January 29 2013

In the broadcast today: Is the EUR Ready for a Breakout vs. USD? As the EUR tests an important resistance level and reaches a new 13-month high vs. the USD, we explore the potential for a decisive bullish breakout that could open the door to further gains for the single currency against the greenback, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the weakness in GBP/USD pair, we note the range-bound fluctuations of the USD/JPY exchange rate, we highlight the market’s reaction to the Spanish Retail Sales, the German Consumer Climate, and the U.S. Consumer Confidence, we discuss new forecasts from Lloyds Banking Group and Bank of America, and prepare for the trading session ahead.

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Spanish retail sales down 10.7% in December. The Conference Board’s measure of US consumer confidence drops to 58.6 in January from 66.7, knocked by taxes and spats. Greek finance minister sees recovery. Euro hits 13-month high vs US dollar…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish retail sales slump, as US consumer confidence takes a knock” was written by Graeme Wearden, for guardian.co.uk on Tuesday 29th January 2013 14.58 UTC

3.30pm GMT

Payroll tax blamed for withering US consumer confidence

Here’s Capital Economics on this afternoon’s surprise slide in US consumer confidence (see 3.10pm):

The drop in the Conference Board measure of US consumer confidence to 58.6 in January, from 66.7, appears to have been driven by the recent payroll tax increase.

In contrast, equity prices have soared to multi-year highs, jobless claims have fallen to a five-year low and most of the fiscal cliff was averted. Nevertheless, the 2% payroll tax increase apparently dampened overall confidence as households saw a hit to their pay packets.

The 8.1 points drop in the headline index was driven by a drop in both the current conditions index, from 64.6 to 57.3, and the expectations sub-index, from 68.1 to 59.5. The latter is now consistent with a stagnation in consumption growth in the first quarter. Looking forward, confidence and consumer spending should improve as the year goes on.

3.10pm GMT

US consumer confidence in shock drop

Just in, confidence among America’s consumers has fallen alarmingly this month, following the clashes and deadlock on Capitol Hill over the country’s finances.

US consumer confidence came in at 58.6 (as measured by the Conference Board), down from 66.7 in December. That’s the lowest reading since November 2011.

One possible cause is that workers’ take-home pay fell in January because a temporary cut in social security payments has now expired (details here).

Another option is that consumers were spooked by the sight of their elected representatives squabbling over the debt ceiling.

Updated at 3.21pm GMT

2.57pm GMT

The euro continues to rally in the currency markets. It just hit a new 13-month high against the US dollar of $1.3490.

It’s now gained more than 11% since last summer, as this graph shows.

Another sign that the situation in the markets is changing (see 12.22pm for more on the Great Rotation).

Currency analysts are cautious, though, about the euro’s recent strengthening. at a time when the eurozone has fallen into recession. Jeremy Cook of World First commented:

Updated at 2.58pm GMT

2.25pm GMT

Fischer heads for port two years early

Stanley Fischer will step down as Bank of Israel governor at the end of June.

The plan, announced by the central bank, means Fischer’s term will end two years earlier than expected. The 69-year-old will outline his reasons at a press conference on Wednesday.

It means there are two central bank governorships up for grabs, while Ben Bernanke’s term at the Federal Reserve ends in 12 months, so get those CVs polished!

Updated at 3.20pm GMT

1.59pm GMT

Mapped: See Ireland’s legacy of derelict properties

Since the Celtic Tiger crashed the level of empty buildings in the Irish capital has soared.

Now, a new map has been created today which locates all of the major derelict properties and businesses in Dublin – all of them monuments to the Republic’s property market collapse.

  • Vacant sites=blue flags,
  • boarded up houses=green flag,
  • closed commercial=red flag,
  • closed commercial ground floor=yellow flag,
  • closed institutional or publicly owned=purple flag,
  • Unclassified= blue pin
  • Derelict properties list=red pin

Henry McDonald explains:

Property prices in the city fell dramatically by 56 per cent since its peak during the boom year of 2006.

The map also reveals the historic class divide in Dublin between the north and south sides of the river Liffey.

A majority of the empty houses, apartment complexes, shops and so on are found on the poorer north side of the river.

Visually, the city centre is almost obscured by the clusters of vacant property abandoned due to the recession.

1.43pm GMT

Peugeot job cuts thwarted, for now…

Over in France Peugeot’s attempts to cut thousands of jobs have been blocked, temporarily at least, by a court ruling.

Judges in Paris ordered that the car-maker suspends its plan to restructure its French operations, including closing a factory in the Parisian suburb of Aulnay, with the loss of 8,000 jobs.

Unions argued that Peugeot had failed to consult properly with other workers who would be affected by Aulnay’s closure, and the Paris Appeal Court agreed,

The ruling comes as France reels from the news that its labour minister had described the country as “totally bankrupt”.

Michel Sapin told radio listeners yesterday that:

There is a state but it is a totally bankrupt state.

That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.

Government officials have been scrambling to unpick the damage, with finance minister Moscovici insisting that the fiscal situation was merely “worrying’”, while Sapin himself insisted he was merely describing the situation under Nicolas Sarkozy….

Meanwhile, the city of Dijon has just sold off half of its municipal wine cellar to raise fund to support its social welfare bill.

As socialist mayor François Rebsamen put it:

We have overall a good budget this year, but the social action spending of the city just keeps going up. There are more and more of our co-citizens who are appealing for social aid.

More on the FT

Updated at 3.14pm GMT

12.22pm GMT

Chart: The Great Rotation

This might be of interest — Bank of America Merrill Lynch has released research predicting the areas of finance that might do well this year, after suffering during the heights of the crisis.

Summarised in this handy chart, it suggests a significant shift this year (assuming the current optimism continues, and is validated by events):

11.58am GMT

S&P raises Austria’s outlook

Another signal that the crisis is easing – Standard & Poor’s has raised the outlook on Austria’s AA+ credit rating to stable, from negative.

The move comes 12 months after S&P downgraded Austria’s AAA rating, and warned a further cut was possible.

Updated at 12.10pm GMT

11.33am GMT

Martin Koehring of The Economist Intelligence Unit isn’t convinced by the Greek finance minister’s claim that the risk of leaving the eurozone has almost vanished (see 9.23am for details)

Greece can take heart from ongoing rebalancing in its external accounts (the current account deficit has fallen dramatically since 2008, but mostly because of a collapse in imports), and a marked improvement in budget performance. But Grexit risk is not dead: political instability remains high amid ongoing risks of social unrest and an early election. And domestic opposition to the reform agenda will remain strong, especially if the economy does not turn around significantly, which we do not expect to happen before 2015.

Koehring also isn’t convinced by Yannis Stournaras’s argument that the Athens government has turned the economy around:

From its pre-crisis peak in the third quarter of 2007 to its latest trough in the third quarter of 2012, the Greek economy contracted by more than 19%. After five years of depression, we expect the economy to contract further in 2013-14. Domestic demand in particular remains extremely weak amid ongoing fiscal austerity and rising unemployment, which has suppressed household disposable incomes.

Updated at 12.04pm GMT

10.41am GMT

MPs hear perils of QE

Over in the UK, MPs are quizzing pensions experts about the Bank of England’s quantitative-easing (QE) programme.

Mark Hyde-Harrison of the National Association of Pension Funds warned parliament the decision to buy £375bn of UK government bonds with newly created electronic money had pummeled the pension industry.

He said QE had pushed up the deficits across defined benefit schemes by about £90bn. That is because the value of gilts has risen (as the Bank was there as a willing buyer) driving down the yield (or rate of return) for holding them.

That, he explained, meant pension funds looked weaker (as measured by the current rules) as the assets they retain are less lucrative.

Even pension funds that do not own gilts are affected, because gilt yields are used as the rate to discount future pension fund liabilities, which therefore rise when yields get suppressed (my colleague Jo Moulds points out)

Hyde-Harrison added:

The argument we have is not particularly with quantitative easing, it’s more about the way that once that £90bn deficit has been created, the regulations require companies to fill it.

We don’t believe we’re flexible enough to cope with the environment we are now in.

According to Hyde-Harrison, companies are having to contribute to their schemes (and not invest elsewhere) which negates the impact of QE.

Dr Ros Altmann, pensions expert and director-general of the Saga Group, was also critical of the impact of QE. She said that such loose monetary policy has backfired by devaluing pensioners’ income and making them less willing to spend:

Altmann added:

Quantitative easing and ultra-low interest rates have hampered the spending power of those in the economy who were not over-indebted and who would otherwise have spent money.

Updated at 1.38pm GMT

10.16am GMT

Carpetright has had a fright in the eurozone, suffering a double-digit fall in the three countries where it operates over the past 13 weeks.

This took the shine off the UK flooring company’s 3.2% rise in domestic sales, as my colleague Nick Fletcher explains:

The European business – Netherlands, Belgium and the Republic of Ireland – was rather more threadbare than the UK, down 11.5%. The weak spot was the Netherlands, with good performances elsewhere.

Chief executive Darren Shapland said: “Our focus in the Netherlands is on protecting profit in what remains a very weak consumer environment.”

The Netherlands, of course, is suffering a recession, while its government implements an unpopular austerity package. Weak carpet sales suggest consumers are hunkering down.

The Dutch housing market is in retreat, with prices falling 7% in 2012 and sales down by a similar amount.

Updated at 11.21am GMT

9.50am GMT

German consumer confidence growing

In other economic news, German consumer confidence has risen for the first time in four months, indicating that the eurozone’s largest economy expects a stronger year. No relief in France, however.

The research firm GfK said German consumers were “more confident again” having watched the recent stock market rally:

Currently there are few negative reports relating to the sovereign debt crisis in the press so Germans are once again focusing on the generally pleasing domestic state of affairs.

GfK revised up its reading of German consumer sentiment to 5.7 on its index, from 5.6, and reported a further rise to 5.8 this month.

In France consumer sentiment remained unchanged. The country’s statistics body reported overall confidence at 86 in January (100 is average), the same as December 2012.

Updated at 10.29am GMT

9.23am GMT

Greek finance minister: Recovery begins soon

Greece’s finance minister has declared there’s almost no chance of the country leaving the eurozone, and the recovery will begin at the end of this year.

In an interview with the BBC broadcast overnight, Yannis Stournaras said the economic position was tough, with further wage and pensions cuts hitting Greeks this year.

However, there was “much more optimism” in the markets that the worst was over. Asked if the fear of Greece leaving the euro had vanished, Stournaras said:

The probability of this happening is very, very small. We have managed to turn the economy around, yes. So I’m very optimistic that we have avoided the risk of Grexit.

Stournaras also predicted the Greek economy would end its long slump this year, with recovery beginning in the final quarter.

I feel absolutely sure, 100%, that this is the last year of the Greek recession.

As for Britain’s future in the European Union, Stournaras warned:

Britain belongs to Europe politically, financially….. All in all, I believe it would be a grave mistake if Britain decides to get out of Europe.

He rejected the idea that Britain could reshape its relationship with the EU, warning that every other country would also want a new deal, heralding ‘the end of Europe’….

Full interview here.

Updated at 10.27am GMT

8.47am GMT

An unmerry Christmas in Spain

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

First up, the latest economic news from Spain shows that many families suffered serious belt-tightening in the Christmas season.

Spanish retail sales tumbled by 10.7% year-on-year last month – worse than the 7.8% decline recorded in November, and close to the all-time record fall of 11% recorded in September.

Retail sales in Spain have fallen for 30 successive months, and accelerated since PM Mariano Rajoy implemented austerity measures intended to bring its budget into line. But with Spain’s recession accelerating, Brussels officials may realise a change is needed.

Olli Rehn, the EU’s economic and monetary affairs commissioner, hinted as much last night. He told reporters in Madrid:

If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path…

That’s what we did last year in the case of Spain.

Spain is understood to have flunked its target of cutting its deficit to 6.3% of GDP in 2012, which makes it much harder to hit 2013′s goal of 4.5%. Rehn may be making the groundwork for another relaxation.

Last week’s appalling jobless data – showing 60% of young Spanish people out of work – even sent alarm bells ringing at Davos last week, with Angela Merkel calling for help from businesses to reverse the trend.

Rajoy, too, may recognise that fiscal consolidation alone isn’t the answer. His officials have leaked news that next month’s state of the nation speech will include measures to stimulate growth such as tax breaks for young entrepreneurs.

As usual, we’ll be tracking the latest developments in the world of economics and finances through the day….

Updated at 9.20am GMT

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