March 7 2013

In the broadcast today: What’s Next for the EUR and the GBP after ECB and BOE Decisions? Following the European Central Bank and the Bank of England monetary policy decisions, we take a close look at the EUR and the GBP and explore what the future might have in store for these two currency majors, we analyze the bounce higher in the EUR/USD currency pair, we note the strengthening of the GBP vs USD, we continue to monitor the rally in the USD/JPY pair, we highlight the market’s reaction to the European Central Bank, the Bank of England and the Bank of Japan interest rate announcements, the German Factory Orders, and the U.S. Jobless Claims, we discuss new forecasts from JPMorgan Chase, HSBC and UBS, and prepare for the trading session ahead.

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Draghi says “we considered a rate cut”. ECB press conference highlights. Pound rallies after Bank of England’s MPC votes against more QE. Bank of Japan rejects a call to start open-ended asset purchases immediately. US jobless claims drop…

Powered by article titled “Eurozone crisis live: Bank of England and ECB leave rates unchanged” was written by Graeme Wearden, for on Thursday 7th March 2013 15.00 UTC

3.00pm GMT

2.51pm GMT

It’s over

And that’s the end of the press conference.

The euro has gained almost one and a half cents against the US dollar, to $1.313.

Against the pound, the euro is up 0.7p at 87.04p – so one pound is worth €1.148.

2.47pm GMT

Draghi is also asked is he worried that Italy, his native land, will leave the path of austerity. Or even the single currency?

The ECB president won’t speculate over the election results, but is adamant that the country must stick to the path of structural reforms.

2.45pm GMT

Channel 4′s Faisal Islam suggests Draghi was looking at Spain when he spoke about youth unemployment a few minutes ago:

2.42pm GMT

Draghi: negative interest rates would have serious consequences.

A question about negative interest rates – did the European Central Bank consider cutting its deposit rate (levied on the deposits held by commercial banks at the ECB) below its current rate of 0.0%

Draghi replies: We’ve looked at the idea of a negative deposit rate, but unintended consequences could be serious. We’d be in uncharted waters.

2.39pm GMT

2.36pm GMT

Is the ECB worried that the euro is too high?

Draghi won’t be lured into firing a salvo in the currency wars – pointing out that the G8 released a statement last month in which they pledged not to talk down their currencies.

I won’t be the first person to break it, he says.

2.34pm GMT

Draghi: we’re still working on the legal side of OMT

Michael Steen of the Financial Times just stepped into the lion’s den.

He explains to Draghi that, contrary to what the ECB president has said during the press conference, we do not all understand how the Outright Monetary Transactions programme would work in practice.

All we’re seen, says Steen, is a 440-word statement released last summer. It’s not clear whether a country needs to still have access to the borrowing markets, for example, to sign up to OMT (at which point the ECB would start buying their bonds).

Draghi replies that countries “should be on the market by themselves”, but even admits that the ECB is “still working” on the legal documentation.

Updated at 2.48pm GMT

2.26pm GMT

Tweet of the day:

2.23pm GMT

On Cyprus…..

Asked about Cyprus’s bailout (still not agreed), Draghi warns that while Cyprus is small, the systemic risk is poses is not.

He adds that it is important that Cyprus accepts “international oversight” over how effectively its anti money-laundering legislation has been implemented in practice.

2.20pm GMT

A question about the slow march towards a single eurozone banking supervisor (at the ECB). Is Draghi worried that the pace is too slow?

Apparently not.

Progress in building the single supervisory mechanism (SSM) is continuing, says Draghi, adding that:

People underestimate amount of political capital that European leaders have invested in the euro.

2.16pm GMT

Draghi is asked about the recent nationalisation of Dutch bank SNS Reaal after it was unable to find private investors.

Isn’t that a reason for angst? Draghi says No:

2.12pm GMT

Next question – is the ECB worried that recent optimism over the crisis has pushed stock markets too high, which could lead to a crash?

Draghi replies that it is “very hard to say” whether stock prices are correct, but suggests that the rally is driven by hopes that the situation in the world economy is improving.

2.10pm GMT

Mario Draghi’s “Angst of the Week” joke (which didn’t actually split any sides in Frankfurt) has split opinion:

2.04pm GMT

Draghi: It’s Angst of the Week time

Draghi is asked about reports that the European Central Bank might quit the Troika (the group made up of the ECB, the IMF and the EU).

He starts with a joke — telling the press conference that:

Each week we have an angst.

citing recent fears over the Long Term Refinancing Operations loans.

New angst, every week or two.

And usually the fears are misplaced.

My suggestion to you is that, once you get gossip from friendly fire…. come and check with us before you write something that doesn’t exist.

Draghi goes on to point out that the ECB, like the IMF, predeced the Troika – which was created to tackle the ‘emergency’ in Europe.

We believe the ECB has some added value, and competence, in its sector, which it can provide to the Troika, Draghi says.

And he ends by insisting that the ECB remains free of political interference.

Updated at 2.05pm GMT

1.56pm GMT

Draghi continues to explain that the ECB sees weak consumption, weak demand, and high unemployment, but in the medium term “we see the start of a recovery.”

Thus, no rate cut today.

1.55pm GMT

ECB considered rate cut

INTERESTING: Draghi tells the room that the ECB governing council considered cutting rates.

Asked about the weakness in the eurozone economy, the ECB president explains that the possibility of a rate cut was discussed. but the “prevailing consensus” was to leave borrowing costs unchanged.

1.52pm GMT

On his OMT bond-buying programme: Draghi also says that it is there if a eurozone country decides it needs more help.

The rules are what they are… the ball is in the governments’ hands

1.50pm GMT

Read Draghi’s statement in full

Mario Draghi’s opening statement is now online here: Introductory statement to the press conference

1.49pm GMT

Question: what about Italy?

QUESTION TIME: and the first inquiry is based on the Italian election.

Draghi responds that markets have calmed down after their initial wobble, and have recognised that elections are a regular feature of the European landscape (he suggests that around 34 elections take place over a four-year cycle).

Markets understand that we live in a democracy….

adding that democracy and elections are very precious to everyone.

Draghi also suggests that much of the fiscal adjustment in Italy will continue, regardless of the election.

And he cracks a rather good joke – that the markets were less impacted by the Italian results than the journalists in the room (and beyond!)

1.45pm GMT

Draghi ends by repeating his line that European leaders must take decisive action to mend the imbalances in the region – and cites youth unemployment as a top priority.

1.44pm GMT

Draghi says inflation risks are broadly balanced, with the risk of higher inflation (perhaps from oil prices) balanced by the downside risk of weaker economic growth.

1.43pm GMT

Here are the ECB’s new inflation forecasts,

2013: between 1.2% and 2% (from 1.1% to 2.1%)

2014: between 0.6% to 2.0% (from 0.6% to 2.2%)

1.40pm GMT

The ECB has also cut its growth forecast for 2014, to between 0.0% to 2.0% (down from +0.2% to +2.2% back in December).

1.39pm GMT

ECB cuts growth forecasts

The ECB has revised down its economic forecasts, Draghi confirms.

It now expects eurozone GDP in 2013 to shrink, by between -0.1% and -0.9% (from a previous range of +0.3% to -0.9%). So no hope that the region will avoid contracting through during the year.

1.37pm GMT

Draghi repeats his line that it is “essential” for governments to implement structural reforms.

He also points to evidence that banks have repaid around €200bn to the ECB, by repaying their LTRO loans (made just over a year ago when the ECB pumped more liquidity into the euro economy)

Our monetary policy stance remains firmly accommodative, Draghi states. So no plans to tighten yet.

1.34pm GMT

Draghi’s statement

Mario Draghi starts by confirming that the ECB voted to leave interest rates unchanged at 0.75%.

He cited the latest inflation data, and evidence that inflation expectations remain firmly anchored.

However, there is also evidence that the ‘economic weakness’ (ie the recesssion) has extended into early 2013

Adjustments in the public and private sector will continue to weigh on the economy, he adds — but Draghi still sees a recovery later this year.

1.32pm GMT

And we’re off.

1.30pm GMT

ECB press conference starting now

You can watch the European Central Bank press conference streamed live on its website, just click here.

Among other issues, Mario Draghi should release the ECB’s latest economic forecasts….

1.25pm GMT

Incidentally, Portugal has warmly welcomed S&P’s decision to raise its rating outlook from negative to stable (see 11.40am), calling it “excellent”.

It’s a change to see rating agencies getting some love….

12.50pm GMT

And across the City traders, economists, and pundits race to grab some lunch before Mario Draghi’s press conference at 1.30pm GMT, or 2.30pm local time.

12.49pm GMT

As well as leaving the main refinancing rate unchanged at 0.75%, the ECB will continue to charge commercial banks a ‘marginal lending rate’ of 1.5%, and also pay zero interest on its deposit facility*.

* – money left with the ECB by commercial banks.

Updated at 12.49pm GMT

12.48pm GMT

The euro has risen a smidgen – to $1.3036, on the back of that news (reflecting the small chance of a rate cut).

12.45pm GMT

ECB: no change

The European Central Bank has voted to leave its benchmark interest rate unchanged, at 0.75%.

No other shocks either.

Updated at 12.46pm GMT

12.44pm GMT

The euro has been rising today – can the ECB rate decision (due in one minute) change it?…

12.31pm GMT

Cameron defending economic policies

UK prime minister David Cameron is giving a major speech on the British economy now. My colleague Andrew Sparrow has been live-blogging it here: Politics live blog.

He’s been defending his economic strategy, and criticising calls for him to relax his deficit reduction targets:

Andrew reports:

Cameron says there is no choice between tackling debts and promoting growth.

As the independent Office for Budget Responsibility has made clear…

…growth has been depressed by the financial crisis…

…the problems in the Eurozone…

…and a 60% rise in oil prices between August 2010 and April 2011.

They are absolutely clear that the deficit reduction plan is not responsible.

In fact, quite the opposite.

Tackling the deficit is the first essential step for growth.

And if we don’t do it, we’ll end up facing even greater austerity.

Moody’s rating agency says “the UK’s creditworthiness remains extremely high”…

…thanks in part to a “strong track record” of dealing with our debts and our “political will”.

But they also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of “reduced political commitment to fiscal consolidation

More here.

Updated at 12.40pm GMT

12.26pm GMT

Early reaction

Here’s some early reaction to the Bank of England’s decision to leave interest rates at 0.5%, and the quantitative easing programme at £375bn.

Stephen Gifford, CBI Director of Economics. reckons the vote on QE was very close:

A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction, is likely to have made this decision a close call.

With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.

Capital Economics suspects we’ll see more QE soon:

We expect that it will not take much to swing a majority of members in support of more stimulus in the near future

Howard Archer of IHS Global Insight believes the Bank is feeling the pressure to do more to help the UK economy.

We expect the Bank of England to deliver one £25bn portion of QE in the second quarter (taking the stock up to £400 billion) with another £25bn portion (taking the stock up to £425 billion) occurring shortly after Mark Carney takes over as Bank of England Governor in July.

It is also evident that the Bank of England is looking for other ways of helping the economy, particularly in trying to get more working capital through to smaller companies. Further measures seem highly likely in this area.

Jeremy Cook, chief economist at foreign exchange company, World First, reckons the Bank might now wait for Mr Carney.

“Data coming out of the UK has not got materially worse since the most recent decision, but the relative weakness of the Funding for Lending Scheme had prompted many to forecast that the BOE would ‘pull the lever’.

However, I think the Bank will now hold on policy until Mark Carney takes the reins of the MPC in July…”

12.17pm GMT

Just to clarify the situation with quantitative easing.

• The Bank of England has already created £375bn of “new” electronic money, in a programme dating back four years.

• This money (known as the asset purchase scheme) has been used to buy British government bonds from UK banks.

• The funds, the Bank of England says, should then flow into the wider economy through increased lending, stimulating economic growth. Critics question whether that actually happens in practice – but it has certainly helped push down UK borrowing costs.

• The MPC could have decided to increase the programme again, most likely in a £25bn slug of new money.

Updated at 12.42pm GMT

12.08pm GMT

The minutes of today’s meeting will be released on Wednesday 20 March, which by delicious timing is also Budget Day.

That’s when get the details of the voting, and find out how many doves pushed for more QE.

Updated at 12.42pm GMT

12.04pm GMT

The pound has jumped by half a cent, to $1.505, while UK gilts are falling in value. That’s pushed the yield on 10-year gilts up to 1.98%, from 1.95% this morning.

Updated at 12.05pm GMT

12.01pm GMT

There’s no further statement from the Bank of England – but you can see the decision itself here: Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

Updated at 12.06pm GMT

12.00pm GMT

Bank of England: No change

BREAKING: The Bank of England has voted to leave its quantitative easing budget unchanged at £375bn.

Interest rates remain at their record low of 0.5%

More to follow!

11.40am GMT

S&P raises Portugal’s rating outlook

Standard & Poor’s has just revised UP its outlook on Portugal, from negative to stable.

It issued the vote of confidence after concluding that Portugal is likely to persuade its lenders to give it more time to pay its bailout loans.

Here’s S&P’s logic:

• We expect Portugal’s official European lenders to lengthen the maturity profiles of their loans to Portugal. In our view, this should reduce Portugal’s public sector refinancing risks.

• We also expect the “Troika” to adjust Portugal’s fiscal consolidation path to allow for weaker-than-previously-assumed economic performance. In our opinion, this makes Portugal’s adjustment process more sustainable, both economically and socially, and reduces the risk that it will not comply with the program.

• We are therefore revising our outlook on the rating on Portugal to stable from negative.

This leaves Portugal with a junk rating of BB, though (two notches below investment grade).

Updated at 11.40am GMT

11.29am GMT

Greek unemployment rate falls

Greece’s unemployment rate has actually fallen, for the first time since its economic downturn began five years ago.

In what could be a much-needed encouraging sign, the country’s jobless rate dropped to 26.4% in December, from 26.6% in November.

It appears that Greek companies may have been encouraged to take on more workers as the long saga of Greece €34bn aid tranche was finally resolved at the end of 2012.

It’s only a glimmer of hope, at best – Greece still has the highest jobless rate in the eurozone (ahead of Spain’s 26.2%), and it’s economy is still shrinking.

Updated at 12.33pm GMT

11.17am GMT

Berlusconi sentenced to jail (but not jailed) over wiretap charges

Speaking of Silvio Berlusconi … he’s just been sentenced to a year’s imprisonment following a trial for leaking the contents of a wiretapped phone call to his brother’s newspaper.

Berlusconi had denied pushing Il Giornale to publish the transcript of the call to damage a political opponent, but the court has just issued its ruling.

However, the handcuffs are not coming out. Berlusconi can’t actually be jailed until the appeal’s process has been concluded – so this doesn’t appear to have a major impact on the political situation in Italy.

Updated at 12.01pm GMT

11.09am GMT

Albert Edwards, the notoriously bearish City analyst, isn’t impressed to see the Dow Jones industrial average at record levels – and reckons it means trouble ahead:

In a new note sent to his Société Générale clients, Edwards said:

As the Dow surges to all time highs it feels eerily similar to the prior mid-2007 peak. Exactly the same jitters abound of a bond bear market and true to form Ben Bernanke is making the same complacent comments.

(mind you, Edwards was predicting a 70% stock market tumble in July 2011, and that forecast remains unfilled)

Edwards also touches on the Italian election:

I believe the electorate were right to reject further austerity. There will be more such electoral revulsion on the way, but for Italy it doesn’t really matter anyway. They can remove the horse-hair shirt forced on them by the ECB/Germany/European Commission and these dreary architects of depression can be told to take a very large running jump.

Buy Italy!

We’ve explained before that the motives behind Beppe Grillo’s rase were more complex than a simple austerity backlash, but it’s true that Silvio Berlusconi’s popularity was swelled by his airy promises to cut taxes.

Edwards also produces a graph of on and off-balance sheet liabilities to illustrate that Italy’s debt problems as less alarming then other countries. Such as the UK:

10.35am GMT

Reassuring news for Spain – it successfully sold €5bn of bonds at auction this morning, its maximum target.

It also paid lower borrowing costs, with investors accepting yields of 4.917% on Spanish 10-year debt, down from 5.2% in February.

It suggests calm is returning to the bond markets after the excitement caused by the Italian election.

10.12am GMT

French finance minister issues austerity warning

France’s finance minister has warned of a social crisis and a surge in popularity for extremist political groups unless Europe ends its focus on austerity and fiscal cuts.

Speaking in Brussels this morning, Pierre Moscovici said continuing on the current course would ultimately “nourish a social crisis that leads to populism”. His solution – “more Europe” – with closer ties between its members to help each other back to growth.

He argued that the “existential” eurozone crisis is over (ie, the risk of the euro breaking up), but a crisis remains with the single currency region.

Moscovici conceded that countries couldn’t simply ignore their debt levels, saying that national debts were “a challenge for any country” regardless of their situation. But he argued that measures such as eurobonds, and a new fund to tackle Europe’s jobless crisis, would be a much better approach.

France isn’t expected to hit the EU’s target of a deficit no bigger than 3% of GDP this year. But with French unemployment over 10%, the view in Paris is that growth is more important then debt levels.

Moscovici was speaking at a conference called Failed austerity in Europe – the way out (so I don’t expect he was heckled!).

My former colleague David Gow is attending the event, and tweeted the main highlights:

Updated at 10.23am GMT

9.51am GMT

Pound down

The pound is weakening this morning, dropping below the $1.50 mark (seen a test of the nation’s economic virility) again.

Traders say sterling is being pushed down by speculation that the Bank of England will announce more QE, as well as the FT’s report that its mandate will be widened (see 9.35am)

9.35am GMT

FT: New powers for Mark Carney

The Bank of England could be about receive sweeping new powers to help drive the UK out of its economic stagnation.

The Financial Times has splashed on the news that the new Bank of England governor will be given a new brief, to help stimulate growth in the UK.

It claims that George Osborne will announce a new era of looser monetary policy in the budget in two weeks time, by changing the Bank’s mandate.

This could mean a new inflation target (currently 2%), or asking the Bank to also target unemployment (as the US Federal Reserve now does).

Another option is to get the Bank to target nominal GDP (the cash value of the economy). Carney himself hinted last December that it could make more sense to get central banks to push for economic growth rather than just encouraging a low-inflation environment (in which growth would bloom).

The story goes on to say that Treasury officials are “discussing proposals” – so it’s not clear that Osborne has made his mind up (and, to be fair, the “dual mandate” issue has been kicked around in economics circles for some time).

Something for the MPC to get their teeth into this morning as they discuss the state of the UK economy.

Updated at 9.50am GMT

9.09am GMT

Rate expectations (2)

With the eurozone recession continuing, some members of the European Central Bank may be pushing for a rate cut in Frankfurt today. Most economists expect them to be outvoted, though.

Just  four out of 76 economists polled by Reuters reckons we’ll see a cut today, with 22 expecting borrowing costs to be cut from their current level of 0.75% at some stage.

Eurozone inflation has fallen to 1.8%, which is bang in line with the ECB’s target of just below the 2% mark.

Updated at 9.50am GMT

9.02am GMT

Rate expectations (1)

City economists are split over whether the Bank of England will take the plunge and increase its QE budget by another £25bn, to £400bn.

A Reuters roll last week found that 40% of economists expected an increase, but since then there’s been growing speculation of action. So it’s too close to call.

Michael Saunders of Citigroup is in the ‘more QE’ camp:

A majority of the MPC have reached the point where they agree that the economy needs more stimulus…Now they have to agree on how to do it.

The MPC does appear to be divided over the way forward, though. Last month deputy governor Paul Tucker caused a storm by discussing imposing ‘negative interest rates’ on commercial banks to force them to lend – an idea swiftly shot down by colleague Charlie Bean.

This gives the impression of two camps in the Bank – one who thinks the existing levers of monetary policy are sufficient, and one which believes more radical action is needed.

8.28am GMT

A busy day for central bankers

Good morning, and welcome to our rolling coverage of the latest developments in the eurozone financial crisis and across the global economy.

It’s a big day for central banking, with the Bank of England and the European Central Bank holding their monthly meetings to debate monetary policy and set interest rates.

Both meetings promise to be really rather interesting.

In the Bank of England’s case, there’s a real chance that the Monetary Policy Committee (MPC) will vote to pump another dose of electronic money into the system through its quantitative easing programme.

Last month the MPC was split 6-3 over QE – so can the three doves (which including governor Sir Mervyn King) persuade at least two more colleagues over to their perch?

The ECB isn’t expected to cut its interest rates (but, as with the BoE, you never know).

The excitement could come Mario Draghi holds his press conference this afternoon. Expect a grilling on the situation in Italy — where the political deadlock has raised questions over the effectiveness of Draghi’s pledge to buy unlimited government bonds if a country seeks help.

How, reporters in Frankfurt will doubtless ask, could the ECB take the risk of loading itself up with, par exemple, Italian debt when a maverick like Beppe Grillo is calling the shots? Not to mention Silvio Berlusconi….

That Outright Monetary Transactions (OMT) programme isn’t full-blown QE, but it’s the best weapon in the ECB’s locker to control, tame and fix the crisis.

Draghi’s comments will also be scrutinised for signs that the ECB might cut interest rates in the coming months — which would bring some relief to struggling firms and households across the eurozone.


Bank of England rate/QE decision: noon GMT

European Central Bank rate decision: 12.45pm GMT

European Central Bank press conference: 1.30pm GMT


We’ll also be tracking other events across the eurozone and the wider economy. That will include the situation in Greece, where Troika officials continue their latest visit to Athens to check the country’s progress against its bailout targets.

Updated at 8.37am GMT © Guardian News & Media Limited 2010

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