January 9 2013

In the broadcast today: Can the ECB and BoE Surprise EUR and GBP Bulls? Ahead of tomorrow’s European Central Bank and Bank of England meetings, we examine the market’s expectations for the monetary policy decisions of these two major central banks and explore their potential impact on the EUR and the GBP, we analyze the latest trend developments in the EUR/USD currency pair, we take a look at the GBP/USD pair’s attempt for a break below an important support level, we continue to monitor the USD/JPY currency pair, we highlight the market’s reaction to the meeting of the Japanese Prime Minister with the Bank of Japan Governor, the U.K. Trade Balance, and the German Industrial Production, we discuss new forecasts from Citigroup, Morgan Stanley, Credit Suisse and Commerzbank, and prepare for the trading session ahead.

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No aid without privatizations, says German chancellor. Bailout could be delayed until Cyprus’s communist president leaves office first. Ireland’s hopes of exiting its IMF-EU bailout this year have been boosted. FTSE 100 at its highest level since May 2008…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Germany takes hard line on Cyprus bailout” was written by Graeme Wearden, for guardian.co.uk on Wednesday 9th January 2013 15.24 UTC

3.24pm GMT

FTSE 100 hits highest level since May 2008

The FTSE 100 just burst through the 6100 point mark to hit its highest level since May 2008, as stock markets on both side of the Atlantic rally.

FTSE 100: up 58 points at 6112, +0.97%

German DAX: up 26 points at 7722, +0.34%

French CAC: up 11 points at 3714, +0.32%

Dow Jones Industrial Average: up 77 points at 13406, +0.58%

Decent financial results from aluminum producer Alcoa, marking the start of this reporting season, are one factor.

Another reason may be the news that Barack Obama is poised to nominate Jack Lew as his new Treasury secretary. Lew is the current White House chief of staff, and a former executive at Citigroup.

Lew’s time at Citi is potentially controversial, as he ran a proprietary trading arm (ie, using Citi’s own funds not its clients) which bet on the US housing market collapsing.

Trader and blogger iFinansakrobat flags up the details here: Meet the hedge fund manager that could be the next Treasury Secretary of the US.

Lew could be popular pick with the City (which isn’t necessarily a good thing for everyone else…)

3.04pm GMT

Kenny: No chance of renegotiating Britain’s EU membership

Enda Kenny also confirmed Dublin’s opposition to Britain’s plan to renegotiate a deal with the EU, saying there was no chance of reopening treaties at this time.

Herman Van Rompuy also weighed in, saying he hoped the UK would remain an “active, full and leading” member of the EU.

And with the 40th anniversary of Britain and the Republic of Ireland joining the single market imminent, Van Rompuy joked that “life begins at 40″.

Updated at 3.11pm GMT

2.53pm GMT

Van Rompuy: the worst of the crisis is behind us

In Dublin, European Council president Herman van Rompuy is holding a press conference with the Irish prime minister, Enda Kenny, to mark the start of Ireland’s six-month presidency of the EU.

Van Rompuy began by declaring that 2012 had been “a turning point” in the crisis, and that the worst of the turmoil was behind Europe.

Van Rompuy added that the motto of the Irish presidency was “stability, jobs and growth” – concepts that “we are all working for”.

On the details… Van Rompuy said he hoped to get a deal on the EU budget in February, and was optimistic about his chances. You may remember that an EU summit broke up without any agreement last November).

Enda Kenny said his priority was to get a better deal for Ireland over the cost of its 2010 bank rescue (see 9.38am for details). Van Rompuy was optimistic (although he’s not actually involved), as Tony Connelly of RTE News reports:

More to follow…

Updated at 2.57pm GMT

2.26pm GMT

One of Angela Merkel’s coalition partners has also expressed opposition to a Cyprus bailout.

Rainer Brüderle of the Free Democrats (FDP) party told the Bild newspaper that many German MPs are unwilling to support an aid package.

Brüderle explained that there are concerns that a deal would effectively benefit Russian oligarchs who have large deposits in Cypriot banks.

Brüderle said:

There are many question marks regarding Cyprus. On the basis of what we know so far I do not see a majority [of MPs voting] for financial aid,

If the impression exists that German taxpayers are to be liable for dirty money, the aid would not be manageable or acceptable.

With Merkel also taking a tough stance (see 1.38pm), it’s clear that Cyprus’s bailout – which has been under discussion for months – is some way from completion.

Updated at 2.31pm GMT

1.38pm GMT

Merkel: No Cyprus bailout without privatisations

Angela Merkel has just given a clear signal that Cyprus will not get its bailout until it drops its opposition to wide-ranging economic reforms.

During a press conference in Berlin, the German chancellor insisted the aid deal would not be completed without Nicosia agreeing to a programme including privatising some state-controlled companies.

Merkel said (via Reuters):

We agree it is important that the troika should talk with Cyprus and that there can be no special conditions for Cyprus because we have common rules in Europe

We are far from the end of the talks.

The comments follow reports (see 8.54am) that the Cypriot loan deal will be delayed until communist President Dimitris Christofias has left office, in February (suggesting a deal might not come until March).

If true, expect more reports about Cyprus running short of cash. Last month, government officials denied claims that the country was struggling to fund wage payments to civil servants.

Updated at 2.32pm GMT

12.22pm GMT

Cameron unbowed

In the House of Commons, David Cameron has reiterated that he will call for a change in Britain’s relationship with Europe, in his much-anticipated speech on Europe due this month.

The prime minister told MPs that:

There are changes that would be good for the EU and good for Britain.

As flagged up yesterday, Ireland is concerned about Britain’s desire for a new deal with Europe, calling it a bigger risk than a Greek euro-exit.

And as Europe editor Ian Traynor reported last night, there is concern and confusion in Brussels over Cameron’s plans:

My colleague Andrew Sparrow is covering prime minister’s questions, and other political events, in his liveblog: PMQs and release of the coalition’s pledge audit: Politics live blog

Updated at 2.33pm GMT

12.17pm GMT

Encouraging signs for Italy — its two-year bonds have strengthened to their highest level in 27 months.

11.59am GMT

Ireland’s debt management agency has declared that it will “step up its re-engagement with the market during 2013″, following yesterday’s successful €2.5bn bond sale (see opening post).

John Corrigan, head of the National Treasury Management Agency, said in a statement that Ireland is pressing on with plans to exit its bailout this year, starting with a sale of short-term bonds on 17 January.

Corrigan sounds determined to capitalise on the success of yesterday’s sale, which will help Ireland to meet an €11.9bn bond redemption in January 2014.

Achieving a quarter of our funding plan for 2013 with yesterday’s bond sale is a very encouraging start to the year.

The progressive reduction of the January 2014 “funding cliff” has been viewed positively by the investment community and, allied to the fact that it demonstrates that we can raise funds in the market, has been a contributory factor to the fall in Irish bond yields.

The full statement is online here.

11.15am GMT

German industrial output misses forecasts

German industrial output, the big economic news of the day, has just been published – and it’s not as strong as economists had expected.

Industrial output in the eurozone’s largest economy inched up by 0.2%, with increased demand for equipment, or capital goods (+1.4%) making up for a drop in orders for consumer goods (-2.2%).

Analysts had expected a 1% month-on-month increase.

On an annual basis, German industrial output in October and November was 3% lower than a year ago – showing the impact of the crisis.

10.33am GMT

Disappointing economic news from Greece – industrial production fell by 2.9% in November, compared to the previous year. That’s a reversal from October, when there was an encouraging 3.5% year-on-year rise.

November’s fall was driven by a 13% drop in electricity production.

10.02am GMT

UK trade data

UK trade data for November was just released, and paints a mixed picture of the state of the UK economy.

Britain’s deficit in goods trade with the rest of the world narrowed (to £9.16bn, from nearly £9.5bn in October), but not as much as forecast. Exports to the EU rose (by £1.1bn) but those to the rest of the world fell slightly – which doesn’t suggest the UK economy is rebalancing away from Europe.

Chuck in Britain’s surplus in services, and the total trade gap comes in at -£3.466bn – an improvement on October’s -£3.729n. Over the last year, though, it has fluctuated with little clear improvement.

City analysts aren’t too impressed. Here’s some early reaction:

Updated at 11.07am GMT

9.38am GMT

Ireland blasts Brussels over bailout deal

Over in Dublin, Irish ministers have been criticising Brussels for the way that the country’s bailout was handled.

Communications minister Pat Rabbitte told reporters that the deal was unfair (Ireland issued “promissory notes”, which must be repaid at high interest rates for the next decade).

He accused the European Central Bank of “imposing” unfairly tough conditions on Ireland, even though the country was arguably ‘taking one for the team’ by taking its toxic bank debts onto the public books.

Our Europe editor Ian Traynor reports:

Last week, Rabbitte was in hot water after seeming to say that Ireland should just refuse to repay the promissory notes (this year’s bill is due in March).

Updated at 11.07am GMT

9.18am GMT

Yesterday’s eurozone unemployment data makes the front page of City AM, the London financial newspaper:

8.54am GMT

Cypriot rescue delayed amid German opposition – reports

Cyprus’s bailout is in trouble, according to two German newspapers this morning.

Handelsblatt is reporting that eurozone finance ministers are refusing to sign off the deal until elections have taken place next month, at which point the communist president, Demetris Christofias, will have departed.

One source told Handelsblatt:

The incumbent Christofias categorically rejects the sale of state companies. Without privatisation revenues the country cannot be reformed.

Negotiations over Cyprus’s aid package, which could total €17.5bn, have been grinding on for months. Christofias’s reluctance to agree to deep economic reforms are one hurdle. Another, though, is the fact that much of the money will be used to recapitalise Cypriot banks – who are heavy with funds from Russia. Germany is concerned that much of the money comes from criminal sources.

Germany’s Social Democratic party now says it cannot support a Cyprus rescue deal until this is addressed. SPD chairman Sigmar Gabriel told Sueddeutsche Zeitung that:

As matters stand, I cannot imagine that German taxpayers save Cypriot banks whose business model is based on facilitating tax evasion.

Updated at 9.02am GMT

8.45am GMT

We should get more news from Ireland today, as a journalists’ trip to mark the beginning of its EU presidency is continuing.

It sounds as if those attending enjoyed a lively evening….

8.39am GMT

Irish bond sale success brings cheer

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

Ireland is in focus this morning, after holding a rather successful debt action yesterday.

The Dublin government raised €2.5bn – a quarter of its total requirements for 2013 – with no shortage of willing buyers (total bids for the five-year bonds came to €7bn). The interest rate on the sale (an average yield of just 3.32%), was also encouraging.

Ireland, often dubbed the “poster-child” for austerity, may well be on track to exit its IMF-EU bailout this year, analysts believe.

As Gary Jenkins of Swordfish Research puts it:

Arguably it was one of the most oversubscribed and successful deals since the Greek ones in 2010…

And Owen Callan of Danske Bank, who helped conduct the sale, said it “bodes well for the future”, adding:

It shows that investors very much believe in the Irish recovery story.

Europe could certainly use some good news, following yesterday’s bleak unemployment data (the eurozone jobless rate hit 11.8%).

Ireland, though, remains dogged by the legacy of its banking crisis – the “promissory notes” issued to fund the nationalisation of Anglo Irish bank remain desperately costly. Dublin really needs to renegotiate a better deal out of Brussels – arguably while it has the six-month EU presidency.

As analyst Louise Cooper of CooperCity explains:

It is estimated that [Irish] debt to GDP will be over 120% this year, above the IMF’s optimistic sustainable level.

After so much work to regain its financial reputation, Ireland is unlikely to want to default on its financial promises like Greece. Enda Kenny is instead arguing for part mutualisation - for the European Union to take on repayment of the debt specifically created in saving the Irish banking industry. This is a pretty big step for Europe.

However after the big Irish bond rally, markets are assuming that some kind of deal will be done – that the politicians will eventually come to the rescue.

One to watch, as they say.

As usual, I’ll be tracking the latest developments in the euro crisis and beyond through the day.

Updated at 8.55am GMT

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