April 2013

Barroso: We’ve reached the limit on austerity. Bill Gross: investors want growth not austerity. Eurozone government debt hits 90% of GDP. Relief as Italian president reelected. But Five Star Movement protests. US existing home sales drop…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Brussels hints at austerity rethink as opposition mounts – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 22nd April 2013 12.28 UTC

6.13pm BST

Closing summary

Time to wrap up for the day above the line (you can keep going below the line as long as you like!).

Here's a closing summary.

Pressure is growing to rethink the eurozone's austerity programme after top Brussels officials admitted that a new approach is needed to fix the crisis.

European Commission president José Manuel Barroso said the current programme of fiscal reform has reached its social and political limits, and suggested countries could be given more time to bring their deficits into line (see 2.17pm).

And European Council president Herman Van Rompuy declared that there was a 'renewed sense of urgency' to the crisis (see 4.53pm).

Bill Gross, head of bond-trading firm Pimco, weighed into the debate today. He told the FT that the UK and members of the Eurozone had blundered by enforcing austerity cutbacks, saying investers were more worried about future growth (see 12.11pm).

New data showed that total sovereign debt held by eurozone countries has reached 90% of GDP. Eurostat also reported that 17 members of the EU ran deficits over the target of 3% of annual output last year (see 10.40am onwards)

In Italy, president Giorgio Napolitano was sworn in for a second term. In an emotional speech, Napolitano savaged Italian politicians for not reforming the country's political system. Fighting back tears, he said he would resign unless vital changes were made — and insisted that a new government was urgently needed. (see 4.40pm).

Talks over the formation of a new government will start on Tuesday.

The financial markets cheered Napolitano's decision to serve a second term. Italy's borrowing costs fell, as the Milan stock market rallied by 1.6% (see 5.09pm for closing prices).

Political analysts warned, though, that Italy was in a precarious state. (see 2.43pm and 3.11pm).

Angela Merkel called on European leaders to continue to push for closer integration. Some sovereignty must be surrendered in return for a stable future, the German chancellor said (see 3..33pm).

Over in Japan, there was relief that G20 finance ministers didn't publicly criticised its new stimulus package. The Nikkei hit a new near-five year high, and the yen weakened closer to the 100 yen/$ mark (see 9.08am).

And a new deadline loomed in Greece. MPs were warned that they must pass a new bill of measures by Sunday, to ensure that their next aid payment is received (see 4.10pm).

Thanks for reading and commenting (some great stuff below the line, as ever). See you all tomorrow… G

Giorgio Napolitano (C) is applauded by Chamber of Deputies president Laura Boldrini (L), while being congratulated by Senate president Pietro Grasso (R), at the Italian parliament in Rome, 22 April 2013.
Giorgio Napolitano being applauded by Chamber of Deputies president Laura Boldrini (left), while being congratulated by Senate president Pietro Grasso (right), after being sworn in today. Photograph: MAURIZIO BRAMBATTI/EPA

Updated at 6.23pm BST

6.10pm BST

Just in — the Italian president has announced that he will begin a "rapid series of meetings" on Tuesday on the creation of a new government….

5.40pm BST

Support for Germany's new anti-euro party, Alternative für Deutschland, has risen to 5% — the threshold for winning seats in the Bundestag.

That's up from 3% when the party held its first conference earlier this month

Here's the latest polling data from INSA:

CDU/CSU: 38%,

SPD: 26%,

Greens: 15%,

Left: 6%,

FDP: 5%,

AfD: 5%,

Pirates: 2%

Updated at 5.40pm BST

5.33pm BST

Spain's population has fallen for the first time in decades, according to census data published today.

The Spanish population dropped by 206,000 to 47.1m, the National Statistic Institute (NSI) reported. Most of the decline is due to overseas workers leaving the country, it added.

The BBC has the full story: Spain's population shrinks as immigrants flee economic crisis

Updated at 5.33pm BST

5.14pm BST

And over in America, Europeam commissioner Olli Rehn has warned that growth will only return "slowly" to Europe's economy in the second half of this year.

Even that cautious forecast is too optimistic for Re-Define's Sony Kapoor:

Updated at 5.14pm BST

5.09pm BST

European markets are closed

President Giorgio Napolitano's threat to resign unless Italian politics is reformed didn't cause any late alarm in the Milan stock market where shares finished higher.

Italian sovereign debt have also staged a strong recovery, showing investors have more confidence in the country's future. The yield on Italy's 10-year bonds has now dropped to 4.06%, a chunky 16-basis point fall.

Other European markets were mixed, though:

Here's the closing prices:

Italian FTSE MIB: up 260 points at 16,021, + 1.66%

FTSE 100: down 6 points at 6280, – 0.09%

German DAX: up 18 points at 7478, – 0.24%

French CAC: flat

Spanish IBEX: up 112 points at 8,027, +1.4%

And here's Michael Hewson of CMC Markets' take:

Equity markets initially enjoyed somewhat of a relief rebound today after last week’s declines, helped by the lack of criticism from the G20 over Japan's attempts to create inflation which helped boost sentiment…however this could well be construed as clutching at straws given that the economic outlook continues to remain difficult.

There was also renewed optimism over an end to the political deadlock in Italy after Giorgio Napolitano agreed to another seven year term as President in an attempt to break the political deadlock that has gripped Europe’s third largest economy for nearly two months now.

Despite the optimism the inescapable fact remains that it is a sad state of affairs when an 87 year old man has to stand for re-election in an attempt to try and move the country forwards with respect to either a new coalition government, or new elections.

4.53pm BST

Van Rompuy: New urgency to fix the crisis

European Council president Herman Van Rompuy has claimed this evening that there is a "renewed sense of urgency" in Brussels to fix Europe's economic problems.

Welcome to the party, Herman…

There's more:

Updated at 4.55pm BST

4.43pm BST

Re-elected Italian President Giorgio Napolitano (C) addresses deputies and senators next to Laura Boldrini (L), president of the Italian Parliament and Pietro Grasso, president of the Italian senate, at the Italian Parliament in Rome on April 22, 2013.
Re-elected Italian President Giorgio Napolitano (C) addresses deputies and senators this afternoon. Photograph: ALBERTO PIZZOLI/AFP/Getty Images

4.40pm BST

President Napolitano: reform Italy or I quit

Giorgio Napolitano has been sworn in as Italy's next presdent, and promptly threatened to resign unless the country's politicians get their act together.

The 87-year old Napolitano gave an emotional speech, saying he had only agreed to take on an unprecedented second term to break the deadlock that was gripping Italy.

He was scathing about Italy's political leaders, citing their failure to reform the country's electoral law (which helped to deliver stalemate at February's general election). He warned that he would quite unless vital reforms were made.

According to Reuters, Napolitano was "occasionally choking back tears" as he said leaders "must not hesitate" in forming a new government (check out our 2.43pm post for Open Europe's analysis).

Any system in which the new president threatens to resign within 20 minutes of being sworn in clearly needs urgent treatment.

4.31pm BST

On Fitch’s AAA downgrade

A couple of good blogposts about Fitch's downgrade of the UK's triple-A rating, on Friday night, to flag up:

Banking expert Frances Coppola argues that it's a political downgrade:

Fitch notes that the UK's public debt is denominated exclusively in domestic currency. A sovereign currency-issuing government should never default on its domestic-currency sovereign debt obligations, since it can always create money to settle them. Debt default for a sovereign currency issuer is a therefore a POLITICAL decision, not an economic one. 

Fitch's downgrade amounts to a vote of no confidence in the Cameron government, and particularly in the Chancellorship of George Osborne. And the timing of the announcement is exquisite, coming as it does at the end of a week which saw bad labour market figures, criticism from the IMF of the Chancellor's economic strategy, and the exposure of fundamental flaws in an economic theory frequently used to justify aggressive deficit reduction measures.

And Duncan Weldon of the TUC flags up Fitch's supportive comments on the UK's debt profile (Britain has sold more long-maturity bonds than average). That gives the Treasury the flexibility to slow down its fiscal adjustment programme, he argues:

Whilst my views of the calibre of rating agencies analysis throughout the crisis has been pretty much in line with that of Jonathan Portes, I thought one nugget of information in Fitch’s statement was worth highlighting.

"The long average maturity of public debt (15 years) – the longest of any high-grade sovereign -exclusively denominated in local currency and low interest service burden implies a higher level of debt tolerance than many high-grade peers." [said Fitch]

This is an important point. Much as there is a tendency to look at deficit/GDP ratios without taking account of interest rates, too often economists look at debt/GDP ratios without looking at the maturity of that debt. This is nonsensical. As any individual can grasp, there is a world of difference between owing someone £100,000 repayable in twenty years time and owing someone £100,000 due tomorrow.

4.10pm BST

Over in Greece, MPs have been told that they must pass a bill outlining the next swathe of cutbacks by Sunday.

Finance minister Yannis Stournaras told MPs today that the legislation needs to be approved before parliament adjourns for Orthodox Easter. It will include laying off 15,000 civil servants over the next two years — one of the measures demanded by international lenders.

Greek newspaper Kathimerini explains:

Stournaras said that he would brief coalition leaders about the measures on Tuesday and would submit the bill to Parliament on Thursday under an emergency procedure.

The minister said that the vote would have to take place by Sunday because Greek Parliament will not be sitting next week as it is Holy Week ahead of Orthodox Easter.

He said that Greece would have to approve the prior actions in time for a Eurogroup meeting on May 13, when an instalment of 6 billion euros is due to be approved.

4.00pm BST

World stock markets have fallen back this afternoon, following disappointing results from equipment and machinery maker Caterpillar (see 1.06pm).

In New York the Dow Jones industrial average is down 0.4% – and the UK FTSE 100, the German Dax and the French CAC are all in the red in late trading (European markets close in 30 minutes).

There is also anxiety on Wall Street that Apple might miss forecasts when it releases its latest financial results on Tuesday night.

3.33pm BST

Merkel: Europe must give up some sovereignty

German Chancellor Angela Merkel and Polish Prime Minister Donald Tusk talking before the conference.
German Chancellor Angela Merkel and Polish Prime Minister Donald Tusk earlier today. Photograph: Gon alo Silva/Demotix/Corbis

German chancellor Angela Merkel has caused a stir this afternoon after declaring that European countries needed to yield some sovereignty to ensure Europe's survival.

Merkel made a pitch for more integration at a press conference with Polish prime minister Donald Tusk.

The chancellor was concerned that other European leaders lose their commitment to a closer Europe when the crisis ebbs away.Tusk, though, warned that it could be counterproductive for Berlin to force its agenda on the rest of the EU

As Reuters reports:

"We seem to find common solutions when we are staring over the abyss," Merkel said. "But as soon as the pressure eases, people say they want to go their own way.

"We need to be ready to accept that Europe has the last word in certain areas. Otherwise we won't be able to continue to build Europe," she added.

Tusk said it would be "dangerous" if other countries in Europe felt Germany was imposing its own economic model across the entire bloc.

But Merkel denied that, saying Europe was made up of different cultures and economies with different strengths. The key she said, was for Europe to orient itself towards best practices.

That meant Germany accepting a single market for services, a common labour market and more compatible social security systems, so that Europeans could move from one state to the other without worrying about their pensions.

"We don't always need to give up national practices but we need to be compatible," Merkel said. "It is chaos right now."
"We need to be prepared to break with the past in order to leap forward. I'm ready to do this," she said.

A lot of these issues will be tackled in June, at the next major EU summit.

Updated at 4.42pm BST

3.31pm BST

Eurozone consumer confidence rises

A welcome piece of encouraging economic data — consumer confidence across the eurozone rose in April to a nine-month high.

Consumer sentiment came in at -20.4 this month, up from -21.6 in March, according to Eurostat. That's still poor in historical terms, but a sign that people are less nervous. March, of course, was the month of the Cyprus bailout crisis.

Howard Archer, chief European economist at IHS Global Insight, said the rise in consumer confidence was welcome, but warned that people were unlikely to increase their spending soon:

Despite April’s increase, confidence is still low compared to long-term norms while Eurozone consumers continue to largely face high and rising unemployment, generally muted wage growth and tight fiscal policy.

This is particularly, the case in the southern periphery countries but it is also true for countries such as France and the Netherlands.

3.11pm BST

Robert O’Daly, Italian Analyst at The Economist Intelligence Unit, warns that Italian politics remains unstable, even though the country finally has a new president:

The re-election of Giorgio Napolitano as president has helped to reassure investors as it is expected to lead to the formation in the coming days of a broad centre-left/centre-right/centrist-backed government, probably led by Giuliano Amato.

However, the political deadlock since the February general election has taken its toll on the centre-left, the largest group in parliament. The centre-left is now deeply divided and the dominant Democratic Party risks splintering into several separate groups. The young mayor of Florence, Matteo Renzi, is openly challenging the current leader of the Democrats and the centre-left, Pier Luigi Bersani.

The internal turmoil of the Democratic Party and the broader centre-left alliance is likely to be a source of instability for the next government.”

2.43pm BST

Open Europe: What now for Italy?

Open Europe has released new analysis on the situation in Italy following the re-election of Giorgio Napolitano on Saturday.

And Italy's new President is…the old one! What happens next?

And here's the lowdown:

  • Napolitano will take his second oath this afternoon. From that moment, he will re-gain the power to dissolve parliament and call new elections.
  • Crucially, Napolitano has said he will "clarify the terms" under which he agreed to stay on in his (second) inauguration speech. The Italian media are speculating on at least two conditions. First, a shorter mandate than the seven years set out in the Italian Constitution – otherwise Re Giorgio would be leaving office at 95. Second, and most important, the formation of a national unity government – backed by the centre-left Democratic Party, Monti's centrist group and Silvio Berlusconi's People of Freedom party.
  • The markets seem to take the formation of a new government for granted, with Italy's borrowing costs going down this morning (see 1.27pm for details)
  • The latest from the Italian media is that Napolitano will hold a swift round of talks and could give someone the mandate to form the new government as early as tomorrow. There are reportedly two clear favourites to lead the new government. One is Giuliano Amato, 75 years old, who already served twice as Italian Prime Minister. The alternative is Enrico Letta, Pier Luigi Bersani's right hand. We would put our money on Amato, especially since not everyone within Letta's own Democratic Party is enthusiastic about him being appointed as Prime Minister.
  • The new government is likely to be a mix of politicians and technocrats. It will focus its efforts on bringing home 5-6 key reforms, based on the proposals put forward by the ten 'wise men' earlier this month. We expect the new government to give priority to political, rather than economic reform. Top of the agenda will be changing the electoral system, along with reforming a pretty dysfunctional institutional structure where the two houses of parliament have perfectly equal powers.
  • In any case, the new government is unlikely to remain in charge for the entire five-year parliamentary term.

More here.

There's also a rumour swirling this afternoon that outgoing prime minister Mario Monti could stay on as foreign minister:

Updated at 2.44pm BST

2.17pm BST

Barroso: euro austerity has reached its limits.

European Commission President Jose Manuel Barroso speeches at the opening of the 'Think Tank' conference at the Residence Palace, in Brussels, Belgium, 22 April 2013.
European Commission President Jose Manuel Barroso at the opening of the ‘Think Tank’ conference at the Residence Palace, Brussels, this morning. Photograph: JULIEN WARNAND/EPA

EC president José Manuel Barroso appeared to admit today that Europe's austerity drive cannot be pushed any harder.

Speaking in Brussels, Barroso warnedthat Europe's programme of fiscal consolidation has reached its "political and social" limits. He also hinted that countries who are missing their deficit targets will be given more flexibility.

Barroso told the Think Tank Dialogue:

While I think this policy is fundamentally right, I think it has reached its limits…

A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support.

Barroso explained that Europe needs a "stronger emphasis on growth and growth measures".

Even if the policy of correcting deficit is fundamentally correct, we can always discuss fine tuning of pace.

Quite a change of heart from Barroso, given the EC's role helping to set bailout programmes since the crisis began. He faced a tough grilling by our Europe editor Ian Traynor:

Updated at 2.19pm BST

1.27pm BST

Optimism pushes Italian borrowing costs down

In the financial markets, there is still optimism over the situation in Italy – following Giorgo Napolitano's re-election as president on Saturday (see 8.29am). Government bonds continues to strengthen, which means Italy's cost of borrowing (measured by bond yields) has fallen.

Shares continue to rally. Here's the details:

• 10-year Italian bond yields, down 15 basis points at 4.07%.

• FTSE MIB: up 328 points, or 2.1%, at 16087 points.

But Sebastien Galy of Société Générale warns that the rally could be short-lived:

Napolitano's re-appointment, coupled with Bersani's resignation, paves the way for a coalition government between the Democratic Party and the Berlusconi-led centre-right.

But such a coalition government, born more out of political necessity than a popular mandate, is unlikely to be able to pursue the necessary structural reforms to the Italian economy, and is also likely to be short-lived. We essentially still have a problematic political situation in Italy. Keep short euro.

Updated at 1.28pm BST

1.06pm BST

Caterpillar: Eurozone to shrink almost 0.5% this year

A parking lot at Caterpillar Belgium, in Gosselies, Belgium.
A parking lot at Caterpillar Belgium, in Gosselies, Belgium. Photograph: Yves Logghe/AP

Caterpillar, the construction and mining equipment giant, has warned that it expects the eurozone to shrink this year – and by more than the International Monetary Fund believes.

In its latest results, released to Wall Street a few minutes ago (pdf), Caterpillar criticised the way the eurozone crisis is being handled. It said:

We believe that economic policies in the Eurozone have not changed enough to address record high unemployment, a 20-year low in construction and over a year of declining output. We expect the Eurozone economy will decline close to 0.5 percent this year.

Last week, the IMF predicted that eurozone GDP would fall by 0.3% in 2013.

Caterpillar's wide range of industrial and construction products mean it is a useful economic gauge – as demand for the firm's diggers, engines and trucks rises and falls with the wider economy.

Caterpillar warned shareholders that it has cut its sales and profit outlooks for this year, following a drop in demand for its mining equipment.

Our revised 2013 outlook reflects a sales decline of about 50% from 2012 for traditional Cat machines used in mining and a decline of about 15% for sales of machines from our Bucyrus acquisition.

Despite that, Caterpillar sees stability in the US and China:

As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year. In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular. 

In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy.

12.11pm BST

Bill Gross blasts UK and eurozone over austerity

The chief executive of bond-trading giant Pimco has laid into the fiscal progammes of the UK and parts of the eurozone today, as the austerity debate continues to rage.

Bill Gross called for new stimulus measures to get economic growth moving again,rather than worrying about short-term debt targets, in an interview with the Financial Times published this morning.

Gross warned:

The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not.

You’ve got to spend money.

Gross's broad point is that it is a serious mistake to slash spending in an attempt to please the financial markets:

Bond investors want growth much like equity investors, and to the extent that too much austerity leads to recession or stagnation then credit spreads widen out – even if a country can print its own currency and write its own cheques.

In the long term it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP….

The question in terms of the long term and the short term is how quickly to do it.

Gross's comments are topical – with today's data showing that total government debt across the eurozone has reached 90% of GDP and 17 EU countries running deficits above 3% despite several years of fiscal consolidation programmes.

(Portugal's deficit of 6.4%, for example, shows the challenge of reducing borrowing during a deep recession. Lisbon was forced into taking a bailout after its borrowing costs climbed into the danger zone after years of borrowing and weak growth)

This also looks like a u-turn from Gross.

Three years ago, the Pimco chief famously warned investors against buying UK government debt, warning that gilts were "resting on a bed of nitroglycerine". That forecast hasn't been born out yet — 10-year gilt yields have strengthened to just 1.6% , from around 4% three years ago.

Here's some early reaction:

11.20am BST

90% debt/GDP ratio fails to alarm…

The news that Britain, France and the eurozone's debt piles have all hit 90% of GDP (under Eurostat's maths) comes just days after research that warned this was the trigger point for slumping growth was rather discredited.

I imagine that Kenneth Rogoff and Carmen Reinhart's paper, Growth in a Time of Debt, would have been cited this morning — if it hadn't been shown to include Excel spreadsheet errors and selective user of data.

The Harvard pair insist that the report still shows that growth falls sharply when debt rises above 90%.

(incidentally, Eurostat's debt figures show 'consolidated gross debt', while Britain's Office for Budget Responsibility favours 'public sector net debt', which was 75.9% for the UK in the last financial year).

Updated at 11.32am BST

10.59am BST

Debt/GDP table

And here's the key details of today's government debt figures from Eurostat (see 10.40am onwards).

Government debt, as a percentage of GDP, 2012

Germany: 81.9%

France: 90.2%

Britain: 90.0%

Spain: 84.2%

Italy: 127.0%

Greece: 156.9%

Portugal: 123.6%

Ireland: 117.6%

Cyprus: 85.8%

Slovenia: 54.1%

Euro area: 90.6%

EU27 85.3%

Updated at 11.04am BST

10.47am BST

Germany tops the deficit pile

Germany outshone the rest of Europe by posting a budget surplus, of 0.2%.

Annual surpluses/deficits for 2012, via Eurostat

Germany: +0.2%


France: -4.8%


Britain: -6.3%


Spain: -10.6%


Italy: -3.0%

Greece: -10.0%

Portugal: -6.4%

Ireland: -7.6%

Cyprus: -6.3%

Slovenia: -4.0%

Euro area: -3.7%

European Union: -4.0%

You can download the full details here.

10.40am BST

Eurozone debt hits 90% of GDP

The Eurozone's government debt pile has risen to 90% of GDP, according to new data from Eurostat this morning which showed the region's annual deficit had fallen.

Eurostat has calculated that eurozone members' collective debt reached €8.6 trilion in 2012, when its combined economic output was nearly €9.5 trillion.

The total eurozone deficit fell to 3.7%, from 4.2% a year ago. Brussels will see that as proof that tough fiscal consolidation programmes are finally bearing fruit.

But the data shows stark difference across the region, and the wider EU. Five eurozone countries have deficit levels above 6% of GDP, a position shared with the UK.

And seventeen members of the European Union missed the target of a deficit below 3% of output (with Spain the worst, at 10.6%)

As Eurostat put it:

In all, thirteen Member States recorded an improvement in their government balance relative to GDP in 2012 compared with 2011, twelve a worsening and two remained stable.

Updated at 11.46am BST

10.15am BST

Italian stock market keeps climbing

ItalianRome traders really are feeling upbeat today – the FTSE MIB index is now up 2.15% at 16100 points.

(The Italian stock market is, of course, in Milan not Rome as I wrote originally. Apologies)

Updated at 1.21pm BST

10.13am BST

Key event

Here's one for the macro economists in the room – America is to recalculate decades-worth of historical economic data, to include factors such as research-and-development spending.

The move by the Bureau of Economic Analysis will also see 'intangible items' such as film royalties added to US GDP this summer. According to the Financial Times, it will make the US economy 3% larger.

The FT explains:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output…..

At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. R&D will now count as an investment, adding a bit more than 2 per cent to the measured size of the economy.

Here's the full story: Data shift to lift US economy 3%

Despite the extent of the revision, the BEA reckons we won't see "large changes" in economic cycles or underlying trends. But it should give a different picture of the world's largest economy.

As the FT explains:

GDP will soar in small states that host a lot of military R&D, but barely change in others, widening measured income gaps across the US. R&D is expected to boost the GDP of New Mexico by 10 per cent and Maryland by 6 per cent while Louisiana will see an increase of just 0.6 per cent.

Creative works are expected to add a further 0.5 per cent to the overall size of the US economy. Around one-third of that will come from movies, one-third from TV programmes, and one-third from books, music and theatre.

9.30am BST

In the markets…

Most of the major European stock markets are up this morning, on relief over the re-election of Italy's president (see 8.29am) and the Nikkei's rally overnight (see 9.08am).

Italian FTSE MIB: up 274 points at 16035. +1.7%

FTSE 100: up 30 points at 6316, + 0.5%

German DAX: up 24 points at 7473, + 0.2%

French CAC: down 1 point at 3650, -0.04%

Spanish IBEX: up 42 points at 7957, +0.5%

Mike van Dulken, head of research at Accendo Markets, reckons investors are more bullish about upcoming company results:

Friday’s rebound has continued after the G20 refrained from criticising the Bank of Japan, and earnings optimism rises.

9.27am BST

This graph (via IG's early morning note) shows the correlation between Japan's Nikkei index and the yen/$ over the last year:

Nikkei vs Yen
Photograph: Bloomberg

9.08am BST

Sliding yen drives Nikkei higher

The Japanese stock market hit its highest level in almost five years today, after Japan avoided an international rebuke over its new stimulus and monetary easing programme.

The Nikkei ended 1.89% higher at 13,568 points, and the Japanese yen inched closer to the symbolic ¥100 mark, hitting ¥99.88.

Last week's G20 meeting ended with world finance ministers pledging to be "mindful" of the dangers of extended monetary stimulus, but made no specific reference to Japan.

Traders see it as a green light for the yen to keep falling, especially as Bank of Japan governor Haruhiko Kuroda told parliament this morning that other countries understood Tokyo's desire to revive its economy (Reuters has more details here).

Updated at 9.08am BST

8.50am BST

Five Star Movement protests at Napolitano re-election

Leader of the 5 Star Movement Beppe Grillo speaks during a press conference in Rome, Sunday, April 21, 2013.
Beppe Grillo speaks during a press conference in Rome, Sunday, April 21, 2013. Photograph: Mauro Scrobogna/AP

Beppe Grillo, the head of the radical Five Star Movement, has blasted Giorgio Napolitano's re-election as "a cunning little institutional coup" by Italy's established parties.

Grillo told a press conference yesterday that:

They have stolen a year of time. I don't think we can accept this.

Napolitano could now dissolve parliament and call a snap election (a power not available to a president at the end of his term). That gives him more leverage over the various parties to force them to form a government.

The prospect of a PD-PDL alliance brought many Five Star supporters onto the streets on Saturday night:

Five-Star Movement's leader Beppe Grillo on the roof of a car in Rome, Italy, 21 April 2013.
Five-Star Movement’s leader Beppe Grillo on the roof of a car in Rome yesterday. Photograph: GUIDO MONTANI/EPA
Activists of anti-establishment 5 Star Movement gather to stage a protest in Rome, Sunday, April 21, 2013.
Activists of anti-establishment 5 Star Movement gather to stage a protest in Rome, Sunday, April 21, 2013. Photograph: Gregorio Borgia/AP

8.29am BST

Italian bond yields hit record lows

Lawmakers and senators applaud after Giorgio Napolitano was elected new Italian head of state at the Lower Chamber on April 20, 2013 in Rome, Italy.
Lawmakers and senators applaud after Giorgio Napolitano was elected new Italian head of state at the Lower Chamber, on April 20, 2013. Photograph: Marco Ravagli/Barcroft Media

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

There is relief in the financial markets this morning after the deadlock over Italy's next president was finally broken over the weekend.

Italian borrowing costs have fallen sharply, and shares are rallying across Europe.

After four failed votes, and with the centre-left Democratic Party (PD) on its knees, Georgio Napolitano was re-elected as president for an unprecented second term.

The 87-year old strolled to victory, with broad support from both PD and Silvio Berlusconi's People of Freedom (PDL) party. That could pave the way to a new government — Italy has already been trapped in deadlock for two months since February's general election.

Optimism that Italy could be inching fowards has driven down its borrowing costs this morning as traders piled into its bonds.

Here's the details:

The yield (or interest rate) on Italian two-year debt hit a record low of 1.267% in early trading.

And the yield on ten-year sovereign debt — the benchmark for a country's ability to borrow – also rose in value, pushing down the yield to 4.1% (from 4.22% last night). Far from the 7%-plus yields that forced Berlusconi out of office in November 2011.

And the Italian main share index, the FTSE MIB, has jumped bny 1.6% — up 255 points at 16,017.

Italy's problems are hardly over. The centre-left PD party, for example, is in turmoil – with leader Pier Luigi Bersani resigning over the weekend after both his favoured candidates for the presidency were rejected. But perhaps a corner has been turned….

As usual, I'll be covering all the latest developments through the day….

Updated at 8.30am BST

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USA 

Whether economy has contracted for second quarter in row may be a trivial detail that distracts from bigger, more dismal picture. Forecasters are split over whether the UK economy managed to grow in the first quarter of this year or contracted again…

 


Powered by Guardian.co.ukThis article titled “Will Britain slide into a triple-dip recession?” was written by Katie Allen, for theguardian.com on Monday 22nd April 2013 11.52 UTC

The wait to find out if the UK slipped into a triple-dip recession is over this week, with official GDP data out on Thursday. Forecasters are split over whether the UK economy managed to eke out some growth in the first quarter of this year or contracted again.

The consensus forecast in a Reuters poll is for a tiny 0.1% quarter-on-quarter uptick. But predictions range from a 0.2% drop in GDP to growth of 0.3%.

The Office for National Statistics (ONS) said the economy slipped by 0.3% in the fourth quarter. Thursday will be statisticians' first take of three for the first quarter and economists caution that the numbers, as well as data for previous quarters, could well be revised either up or down.

But if the figures do show two successive quarters of contraction from the beginning of October to the end of March it will mark a triple-dip recession – unprecedented in living memory.

Still, many economists also warn that whether the UK officially slipped into a triple-dip or not is a trivial detail that distracts from the bigger picture of an economy facing headwinds from squeezed consumers, an austerity drive and struggling industry.

Here is a roundup of views ahead of Thursday's 9.30am figures.

Brian Hilliard, Société Générale

The first estimate of GDP is an output measure on two months' hard data for industrial production, construction output and services output available to the ONS together with forecasts for the third month. However, only one month's services data is published before the GDP release. That makes it rather difficult to make a sensible forecast, but here goes! Based on reasonable assumptions for March, Q1 growth in industrial production should be between 0% and 0.1% quarter-on-quarter. Construction output should fall by between 3% and 6% and services should rise by about 0.2% quarter-on-quarter. The weather will have been a dampening factor in construction output and unfortunately that weakness is likely to outweigh the growth in services. The result should be a fall in GDP of about 0.1% quarter-on-quarter. This will inevitably spawn "triple dip" headlines. The real story is modest underlying growth but not high enough to reduce the output gap.

Nick Bate, Bank of America Merrill Lynch

We think the preliminary estimate of Q1 GDP may show zero growth over the quarter. Indeed, we think the balance of risks may be skewed a little to the downside … Monthly data available suggests that output in both the industrial and services sectors may have risen a little over the quarter, but another notable fall in construction output may have knocked around 0.2 percentage points off GDP growth.

Vicky Redwood, Capital Economics

It is questionable whether it should be considered a "true" triple-dip … The 0.3% quarterly drop in real GDP in the fourth quarter (Q4) can probably be wholly accounted for by the reversal of the Olympics boost which supported output in the third quarter. Without the Olympics effect, output would probably have avoided a contraction. In any case, any triple dip might well be revised away in the future. The double dip between Q4 2011 and Q2 2012 was initially estimated to consist of three quarterly contractions in GDP of 0.2%, 0.2% and 0.7%. But the two 0.2% contractions are now estimated to be 0.1% drops. So it is already being called the double dip that almost didn't happen.

Nonetheless, we should not let the somewhat meaningless debate about the triple dip distract from the big picture – that this recovery is still depressingly dismal. To rub salt into the wound, the US Q1 GDP figures also released this week are set to show growth rising by 3.2% annualised (a quarterly rise of about 0.8%). This will leave the divergence between the two economies looking even more striking.

Howard Archer, IHS Global Insight

In reality, it makes very little difference whether the economy expanded modestly in the first quarter, contracted marginally or was flat. However, it would be good for psychological/confidence reasons if the economy could dodge contraction in the first quarter and, therefore, avoid nasty and potentially damaging headlines about "triple-dip recession".

We put the odds of GDP contraction in the first quarter (and hence a triple-dip recession) at around 30%. So we reckon there is a 70% chance that the economy was either flat or grew marginally.

We suspect that expansion in the dominant service sector was strong enough to allow the economy to eke out marginal GDP growth of 0.1 to 0.2% quarter-on-quarter in the first quarter. This would result in year-on-year GDP growth of 0.4% year-on-year. Admittedly, it looks like there was substantial contraction in construction output in the first quarter, but the sector only accounts for 6.8% of GDP, while the services sector accounts for 77%. Meanwhile, industrial production was likely essentially flat in the first quarter, given that there was a marked rebound in output in February from January's sharp drop.

Ruth Lea, economic adviser to Arbuthnot Banking Group

On the basis of ONS data so far available and survey material, GDP for 2013 Q1 could be a tad positive, thus avoiding a triple dip. But whether or not a triple dip is avoided, economic performance is weak. The latest labour market data showed an increase in unemployment, the February trade data deteriorated and bank lending to the business sector fell in February. The IMF downgraded its forecasts for the UK last week, with its chief economist, Olivier Blanchard, saying the chancellor should reconsider his "strict" austerity programme, and Fitch's downgraded Britain's triple-A rating to AA+.

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Apr. 21, 2013 (Allthingsforex.com) – A combination of notable economic data from the euro-area, coupled with the Bank of Japan’s monetary policy meeting and two GDP reports from the U.S. and the U.K., will offer plenty of excitement in the week ahead as the markets anxiously await to find out if the U.K. economy has averted an unprecedented triple-dip recession.

In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Mon., Apr. 22, 10:00 am, ET.

The report could start a sequence of upbeat U.S. economic data with sales of existing homes forecast to increase to 5.01 million in April, compared with 4.98 million in March.

2.    EUR- Euro-zone Composite PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Tues., Apr. 23, 4:00 am, ET.

Mired in recession, the euro-zone economy is expected to continue to suffer from a chronic contraction in its manufacturing and services sectors, as the Composite PMI stays in contraction territory below the 50 boom/bust line for another month with a reading of 46.3 in April from 46.5 in March. With economic growth still nowhere to be seen, the report could weigh on the EUR by increasing the odds that the European Central Bank might be forced to announce additional monetary policy easing measures as early as the bank’s next meeting on May 2.

3.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Tues., Apr. 23, 10:00 am, ET.

Similar to the existing home sales, a small increase is also expected in the U.S. new home sales, with consensus forecasts estimating a reading of 420K in March compared with 411K in February.

4.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Tues., Apr. 23, 5:00 pm, ET.

The Reserve Bank of New Zealand joined “currency wars” in February with the Governor making it clear that intervention is being considered as an option to curb the persistent strength of the New Zealand dollar. In a world where competitive currency devaluation has become the norm, the New Zealand central bank will not be in a hurry to start tightening monetary policy. The Kiwi could weaken if the Reserve Bank of New Zealand issues another warning that its currency should not be considered as a “one way bet.”

5.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Wed., Apr. 24, 4:00 am, ET.

This could become another economic report that fails to instill confidence that the euro-area is on a path to recovery. The business outlook in the euro-zone’s largest economy is forecast to be less optimistic with a decline in the Ifo index to 106.2 in April, compared with a reading of 106.7 in the previous month.

6.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Apr. 25, 4:30 am, ET.

Following three consecutive quarters of contraction, the U.K. returned to growth in Q3 2012, only to see its economy contracting again by 0.3% q/q in the final quarter of last year. As a result, fears of unprecedented triple-dip recession in the U.K. escalated and could become a reality if the economy unexpectedly contracts in the first quarter of 2013. The consensus forecasts suggest that such scenario could be averted with the U.K. economy expected to dodge the triple-dip recession bullet and grow by 0.1% q/q in Q1. On the other hand, should the report signal a triple-dip recession, pressure on the GBP would mount on expectations of more QE by the Bank of England.

7.     JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Apr. 25, 7:30 pm, ET.

The Japanese national core inflation gauge is forecast to drop by -0.4% y/y in March from -0.3% y/y in February. With the index sinking deeper into deflation territory and heading further away from the Bank of Japan’s 2% inflation target, the report could accelerate the trend of JPY weakness on expectations that the Bank of Japan might resort to even more aggressive measures to fight deflation and to spur economic growth by devaluing its currency.

8.    JPY- Bank of Japan Interest Rate Announcement, Fri., Apr. 26, around 12:00 am, ET.

Since the Bank of Japan already gave the markets the “shock and awe” treatment earlier this month by doubling the size of asset purchases, the Japanese central bank will probably not rush to deliver even more fireworks. Policy makers will be likely to reaffirm their open-ended commitment to aggressive QE until the 2% inflation target is in sight. If the Bank of Japan does not announce anything we don’t already know, we could see the yen correcting some of its losses.

9.    USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth, Fri., Apr. 26, 8:30 am, ET.

After the U.S. economy avoided contraction in the final quarter of last year, the preliminary GDP estimate is forecast to show the U.S. growing at a faster pace by 3.0% q/y in the first quarter of 2103, compared with 0.4% q/y in Q4 2012. The USD could benefit from accelerating U.S. economic growth report which could raise the odds that the Fed might take the first step toward monetary policy tightening sooner rather than later.

10.     USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Apr. 26, 9:55 am, ET.

The final April reading of the U.S. consumer sentiment index is forecast to be revised higher to 74.3 from a preliminary estimate of 72.3. The report will wrap up what is expected to be a week of positive U.S. economic data that could boost investor sentiment and risk appetite.

Britain loses AAA rating with Fitch. Gross government debt expected to hit 101%. Treasury: we can’t run away from Britain’s debts. Britain is launching legal action against a plan to introduce a financial transaction tax in eurozone countries…

 


Powered by Guardian.co.ukThis article titled “Fitch downgrades UK credit rating – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 19th April 2013 18.35 UTC

8.34pm BST

Closing summary

Our news story on the Fitch downgrade is now online here: Fitch strips UK of AAA credit rating.

Here's a flavour:

The UK's credit standing took a further blow on Friday when Fitch Ratings became the second major international agency to strip it of its top-notch credit rating.

The move is an embarrassment for the coalition, which promised to protect Britain's rating when it took power in 2010, and will heighten the debate about whether austerity is still the right approach.

Fitch trimmed the rating to AA+ from AAA, citing a weaker economic and fiscal outlook. But it returned the outlook to "stable", removing the threat of any further rating action, at least in the near term.

"The fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a AAA rating," it said in a statement.

And as the reaction to the move has now died down, I'm going to shut up the liveblog for the day.

Here's the key points:

You can track the reaction to Fitch's downgrade from 5.06pm.

Here's the official statement

George Osborne says there's no credible alternative…

Shadow chancellor Ed Balls called it 'another devastating blow' to Osborne, and David Cameron

City analysts reacted calmly.

Thanks for reading, and goodnight. Back next week…..

8.30pm BST

Another photo from Washington, catching Osborne and Sir Mervyn King in thoughtful mood:

Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington, Friday, April 19, 2013.
Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington. Photograph: Charles Dharapak/AP

8.15pm BST

Meanwhile in Washington, finance ministers have agreed not to set hard targets for debt reduction.

Reuters has the details

8.09pm BST

UK launches legal action over FTT

Another important story to flag up… Britain is launching legal action against a plan to introduce a financial transaction tax in eleven eurozone countries.

The government says it is worried that the plan will affect banks and institutions in countries outside the scheme – in other words, hurt the City..

From Washington, Larry Elliott reports:

The scheme, also known as a Tobin tax, would put a levy on all euro transactions anywhere in the world. But hopes for it suffered a setback when George Osborne said in Washington that the UK was taking the case to the European court of justice (ECJ).

"I am not against financial transaction taxes in principle," the chancellor said, noting that the UK put stamp duty on shares. "But I am concerned about the extra-territorial aspects of the European commission's proposals.

It's quite a dramatic move from the UK. FTT supporters aren't impressed – the Robin Hood Tax campaign called it "the last refuge of a chancellor who has lost the argument".

Here's the full story: George Osborne to challenge proposed financial transaction tax in court

7.45pm BST

The International Monetary Fund has taken another swipe at the government's budget plans tonight.

In an interview with the BBC's Hardtalk programme, Christine Lagarde was asked whether the UK government needed show more flexibility.

She replied that Britain's recent "weak growth" meant the government could now reconsider its plans (effectively repeating her point from earlier this week).

Here's the quote:

We are saying with this medium-term, strong anchoring of fiscal consolidation, the pace has to be adjusted depending on the circumstances and given the weak growth that we have observed lately … now might be the time to consider.

The IMF has previously backed Osborne's plans. And the reference to "medium-term, strong anchoring of fiscal consolidation" shows it hasn't lost all faith in the UK.

7.35pm BST

Here's a second statement from the Treasury tonight, insisting that the UK economy is improving:

Though it is taking time, we are fixing this country's economic problems.

The deficit is down by a third, a million and a quarter new private-sector jobs have been created and the credibility we have earned means households and businesses are benefiting from near record low interest rates.

The test will come next Thursday, when the first estimate of UK economic output in January, February and March is released. If GDP has fallen then Britain will be a triple-dip recession.

7.23pm BST

Osborne: no credible alternative

US Treasury Secretary Jack Lew (R) talks with British Chancellor of the Exchequer George Osborne (L) during group photo of G-20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington, DC, USA, 19 April 2013.
 George Osborne (left) speaking to US Treasury Secretary Jack Lew during the group photo of G20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington. Photograph: SHAWN THEW/EPA

Over in Washington at the G20 meeting, George Osborne is refusing to be beaten down by Fitch's downgrade.

Speaking to the Financial Times, the chancellor argued that there was no 'credible' alternative to his plans.

Osborne said:

While of course there are ongoing economic challenges in the UK, I don’t feel a particularly strong political challenge to our economic policy.

I don’t feel under particular pressure politically because I don’t see anyone coming up with a credible alternative.

7.08pm BST

Rob Wood, chief UK economist at Berenbeg Bank, agrees that Fitch's downgrade has little impact economically. He points out that the UK deficit is not actually expected to fall this year (it is forecast to be £121bn, versus £120bn in 2012-2013)

Wood commented:

The downgrade comes hot on the heels of the spat this week between the IMF and the UK government, about whether to ease back on consolidation.

It will be further ammunition for the Labour opposition. Although in reality the arguments about Plan A and Plan B are pretty meaningless. The Chancellor has more or less switched to Plan B already.

He does not expect government borrowing to fall between FY2011/12 and FY2013/14. Ignoring all his questionable fiddles to get the measured deficit down, the Chancellor expects to borrow more than £100bn in the final fiscal year of the current parliament. It is hard to imagine a credible plan to borrow much more than that. Indeed, the stable outlook from Fitch relies on continued commitment to consolidation.

6.52pm BST

City unshaken by downgrade

There's a pretty muted reaction in the City tonight to Fitch's downgrade.

Economists and traders were already well aware of the state of the British economy, having digested the economic forecasts in last month's budget.

And Britain's credit rating had already lost its AAA status when Moody's made its own downgrade in February. The pound is still down on the day (see 5.33pm for a chart), but a fall of 0.5 cents isn't a big move.

Here's some early reaction:

Torben Kaaber, CEO at Saxo Capital Markets:

Poor George Osborne really has had a bad few days, not only has the IMF turned its back on him, Fitch has just downgraded the UK to AA+; a painful end to the week.

This further adds to the negativity around GBP and the perceived lack of policy to address the UK’s weak economic growth; specifically it was the poor economic growth that was highlighted by both Moody’s and Fitch as the key elements in their decisions to cut.

This downgrade set against a background of weakening UK economic data and the Bank of England likely to continue to add monetary stimulus would suggest that GBP will stay under pressure for now. Either way, shaky ground ahead, however given Osborne’s strong rhetoric to date, it seems the man is not for turning.

David Tinsley of BNP Paribas

For now the UK government is likely to stick to their existing plans for consolidation. But if growth falls short of already modest forecasts then pressure will build still further.

Howard Archer of IHS Global Insight

We suspect that there is likely to be little, if any, economic or market fall-out from Fitch’s decision to strip the UK’s of its rating, especially as the new AA+ rating has a stable outlook attached to it, which means that there are unlikely to be any further changes by Fitch to the rating for at least the next two years.

Updated at 6.58pm BST

6.19pm BST

Fitch's downgrade has come as George Osborne attends the meeting of G20 finance ministers in Washington.

Not the best timing for the chancellor, points out Channel 4's economics editor, Faisal Islam.

6.15pm BST

Ed Balls responds:

Ed Balls, the shadow chancellor, has called the downgrade "another humiliating blow" to the government, and repeated Labour's jibe that Osborne is a "downgraded chancellor".

Here's his full response:

This is another humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the number one test of their economic and political credibility. And it ends a disastrous week for George Osborne’s economic policy after the IMF downgraded its UK economic forecasts again and warned Britain needs a plan B for jobs and growth.

It’s not the views of the credit rating agencies, but the economic realities they are responding to which should be ringing alarm bells at the Treasury. Fitch is clear that their decision is a result of the weak growth performance of the UK in recent years. They are responding to nearly three years of stagnation, rising unemployment and billions more borrowing to pay for this economic failure.

This downgraded Chancellor needs to wake up and realise that his failing economic policies are causing long-term damage and Britain’s families and businesses are paying the price. When even your biggest allies – the IMF and the credit rating agencies – abandon you it really is time to put political pride aside and finally act to kickstart the economy.

Updated at 6.32pm BST

6.12pm BST

A bad week, by George

Fitch's downgrade comes at the end of a difficult week for George Osborne.

The International Monetary Fund warned on Tuesday that the government should ease the pace of its austerity programme, given the weak state of the economy.

On Wednesday, Britain's unemployment rate rose to 7.9%.

Then on Thursday, the IMF's Christine Lagarde repeated that Osborne should rethink and promised that her officials would conduct a thorough investigation into the health of the UK economy next month.

6.00pm BST

Fitch is the first agency to cut Britain's credit rating since last month's budget – the axe has been hovering since it put the UK on "rating watch negative" four weeks ago.

Standard & Poor's is now the only Big Three rating agency to still rank the UK as AAA (Moody's didn't even wait for the budget).

This puts the UK in a similar position as France (who are only AAA with Fitch).

Updated at 6.33pm BST

5.54pm BST

The headwinds of ‘private and public sector deleveraging’

Critics of George Osborne are likely to seize on Fitch's point that Britain's budget deficits are now forecast to be higher than expected last year (the third 'ratings driver' in the statement at 5.12pm)

Fitch blames "the weak growth performance of the UK economy in recent years", which it says are partly due to "headwinds of private and public sector deleveraging and the eurozone crisis".

Clearly Osborne can't be blamed for the euro's woes. But many Keynesian economists have argued that it was a blunder to attempt an austerity programme while many companies, and households, were also looking to pay down their debts.

Updated at 5.59pm BST

5.44pm BST

Treasury: downgrade shows Britain must tackle debts

The Treasury has responded to Fitch's downgrade, arguing that the move doesn't mean chancellor George Osborne should change course:

A spokesman said:

This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.

5.33pm BST

Pound drops after Fitch downgrade

The pound is down half a cent against the dollar today, following Fitch's announcement, to .523.

That's not a major move really, and as you can see sterling had actually been sliding all afternoon….

Sterling, April 19 2013
Pound vs dollar today. Photograph: Reuters

Updated at 6.33pm BST

5.23pm BST

Fitch’s statement

Fitch's statement is online here.

The new rating is AA+ with a stable outlook, which means Fitch is not anticipating a further downgrade in the near future.

5.12pm BST

Why Fitch downgraded the UK

Fitch says it took the decision to downgrade Britain's triple-A rating because of the country's deteriorating economic climate.

It now believes Britain's gross debt will peak at 101% of GDP in 2015-16.

A debt mountain larger than the UK's annual economic outlook is not consistence with a top-notch credit rating.

Here's the key points from tonight's statement:

• Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.

• Fitch previously commented that failure to stabilise debt below 100% of GDP and place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a 'AAA' rating.

• Higher than previously projected budget deficits and debt primarily reflects the weak growth performance of the UK economy in recent years, partly due to headwinds of private and public sector deleveraging and the eurozone crisis. Fitch has revised down its forecast economic growth in 2013 and 2014 to 0.8% and 1.8%, respectively, from 1.5% and 2.0% at the time of the last review of the UK's sovereign ratings in September 2012. The UK economy is not expected to reach its 2007 level of real GDP until 2014, underscoring the weakness of the economic recovery.

• Despite significant progress in reducing public sector net borrowing (PSNB from a peak of 11.2% of GDP (GBP159bn) in 2009-10, the budget deficit remains 7.4% of GDP (excluding the effect of the transfer of Royal Mail pensions) and is not expected to fall below 6% of GDP and GBP100bn until the end of the current parliament term. The slower pace of deficit reduction means that the next government will be required to implement substantial spending reductions (and/or tax increases) if public debt is to be stabilised and reduced over the medium term.

Updated at 5.17pm BST

5.06pm BST

FITCH DOWNGRADES UK

Breaking News: Fitch has downgraded the UK's triple-A rating, by one notch, to AA+.

4.34pm BST

Goldbugs swarmed on bullion in April, says Royal Mint

My colleague Katie Allen has been looking into sales of physical gold over the last week and has some interesting numbers from the Royal Mint.

The battering in financial markets for gold has brought out the bargain hunters in the physical market and bars, nuggets and coins are going gangbusters.

In India, the world's biggest gold buyer, the wedding season is boosting sales further, jewellers report.

In the UK the Royal Mint tells us that bullion sales have rocketed.

Richard Samuels, bullion manager at The Royal Mint said:

Demand for gold bullion coins during April has seen an increase of over 150% in sales on the previous month, and over 200% on the same period in 2012.

Shane Bissett, director of bullion and commemorative coin at The Royal Mint said:

Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating. The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.

The gold price has risen today, incidentally, to ,402 per ounce.

Updated at 5.00pm BST

4.03pm BST

Photos: Alessandra Mussolini wears ‘The Devil Wears Prodi’ top

Surprising scenes in the Italian parliamentAlessandra Mussolini MP, granddaughter of Benito, turned up for today's presidential vote with "The Devil Wears Prodi" written on the back of her top.

This led to hissing and booing from centre-left MPs, who had selected former prime minister Romano Prodi as their favoured candidate for the presidency (see 1.25pm for details).

Mussolini is a member of Silvio Berlusconi's PdL party, who are refusing to support their former rival.

Alessandra Mussolini wears a t-shirt to protest during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Photograph: Max Rossi/Reuters
Lower house president Laura Boldrini (R) checks the t-shirt of  PDL (People of Freedom party) member Alessandra Mussolini (C) during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Lower house president Laura Boldrini (R) checks the Alessandra Mussolini’s t-shirt. Photograph: Max Rossi/Reuters
PDL (People of Freedom party) member Alessandra Mussolini (L) gestures with Lower house president Laura Boldrini during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013. I
Photograph: Max Rossi/Reuters
Alessandra Mussolini of The People of Freedom (PdL) wears a T-shirt which reads 'The Devil wears Prodi' ('Il Diavolo veste Prodi') as she arrives in the Chamber of Deputies on the second day of the election of the new Italian President, Rome, Italy, 19 April 2013.
Photograph: Alessandro Di Meo/EPA

We don't have the results of the latest ballot yet, though.

Updated at 4.14pm BST

3.36pm BST

Over in Washington, we're expecting a statement from G20 finance ministers later this afternoon.

Details are starting to leak … the Wall Street Journal reckons we'll get a repeat of their previous comments about committing to avoid a currency war …

Updated at 3.36pm BST

3.30pm BST

Photos: Cyprus begins inquiry into bailout crisis

Cyprus' Finance Ministry permanent secretary Christos Patsalides, the first witness of a public inquiry into Cyprus' economic collapse, testifies before a panel of judges in Nicosia April 19, 2013.
Cyprus’s finance ministry permanent secretary Christos Patsalides testifying today. Photograph: ANDREAS MANOLIS/Reuters

The top civil servant at Cyprus's finance ministry has savaged the country's international lenders as "forces of occupation" with no compassion for human rights, at the start of an official judicial probe into the crisis.

Christos Patsalides told the inquiry that the officials who negotiated with Cyprus had been "unrelenting", and had driven it into its current plight.

Patsalides said:

With the imposition of Germany and the IMF…they shot a pigeon with an atomic bomb".

Cyprus's finance ministry permanent secretary Christos Patsalides (background right) starts testifying, Nicosia Friday 19 April 2013, into the economic circumstances leading to the turmoil of an EU sanctioned bailout for the troubled Mediterranean island.
Photograph: Katia Christodoulou

Here's more details via Reuters:

Asked whether forcing losses on depositors was compatible with their individual rights, Patsalides replied: "When you are dealing with forces of occupation, they don't talk about human rights."

Cyprus, which had modelled itself as an offshore financial services centre for lack of any other resources, now faces a grim future with its reputation in tatters and its economy deep in recession.

"They destroyed an economic system that worked," Patsalides said. "Yes, we have our shortcomings, but the magnitude of the punishment is far greater than the size of the problem."

Updated at 3.41pm BST

2.32pm BST

Schäuble suggests ECB should reduce liquidity

Wolfgang Schäuble has waded into the debate over excessive monetary easing by suggesting that the European Central Bank should take the opportunity to reduce liquidity.

The comments created some concern in the financial markets — with several eurocrisis experts pointing out that the weakest areas of the eurozone would benefit from more easing, not tightening at this stage.

After all, the IMF's Christine Lagarde argued this week that the ECB is the only central bank with the room to do more.

I've now found the comments, which were made in an interview with Germany's Wirtschafts Woche. It's online here.

Here's the key quotes:

There is a lot of money in the market, in my opinion too much money…If the ECB tries to exploit leeway to reduce the large liquidity a little, I can only welcome this.

Schäuble went on, though, to recognise that the economic crisis is not over, adding:

We must not forget in Germany that many European countries are still in a precarious position growth.

Worth noting that eurozone inflation actually dropped to 1.7% last month – hardly a sign of an overheating economy. And many banks have begun repaying early the cheap loans they took from the ECB over a year ago.

Here's the early reaction:

Updated at 2.39pm BST

1.25pm BST

You won't be surprised to learn that Italian MPs have again failed to elect a president, at their third round of voting today.

Now the fourth round, where a successful candidate just needs a straight majority (not the two-thirds mandate of earlier rounds).

The centre-left Democratic party has set up a clash with Silvio Berlusconi's People of Freedom (PDL) by choosing former prime minister Romano Prodi as its candidate.

That could prompt an early general election, as PDL has refused to accept Prodi. He and Berlusconi were fierce opponents through the last decade – Prodi defeated his rightwing rival in the general election of 2006, only to be ousted in 2008, when Berlusconi returned to office.

The fourth round starts in around an hour's time:

Updated at 1.28pm BST

12.25pm BST

Finland approves Cyprus bailout

Finland's parliament has given its approval to the Cyprus bailout, at two votes in Helsinki this lunchtime.

A total of 86 MPs backed Prime Minister Jyrki Katainen’s six-party coalition, with 65 against and 48 MPs absent (figures via Bloomberg).

The country's grand committee (which oversees EU policy) then voted 16 – 9 to back the aid package.

As we wrote yesterday, Cyprus's government is planning to hold its own vote to approve (or potentially reject) the programme agreed with Brussels, the ECB and the IMF.

Updated at 1.27pm BST

11.52am BST

Arrests over Greek migrant shooting

The Greek government has pledged not to deport migrant workers who were shot this week after asking for their unpaid wages, after three supervisors suspected of firing on the group were arrested.

The shooting of 28 Bangladeshi strawberry pickers shot in the Nea Manolada area prompted a public outcry, and coverage in the international media.

Visiting the site today, public order minister Nikos Dendias announced this morning that the victims would not be expelled from Greece, and said the government would crack down on the use of unregistered workers.

Kathemerini adds:

The brutal assault does not only violate Greek laws but also every sense of humanity and has no relation to Greece's culture, Dendias said after speaking with local police chiefs.

Greek police have issued a statement this morning, saying that they have now detained three men near the village where the shootings took place on Wednesday.

Two of the Greek men, aged 39 and 27, were arrested at their lawyer's office. The third, aged 21, was stopped during a road check. according to AP.

Migrant workers sit inside a makeshift camp in Nea Manolada on April 18, 2013.
Migrant workers sit inside a makeshift camp in Nea Manolada yesterday. Photograph: Giota Korbaki/AFP/Getty Images

Updated at 1.26pm BST

11.08am BST

Markets rise on G20 hopes

European stock markets are up this morning, partly driven by hopes that the G20 will make some progress towards repairing the global economy today.

FTSE 100: up 33 points at 6277, + 0.5%

German DAX: up 37 points at 7510, +0.5%

French CAC: up 44 points at 3643, +1.24%

Spanish IBEX: up 120 points at 7932, +1.5%

Italian FTSE MIB: up 330 points at 15,811. 2.1%

Brenda Kelly, market analyst at IG, points out that there are few fundamental reasons for traders to be cheerier:

Equity markets ramped up small gains in early trade, showing a recovery from yesterday’s mediocre performance. The cautious sentiment seems to be hinged on a positive outcome from the meeting of finance leaders in Washington today. Corporate and economic data from both across the water and closer to home have failed to lend any true traction to recent rally.

And Kit Juckes of Société Générale points out that share prices are still benefiting from the relaxed monetary policy that is causing such concern to fast-growing emerging nations (see 8.51am).

Updated at 11.08am BST

10.46am BST

German constitutional court to hear complaint against euro rescue funds

President of the German Constitutional Court Andreas Vosskuhle (R) arrives with other judges for the hearing on the European Stability Mechanism (ESM) and the fiscal pact in Karlsruhe July 10, 2012.
From July 2012, when the German constitutional court held a hearing on the European Stability Mechanism (ESM) and the fiscal pact. Photograph: Alex Domanski/Reuters

Heads up: Germany's constitutional court has announced that it will hear a wide-ranging complaint into Europe's rescue packages in June.

The two-day hearing, set for 11-12 June, will examine whether the European Central Bank's new bond-buying scheme or OMT (Outright Monetary Transactions) violates the German constitution.

Germany's top judges will also consider the ECB's earlier SMP bond-buying programme (used to stabilise the borrowing costs of Spain and Italy in 2011), and its Emergency Liquidity Assistance (which propped up banks in Cyprus). as well.

The court, in Karlsruhe, ruled seven months ago that the European Stability Mechanism (the €700bn rescue fund set aside for bailouts) did not infringe budget sovereignty of the German parliament. This new case will also see it consider the ESM again.

Updated at 1.20pm BST

10.17am BST

IMF fears ‘poisoned umbrellas’ in London

The UK government and the International Monetary Fund are preparing for a serious scrap over Britain's fiscal plans next month.

IMF officials are due in London in May to conduct their annual assessment – and are widely expected to challenge George Osborne's policies (following Christine Lagarde's concern over the UK's weak growth).

The Treasury, though, is planning an aggressive response – suggesting a clash that could potentially influence the economic debate beyond the UK.

According to the Financial Times, an unnamed IMF official is even harking back to the killing of Bulgarian dissident writer Georgi Markov back in 1978:

IMF economists concede they may need to watch out for “poisoned umbrellas” for their so-called “Article IV” mission to London. One aide to Mr Osborne said: “If they recommend we loosen fiscal policy, we won’t do it. We think they are wrong.”

Mr Osborne believes that IMF criticism of his policies is unfair, as Britain’s 1 per cent fiscal contraction this year is in line with the fund’s general recommendations for advanced economies.

Not sure the umbrella reference is in the very best taste…

Financial Times Front Page, April 19 2013
Today’s Financial Times

Updated at 1.16pm BST

9.47am BST

Italian industrial orders down 7.9%

Italy's industrial sector has suffered another slump in demand. Industrial orders tumbled by 7.9% in February, compared to a year ago, a sharper fall than analysts had expected.

On a seasonally adjusted basis, orders were down 2.5% month on month in February, on top of a 1.4% decline in January. That adds to fears that the eurozone economy weakened towards the end of December.

Updated at 1.15pm BST

9.08am BST

Yen falls back…

The G20 will not rebuke Japan over its new aggressive monetary easing policies, according to its finance minister, Taro Aso.

The Yen fell by over 1% against other currencies this morning after Aso told reporters that finance ministers will not make any official complaint over "Abenomics".

In response, the yen has fallen to over ¥99 to the US dollar.

8.51am BST

Emerging economies warn over liquidity surge

The world's leading emerging and developing countries have sounded the alarm this morning over dangers of huge monetary stimulus programmes.

In a joint communique, the group of 24 emerging and developing countries warned central banks in "advanced" economies that their unconventional policies would cause huge damage:

The G24, which includes Brazil, India and South Africa, said:

We remain concerned about the fragility and pace of the global recovery because of the protracted difficulties and uncertainties in many advanced economies, including the euro area and the United States.

We call on advanced economies to take into account the negative spillover effects on the emerging and developing countries of prolonged unconventional monetary policies.

AFP has a full report here.

The quantitative easing programmes launched by the US since the crisis began have long concerned the G24, who saw "hot money" flow into their economies after the Federal Reserve boosted liquidity.

The Bank of Japan's bold new scheme to double its monetary base and finally slay deflation is a new worry – the IMF warned this week that the seeds of the next crisis could be being sown now.

Updated at 1.14pm BST

8.27am BST

Olli Rehn: we could slow austerity down

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

The battle between growth and austerity is centre stage today as the world's most powerful finance ministers and central bank governors gather in Washington for the G20 talks.

Overnight, European commissioner Olli Rehn signalled that the eurozone may finally be prepared to bow to pressure and relax its fiscal consolidation programme in some countries – where the belt tightening is clearly doing more harm than good.

Speaking to Reuters, Rehn declared:

In the early phase of the crisis it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces…

There was no choice. Decisive action was taken.

Now, as we have restored the credibility in the short-term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium-term.

It could be an important shift in Brussels' position, as the G20 are expected to discuss whether to agree on a collective "co-ordinated debt reduction plan" for the coming years.

Rehn's comments also come as the International Monetary Fund appeared to shift its position on the balance between fiscal consolidation and stimulus. Some journalists are talking of a power battle within the Fund, with more Keynesian elements perhaps taking the upper hand.

But talk of more stimulus measures in the world's biggest economies may be alarming the developing world – who have issued a warning about the push for ever-more liquidity (more to follow).

In Europe, the Finnish parliament is due to debate the Cyprus bailout. The news yesterday that Cypriot MPs will hold their own vote is causing some jitters.

And Italian MPs will continue to vote on their next president, after two failed ballots yesterday.

I'll be tracking the latest developments in Europe, and beyond, through the day.

Updated at 1.13pm BST

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The UK Office for National Statistics reports 0.7% sales fall despite a near 1% rise in food sales. Sales volumes declined as department stores and homeware retailers suffered from March snow. The decline was smaller than the -0.8% forecast…

 


Powered by Guardian.co.ukThis article titled “Retail sales hit by March snow” was written by Phillip Inman, economics correspondent, for theguardian.com on Thursday 18th April 2013 10.15 UTC

Retail sales fell by more than expected in March after heavy snowfall deterred shoppers from venturing out to buy clothes and homeware.

According to official figures, sales volumes declined by 0.7% last month despite a near 1% rise in food sales as department stores and homeware retailers suffered from the cold weather.

James Knightley, UK economist at ING bank, said although sales were weaker than expected, they offered "a little more reassurance" that the UK would avoid falling into its third recession since the financial crisis began.

"Nonetheless, yesterday's employment numbers were not great and softer global figures still lead us to believe that the Bank of England will come in with more stimulus, potentially as soon as the May meeting when they produce new economic forecasts," he said.

First-quarter growth figures for the UK are released in a week, and economists remain split on whether they will show an unprecedented triple-dip downturn.

Chris Williamson, chief economist at Markit, the financial data provider, said higher retail sales figures at the end of last year to February showed the economy had regained some of its momentum, but, like Knightley, he warned the bounce could be short-lived.

"The upward trend in sales has followed a steady improvement in consumer confidence since late last year. Surveys of households show confidence had picked up further in March, linked in part to people being busier at work, which both improved job security and raised take-home pay. However, there is a worry that rising unemployment, weak pay growth and high inflation could reverse this trend in coming months," he said.

Woman picking up shopping bags
Retail sales have proved volatile in recent months, with a 0.7% decline in January. Photograph: Winston Davidian/Getty Images

Alan Clarke, UK economist at Scotia Bank, said the retail figures were disappointing and reflected a weakening economy that could still show a triple-dip recession.

"With wage inflation at around 1% and headline inflation at close to 3%, the maths don't add up to much in the way of consumer spending growth – rather the opposite – falling consumer spending by mid-year," he said. "Let's hope the Bank of England's new tactic of targeting business investment works."

Retail sales have proved volatile in recent months, with a 0.7% decline in January, when snow was again a factor, being followed by a 2.1% rise in February.

The Office for National Statistics said the March figures pushed sales over the year into a decline of 0.5%.

Knightley said: "The figure was always going to be weak, with the heavy snowfall in the month, which particularly hurt clothing retailers (with sales down 3.1% month on month), given they had started to stock their spring fashion ranges.

"The ONS reports that it was the coldest March since 1962 with department stores and household goods stores also particularly depressed (down 4% and 6.2% month on month respectively)."

High petrol prices also deterred motorists from filling up their tanks – the ONS figures showed a 1% decline in petrol sales.

The poor figures were rescued only by the consistent rise of food sales, which was repeated in March. Food sales rose 0.9%, the largest gain since July 2011.

Sales of goods over the internet gained momentum, with a 6% rise.

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European Parliament scathing over way Cypriot deal was handled. UK unemployment rate rises to 7.9%. European car sales slump 10%. Rogoff & Reinhart row stirs economics world. Will Chinese bad debts become another crisis?

 


Powered by Guardian.co.ukThis article titled “Markets slide as Bundesbank head warns recovery could take a decade – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 17th April 2013 14.40 UTC

6.49pm BST

Closing summary

Time to wrap things up. Here's a brief closing summary

Europe's stock markets have fallen sharply, after another day dominated by concerns over economic growth. The German Dax fell by 2.35% to its lowest level of 2013, while in London the FTSE 100 shed 50 points to a 10-week low (see 6.04pm for closing prices).

Germany's top central banker warned that the task of recovering from Europe's debt crisis could take a decade. Jens Weidmann, head of the Bundesbank, also suggested the ECB could cut interest rates to stimulate demand (see 4.59pm)

European car sales fell by over 10% last month, as the financial crisis hit the auto industry. Germany, France and Spain all saw double-digit falls (see 8.30am).

MEPs were deeply critical of the handling of the Cyprus bailout. A session at the European Parliament saw a series of politicians blast the botched rescue package (see 10.26am for early highlights and 12.47pm for details)

Harvard economists Kenneth Rogoff and Carmen Reinhart defended their research paper into the effects of debt on growth levels. They admitted making a mistake with an excel spreadsheet in which meant they overstated the impact of high debt on GDP. (See 2.16pm for details and 3.40pm for an example of the criticism directed at the pair).

Greek medical workers held a six-hour anti-austerity strike, and held a protest in Athens. (see 4.06pm for photos)

In the UK, the unemployment rate rose to 7.9%. Economists warned that the labour market has now caught up with the weak economy (see 9.59am onwards).

• Slovenia held a debt buyback (see 6.25pm)

• Portugal's opposition leader refused to support its austerity package (see 5.49pm)

I'll be back tomorrow. Until then, thanks for reading and commenting. Apologies that we had some technical issues with the comments system today (and yesterday) – our star tech team have fixed it now.

Goodnight!

6.25pm BST

Slovenia’s debt buyback

Slovenia made progress today in its battle to avoid becoming the next member of the eurozone to seek international assistance.

It held a debt buyback, in an attempt to cut its refinancing costs as its new government constructs a deal to strengthen its banks. The project started well, with Slovenia raising €1.1bn with a bond auction. It then used some of the proceeds to buy back €510m of bonds that would have matured in June.

That means it shouldn't have to worry about rolling them over then – effectively buying some time.

Timothy Ash, a London-based emerging markets economist for Standard Bank, said (via the WSJ):

It has eased a little bit of the pressure, but they will ultimately have to come to the market abroad to raise financing.

6.04pm BST

European markets tumble amid gloomy forecasts

A bad day on Europe's stock markets has seen the German Dax slide to its lowest level since last December.

Bundesbank head Jens Weidmann's warning that the European recovery could last a decade helped to drive shares down across the region. There was also a rumour that Germany's credit rating was at risk — which surfaced this morning without ever being substantiated.

Here's the damage:

FTSE 100: down 60 points at 6244, – 0.96%

German DAX: down 179 points at 7503. -2.34%

French CAC: down 86 points at 3599, -2.35%

Spanish IBEX: down 145 points at 7803, -1.8%

Italian FTSE MIB: down 149 points at 15383, -0.96%

And in the foreign exchange markets, the euro has fallen by 1.5 cents against the US dollar, to .303.

So what caused Europe's stock markets to slide?

Traders are blaming the steady stream of negative economic data in recent days, including this morning's tumble in new car sales. They also pointed to today's warnings from the International Monetary Fund (which cut its growth forecasts again yesterday). That German downgrade rumour was another factor.

Here's some reaction:

Sebastien Galy of Societe Generale

The sensitivity of different markets to negative surprises seems to have risen sharply recently, particularly in Europe and the broad emerging market spectrum. It suggests that the period of consolidation is continuing.

Michael Hewson of CMC Markets

A day after the IMF downgraded its growth forecasts for the Euro area in 2013, markets have come under pressure once again today after European car sales once again slid on a monthly basis, this time down 10.2% to almost a 20 year low, with Germany’s auto market in particular suffering a sharp 17% slide.

Reported comments from Bundesbank chief Jens Weidmann, that Europe's recovery could well take a decade, also hit sentiment in the afternoon session and has seen European markets start to close in on significant support levels, while the DAX has led the declines making new lows for 2013.

Chris Beauchamp of IG

Overall it seems as if the general tone has shifted from ‘buy the dips’ to ‘sell the rallies’, with the sustaining sense of optimism that carried markets forward in the first quarter of 2013 having finally exhausted itself.

5.49pm BST

Portugal’s opposition leader won’t support austerity plans

The head of the Portuguese opposition has refused to back the country's austerity programme tonight, despite efforts from the Troika today to get political backing for the plan:

Reuters has the details:

Portugal's main opposition Socialists reiterated their rejection of the centre-right government's austerity policies on Wednesday despite attempts by Lisbon's EU and IMF lenders to rebuild a political consensus around their bailout.

"Our position is to show to the troika that the policy applied here does not lead to the desired results and also provokes a recessive spiral," Socialist leader Antonio Jose Seguro told reporters.

He was speaking after meeting representatives of Portugal's lenders from the European Union and IMF who are in Lisbon this week to work with the government on new spending cuts needed to meet bailout goals after the constitutional court rejected some austerity measures from this year's budget.

The coalition government has a comfortable majority in parliament to pass bills, but the lenders want a broader political support for austerity to make the reforms sustainable.

Portugal's austerity programme is being rejigged after its constitutional court rejected pay and benefit cuts last month. Pedro Passos Coelho responded by pledging to cut health and education spending.

5.27pm BST

Esther Bintliff of the Financial Times has pulled together a list of the key research papers and articles to explain the row over Carmen Reinhart and Kenneth Rogoff's research into the effects of debt levels on growth (see here for more)

4.59pm BST

Bundesbank chief: recovery could take a decade

Mario Draghi, President of the European Central Bank, ECB (L), and Jens Weidmann, President of the Bundesbank are pictured during the awarding ceremony of the Generation Euro Student's Award in Frankfurt/Main, Germany, on April 17, 2013.
Jens Weidmann, President of the Bundesbank (right) with Mario Draghi today at the awards ceremony of the Generation Euro Student’s Award in Frankfurt. Photograph: DANIEL ROLAND/AFP/Getty Images

Jens Weidmann, head of the Bundesbank, has caused a stir tonight by warning it may take a decade for Europe to recover from the debt crisis.

In an interview with the Wall Street Journal, Weidmann dismissed the suggestion that Europe was through the worst of its problems.

Instead, he indicated that the European Central Bank might have to cut interest rates to stimulate growth — which is interesting given Weidmann is one of the most hawkish members of the ECB's Governing Council.

Weidmann's comments pushed the euro down, and helped to send shares sliding in Europe (with the French and German stock markets posting heavy losses).

Here's a flavour:

"Overcoming the crisis and the crisis effects will remain a challenge over the next decade," he said, contrasting recent comments from European Commission President José Manuel Barroso that the worst of Europe's crisis is over.

"The calm that we are currently seeing might be treacherous" if it delays reforms at the national and European level, Mr. Weidmann said. There can be no quick fixes from the ECB either, he said.

Full interview here.

4.18pm BST

Also in Athens, Greek finance minister Yannis Stournaras told MPs this afternoon that "the Greek banking system was endangered by the the Cyprus crisis."

From Greece, Helena Smith reports:

"It's not an exaggeration to say that the Greek banking system was in danger because if the deposits of Greeks at Cypriot branches [in Greece] had also suffered a haircut, no one knows what would have happened afterwards," Stournaras told parliament as it debated the decision to ring fence the banks.

The decision to place the Greek network of Bank of Cyprus and Laiki banks in the hands of Pireaus Bank was "evidence of the helpful stance and support of Greece towards Cyprus," he said.

Many Cypriots would disagree. Greece is widely blamed by the islanders for their country's spectacular economic collapse. Had it not been for Nicosia standing in solidarity next to Athens when its own debt load was restructured last year, the Cypriot banking system would not have suffered €4.5bn of losses (tountamount to 25% of GDP) overnight, officials say.

One of the best kept secrets, rarely if ever acknowledged by the leaderships of both countries, is the little love lost between them. In truth the Cypriots and Greeks have little time for each other.

Updated at 4.18pm BST

4.06pm BST

Photos: medical staff protest in Greece

Here are a few photos from Athens today, where employees of the Greek health service held a six-hour strike in protest at the government's austerity package.


Hospital workers carry a banner reading “government, IMF, EU-troika are harmful for the public health” outside the ministry of health in Athens.
Employees in the Greek NHS (ESY) demonstrate in the center of Athens against government announced plans to lay off 1500 public sector employees as part of the continuous austerity measures.
Photograph: Giorgos Panagakis/Demotix/Corbis
A demonstrator is seen making noise with a whistle.
Photograph: Giorgos Panagakis/Demotix/Corbis

The protest followed the Greek government's decision to agree to cut 15,000 civil servant jobs by 2015 (see our story from Monday night).

3.55pm BST

Key event

Global slowdown watch: The Bank of Canada has cut its forecasts for GDP growth this year, from 2% to 1.5%.

BoC, whose governor Mark Carney will take over at the Bank of England this summer, effectively conceded it had been too optimistic about the Canadian recovery. It now reckons it will not return to full capacity until mid-2015, some six months later than predicted in January.

The move came as it left interest rates at 1%.

3.40pm BST

The jesting over Kenneth Rogoff and Carmen Reinhart's Excel problems which led them to overstate the impact of debt levels on growth (see 2.16pm) continues…

Updated at 3.51pm BST

3.21pm BST

IMF’s Viñals warns of old risks and new ones

José Viñals, the head of the IMF's monetary and capital markets department, was in cheerful mood at the press conference to mark the launch of the IMF's Global Financial Stability Report, reports Larry Elliott.

From the press conference, Larry writes:

Spring had arrived not just in Washington, he said, but "also it seems in global financial markets, where after repeated storms and threatening clouds, some blue sky and more sunny days are emerging."

It's not all good news, though. Vinals says there are two groups of risks facing financial markets – old risks and new risks.

The old risks are the continuing problems in the euro are and the weak state of banks.

The new risks are the US, where debt underwriting standards are "weakening rapidly and low interest rates are leading some pension funds and insurance companies to take further risks to close funding gaps; the spill over effect into emerging markets from cheap money in advanced countries; and the possibility that the unwinding of prolonged monetary easing in the US could de-stabilise credit markets.

"Put simply", says Vinals, "we are in uncharted territory".

3.00pm BST

IMF’s eurozone recommendations

The IMF's message to Europe today is: clean up your banks, and make progress on banking union.

Here's the key recommendations for the euro area:

• Bank balance sheets and business models need to be strengthened to improve investor confidence, reduce fragmentation, and improve the supply of credit for solvent small and medium-sized enterprises. Enhanced disclosure for banks and conducting selective asset quality reviews will help restore confidence in bank balance sheets and improve market discipline

• To anchor financial stability in the euro area and for ongoing crisis management, fast and sustained progress toward an effective Single
Supervisory Mechanism (SSM) and the completion of the banking union are essential.

A Single Resolution Mechanism should become operational at around the same time as the SSM becomes effective. This should be accompanied by agreement on a time-bound roadmap to set up a single resolution authority and deposit guarantee scheme, with common backstops. Proposals to harmonize capital requirements, resolution, common deposit
guarantee schemes, and insurance supervision frameworks at the EU level should be implemented promptly. Modalities and governance arrangements for direct recapitalization of banks by the European Stability Mechanism should also be established.

• The developments in Cyprus underscore the urgency for completing reforms across the euro area in order to reverse financial fragmentation
and further strengthen market resilience.

2.52pm BST

IMF: Financial crisis could flare up again

Over to Washington, where the International Monetary Fund has released its half-yearly Global Financial Stability Review (downloadable here)

Catchily titled "Old Risks, New Challenges", the report calls on world leaders and officials to take new steps to secure the recovery, or risk the crisis flaring up again. That means cleaning up the banking sector (particularly in Europe), and also being vigilant to avoid the current accomodative monetary policy causing a new credit boom.

Our economics editor Larry Elliott reports from Washington:

The International Monetary Fund has warned that the repair job on the world's battered financial system is only partly completed and said failure to finish the job risks propelling the crisis into a chronic new phase.

While being encouraged by the marked improvement in financial market conditions over the past six months, the IMF said further action was needed to tackle underlying threats to stability.

In its half-yearly Global Financial Stability Review, the fund said that the recent problems in Cyprus were a reminder of the continued fragility of market confidence.

"Global market conditions have improved appreciably in the past six months, providing additional support to the economy, and prompting a sharp rally in risk assets", the report said.

More from Larry here.

2.16pm BST

Rogoff/Reinhart row throws austerity debate open

The world of economics is in an almighty flap today after a famous (or perhaps notorious) academic paper into the impact of debt levels on growth was found to contain coding errors, and selective use of data.

The two top economists, Kenneth Rogoff and Carmen Reinhart of Harvard, have defended their study this morning – but critics of austerity programmes believe that the case for urgent fiscal consolidation has been damaged.

Some background. Rogoff and Reingart's paper was called Growth in a Time of Debt. The key finding was that countries with 90% or higher debt/GDP ratios suffer growth rates "several percent" below the average — and has been used to justify many of the fiscal consolidation programmes launched since the financial crisis began.

Anyway, last night researchers at the University of Massachusetts appeared to blow the study apart. After getting hold of the original data set, they made the startling claim that Rogoff and Reinhart had

a) excluded several years after the second world war, where there was high debt and average growth,

b) weighed the data in a "debatable" way

c) committed an Excel coding mistake that meant certain countries with high debt and average growth simply weren't counted

(full details here)

According to the Massachusetts maths… if you use all the data, and don't mess up your Excel cells, the (mean) average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90% is actually 2.2%, not -0.1% as Growth in a Time of Debt.

This caused a storm overnight. As US economist Dean Baker explained:

In the United States, many politicians have pointed to R&R's work as justification for deficit reduction even though the economy is far below full employment by any reasonable measure.

In Europe, R&R's work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10% for the eurozone as a whole and above 20% in Greece and Spain. In other words, this is a mistake that has had enormous consequences.

(more from Dean Baker here)

Other critics of austerity were equally scathing (Paul Krugman posted once, then twice) . And there was a certain amount of twitter tittering about two of the world's most eminent economists getting their sums wrong.

Anyway, Rogoff and Reingart have now issued a full response, in which they defend their work while conceding some ground (see here).

After labouring over their data again, the pair have owned up to the Excel coding error. They denied deliberately excluding certain countries ("there were still gaps in our public data debt set at the time of this paper.") and weighing the models to give less importance to certain "a small number of countries that may have their own peculiarities").

But Rogoff and Reingart are adamant that the broad point remains valid. "Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt," they said.

As the FT puts it:

The economic historians admitted that there was an Excel blunder. “Herndon, Ash and Pollin accurately point out the coding error that omits several countries from the averages in figure 2. Full stop. HAP are on point,” they said.

However, they “objected in the strongest terms” to the second criticism that they missed several years of data, and stood firm on the issue of unconventional weighting.

More here: Harvard duo defend case for austerity

But does it matter?

There's a persuasive argument that politicians used R&R to justify policies they wanted to impose anyway. And rival economists had already questioned the conclusions of the report (what comes first, the high debt or the slow growth?).

But the timing is fascinating — the Massachusetts work hit the newswires as we were still digesting the IMF's warning to George Osborne to relax the pace of his austerity programme.

Growth in a Time of Debt used to be a weapon in the armory of the deficit-cutters. Their opponents won't fear it any more….

Anyway…. a trader who blogs and tweets as Barnejek provided our favourite response:

And here's another good take on Quartz.

2.08pm BST

Here's the key section from Olli Rehn's speech to the European Parliament, defending the Cyprus bailout (before he was roasted by MEPs)

The support programme will enable Cyprus to restore the health of the economy and to create a more sustainable economic model. The loans of up to 10 billion euros equal to more than half of Cypriot GDP.

I agree with the Minister of Finance of Cyprus, Haris Georgiades, who said yesterday that he wants to shun the blame game and focus on the future. He said as follows: "We are determined to adopt and implement all those reform measures, which we should have adopted a long time ago, but we failed to do so".

Indeed, we now have to concentrate all our efforts to facilitate the emergence of new sources of economic activity and to alleviate the social consequences of the economic shock.

The Commission decided on the 27 of March to set up a Support Group for Cyprus with the implementation of the adjustment programme. The Commission is now mobilising its resources to provide technical assistance. The Support Group will rely on expertise from across the Commission services. An immediate priority is to identify the relevant resources available from the current structural funds.

The Commission stands by the Cypriot people in this time of deep trouble. We are committed to help Cyprus to get through the tough times and overcome the current difficulties. I trust that we can count on the support of the European Parliament in together mobilising the available resources for Cyprus, as quickly and as effectively as possible.

The full speech is online here

12.47pm BST

MEPs criticise Cyprus bailout – more details

European Union Commissioner for Economic and Monetary Affairs Olli Rehn adresses the assembly during a debate on the situation in Cyprus, on April 17, 2013, at the European Parliament in Strasbourg, eastern France.
European Union Commissioner for Economic and Monetary Affairs Olli Rehn at the European Parliament in Strasbourg this morning. Photograph: FREDERICK FLORIN/AFP/Getty Images

The European Parliament has released details of its concerns over the Cyprus bailout, following this morning's grilling of commissioner Olli Rehn (see 10.26am).

It confirms that MEPs were scathing about the Eurogroup's handing of the issue, and also condemned the decision (later reversed) to impose losses on smaller savers.

Criticism rained down on Rehn from all sides of the spectrum, with accusations of double standards and claims that Germany displayed 'near colonial' behaviour:

Here's the details: Cyprus: MEPs criticise handling of bailout programme

The key quotes from the EP statement:

Jean-Paul Gauzes, a French member of the EPP group, said that the Eurogroup's appalling communication was central to the fiasco. He also blamed the EU institutions for not being vigilant enough and Cypriot banks for having built up too much risk.

Hannes Swoboda, the Austrian leader of the S&D group, criticised the Council and more particularly Germany for behaving in a "near colonial way". He also called on the Commission to disband the troika, a partnership between the Commission, the European Central Bank and the International Monetary Fund, which oversees the implementation of bailout packages.

Jan Zahradil, a Czech member of the ECR group, said that the real problem was much wider than what was happening in Cyprus. Cyprus was being used as an excuse to attack national fiscal sovereignty, he said.

Nigel Farage, the British co-chair of the EFD group, accused the Commission of criminal behaviour, robbing people to prop up the euro project. He concluded that no-one has confidence in the euro.

Takis Hadjigeorgiou, a Cypriot member of the GUE/NGL group, accused the EPP political family of having double standards, by supporting the Cypriot cause within the EP, but not within the Eurogroup. He also criticised the Council for imposing measures on Cyprus which it would never apply to larger countries.

….

Olli Rehn, though, argued that it was time to stop assigning blame for the Cyprus deal.

During the session, members of the European United Left of the European Parliament group held up posters with the slogan "Hands off Cyprus, Portugal, Greece, Spain, Ireland"


Photograph: VINCENT KESSLER/REUTERS

Updated at 12.50pm BST

12.14pm BST

Greek doctors hold six-hour strike

In Greece, medical staff are holding a six-hour walkout in protest at the government's cuts to health care budgets.

From Athens, my colleague Helena Smith reports that a "well-humoured" demonstration is taking place:

Demonstrators are walking up to parliament as I write to deliver a petition denouncing "murderous cuts" in health care.

Many chanting "Hands off State hospitals. Enough with the Troika's barbaric policies."

Protestors are expressing outrage at the Greek government's decision to slash 15,000 public sector jobs by 2015.

"All these cuts are totally counter-productive. It reminds me of what you went through in Britain when Thatcher imposed her sinful policies on the NHS," said Michalis Papastakos, a doctor who trained in London at the time.

The strike is taking place between 9am and 3pm local time, or 7am to 1pm BST.

Updated at 12.24pm BST

11.44am BST

Trouble in China?

Looking at the wider financial economy, there's a lot of interest in China this week following its weaker-than-expected economic growth in the first quarter of 2013.

That has refocused attention on the bad debts lurking in the Chinese local government sector. One senior auditor even warned yesterday that the local authority bond market was "out of control"

Zhang Ke warned (via the FT):

We audited some local government bond issues and found them very dangerous, so we pulled out…

Most don’t have strong debt servicing abilities. Things could become very serious.

Those debts were built up since the financial crisis began, with Beijing encouraging local governments to increase their borrowings to sustain growth.

So is China heading for a major crash? Paul McNamara, investment Director at GAM, reckons not. He told CNBC this morning that the Chinese government should be able to contain the problem:

Here's a video of the interview:

McNamara explained:

I think [calling China] the next crash is probably a stretch – there's nothing really wrong with China that the government can't rescue.

They are going to have to step in. It's been very clear for some time that the local governments have been the vehicle by which they got growth going again.

A lot of those loans will probably have to be written off or moved onto the central government balance sheet, McNamara says, but that's not enough to cause a panic.

It's very hard to get a full scale crisis in China, just because they've got capital controls.

And this gallery, from last month, shows the 'ghost cities' that have proliferated in China in recent years.

Updated at 11.55am BST

11.05am BST

Germany's borrowing costs have fallen to a record low this morning, at a sale of €4bn of 10-year bunds.

Strong demand for German debt usually indicates traders are pushing their money into "safe havens".

10.26am BST

MEPs criticise Commission over botched Cyprus bailout.

The European Parliament is holding a session on the Cyprus bailout this morning – it's being streamed here (although the link is a little flaky).

The MEPs want to find out how the Cypriot rescue plan was so badly handled.

The session began with UKIP's Nigel Farage savaging the decision to force losses on depositors in Cyprus, before Sharon Bowles (who chairs the Economic and Monetary Affairs Committee), also laid into commissioner Olli Rehn.

Bruno Waterfield of the Daily Telegraph and Irish journalist Karen Coleman have been watching, and report:

10.20am BST

UK unemployment: early reaction

Economists and City investors are disappointed by today's weak UK unemployment data, with some warning that the labour market has caught up with the lack of growth in the economy. 

Here's some early reaction:

Alan Clarke of Scotia Bank:

It's very disappointing that employment was down in the last three months….

The ILO (jobless) rate rose from 7.8 to 7.9 percent, I think that’s the focus. A 5,000 to 10,000 drop in unemployment in the payment count measure – that measure does tend to get distorted by various government policy changes, which is why I look at the ILO.
It's not a disaster, but a lot of the froth and really good news we had over the last year on jobs is becoming exhausted, which shouldn’t be a surprise when there is not much growth around.

Brian Hilliard of Societe Generale

The jobs figures were disappointing. Even though the clamaint count has continued to fall, the 3-month on 3-month rate of employment growth has fallen to zero.

Ian Brinkley, director of The Work Foundation

As we predicted, economic reality has caught up with the labour market. The jobs recovery of 2012 appears to have stalled.

Comparing the three months to February with the previous three months shows that our economy has stopped creating new jobs, unemployment is increasing and wage growth has stalled. The increase in youth unemployment is of particular concern and disappointing given the Coalition has made tackling youth unemployment such a high priority. 

These numbers should be a spur for the government to focus the upcoming Spending Review on supporting activities with the potential to create jobs and drive growth.

10.07am BST

Key event

Pay in the UK has failed to keep pace with inflation since the early days of the financial crisis, as this chart from this morning's unemployment data shows:

Average earnings vs inflation in the UK
Photograph: Office for National Statistics

9.59am BST

UK unemployment rate rises to 7.9%

Unemployment in the UK has jumped, in a sign that Britain's economy remains worryingly weak .

The number of people out of work in Britain rose by 70,000 in the three months to February, compared to the previous quarter. That pushed the jobless rate up to 7.9%, from 7.8% last month, to its highest level since last summer.

Youth unemployment rose by 20,000 to 979,000, as young people continues to face the brunt of the troubles in the economy.

There was also a nasty slump in wages. Total pay rose by just 0.8%, year-on-year, in the three months to February. With inflation at 2.8%, that means real wages kept shrinking.

The only good news was a 7,000 drop in the claimant count, in March.

UK Labour Market, April 2013
Photograph: Office for National Statistics

More details here. Reaction to follow…

Updated at 10.00am BST

9.35am BST

Bank of England minutes

The Bank of England remains split over monetary policy — with its committee split 6-3 again over whether to create another £25bn to spend buying government debt.

Outgoing governor, Sir Mervyn King, was again outvoted, with a majority of policymakers leaving the QE programme at £375bn. All nine members voted to leave interest rates at their record low of 0.5%.

You can download the minutes here (pdf).

9.21am BST

Cyprus to decide on gold sale soon

Cyprus's finance minister has declared that the country will probably decide to start selling some of its gold reserves to help fund its bailout programme "in the coming months".

Haris Georgiades also told Bloomberg that the country's central bank will have to make the decision. This adds another potential complication to the sale, as governor Panicos Demetriades (under fire for his own handling of the crisis) has said he hasn't even been consulted about the plan.

Georgiades told Bloomberg:

The exact details of it will be formulated in due course primarily by the board of the central bank…Obviously it’s a big decision.

News that Cyprus would sell €400m of gold broke last week, when the details of the European Commission's debt sustainability report on the country leaked.

Cyprus holds around 13.9 metric tonnes of gold, which was worth around 0m (€580m) last week. Its value has now dropped to 0m (€508m) following the plunge in the gold price.

Some analysts have suggested that Cyprus's planned gold sale helped to puncture the gold price. Georgiades commented:

I’m not really sure if the series of events is exactly matching with the recent movements in the price of gold, but I suspect maybe it was a contributing factor.

9.00am BST

Australia: Europe must slow its austerity drive

Australia's top finance minister has blasted European leaders for damaging the global economy through their 'mindless' focus on austerity.

Wayne Swan, Treasurer of Australia, told the Wall Street Journal that Europe needed to take a slower approach to fiscal consolidation:

We need developed economies to take the hand brake off growth that is coming from mindless austerity…

We need new sources of growth to come from developed economies, particularly Europe, but at the moment fiscal austerity there is a huge brake on growth.

The full piece is here.

UPDATE: Regular reader AussieAnalyst reckons we shouldn't take much notice of Mr Swan….

Updated at 10.01am BST

8.48am BST

The agenda

Here's what's coming up today (via RANSquawk):

UK unemployment data: 9.30am BST

Bank of England minutes: 9.30am BST

Bank of Italy's quarterly economic bulletin: 10am BST

Angela Merkel meets Estonia's prime minister Ansip: from 11.30am BST

IMF's Financial Stability Review released: 2pm BST

Updated at 8.57am BST

8.30am BST

European car sales tumble again

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

It's another bleak morning for Europe's carmakers. New figures show that sales across the region tumbled by 10.2% in March, led by a slump in sales in Germany.

This proved seriously bad news for the region's carmakers, who saw their own sales slump again.

The Association of European Carmakers reported that last month:

Italy: -4.9% year-on-year

Spain: -13.9% year-on-year

France: -16.2% year-on-year

Germany: -17.1% year-on-year

The UK, though, continues to defy the downturn, with sales rising 5.9% last month.

Denand for new passenger cars across the EU has now fallen for the last 18 months. These graphs suggest that the downturn is actually picking up pace.

European car sales to March 2013
Photograph: Association of European Carmakers

Today's data underlines the link between consumer spending and manufacturing. With austerity-hit European customers spending, many of the region's carmakers suffered deep sales falls last month.

VW Group: -9%

Peugeot/Citreon: -16%

Renault: -9.6%

GM Group: -12.6%

Ford: -15.8%

Fiat Group: -0.8%

Toyota: -16.3%

Many of these companies are already making cutbacks and strategic changes — Peugeot, for example, angered the French government with its plan to cut 8,000 jobs.

The decline in sales makes those recovery plans even tougher — Reuters reckons we could see profits warnings from some of the major players in the months ahead.

With the International Monetary Fund warning yesterday that the eurozone will shrink by 0.3% this year, Europe's economic woes remain very worrying.

We'll be hearing more from the IMF today, as its Spring Conference continues in Washington. There's also the latest Bank of England minutes, UK unemployment data, and a debate in the European Parliament on Cyprus coming up.

Updated at 8.31am BST

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Published via the Guardian News Feed plugin for WordPress.

April 16, 2013 (Allthingsforex.com) – Finance ministers and central bankers from the 20 most-developed industrialized nations in the world will gather in Washington, DC on April 18 and 19.

Currency traders should pay close attention to any statements or agreements that could be made during the G20 meeting on the issues of “currency wars” and competitive currency devaluation.

The G20 did not directly criticize Japan at the last meeting. However, with the yen depreciating rapidly due to the unprecedented measures taken by the Bank of Japan, it would be interesting to see if the efforts of Japanese officials to weaken their currency will be criticized by their G20 colleagues this time around.

The JPY negative trend is still intact, but we could see some unwinding of short yen positions ahead of the meeting.

Included below is a G20 infographic by our friends at FXstreet.com:

g20: finance ministers and central bank governors' meeting

 

IMF: Osborne should consider slowing fiscal plan. Full highlights of IMF’s latest World Economic Outlook. IMF concerned about the euro-area with Europe “languishing at bottom of three-speed economy.” Brent crude falls below $100 a barrel…

 


Powered by Guardian.co.ukThis article titled ” IMF cuts growth forecasts and urges George Osborne to rethink fiscal plans – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 16th April 2013 16.08 UTC

5.33pm BST

Closing Summary

Time to wrap things up for the day here – but do check out the website tonight for more news from the IMF's meetings in Washington.

Here's a closing summary:

The International Monetary Fund has cut its forecasts for economic growth this year, in the latest warning that the world economy is struggling.

In its latest World Economic Outlook, the IMF lowered its world growth forecast to 3.3%, from 3.5%. It also expects a deeper recession in the eurozone (-0.3%, from -0.2%), and slightly less growth in the US this year (+1.9%, from 2.0%) (see 2.07pm onwards).

The IMF said the global outlook is slightly more positive than last autumn, but warned of a 'bumpy road ahead'.

The IMF lowered its forecast for UK growth this year to just 0.7%. It also urged chancellor George Osborne to consider changing the pace of his fiscal reform plans (see 2.01pm)

It pointed to the weakness of the economy, particularly the private sector, with chief economist Olivier Blanchard saying tonight that Osborne is 'playing with fire'. (see 5.06pm)

Fears over the global economy had already driven the oil price down, with a barrel of Brent crude costing less than 0 for the first time in nine months.

• German analysts and economists are also more worried about the situation. The monthly ZEW index posted a surprise fall this morning, with global trade and the Cyprus bailout blamed (see 10.11am).

The ZEW index helped to push shares down in Europe again today. The major indices all fell, with traders warning that the eurozone economy could be weaker than previously thought (see 4.53pm for closing prices).

Cyprus's president piled more pressure on the country's central bank governor. He attacked the Bank of Cyprus's conduct in a letter to ECB president Mario Draghi (see 3.59pm)

An opinion poll showed that Germany's new eurosceptic party has the support of around 3% of the country's voters – not enough to win seats in the Bundestag (see 11.17am).

The latest inflation data showed that the cost of living in the UK remained unchanged, at 2.8% (as measured by the CPI). Economists predicted that CPI will soon be back above 3%. (see 9.32am onwards).

In the eurozone, inflation fell slightly (see 10.02am) while in the US the cost of living actually dropped on a month-on-month basis (see 1.44pm).

I'll be back tomorrow – until then, thanks and goodnight!

5.08pm BST

The IMF's Olivier Blanchard has increased the pressure on George Osborne, telling Sky News this evening that the chancellor is 'playing with fire', and should considering changing his plans:

5.06pm BST

Shares rally on Wall Street

Shares have risen on Wall Street, with the Dow Jones industrial average and the S&P 500 both recovering some of yesterday's losses. Both indices had fallen in late trading on Monday, following the news of the fatal Boston Marathon bombing.

Dow Jones: up 128 points at 14,727, + 0.88%

S&P 500: up 15 points at 1,567, +0.98%

Traders held a moment of silence for the victims of yesterday's attack and their families, before the session started.

Traders observe a moment of silence to honor the victims and families of the Boston Marathon bombings, before the opening bell on the floor of the New York Stock Exchange, April 16, 2013.
Photograph: BRENDAN MCDERMID/REUTERS

4.53pm BST

Markets close in the red

Stock markets in Europe have closed for the day, with the major indices posting small losses.

The gold price hasn't managed much of a recovery today, currently up 1.1% at ,376 per ounce (having tumbled 9% on Monday).

And the oil price remains under pressure, with a barrel of Brent crude trading at .98, having dropped below 0 for the first time in 9 months this morning.

Here's the closing prices:

FTSE 100: down 39 points at 6304, -0.6%

German DAX: down 21 points at 7,690, -0.28%

French CAC: down 17 points at 3692, – 0.48%

Italian FTSE MIB: down 96 points at 15,533, -0.6%

Spanish IBEX: down 65 points at 7,948, -0.8%

This morning's drop in German economic confidence (see 10.11am) has helped to push shares down. Jennifer McKeown of Capital Economics said the ZEW index had fuelled concern that Germany's recovery is faltering.

While we still see Germany easily outperforming the rest of the euro-zone this year, we think that a strong and sustained recovery is too much to hope for. We maintain our forecast for the economy to stagnate this year and grow by just 0.5% in 2014.

4.31pm BST

Key event

The International Monetary Fund's warning to the UK over the pace of its fiscal adjustment (see 2.01pm) has triggered a political clash between the UK government and the Labour opposition.

The Treasury first. It downplayed the IMF's concern, pointing out that Britain's growth forecasts for this year are better than Europe's two biggest economies.

A spokesman said:

Today’s report from the IMF highlights the risks that continue to face economies around the world. Though the UK is forecast to have stronger growth than either France or Germany in 2013, difficulties in the euro area are still creating economic headwinds.

However, as the Chancellor said at the Budget, we are slowly but surely fixing this country’s economic problems. The deficit is down by a third, a million and a quarter new private sector jobs have been created and because of the credibility the Government has earned, families and businesses are benefitting from near-record low interest rates.

Thus sidestepping the IMF's call for the government to consider a change….

…to the chagrin of Ed Balls, shadow chancellor. Balls responded thus:

It was a serious mistake for George Osborne to totally ignore the IMF’s calls for a reassessment of fiscal policy in the Budget. They are right to step up their warnings and insist that a change of economic policy is considered right now.

“Our economy has flatlined for two and a half years, real wages are falling month by month and the result is £245 billion more borrowing than planned to pay for this economic failure. How much more damage needs to be done before the Chancellor finally acts?

Balls pointed out that the IMF had predicted growth of 2% for 2013 a year ago – but now expects GDP to expand by just 7%.

These downgraded growth forecasts are yet another damaging blow to a downgraded Chancellor whose economic policies have totally failed.

3.59pm BST

Cyprus president blasts central bank’s handling of the crisis

Governor of the Cypriot Central Bank, Panicos Demetriades speaks to media representatives after a meeting with Cypriot President Nicos Anastasiades, in front of presidential palace, Nicosia, Cyprus, 21 March 2013.
Governor of the Cypriot Central Bank, Panicos Demetriades, last month. Photograph: KATIA CHRISTODOULOU/EPA

Back in the eurozone… the battle over the future of Cyprus's central bank governor has taken another twist.

The president of Cyprus, Nicos Anastasiades, has written to Mario Draghi, telling the ECB president that the country's central bank failed to perform its duties in the run-up to the crisis.

The letter is a rebuttal to Draghi's warning last week that national central bank governors cannot be sacked unless they are "guilty of serious misconduct" or can no longer perform their duties.

Reuters has the details of the letter, apparently sent yesterday:

The governor of Cyprus's central bank failed to regulate its now-crippled banking system effectively, the island's president Nicos Anastasiades said in a letter to ECB chief Mario Draghi.

Deepening a row between the government and central bank, Anastasiades attacked Panicos Demetriades, who was appointed as governor last year, for what he said was sustaining an insolvent bank using a European Central Bank cash lifeline.

The president also said there were damaging delays in resolving problems in the banking sector, after depositors were slapped with massive losses to fund a state bailout last month.

In an April 15 letter to ECB President Draghi, a copy of which was seen by Reuters, Anastasiades speaks of "shortcomings of the Central Bank of Cyprus".

Speaking of Draghi, his appearance at the European Parliament didn't bring MEPs flocking:

2.59pm BST

MAP: Growth forecasts for 2013

Map of IMF growth forecasts
Photograph: IMF

This map, from the World Economic Outlook, shows which parts of the world economy should expand strongly this year (dark blue), which should manage solid growth (light blue), which will grow slower (yellow) or struggle (orange), and which will actually contract (red).

You can see why the IMF remains so concerned about Europe.

Updated at 3.34pm BST

2.53pm BST

Duncan Weldon, the TUC's senior policy officer, points out that the IMF's new forecasts for the UK are actually slightly more upbeat than official predictions for 2013, but more pessimistic for 2014:

Updated at 2.56pm BST

2.48pm BST

Larry Elliott: Europe languishing in three-speed global economy

Economics editor Larry Elliott has also analysed the report, and confirms that Europe's woes continue to alarm the IMF:

He writes:

Prolonged stagnation in the eurozone – GDP falls by 0.3% this year after a 0.6% drop in 2012 – is worrying in itself but it also has knock-on consequences for the rest of what the Fund sees as a three-speed global economy. In the first division are the emerging economies, which are exploiting their ability to catch-up with the countries of the developed world. They should see growth of more than 5% this year, similar to last year's performance.

The second division includes the US, Canada and Japan – even though the IMF clearly believes the stop-at-nothing reflationary strategy adopted by the new government in Tokyo is "risky" given the high level of public debt and the absence of a credible plan for putting the public finances back into some sort of order.

Finally, there is Europe, firmly in division three and with no immediate prospect of promotion.

Full analysis here: Eurozone crisis clouds IMF's improving outlook

2.48pm BST

Our full story about the IMF's warning to the UK is online here:

George Osborne should ease off on austerity, IMF warns

2.43pm BST

IMF to hold discussions with UK

Chancellor of the Exchequer George Osborne.
Chancellor of the Exchequer George Osborne. Photograph: Barbara Lindberg/Rex Features

The IMF will hold talks with the UK government over how the fiscal adjustment programme could be slowed.

From Washington, economics editor Larry Elliott reports:

Blanchard just singled out the UK as acountry that needs to show more flexibility on austerity.

"In the face of very weak private demand it is time to consider adjustment to the original fiscal plans," Blanchard said.

Blanchard added that the IMF will hold discussions with the UK over the coming months to "see what can be done" about pace of deficit reduction.

The IMF conducts an annual health check on the UK, which gives it a forum to raise its concerns.

Previously, the IMF has backed George Osborne's strategy while cautioning that a rethink might be needed if the economic situation worsened. With UK GDP shrinking again in the last three months of 2012, that moment has apparently arrived.

2.38pm BST

Back to the IMF briefing in Washington: chief economist Olivier Blanchard has told reporters that the risk that the eurozone might not stick together has "disappeared" due to measures from the European Central Bank and the European Union.

However, there is "a further urgent need to strengthen banks without weakening sovereigns", he added.

2.32pm BST

In other news, Mario Draghi is testifying at the European Parliament now. The president of the European Central Bank is telling MEPs that it is vital to deliver closer economic and monetary union. Live stream here.

2.28pm BST

IMF: Bumpy road ahead

The top-line message from the International Monetary Fund is that the world economy has improved since last October, but there's still plenty of problems.

As it puts it:

Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy.

The IMF is relieved that policymakers in 'advanced economies' have successfully "defused" the threat of a breakup of the euro area and a sharp US fiscal contraction cut to the “fiscal cliff".

But, it warns that "old dangers remain and new risks have come to the fore.". And the eurozone continues to be top of the list:

In the short term, risks mainly relate to developments in the euro area, including uncertainty about the fallout from events in Cyprus and politics in Italy as well as vulnerabilities in the periphery.

2.22pm BST

You can download the IMF World Economic Outlook from its website:

Chapter 1: Global Prospects and Policies

Chapter 2: Country and Regional Perspectives

2.17pm BST

Click here to see an overview of the IMF's projections:

Summary of IMF forecasts in the World Economic Outlook, April 2013
Photograph: /IMF

2.16pm BST

Other key points from the IMF. It also expects France to shrink by 0.1% this year, Italy to contract by 1.5% and Spain to shrink by 1.6%.

And as expected (following last Friday's leak), it has cut its forecast for US growth this year to 1.9% (from 2%).

Updated at 3.31pm BST

2.13pm BST

Olivier Blanchard, chief economist at the International Monetary Fund
Olivier Blanchard, chief economist at the International Monetary Fund, presenting today’s report.

2.10pm BST

Watch the IMF press conference

The IMF is presenting its new World Economic Outlook at a press conference in Washington – you can see it live here:

2.07pm BST

IMF warns of deeper eurozone recession

The IMF has taken the red pen to most of its economic forecasts, admitting that the global recovery is weaker than expected.

It has cut its forecast for global growth to 3.3%, from 3.5% in the previous World Economic Outlook.

And it now expects the eurozone to shrink by 0.3% this year, worse than the 0.2% contraction expected before.

2.01pm BST

IMF cuts UK growth forecasts and urges austerity rethink

Breaking: The International Monetary Fund has cut its growth forecasts for the UK and urged George Osborne to reconsider the pace of his austerity programme.

The warning comes in the IMF's new World Economic Outlook figures, just released.

From Washington, our economics editor Larry Elliott reports:

George Osborne has been told by the International Monetary Fund to re-think the pace of his deficit reduction plan after the Washington based institution cut its forecast for UK growth in both 2013 and 2014.

The IMF’s flagship publication – the half-yearly World Economic Outlook – provided fresh ammunition for the chancellor’s Labour critics when it said the Treasury should contemplate being flexible about its austerity strategy.

In its latest forecasts, the Fund said gross domestic product in the UK would rise by 0.7% this year and by 1.5% in 2014 – in both cases a cut of 0.3 points from its last set of predictions in January.

The warning comes a week before the latest GDP data shows if Britain is in a triple-dip recession.

The IMF warned that the UK recovery was progressing slowly. Here's the key statement on the UK, explaining why Osborne should consider changing course.

Domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions and economic uncertainty, while declining productivity growth and high unit labour costs are holding back much needed external rebalancing.

…In the UK, where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path.

The IMF is presenting the full World Economic Outlook in Washington now….

1.48pm BST

The number of new housing starts in the US has jumped to the highest level since June 2008 (three months before Lehman Brothers Failed).

The number of housing plots where work actually began jumped by 7% in March to 1.036 million, suggesting the housing recovery is strengthening.

1.44pm BST

US inflation data shows falling prices in March

The cost of living actually fell last month in America, according to the latest inflation data just released.

On a month-on-month basis, the consumer prices index was down by 0.2% in March vs February – mainly due to falling gasoline prices.

Inflation was also lower than expected on an annual basis, with CPI up by 1.5% compared with March 2012.

For comparison, eurozone CPI came in at 1.7% this morning (here) while in the UK it remained at 2.8% (from here).

1.27pm BST

MEPs approve bank bonus curbs

The European Parliament has given its approval to new rules for the banking sector, which include restrictions on bonuses – pegging them at 100% of annual salary.

AP has the story:

The European Parliament on Tuesday voted in favor of financial reforms, including a new law to cap bankers' bonuses.

The rule limits bonus payments at one year's base salary, or double that if a large majority of a bank's shareholders agrees. It will come into force next year and will also apply to European units of foreign banks and the employees of EU banks working overseas in New York, for example.

Lawmakers in Strasbourg overwhelmingly backed the proposed law and passed a sweeping package of financial laws that will force banks in the 27-nation European Union to strengthen their capital buffers.

"We are making our banks more resilient to crises with today's decision so that they no longer have to be bailed out with taxpayers' money," said Othmar Karas, a leading conservative lawmaker who oversaw the legislation.

The new reforms detailed in a 1,000-page document also lay important groundwork for the creation of a centralized banking supervisor for the eurozone, a cornerstone of the 17-country currency bloc's effort to tackle its debt crisis.

The package of financial reforms which implement the internationally agreed Basel III rules were hammered out earlier this year after months of arduous negotiations between EU governments, the EU Commission and parliament. They now have to be implemented in national law by next year.

Karas called the set of rules the "most comprehensive and far-reaching banking regulation in the EU's history."

The different legislative packages were adopted by about 600 European lawmakers, with about 40 or less voting against them.

EC president Jose Manuel Barroso and Commissioner Michel Barnier have just issued a statement welcoming the move. Here's a flavour:

These new rules will strengthen the internal governance of banks.

Remuneration policies will have to be aligned with sound and effective risk management. Shareholders are given a special responsibility and an appropriate and reasonable maximum ratio is introduced between the fixed salary and the bonus for all risk takers.

Critics of the plan, though, claim it will drive up basic salaries and make bankers less accountable for performance….

12.45pm BST

Goldman Sachs beats expectations

Meanwhile on Wall Street, Goldman Sachs has just smashed analyst expectations with its results for the first three months of 2013.

Goldman posted earnings per share of .29, against expectations of .88. And net revenues from investment banking were 36% higher than a year ago.

CEO Lloyd Blankfein said Goldman was 'pleased' with its performance, but claimed the firm isn't immune to the wider economic ills. He warned shareholders:

The potential for macro-economic instability was felt in the quarter and constrained overall corporate and investor activity.

Still, it's a sharp contrast with the gloom in much of Europe.

12.32pm BST

Just 90 minutes until the International Monetary Fund releases its latest World Economic Outlook, and anticipation is building…

11.43am BST

Economist Nouriel Roubini has warned that today's drop in optimism among German economists and analysts confirms that the eurozone 'malaise' has reached Germany:

11.40am BST

Market update

Looking back at the markets, and Brent crude oil remains below the 0 mark.

As this graph shows, the oil price has been on a downward path since early February, before recent disappointing economic data provided the latest push:

Brent crude oil price
Brent crude oil, in 2013. Photograph: Reuters

Europe's major indices are still in the red, with the DAX falling further after the ZEW index showed that economic optimism has fallen in Germany (see 10.11am)

FTSE 100: down 33 points at 6310, -0.5%

German DAX: down 42 points at 7669, -0.5%

French CAC: down 22 points at 3687, -0.6%

Spanish IBEX: down 31 points at 7982, -0.4%

Italian FTSE MIB: down 28 points at 15,600, -0.18%

The sell-off in London would be sharper, but for a rumour that the drawn-out merger of Xstrata and Glencore has been approved by China. Their shares are up over 5% each – but most of the market is down (79 shares have fallen, versus 21 risers):

FTSE 100, April 16 2013
Plenty of red ink on the FTSE 100 today.

11.17am BST

Germany’s new anti-euro party has 3% support

Germany's new eurosceptic political party has the support of 3% of the population, according to a poll released by the tabloid Bild today.

It's the first survey since Alternative für Deutschland (AfD) held its founding conference on Sunday. AfD fervently opposes eurozone bailouts, and will campaign in this autumn's election for the "orderly dissolution of the euro".

That leaves AfD some way adrift of the 5% threshold to claim seats in the Bundestag – but there's still several months until the elections. The poll also confirms that Angela Merkel's CDU party holds a solid lead over the main opposition group, the SPD:

German opinion poll, 16 April 2013
Photograph: Bild

AfD has been criticised by several German politicians since its launch – and Bild itself (no fan of eurozone bailouts) points out that a return to the Deutsche mark would make German exports much pricier.

Guy Verhofstadt, the former Belgian prime minister who leads the Alliance of Liberals and Democrats for Europe in the European parliament, took to Twitter to blast the party today. He called AfD "suicide for Germany" and a "nightmare" for the rest of Europe….

Rather than loosening Europe's ties, Verhofstaft's solution is closer fiscal integration:

11.00am BST

Greek ferry workers hold 24-hour walkout

A man walks past moored ships at the port of Piraeus, Greece, 16 April 2013. A 24-hour strike was called by all Greek seamen unions against the vote of a bill undermining their collective bargaining rights and to protest austerity measures on 16 April.
A man walks past moored ships at the port of Piraeus, Greece, this morning

A 24-hour strike has been called by all Greek seamen unions today, in protest at the country's austerity programme and a bill that will undermine workers' collective bargaining rights.

The walkout, which ends early on Wednesday morning, has left Greek islands without ferry links with the mainland, AP reports.

Living In Greece had more details:

• There is usually a last sailing from the islands as many vessels must return to slips in Athens.
• Routes between Greece and Italy are unaffected if the crew is Italian and ports are not blockaded.

Some suburban railway employees are also planning to hold four-hour stoppages between 8pm and midnight today, and on Wednesday and Thursday (more here).

Updated at 11.00am BST

10.11am BST

German economic sentiment takes a dive

Germany's ZEW index of economic sentiment has fallen sharply, as fears over the eurozone crisis loom over its largest economy.

The ZEW economic sentiment index slipped to just 36.8, down from March's 48.5 (and much worse than expectations) – a sign that optimism is faltering among the economists and analysts surveyed by ZEW.

The think tank cited recent disappointing economic data, and the ongoing eurozone crisis.

Updated at 10.15am BST

10.02am BST

Eurozone inflation

Eurozone inflation data is just in – CPI rose by 1.7% year-on-year in March, that's down on February's 1.8%.

That may give the European Central Bank more opportunity to cut interest rates…..

9.59am BST

Inflation: what the economists say

City economists are warning that UK inflation will head higher this year. Here's a round-up of early reaction, from Reuters:

GEORGE BUCKLEY, DEUTSCHE BANK

I do think you are going to see some increases in inflation over the course of the next three or four months. I wouldn't be surprised to see inflation heading above 3 percent. The one uncertain factor is here is how much petrol prices fall over the next few months based on the fact that we've seen lower oil prices and that could actually limit the peak in inflation we originally had at 3.4% or 3.5%….

ROB WOOD, BERENBERG BANK

The trend for inflation is probably up, heading to 3% pretty soon.
The Bank of England seems unlikely to engage in more asset purchases in the next month or two, with inflation threatening to go into letter-writing territory soon."

PHILIP SHAW, INVESTEC

This is about as close to consensus as you're likely to get. Our view remains that CPI will move above 3% in the coming months.

The big question is whether the MPC will look through this and become more aggressive on QE. We suspect it will.

9.54am BST

Wages failing to keep pace with inflation:

At 2.8%, the cost of living in the UK continues to outpace the rise in wages, as economist Shaun Richards points out:

And it appears it's partly our fault:

Not free websites, of course :)

9.48am BST

UK inflation: the details

While the consumer prices index rose by 2.8% year-on-year, prices were up by 0.3% during March itself.
Here's a chart that breaks down today's inflation data, showing how prices rose/fell last month compared to February, and compared to March 2012.

UK CPI inflation, March 2013
Photograph: /ONS/Reuters

The retail prices index (which includes housing costs) came in at 3.3%, or up 0.4% during March.

9.32am BST

UK inflation stays steady

UK inflation rose by 2.8% year-on-year in March, as measured by the Consumer Prices Index (the Office for National Statistics just reported).

That's a repeat of February's reading, and in line with expectations.

Clothing and footwear showed the largest month-on-month increase, while food and alcoholic beverage prices were down compared with February.

Table to follow…

Updated at 9.33am BST

9.05am BST

We'll also be watching the European Parliament this afternoon, where Mario Draghi is scheduled to make an appearance (at 2pm BST, RanSquawk flags up).

9.02am BST

The agenda

The biggest event on the agenda today is the International Monetary Fund's latest forecasts for the world economy.

We also have inflation data for the UK, the eurozone, and the US, as well as the ZEW measure of German investor confidence.

Some of the data from the IMF leaked last Friday, suggesting it will cut its prediction for US growth (see here), but there should be plenty of other interesting news to cover.

UK inflation data for March: 9.30am BST

Eurozone inflation data for March: 10am BST

German ZEW index of investor confidence: 10am BST

US inflation data: 1.30pm BST (8.30am EST)

IMF's latest World Economic Outlook: 2pm BST

8.39am BST

Shares down again

Europe's stock markets are in the red this morning,.

FTSE 100: down 24 points at 6318, – 0.3%

German DAX: down 12 points at 7700, – 0.16%

French CAC: down 3 points at 3706. -0.1%

Spanish IBEX: down 50 points at 1,963, – 0.6%

Italian FTSE MIB: down 54 points at 15,574. -0.35%

Rebecca O'Keeffe, head of investment at Interactive Investor, blamed fears over the state of the US and Chinese economies. She also fears more losses ahead – partly because of the eurozone crisis

With China disappointing and recent weak data from the US raising serious questions about whether the tax increases and spending cuts suggest a more significant impact on US growth, there seems little to entice investors.

And with continuing problems in Europe and the seemingly ever expanding black hole that represents the financial position of Cyprus, investors may be well advised to be more cautious over the coming weeks.

8.29am BST

An alternative view on gold….

Updated at 8.45am BST

8.25am BST

Gold price up, but close to two-year low

Gold has staggered back off the mat this morning, up around 1.3% at ,378 per ounce.

A crumb of comfort for gold bugs, whose morale and wallets are badly bruised by Monday's slump (gold was trading around ,560 last Thursday).

But few City analysts this morning are predicting a swift recovery. Katie Martin of Dow Jones sums up the latest reaction:

Updated at 8.48am BST

8.09am BST

Moody’s cuts China’s outlook

Rating agency Moody's has dented China's hopes of a credit rating upgrade this morning, by cutting the outlook to 'stable' from 'positive'.

In the latest sign of concern over China, Moody's warned that it had not made much progress in addressing potential bad debts held by its local government bodies.

It explained:

Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth; therefore, some of the upward pressure on the Aa3 rating has eased.

Aa3 is the fourth highest rating on the Moody's scale. More here.

Updated at 8.10am BST

7.54am BST

Brent crude hits nine-month low as global fears grow

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

Concern over the state of the global economy is growing today, as the jitters that hit the markets yesterday continue to reverberate around the trading floors. 

Brent crude oil has fallen below the 0 a barrel mark overnight, its lowest levels since July 2012. Monday's disappointing growth figures from China are being blamed – with investors anticipating lower demand for oil if (as feared) the global economy is entering a stickier patch.

The message this morning is that economic growth may be more elusive than expected (despite the ultra-loose monetary policy we've been showered with since the crisis began).

As Myrto Sokou, senior analyst at the Sucden brokerage, explained to AFP:

The recent Chinese economic data failed to meet analysts’ expectations and added further pressure to the market that was already showing sharp losses following disappointing US economic data last week.

And Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, warned that:

There is a level of confidence evaporating from the [oil] market.

Of course, lower oil prices could actually help Europe's struggling economies – lowering inflationary pressures and cutting transport costs.

But the broader picture remains that the economic picture does not look too great – Monday's Empire State Manufacturing Index, which measures the health of the US manufacturing sector, was also a disappointment.

Michael Hewson, senior market analyst at CMC Markets, warns that shares and commodities are likely to keep falling today:

Yesterday’s China inspired sell off looks set to continue this morning in the wake of continued sharp falls in oil, gold and copper prices as investors appear to be starting to lose patience and confidence in the so called global recovery story.

Another disappointing US economic indicator by way of the Empire manufacturing survey did nothing to quell these concerns as the run of disappointing US economic data continued.

 Despite billions of dollars of financial stimulus from central banks worldwide the global growth story still appears to be no closer to showing signs of moving into a higher gear, and if anything continues to misfire like a clapped out old motor vehicle.

And to complete the picture, Moody's has lowered its outlook on China from positive to stable (more on this shortly).

So, that's the cheery picture this morning – I'll be tracking all the economic news and developments in the euro crisis through the day …

Updated at 8.53am BST

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Apr. 15, 2013 (Allthingsforex.com) – The G20 meeting and notable economic data from Japan will place the yen in the center of the market’s attention as “currency wars” once again becomes a hot topic for discussion in the week ahead.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    CNY- China GDP- Gross Domestic Product, the main measure of economic activity and growth, Sun., Apr. 14, 10:00 pm, ET.

The world’s second-largest economy was expected to hum right along with 8.0% q/y expansion in the first quarter of 2013, after growing by 7.9% q/y in the final quarter of last year. However, the GDP report disappointed with slower pace of growth by 7.7% q/y in Q1 2013. The weak Chinese data brought down commodity prices and dragged lower the higher-yielding commodity currencies, the AUD and NZD.

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Apr. 16, 4:30 am, ET.

Inflationary pressures in the U.K. are forecast to remain at 2.8% y/y in March, same as the 2.8% y/y reading in the previous month. If the threat of a triple-dip recession in the U.K. materializes, inflation will not be an obstacle for the Bank of England to ease monetary policy further in upcoming months.

3.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions measuring the outlook of financial experts, Tues., Apr. 16, 5:00 am, ET.

After a few months of improvement in the economic outlook, the ZEW index is expected to pull back with a reading of 45.6 in April compared with 48.5 in the previous month. A new sign that economic conditions in the euro-area are deteriorating could weigh on the EUR as the market begins to price expectations that the European Central Bank might start to play “QE catch-up” with the Fed and the Bank of Japan as early as the next meeting on May 2.

4.    USD- U.S. Housing Starts, an important gauge of housing market activity measuring new home construction, Tues., Apr. 16, 8:30 am, ET.

Housing starts for the month of March are expected to be a bit higher to 924K from 917K in February. The report carries a risk of a negative surprise following another leading indicator of housing market activity, the National Association of Home Builders/Wells Fargo index, which fell to 42 in April from 44 in March, the third consecutive month of decline.

5.    USD- U.S. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Apr. 16, 9:15 am, ET.

Industrial production is forecast to increase for another month, but at a slower pace, by 0.3% m/m in March, after rising by 0.8% m/m in February.

6.     GBP- Bank of England Meeting Minutes, a detailed report of the bank’s latest meeting containing an outlook on monetary policy and the economy, Wed., Apr. 17, 4:30 am, ET.

Bank of England sat on the sidelines at its April meeting and has made it clear in recent months that policy makers are not in a hurry to do more easing. However, the GBP could see pressures rising if the minutes reveal that more Monetary Policy Committee members, including the Governor Mervyn King, voted for an increase of the Asset Purchase Program from 375 billion to 400 billion pounds, and if the option of additional rate cuts was once again placed on the table.

7.    CAD- Bank of Canada Interest Rate Announcement, Wed., Apr. 17, 9:00 am, ET.

With the U.S. and China, the world’s two largest economies, starting to show signs of a slowdown, the Bank of Canada will not be in a position to make any changes to its existing monetary policy and will more than likely leave the benchmark rate at the current 1.0% level. Compared with the rest of the major central banks, the Bank of Canada still remains as the most likely candidate to tighten monetary policy. However, with the world in the midst of a “currency war” as competitive currency devaluation heats up, the decision to call the end of the accommodative monetary policy would probably be pushed further into 2014/2015.

8.    JPY- Japan Trade Balance, an important gauge of economic activity measuring the difference between imports and exports, Wed., Apr. 17, 7:50 pm, ET.

Despite of the yen’s weakness, the consensus forecasts point to another month of trade deficit by 494 billion yen in March from a deficit of 777 billion yen in February. Signs that the Japanese economy is not improving will keep the yen under pressure on expectations that the government and the Bank of Japan could step up their efforts to devalue the currency and to spur export growth.

9.    USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring claims for unemployment benefits, Thurs., Apr. 19, 8:30 am, ET.

Recovering after the unexpected spike, the U.S. jobless claims are forecast to remain in a range with a reading of 447K, close to last week’s 446K. If the forecast is accurate, the spike to 388K could be dismissed as a one-off event. On the other hand, another surprising increase could trigger concerns that a new trend of rising claims for unemployment benefits could be in its early stages of development.

10.     JPY- G20 Meeting, Thurs., Apr. 18, and Fri., Apr. 19, two-day event.

Finance ministers and central bankers from the 20 most-developed industrialized nations in the world will gather as traders pay close attention to any statements or agreements that could be made during the G20 meeting on the issues of “currency wars” and competitive currency devaluation. The G20 did not directly criticize Japan at the last meeting. However, with the yen depreciating rapidly due to the unprecedented measures taken by the Bank of Japan, it would be interesting to see if the efforts of Japanese officials to weaken their currency will be criticized by their G20 colleagues this time around. The JPY negative trend is still intact, but we could see some unwinding of short yen positions ahead of the meeting.

Gold hits levels last seen in April 2011. 3.5% fall to $1,410 following 5.8% fall on Friday. China GDP at 7.7% versus 8% expectations. Industrial production 8.9% against expected 10.1%. Brent crude hits nine-month low. US housing data disappoints…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Gold slumps to a two-year low as China data disappoints” was written by Simon Neville and Nick Fletcher, for theguardian.com on Monday 15th April 2013 13.34 UTC

5.27pm BST

European markets fall as gold tumbles

With gold on the slide again – thanks to disappointing Chinese growth and fears of countries flooding the market by selling their reserves to boost their finances – stock markets were also under pressure. Michael Hewson, senior market analyst at CMC Markets UK, said:

Anyone hoping for a quiet start to the week in the lead up to this week’s G20 and IMF meetings got a rude awakening as European markets dropped sharply on the open in the wake of disappointing Chinese economic data which showed that economic growth for the first quarter only came in at 7.7%, well below expectations of a rise to 8%.

Mining stocks and commodity prices have got absolutely battered with gold prices falling though a key technical support level and silver prices also doing the same thing.

But by the close, many European markets had come off their worst levels:

• The FTSE 100 finished down 40.79 points at 6343.60, a 0.64% fall

• Germany's Dax dropped 0.41%

• France's Cac closed 0.5% lower

• Italy's FTSE MIB lost 0.96%

• Spain's Ibex fell 0.33%

• The Athens market dipped 0.11%

And with downbeat US manufacturing and housing data, the Dow Jones Industrial Average is currently down around 120 points.

On that note, it's time to close up for the evening. Thanks for your comments and we'll be back tomorrow.

5.23pm BST

Recently appointed Cypriot finance minister Haris Georgiades insists there is no anti-EU feeling in the country despite criticisms of the bailout terms.

In an interview with the Financial Times he said there was frustration at the remedy offered, but also a realisation that the problems were self-inflicted rather than coming from outsiders.

Cyprus's finance minister Haris Georgiades.  Photograph:  AFP/Getty Images/Yiannis Kourtoglou
Cyprus’s finance minister Haris Georgiades. Photograph: AFP/Getty Images/Yiannis Kourtoglou

Updated at 5.24pm BST

3.38pm BST

Portugal’s banks unlikely to need more capital says banking head

Portuguese banks may not need extra capital despite what a leading ratings agency suggested, according to the head of the country's Banking Association.

Moody's warned last week the country's banks might need an extra €8bn as non-performing loans had risen more than expected.

But Fernando Faria de Oliveira told Reuters that "nothing points to those figures" and at the moment there was no need for more capital. He said:

I respect Moody's but I don't believe we will need to raise such [an] amount of capital at all. We are confident about the solidity of Portuguese banks.

3.26pm BST

US housing data disappoints

The latest US data has added to the gloom engendered by disappointing Chinese growth figures and the continuing pressure on the gold price.

Following worst than expected New York manufacturing figures comes a downbeat US housing survey. The National Association of Home Builders/Wells Fargo index fell to 42 in April from 44 in March, the third dip in a row. Analysts had been expecting a small rise to 45. Builders reported increasing costs of materials and worries about the supply chain.

With that, the Dow Jones Industrial Average has added to opening losses and is now down nearly 100 points or around 0.7%.

3.15pm BST

More from Draghi:

3.09pm BST

There is not much new in Draghi's comments, according to Annalisa Piazza at Newedge Strategy:

In a nutshell, Draghi hasn't added much to what suggested in early April. The ECB is widely aware with problems with SMEs but it looks like it has no "magic wand" to solve the lack of transmission. Comments by Draghi suggest that some step in the direction of repairing SMEs lack of competitiveness have been made but it's not just the ECB policy that can work its way through the economy.

ECB president Mario Draghi addresses students at the University of Amsterdam. Photograph: AP/Peter Dejong
ECB president Mario Draghi addresses students at the University of Amsterdam. Photograph: AP/Peter Dejong

2.34pm BST

ECB Draghi speech in full

The European Central Bank has published a full copy of President Mario Draghi's speech. After a whimsical journey through Amsterdam's history and the crisis of 1763, he gave a stark warning:

In providing liquidity to our banking counterparties, we cannot and do not want to subsidise banks that are failing. Our liquidity support is not and should not be equity support. Likewise, in pricing out break-up risk in sovereign debt securities, we cannot and do not want to subsidise governments.

He added:

Unlike economies with a single fiscal authority or with a fully-fledged federal structure, the euro area comprises multiple sovereign states. The debt of each of these states has different liquidity and risk characteristics. In such a set-up there is no uncontroversial way to define the term structure of the risk-free rate. As a matter of fact, this means that there is no univocal measure of the term premium for the euro area as a whole.

The banking sector and the financial market of the euro area has become fragmented. This is harmful as the euro area is a bank-based economy. Around three quarters of firms’ financing comes from banks. So if banks in some countries will not lend at reasonable interest rates, the consequences for the euro area economy are severe.

And with that, I'm handing over to my colleague Nick Fletcher.

Updated at 3.10pm BST

2.23pm BST

More from Draghi's Amsterdam speech.

He says financial sector fragmentation in the eurozone has been receding but problems in the euro area's economic landscape still "loom large".

Mario Draghi met De Nederlandsche Bank President Klaas Knot (2nd L), Dutch PM Mark Rutte (centre L) and Eurogroup President Jeroen Dijsselbloem (2nd R) in The Hague today. Photograph: REUTERS
Mario Draghi met De Nederlandsche Bank President Klaas Knot (2nd L), Dutch PM Mark Rutte (centre L) and Eurogroup President Jeroen Dijsselbloem (2nd R) in The Hague today. Photograph: REUTERS

2.16pm BST

Draghi speech in Amsterdam – failing banks should not be supported

Over at the University of Amsterdam, ECB president, Mario Draghi, is giving a speech.

He said:

We do not want to support banks that are failing

Suggesting he has moved away from his position of unlimited funding to bolster struggling markets.

Here are tweets coming from the room

1.57pm BST

EU officials to give upbeat assessment to G20

EU officials are expected to tell the G20 finance ministers in Washington this week:

The euro area has made further progress in the implementation of its comprehensive crisis-response strategy.

With a

mild recovery setting in toward mid-2013 and strengthening in the second half of 2013 and in 2014.

That's according to Bloomberg who have seen a draft statement left over from a similar meeting in Dublin last Friday.

1.37pm BST

New York manufacturing data released

The pace of growth in manufacturing in New York state – an early indicator for the rest of the country – slowed more than expected.

The New York Federal Reserve's "Empire State" general business conditions index fell to 3.05, from 9.24 in Larch, short of forecasts of 7.

New orders dropped to 2.2 from 8.18, inventories improved to -4.55 from -5.68.

11.37am BST

Wealth tax to pay for EU bailouts?

The Telegraph has reported comments from Professor Peter Bofinger, an adviser to Angela Merkel, that he made in Der Spiegel.

In it, he suggests the rich in struggling eurozone countries, such as Spain and Italy, should face new property taxes instead of any future raids on depositors savings, as in Cyprus.

He told the German magazine:

The resourceful rich just move their money to banks in northern Europe and avoid paying.

Instead of taxing cash, European Union governments should in future target property and other, less mobile assets, he said.

For example, over the next 10 years, the rich should give up a portion of their assets.

The argument goes that the taxes should be used to fund future bailouts rather than relying on cash injections from the Troika. However, Merkel has yet to endorse the ideas put forward by Bofinger.

11.18am BST

10.54am BST

Eurozone trade surplus boost

The eurozone's trade surplus grew in February, but the positive balance was helped by lower demand for imports rather than export growth.

The trade surplus with €10.4bn in February, unadjusted, beating expectations of €3bn, and up from a €1.3bn surplus in February last year.

Eurozone exports were down 1.1% year-on-year in February, while imports were down by 7.1% year-on-year.
 
Seasonally-adjusted data show the trade surplus improved to €12bn in February, after dipping to €8.7bn in January from €10bn in December.

Howard Archer at IHS Global Insight said:

The eurozone is likely to have needed all the help it could get from net trade in the first quarter of 2013 as it looks highly likely that domestic demand contracted overall.
The eurozone will be fervently hoping that global growth improves as 2013 proceeds, thereby boosting exports and facilitating the single currency area’s exit from recession.

10.26am BST

Greek heart attacks increase

A new major study in Greece has found that heart attacks have increased during the economic crisis, giving an insight into the effects beyond monetary ones.

Open Democracy, which reports the findings, said heart attacks increased 29% after the crisis hit, compared with before, with women suffering hardest hit – up 39%. The researchers point out the unemployment rate for women is higher than men

Dr Emannouil Makaris, presenting his findings at a research talk at the American College of Cardiology’s annual meeting, said

Greek women have a higher unemployment rate than men, they are responsible for child care, and they also work outside the home – a formula for stress.

Unemployment is a stressful event and stress is connected with heart disease, but other issues also come with financial difficulties. In these times a lot of people do not have money to buy medications or go to their primary care doctor. The cost to society is high.

10.14am BST

Silver getting hit

10.11am BST

Sticking with gold, Pawelmorski has written an excellent blog post on the precious metal.

Here's an extract:

Gold – unlike bank deposits, equity or bonds, or even banknotes – it’s separate from the real economy; it’s what you invest in when you want to take a breather from what’s happening in the real economy. That’s actually only a sensible thing to do in pretty extreme circumstances. Gold returns are utterly crushed by equity markets in the long term – to a really astonishing degree for those economies where we have continuous equity markets. Compared with shares in pre-revolutionary China or pre-war Poland, gold returns look pretty good. Gold is less an index of how confident we are that our leaders a) want to b) know how to do the right thing as it is an index of how sure we are that they won’t completely and utterly screw the pooch.

So what can go wrong?

I’m sick of hearing about hyperinflation. The case for gold often starts off with a chart of narrow money or the Central Bank balance sheet, and skips over the (dead-in-the-water) dynamics of broad money. Economists like to use the parable of “helicopter money” (banknotes thrown from a helicopter), and sadly some people appear to be scanning the skies for scrip-dispensing helicopters. What’s actually happened is that the helicopter pilot suffered some nasty losses on US subprime debt and Greek Government bonds and is hoarding the new money, so it’s not having a lot of inflationary impact.

If inflation is always and everywhere a monetary phenomenon, hyperinflation is a political one. Without the political conditions – usually an-even-more-than-normally unpopular and illegitimate government – usually the harder choices do in fact get taken. Argentina and Russia (and Jamaica for that matter) defaulted on debt in local currency debt that they could print rather than face hyperinflationary consequences. Argentina and Iceland both imposed capital controls for similar reasons.

10.04am BST

10.01am BST

Gold reaction

So what has caused gold to fall 3% today, after a 5.3% fall on Friday?

Hitting a two-year low, gold, along with other commodities, have slumped.

Usually gold is invested in to hedge against inflation. Some bearish analysts have warning the past that it would be a good bet because of the fears of hyperinflation.

However, these haven't panned out.

Michael van Dulken at Accendo Markets said:

Gold took another leg down from its Friday weakness, although off its worst levels of 25 (2-year lows). Having decisively broken 18-month lows of 20 on Friday, this level could well revert to resistance on any rally attempt. Broker bearishness (optimistic on economic growth), uncertainty over duration of US Fed’s QE3 (again optimism on econ growth), ETF outflows and fears of Eurozone nations selling the metal to pay for bailouts all spooking markets.

A reminder – Cyprus said on Friday it would try and sell €400m-worth of its gold, leading to fears that other countries could turn to a gold selloff to fund its needs.

As RANSquawk points out, poor GDP numbers from China will temper inflation (as well as knock other commodity prices).

While, bad retail figures from the US last week, and a more determined effort by the eurozone to keep an eye on inflation means the need to hedge with gold looks less important by the day.

Joe Weisenthal wrote over at Business Insider:

So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It's great that our economic elites know what they're talking about, and have the tools at their disposal to address crises without creating some new catastrophe.

Things aren't great in the economy, but the collapse/hyperinflation fears haven't panned out, and the decline in gold is a manifestation of that.

8.44am BST

Troika statement on Greek deal

The Troika group of lenders – the European Commission, ECB and IMF – have put out a statement on the agreement reached with Greece this morning.

You can read the statement in its entirety here, but in short, it's very much steady-as-she-goes missive.

The mission and the authorities agreed that the economic outlook is largely unchanged from the previous review, with continued prospects for a gradual return to growth in 2014, supported by inflation well below the euro area average and improved wage flexibility, which are helping to restore the competitiveness of the Greek economy.

It says debt reduction has been achieved, more autonomy has been given to tax collectors, tax evasion and corruption has been tackled.

It added:

The mission also discussed with the authorities progress in strengthening the social safety net, including through targeted employment and training programmes supported by the EU, pilot programmes to extend unemployment benefits and provide minimum income support, a programme to provide access to primary health care for the uninsured, and a scheme to reduce the financial burden on indebted low-income households which have been severely affected by the crisis.

8.22am BST

Greece/Troika meetings

Over in Athens, the Greek government has been meeting with the Troika group of lenders.

Finance minister Yiannis Stournaras told waiting reporters that a deal has been reacted on a review of the country's austerity programme, adding that the Cyprus crisis will not change Greece's macro-economic situation.

Finally, he revealed the cuts have seen a primary budget surplus this year, which will be used to pay down public debt.

8.17am BST

Gold to April 2011 levels

Spot gold prices continue to fall, hitting ,450 an ounce, the lowest level in two years.

8.12am BST

Mining companies down

Bang on time, the FTSE 100's biggest fallers on opening are all mining companies, reacting to the Chinese data and commodity price falls.

Randgold (down -4.9%), Fresnillo (down 3.8%), Polymetal (down 3.2%), Evraz (down 3.2%), Rio Tinito (down 3%), ENRC (down 2.1%), Anglo American (down 1.9%), Antofagasta (down 1.9%), BHP Billiton (down 1.6%) and Xstrata (down 1.6%)

8.06am BST

Key Chinese data disappoints

Good morning and welcome to another day of rolling coverage of the eurozone crisis.

After the excitement of Friday's finance ministers get-together in Dublin and Cameron and Merkel's weekend together, today is slightly quieter, but we wait to see if the tumbles in commodities continue. Gold fell to an 18-month low, with oil and silver both down too.

Overnight, disappointing numbers came out of China, with Q1 GDP at 7.7% missing expectations of 8% and down from 7.9% last time.

Industrial production in March fell from 9.9% to 8.9%, missing expectations of 10.1%.

However, retail sales remained strong at 12.4%, up from 12.3% in February.

Meanwhile, in Venezuela, results of the country's general election are through, but political uncertainly in the oil-rich country could also have an impact on commodities.

We will be keeping an eye on all the reaction to the results and any other events to break throughout the day.

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