the future might have in store for the yen which is on track to end the year as the worst performer among the currencies of developed nations, we analyze the latest trend developments in the USD/JPY currency pair, we examine the bullish breakout in the EUR/USD pair, we note the test of the 2012 high for the GBP/USD exchange rate, we highlight the market’s reaction to the Bank of Japan interest rate announcement, the U.K. Retail Sales, the U.S. GDP and Existing Home Sales, we discuss new forecasts from Bank of Tokyo-Mitsubishi and UBS, and prepare for the trading session ahead.

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USA 

Finance minister Yannis Stournaras says Greece could still quit the eurozone. Good news and bad news on Greek energy. Confusion over Italian Prime Minister Mario Monti’s future. U.S. economy grows at a faster pace by 3.1% in Q3 2012…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Greek euro exit still a risk, warns finance minister” was written by Graeme Wearden (until noon) and Nick Fletcher (now), for guardian.co.uk on Thursday 20th December 2012 14.44 UTC

2.41pm GMT

Portugal cancels sale of TAP airline

Portugal’s privatisation of its TAP airline has been cancelled after the only bidder failed to meet its requirements.

The sale of TAP, which has around €1.2bn of debt, is part of a disposal of assets as part of its €78bn EU and IMF bailout. But the bidder, Synergy Aerospace owned by Colombian-Brazilan airline entrepreneur German Efromovic, failed to present the necessary bank guarantees, according to Reuters.

Updated at 2.44pm GMT

2.21pm GMT

Italian electioneering starts even before final budget vote

As the Italian budget was passed by the senate and now passes to the lower house for a vote on Friday or Saturday, technocratic prime minister Mario Monti has been warning the country not to throw away the gains already made.

With elections coming next year and fears that key measures could be reversed, Monti said in a speech in Melfi (courtesy of Reuters):

It would be irresponsible to waste the many sacrifices Italians have made.

In comments seeming directed at his predecessor, Silvio Berlusconi, who had promised to slash taxes, Monti said voters should not be tempted by promises which were “far from reality.”

If the budget is passed by the lower house, some believe Monti will then call a press conference this weekend to announce his intentions in the election. So far these are shrouded in mystery although many believe he may yet stand. But Berlusconi has warned Monti against this, saying it would be “morally questionable” for him to run.

Updated at 2.24pm GMT

1.52pm GMT

Commenting on US GDP, Annalisa Piazza at Newedge Strategy said:

Most of the upward revision is explained by a slight upward revision in personal consumption (up by 1.6% versus 1.4% previously estimated) and net trade that now seems to have added nearly 4 tenths to GDP growth versus the 0.14% previously estimated. Government consumption has also been revised a touch higher.

Looking ahead, we rule out that US GDP will continue to accelerate in the coming quarters. At the current juncture, we expect Q4 GDP to run at around 2% and no major improvement is expected in the first part of next year.

Updated at 1.57pm GMT

1.33pm GMT

US GDP rise beats forecasts

US GDP figures have just come out and they show a bigger than expected gain.

The final third quarter rise was 3.1%, compared to expectations of 2.8% and the previous quarter’s 2.7%. This is the biggest increase since the fourth quarter of 2011.

Meanwhile jobless claims rose to 361,000 last week from a revised 344,000 the previous week.

12.55pm GMT

IMF reportedly wants a partial Cypriot default

Cyprus is another country to approve its austerity measures, but there are now reports that may not be enough to trigger aid payments.

According to a report in der Spiegel (itself quoting Süddeutsche Zeitung, the International Monetary Fund is demanding a partial default by Cyprus involving private creditors, before it joins the bailout agreement.

The IMF is said to be worried that even with the austerity measures, Cyprus would struggle to make the interest payments on its debt. A key quote, according to der Spiegel:

“The situation in Cyprus is much worse than it is in Greece,” one high-ranking EU official [said].

This is causing some comment on what exactly is being said:

Updated at 1.48pm GMT

12.21pm GMT

Italian budget passed by senate

BREAKING NEWS. Italy’s senate has approved the 2013 budget, which will now pass to the lower house, according to Reuters.

Prime minister Mario Monti has also been speaking.

Earlier, France passed its own austerity budget.

Updated at 12.24pm GMT

12.12pm GMT

Eurozone faces ‘economic stagnation and political uncertainty’ in 2013

On the theme of looking ahead, what can we expect from the eurozone in 2013? In a report on the prospects, Open Europe’s head of economic research, Raoul Ruparel, is not exactly bullish:

If 2012 saw a full on crisis in the eurozone, 2013 is likely to be a year of economic stagnation and political uncertainty, with low growth and high unemployment continuing to plague many countries.

There will be fewer threats to the eurozone’s existence than in 2012, but the fundamental flaws in the structure of the eurozone remain, and progress towards solving them is likely to continue to be slow. Italy, Spain and France face funding costs of €332bn, €195bn and €243bn respectively, which will keep markets on edge. On this front, liquidity from the ECB and the potential activation of its bond buying programme, the OMT, will help soothe fears in the first half of the year at least.

However, politics will be the name of the game. In order to get to the OMT, Spain and others will have to go through the ESM, meaning approval by parliaments in several creditor countries including Germany. This could trigger unexpected delays and tensions.

As for the UK and its future within or without Europe, he said:

A British exit from the EU became a topic of mainstream discussion in 2012 and will continue to be a front-page issue in 2013, with UKIP on the rise and European elections approaching.

In his forthcoming Europe speech – scheduled for mid-January – Cameron could well frame the choice for Britain in Europe as one between “renegotiation” and “Brixit”, though may still shy away from promising a concrete referendum. The two issues to watch are how many EU crime and policing laws the UK will remain signed up to, which could be decided next year, and whether Cameron can present a deal on the long-term EU budget as a success.

The full piece from the thinktank is here.

Updated at 12.28pm GMT

11.57am GMT

A quick bit of housekeeping.

We’ll be running the liveblog as usual tomorrow (Dan Milmo will be in the chair, as I have an urgent rendezvous with a turkey).

We’re not planning to run a liveblog on Christmas Eve, as we’d hate to distract regular readers from those essential last-minute shopping decisions. There’s nothing serious on the agenda – but rest assured that we will leap into action if there is big news.

Then I’ll be back on Thursday 27th December and Friday 28th December, and I’m also planning to be at my station on Monday 31st (although perhaps not till midnight, eh?)

And with that, I must fly…. Have lovely Christmases, one and all.

And over to Nick Fletcher….

Updated at 12.07pm GMT

11.34am GMT

Greece: the good news, and the bad news….

From Greece, our correspondent Helena Smith says Stournaras’s warning comes amid a welter of good and bad news for the debt-choked country.

On the one hand, a new gas pipeline could generate desperately needed revenues. On the other, classrooms may have to close because Greek schools can’t afford to heat them …

Here’s the good news

In what could be the single biggest foreign direct investment (FDI) ever in Greece, the Swiss-based Trans Adriatic Pipeline company announced that it has officially initiated the process to begin “host agreement” talks with the Greek government. The joint venture is competing to deliver gas from the Caspian region to Europe. If selected, Greece would become part of the fourth major gas import corridor for the EU, with the pipeline going through Greece, Albania and under the Adriatic to Italy, TAP officials say. The final selection of the gas transportation route is expected early in 2013. Azerbaijan’s BP-operated Shah Deniz consortium will oversee the process in a deal that would be worth €1.5bn for the crisis-hit country. TAP is the only option that will go through Greece.

“The host government agreement [governing the group’s investment] is a key step towards securing selection in 2013 of the Greek route,” TAP’s country manager for Greece, Rikard Scoufias, said. “We are very pleased with our co-operation with the Greek government, and this is yet another significant step towards realising the TAP project, which is destined to bring thousands of direct and indirect job opportunities as well as strengthen Greece’s strategic role in Europe.”

Now for the bad news:

In another area of the energy sector, Greeks are in for a rough ride, with the nation reeling from the announcement that state-run schools in snow-hit central and northern Greece may have to cancel classes because of a lack of funds to heat them.

Under pressure to meet internationally mandated budget targets, the Greek government has slashed funding for school heating oil supplies by around 60% as part of cost-cutting that has seen operational school expenses drop from €110m in 2011 to €80m this year. Just as the country is about to be gripped by a cold snap it has emerged that many schools have yet to receive any funding for heating at all. With temperatures due to drop to well below freezing, the primary school teachers’ federation (DOE) said the union may soon “have to suspend classes because of the cold weather”. “Many schools are facing serious problems with heating oil supplies,” DOE said in a statement.

Regular readers will know that sky-high oil prices in Greece are a classic case of big monopolies hogging the market. The coalition government has come under immense pressure from foreign lenders to liberalise the energy sector (currently dominated by Motor Oil Hellas and Hellenic Petroleum) as part of a reform programme aimed at opening up the country’s highly regulated economy and boosting competitiveness. Both companies are owned by two of the wealthiest tycoons in Greece, which is also hobbled by the highest fuel taxes on the continent of Europe.

An internal report produced by the International Monetary Fund, part of the troika of creditors propping up the insolvent Greek economy, this year attributed uncompetitive markets to the high costs. “The Greek market is highly concentrated and basically controlled by two domestic refiners,” the report contended, adding that lower fuel prices could help bring down the country’s consumer inflation rate by more than 1%.

Updated at 12.23pm GMT

11.23am GMT

Sony Kapoor of the Re-Define thinktank is also musing on the issue of how democracy survives within the eurozone:

Answers below (or here)

11.13am GMT

Charles Robertson of Renaissance Capital believes Stournaras is absolutely right to caution that Greece’s political system could struggle to handle public opposition to its austerity plans.

The Greek finance minister’s comments (see opening post) echo Robertson’s own concerns about Europes austerity programmes – that people won’t tolerate them.

He argues that Greece will leave the eurozone next year, with Spain following in 2014:

Is an economic policy that has produced 25% unemployment in Spain and Greece, and is forecast to make this worse, a morally acceptable policy choice?

How does an electorate react to such a socially damaging manmade disaster? History is unequivocal. The electorate will reject the policy. Taking the Great Depression template for countries leaving the gold standard, we should expect Greece to leave the euro in 2013 and Spain to follow in 2014-15. The former might see markets decline by 10-20% over one quarter. The latter is a Lehmans II event, likely to trigger a 50% fall in markets before a strong rebound.

Updated at 11.23am GMT

10.40am GMT

Back to Greece, where the current account deficit has fallen. Good news, you’d think, except the drop is mainly due to tumbling imports rather than a surge of exports.

The Greek current account balance came in at -€684m in October, better than the -€1.469bn recorded a year earlier.

Tourism revenues were also lower, down 19% compared to a year earlier.

Meanwhile, independent economist Shaun Richard is encouraged by the latest industrial orders data:

10.28am GMT

Finns face tough 2013

2013 may be crucial for Greece (see 8.18am), but it will be pretty tough for Finland, according to the Finnish finance ministry’s new outlook.

It has slashed its forecast for growth in 2013 to just 0.5% of GDP, from 1%. It also admitted that the economy probably shrank by 0.1% during 2012, having previously expected growth of 1%.

Finland is still one of the few European countries with an AAA rating, but weak growth could put it at risk.

Updated at 10.52am GMT

9.53am GMT

Monti

The Will he? Won’t he? speculation over Mario Monti continues this morning, with conflicting press reports on whether Italy’s technocratic PM will run as a candidate.

According to the FT, Monti indicated yesterday that he will run, at a meeting with Pier Ferdinando Casini, head of the small UDC party, and Luca Cordero di Montezemolo, the head of Ferrari.

‘Monti would be the political chief of the operation,’ one source said.

However, Italy’s Corriere della Sera newspaper takes the opposite line. It reckons Monti will not be an official candidate in Italy’s elections but will back a centrist coalition. That means he could then be appointed to the government after the vote.

Either way, Monti is still expected to reveal his plans over the weekend.

Updated at 10.54am GMT

9.24am GMT

Downbeat economic news from Italy – retail sales fell by 1.0% in October compared with September, the steepest monthly fall since April.

That means sales were 3.8% lower than a year ago, showing the impact of the Italian recession.

Italian inflation is running at 2.8%, so the belt-tightening is more severe in real terms.

Updated at 9.47am GMT

8.57am GMT

Updated at 8.58am GMT

8.46am GMT

Yannis Stournaras‘s warning may have taken some of the shine off the recent rally in Greek bonds. They’ve lost ground in early trading, pushing up the yield on 10-year debt to over 11.7%, from 11.6% overnight.

Still impressively low by recent form – at the end of May, Greek 10-year bonds were yielding 30%.

8.18am GMT

Greek finance minister: bankruptcy is still a risk

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

Greece’s finance minister has slightly deflated the sense of optimism as we ease into the Christmas break, by warning that the country faces another difficult year.

Yannis Stournaras has cautioned against getting carried away by recent progress, pointing out that things could unravel next year “if the political system finds the situation too difficult to handle”.

He made the comments in an interview with the Financial Times, published just a day after Greece’s credit rating was upgraded.

Stournaras is not all doom and despair, arguing that 2013 will be crucial:

We can make it next year if we can stick to the programme agreed with the EU and IMF.

But only if Greek people accept the job cuts and austerity measures that were contained in the 2013 budget. Stournaras warns that this is far from guaranteed:

What we have done so far is necessary but not sufficient to achieve a permanent solution for Greece … The issue now is implementation.

As such, there’s a “possible risk” of Greece leaving the euro, he added, despite Athens having now received its latest aid tranche.

With bond yields falling sharply, and yesterday’s general strike passing off peacefully, Greece has reached a calmer state. But it’s going to be a grim winter for many Greeks – and Stournaras is clearly concerned that he may struggle to hit his deficit targets and improve the competitiveness of the battered Greek economy.

As he put it:

We still face the possible risk of bankruptcy.

But get through 2013, and the future will be brighter, he added.

The full interview is here: Greece faces ‘make or break’ year.

Worth a read.

Anyway, as usual I’ll be mopping up the latest developments across the eurozone and beyond …

Updated at 9.50am GMT

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