May 3 2013

US jobs data smashes forecasts. S&P 500 remains over 1,600 for the first time ever, while the Dow Jones rallies above 15,000. US and German stock markets hit record highs. European Commission Spring Forecasts show deepening recession…


Powered by article titled “US jobless rate falls to four-year low as EC cuts eurozone growth forecast – as it happened” was written by Graeme Wearden, for on Friday 3rd May 2013 16.14 UTC

5.44pm BST

Closing summary

It's all over in Europe, after a busy week. We've had May Day rallies, a Greek strike, the ECB monthly meeting, and more economic news (mostly bad) than I'd like to remember.

A very brief recap of today's two main stories

The US labour market is recovering faster than we thought. Today's jobs data showed 165,000 new positions were created in April, with another February and March's total revised higher by 114,000 new jobs. See here onwards.

Europe's economy is in worse shape than the European Commission had previously admitted. The EC's new growth forecasts predict a 0.4% drop in GDP this year, and show that France and Spain will both miss the official deficit targets this year. Here's a summary from earlier.

Commissioner Olli Rehn also claimed that Britain had no flexibility to ease fiscal policy (see here)

In other news

• Markets have posted strong gains, with the German DAX closing at its highest ever level, and the US Dow Jones and S&P 500 both hitting record highs (see here)

• ECB policy maker Ewald Nowotny suffered a nasty dose of over-interpretations over negative interest rates (see here)

• Finland's AAA credit rating has been affirmed by Fitch (see here)

• A MP representing the Greek nei-Nazi Golden Dawn party, who is accused of trying to pull a gun on the mayer of Athens (and punching a girl in the melee) could face charges. (see here).

Have great weekends all. Thanks, and goodnight!

Updated at 6.43pm BST

5.14pm BST

Late news from the rating agencies — Fitch has just affirmed Finland's AAA rating, with a stable outlook.

Finland's rating is underpinned by a combination of strong governance, high income per capita, a positive net international investment position and an impeccable debt service record. Government borrowing is currently strongly placed in financial markets. The strength of public finances is a key support to the rating despite the more pressing issue of population aging.

Public finances remain robust compared to peers. This provides Finland with some scope to absorb unexpected shocks and is reflected in the Stable Outlook. At 53% of GDP in 2012, general government debt is in line with the 'AAA' median and well below eurozone rating peers, including Germany ('AAA'/Stable). While the government has acknowledged that it will fail to meet its objective to reduce the central government deficit to no more than 1% of GDP by 2015, Fitch expects debt to GDP will remain below the EU threshold of 60% of GDP during the remainder of the parliamentary term of the current administration.

With pension fund assets over 70% of GDP the government has a net asset position, one of only six countries in the OECD and only second to Norway when measured relative to GDP. This is a mitigating factor towards the rising cost of an ageing population for the government for the short to medium term. The impact of an ageing population on public finances, however, will accelerate from 2020 and the government will need to implement further reforms of pensions to restore long run sustainability.

Here's the statement: Fitch Affirms Finland at 'AAA'; Outlook Stable

5.05pm BST

Dax hits record high as markets rally

Germany's DAX stock exchange has closed at its highest ever level, as the rally sparked by today's forecast-beating American jobs data.

The DAX jumped by 160 points, or 2%, to 8122 points.

Here's a graph showing how Europe's markets closed, and the latest details from Wall Street.

Stock markets closing prices, May 3 2013
Photograph: Thomson Reuters

As you can see, the S&P 500 remains over 1,600 for the first time ever, while the Dow Jones has dropped back below 15,000 having hit its own intra-day record high earlier.

Updated at 5.49pm BST

4.16pm BST

In Greece, MPs are to decide whether the Golden Dawn MP accused of trying to pull a gun on the mayor of Athens should face charges.

The parliament will be asked to consider whether to lift the immunity from prosecution of Giorgos Germenis, who is also said to have accidentally hit a 12-year girl in the face when trying to strike the mayor.

Kathimerini reports:

The Athens public prosecutor was on Friday to forward the case file on Golden Dawn deputy Giorgos Germenis to Parliament so MPs can decide on whether to lift the extreme rightist's immunity and allow him to face charges in connection with the attempted assault on Thursday of Athens Mayor Giorgos Kaminis.

Police forwarded the prosecutor the file on Germenis which relates to the charges of attempted bodily harm and verbal abuse. According to witnesses, Germenis tried to punch Kaminis after the mayor asked police to stop Golden Dawn from distributing food in Syntagma Square on Thursday. The lawmaker's punch missed the mayor and hit a 12-year-old who had visited a municipal office where candles for Orthodox Easter were being distributed. She was not seriously hurt.

Parliament must now decide whether to lift Germenis' immunity.

3.30pm BST

The Dow Jones industrial average just broke over the 15,000 mark for the first time:

Anyone who was quick to 'Sell in May' may be feeling a bit bruised.

Updated at 3.30pm BST

3.09pm BST

Two more gobbets of US economic data have landed – and they are not as good as the jobs report.

New orders at US factories fell by 4.0% in March, a bigger-than-expected drop.

And the monthly measure of the services sector showed that growth slowed in April to a nine-month low. The ISM non-manufacturing index fell to 53.1, down from 54.4 in March.

Updated at 3.09pm BST

2.56pm BST

Capital Economics: a soothing non-farm payroll

Here's Capital Economics's take on the US jobs data:

The better than expected 165,000 increase in non-farm payrolls in April, combined with the 114,000 upward revision to the gains in the preceding two months, will go a long way toward soothing fears of another spring slowdown.

With the unemployment rate edging down to a four-and-a-bit-year low of 7.5%, the Fed may yet begin to slow the pace of its asset purchases sometime in the second half of the year.

2.45pm BST

Wall Street surges on jobs data

Wall Street is open, and shares are racing higher as traders welcome the better-than-expected jobs data.

The S&P 500 has broken above the 1,600 point mark for the first time ever, and the Dow Jones industrial average has jumped 154 points to 14985, + 1.05%.

European stock markets are also jumping — on optimism that America's economy is in better shape.

FTSE 100: up 80 points at 6541, +1.2%

German DAX: up 138 points at 8099, + 1.74%

French CAC: up 48 points at 3907, + 1.26%

Italian FTSE MIB: up 155 points at 16903, + 0.9%

Spanish IBEX: up 156 points at 8562, + 1.8%

Now we just need to move this optimism into the real European economy….

Updated at 2.49pm BST

2.23pm BST

Today's US unemployment data is also another reminder of how bad the situation in Europe has become. The eurozone's jobless rate has now hit 12.1%, and the EC expects it will average 12.2% this year (see this post from earlier today)

The US jobs market is also looking healthier than the UK, where the unemployment rate hit 7.9% in the three months to February.

2.10pm BST

Our Wall Street correspondent, Dominic Rushe, has filed his first news story on the US jobs data:

US unemployment hits lowest rate in four years on strong April jobs figures

World markets soar as monthly report blows past estimates, with 165,000 jobs added and a jobless rate of 7.5%

2.06pm BST

Despite the strong payroll data, there was no jobs growth in America's construction or manufacturing sectors last month.

1.57pm BST

Some detail on today's US jobs data:

The 165,000 new jobs created in April were focused on these areas: professional and business services, food services and drinking places, retail trade, and health care.

Tthe number of long-term unemployed (those jobless for 27 weeks or more) has fallen by 258,000 to 4.4 million.

But there are also two data points that may signal economic weakness:

• The number of people working part time because their hours had been cut back or because they were unable to find a full-time job rose by 278,000 to 7.9 million…

• …and the average working week for all employees on private nonfarm payrolls decreased by 0.2 hours in April to 34.4 hours.

And finally, the labour force participation rate — the percentage of people who are either in work, or looking for it – was flat month-on-month at 63.3%.

1.44pm BST

Markets surge on non-farm payroll data

The news that the US economy created 165,000 new jobs in April, and that an extra 114,000 more jobs were created than we thought in March and February, has cheered the markets.

The FTSE 100 has jumped by 54 points to 6513, up 0.8%.

And Wall Street is expected to rally when trading begins in under an hour's time:

The dollar is also rallying against other currencies, up 1% against the yen, as the US economy looks healthier than 20 minutes ago.

Updated at 1.46pm BST

1.36pm BST

See the non-farm payroll data for yourself

You can read the details of the US jobs data here, on the Bureau of Labor Statistics website:

Employment Situation Summary

1.34pm BST

US jobless rate drops

The better-than expected rise jobs data from the US has pushed down the unemployment rate to 7.5% in April, from 7.6% in March.

1.30pm BST

Non-Fam Payroll

Breaking: The US economy gained 165,000 new jobs in April. Beating forecasts.

March's number has been revised higher to 138,000, from the 88,000 that was so disappointing.

And February's non-farm payroll has also been revised higher, to 332,000 from 268,000.

Updated at 1.33pm BST

1.26pm BST

Nowotny: What I meant was….

Screeching tires and the smell of burning rubber from Bratislava this afternoon.

ECB governing council member Ewald Nowotny has told reporters that his comments about Mario Draghi's comments on negative interest rates being over-interpreted have been (wait for it) over-interpreted.

Nowotny said he was "a bit astonished" to see the euro rise this morning, after he said there was "no short-term relevence" to Draghi's statement yesterday that the ECB was technically ready to charge banks who left deposits with them (see 8.59am).

Reuters has the new Nowotny comments:

"I was a bit astonished by the reaction of the markets to my comments concerning the deposit facility," Nowotny told reporters in Bratislava.
"What I wanted to make very clear is: yes, there has been of course a discussion about going into negative territory and we are open minded about it but it is nothing that has immediate effect," he said.
"That is what I really meant," he added. "Not that it is something that has to be excluded in principle. It is just an ongoing discussion. We are open minded about it but it is not something that will lead to a short-term result."
"I felt overinterpreted by the markets," the Austrian National Bank head said.

The euro is still trading above .31, a gain of almost half a cent today.

If Nowotny feels over-interpreted again, I'm sure he'll let us know.

Updated at 1.29pm BST

1.16pm BST

Electionista has wrapped up the latest political polling data from Italy and Germany:

In Italy:

And in Germany:

1.05pm BST

Read This

Excellent blogpost on yesterday's ECB press conference by @pawelmorski, City fund manager, on Mario Draghi's failure to announce any decisive new measures to help the weakest areas of the eurozone, and why the much-expected cut in interest rates really isn't enough.

We know – in as much as we know anything in economics that that 25bps cut will not add sufficient liquidity where it is needed. It may pump up Bund prices, and even help property owners in Helsinki or Munich, but money is not flowing to the companies and individuals that need it at the periphery for sure, and increasingly to the semi-core. This is like calling the Fire Brigade and being put on hold with periodic “Your Call Is Important to Us”‘s.

The conference unfolded in the manner of those 1960s sitcom marital scenes when the husband comes home on his Wedding Anniversary with some ragged daffodils bought at a petrol station and an extra-large Toblerone. At first the wife is indulgent, waiting for the curtain to be swept aside and the string quartet and banquet revealed (maybe those much-leaked plans to siphon funds to smaller firms?).

Then, as incredulity turns to rage, the husband gets self-righteous and defensive. He has, after all, been slaving away all day for the money to pay for these delightful flowers and delicious treats;


More here: Mario Draghi: Your Call Is Important To Us

12.47pm BST

Non-Farm Payroll preview…

Here's RanSquawk's video preview of the US jobs data for April, due for release in 45 minutes.

Marketwatch has also written a preview, here. It explains that economists expect another 135,000 new jobs were created last month, while "another soft number would raise alarm"

Business Insider has rounded up some of the best analyst predictions:

IT'S JOBS DAY IN AMERICA: Here's Everything You Need To Know To Get Ready

12.35pm BST

Spring forecasts: a rapid round-up

EU commissioner Economic and Monetary Affairs Olli Rehn attends a press conference on the spring European Economic Forecast on May 3, 2013 at the EU Headquarters in Brussels.
EU commissioner Economic and Monetary Affairs Olli Rehn today.

So a quick recap of the key points from the EC's Spring Forecasts (see 10.08am for details)

The eurozone recession will be deeper. The EC now expects a 0.4% drop in GDP in 2013, revised down from 0.3%, and a 1.2% rise in 2014, down from 1.4%.

Unemployment will remain a crisis. The euro area rate is expected to rise to 12.2% in 2013, and be 12.1% in 2014. The EC also pointed to the risks of "social cohesion" from the jobless rates in some countries — but continues to push for countries to lower their deficits to meet its stability and growth pact.

France, Spain, Italy and the Netherlands will all remain in recession this year.

Spain and France will be given another two years to hit the EC's deficit targets. Both are on track to run deficits significantly over 3% of GDP this year (6.5% for Spain, 3.9% for France). 

Britain hasn't got room to ease. The EC forecasts a deficit of 6.8% in the UK in 2013. According to Rehn, the UK's debt levels mean that:

There is really no case for a discretionary fiscal loosening in the UK.

And Italy is only expected to trim its deficit to 2.9% of GDP this year. That suggesting little room for additional stimulus measures without breaching the 3% target.

12.17pm BST

Analysts: EC forecasts are too upbeat

Martin Koehring, European Analyst at The Economist Intelligence Unit fears that the EC has not cut its growth forecasts enough.

The EIU predicts that eurozone GDP will shrink by 0.7% this year and only recover by 0.5% in 2014 (rather than Olli Rehn's forecast of -0.4% this year and +1.2% in 2014).

Koehring fears that austerity programmes and the weak eurozone banking sector will be a bigger drag on growth than the EC believes:

Although financial markets in the euro area have stabilised and country borrowing costs have remained low, ongoing fiscal austerity will continue to limit consumer and business spending in 2013-14.

Banks also remain hesitant to lend and demand for credit is low; we expect this to remain the case despite the recent interest rate cut by the European Central Bank.

Major downside risks even to our more downbeat forecast persist, particularly a deterioration of the euro zone debt crisis, highlighted by the uncertain situations in Cyprus and Italy.

Sony Kapoor of the Re-Define think tank agrees:

11.45am BST

Media reaction

In the FT, Peter Spiegel focuses on the fact that Spain, France and the Netherlands are all expected to miss the target of bringing their deficts below 3% of GDP this year:

Here's the story: EU economies to breach deficit limits as economic picture darkens

Three of the eurozone’s five largest economies will bust through EU-mandated deficit limits this year as the bloc’s recession continues to deepen, according to highly anticipated European Commission forecasts published on Friday.

In addition to the anticipated breaches by France, Spain and the Netherlands, the currency union’s third-largest economy, Italy, will come within a hair’s breadth of missing the limit of 3 per cent of economic output, with a 2013 deficit forecasted at 2.9 per cent.

And in the Wall Street Journal, Matina Stevis points to the desperate state of the European jobs markets

EU Paints Gloomier Picture for Economy

Dire jobs conditions and a protracted drying-up of credit to households and businesses will keep Europe's economy in a deeper-than-expected contraction in 2013 and slow down its return to growth in 2014, the European Commission said in its spring economic forecasts Friday.

The 27-nation European Union economy will shrink by 0.1% in 2013, the EU's executive said. Its winter forecast published in February had projected a 0.1% growth rate. The 17-member euro area will suffer a 0.4% economic contraction this year, while the earlier forecast was a 0.3% contraction. The spring forecasts mark a small-scale calibration of the winter ones, taking into account economic performance in the early months of the year.

Unemployment will remain at historic highs, with the EU's jobless rate seen at 11.1% for this year and next. In the euro zone, 12.2% of the workforce will be out of work in 2013 and the situation will hardly get better in 2014, when the rate is seen at 12.1%. Greece and Spain will see record jobless rates of 27% this year, a vastly different story to Austria's unemployment rate, seen at 4.7% in 2013.

11.33am BST


That follows Olli Rehn's comments that it makes sense to give France two more years to get its deficit below 3% — to 2015, rather than 2013.

Updated at 11.33am BST

11.19am BST

12 months ago, the EC was predicting growth of 1% this year — not the 0.4% contraction in today's forecasts, as Charles Forelle of the WSJ points out:

11.04am BST

Rehn: UK can’t loosen fiscal policy

Britain's high debt levels mean it cannot risk a fiscal stimulus, claims Olli Rehn.

Asked about the UK economy at today's briefing, commissioner Rehn pointed to the fact that the level of public debt is likely to rise close to 100% next year (under the EU's calculations).

There is really no case for a discretionary fiscal loosening in the UK

It is important that the UK follows through with consistent fiscal consoliation… to reach a sustainable fiscal position.

The EC expects the UK economy to "improve gradually" with 0.6% GDP growth this year, then 1.7% in 2014.

10.59am BST

Olli Rehn, presenting the Spring 2013 forecasts
Photograph: EC

Slovenia is unlikely to get its deficit below 3% as soon as planned, Olli Rehn says, and the EC would want to see new economic reforms in return for extending the deadline.

Asked about whether Slovenia could avoid international help, Rehn said:

The stock of problems is not as vast as for many other countries, while the trend is very negative

Therefore Slovenia's economic situation is stilll manageable as long as decisive action is taken without delay.

10.47am BST

Rehn: Spain and France should get more time

Speaking in Brussels, Olli Rehn has told reporters that the EC is prepared to give France and Spain two more years to get their deficits below 3% of GDP.

Rehn said:

For France and Spain is is very obvious that it is more reasonable to have a correction of the excessive deficit over another two years.

But other countries, though, should stick to their existing plans

Today's forecasts show that France is expected to run a deficit of 3.9% in 2013, and 4.2% in 2014.

On Italy, Olli Rehn says that he has been speaking with the country's new finance minister, and is looking forward to receiving details of how Enrico Letta's government plans to meet its own deficit reduction targets.

10.27am BST

Read the EC’s Spring forecast

10.26am BST

More details of the EC growth forecasts from the Brussels press pack:

10.18am BST

EU: joblessness could affect social cohesion

The EC sees no hope of early relief in the unemployment market. It predicts that the jobless rate in the eurozone will reach 12.2% for 2013, and 12.1% in 2014*.

It added:

While the risks to the economic outlook have become more balanced on the back of important policy decisions since last summer, downside risks remain predominant.

Very high levels of unemployment in some Member States could affect social cohesion and become persistent if further reforms are not undertaken.

* – updated

Updated at 11.36am BST

10.15am BST

The EC has also cut its forecast for growth in 2014, from 1.4% to 1.2%.

So, a deeper recession (with a 0.4% drop in GDP this year) and a slower recovery next year.

Updated at 10.16am BST

10.08am BST

EC cuts growth forecasts

Breaking news: the European Commission has cut its growth forecasts for the euro area, and warned that unemployment levels in some regions are unacceptably high.

In its Spring forecasts, the EC predicted that eurozone GDP would fall by 0.4% this year, worse than the 0.3% decline pencilled in previously.

For bailed-out, buffeted Cyprus, the EC now predicts a 8.7% tumble in economic output this year.

Lots more to follow…

Updated at 10.13am BST

10.02am BST

EC’s new Spring forecasts

Over in Brussels, commissioner Olli Rehn is announcing the EC's new economic forecasts — there's a live feed here.

10.01am BST

UK service sector output at post-Olympic high

Punchy economic news in the UK – with the service sector growing at its fastest rate in eight months in April.

Markit's PMI came in at 52.9, up from 52.4, while the measure of new orders was the strongest since last May.

That's an encouraging signal for UK economic growth this quarter (after dodging recession in Q1).

9.53am BST

Key event

European sovereign debt is rising in value this morning, driving down borrowing costs across the region.

Spain's 10-year bond yields have dropped below the 4% mark for the first time since 2010, while Italy's 10-year debt is yielding just 3.74%.

Very little of note in the stock markets, with the FTSE 100, the DAX and the CAC basically flat.

9.39am BST

India cuts interest rates

India cut its interest rate for the third time this year earlier today, in an attempt to stimulate the country's economy.

The Reserve Bank of India (RBI) lowered its key rate to 7.25% from 7.5%, but warned that it didn't see much opportunity for further easing.

India cut its growth forecast to 5% earlier this year, from over 6%. But inflation is too high for the RBI to consider cutting much further — with its consumer prices index recorded at 10.39% in March.

In a statement the RBI said it:

cannot afford to lower its guard against the possibility of resurgence of inflation pressures.

India's other challenge is that it's running a sizable current account deficit, which jumped to a record of 6.7% (partly due to the cost of importing commodities such as oil).

Indranil Pan, an economist at Kotak Mahindra Bank in Mumbai, reckons that it's fanciful to expect the RBI to revitalise India's economy alone:

Rate cuts are not the answer to resolve growth problems. The push has to come from the government by cutting wasteful expenditure and improving infrastructure bottlenecks.

Economist Shaun Richards wrote a nice piece about the challenges facing the Indian central bank, back in February: The Reserve Bank of India is taking quite a gamble with India’s economic future

8.59am BST

ECB tries to calm negative rate talk

Yesterday's ECB meeting still looms over the European markets today, with one of the Bank's governing council members trying to dampen talk that the ECB might impose a negative deposit rate on banks*.

Ewald Nowotny reckons people got too excited about Mario Draghi's comment that the ECB was "technically ready" to cut its deposit rate into negative territory, from 0.0% today.

Nowotny told reporters in Bratislava that:

Markets have over-interpreted the discussion yesterday.

Of course, this is one of many options. But it is not an option that is relevant in the near future and it would need many aspects to analyse … side effects and psychological effects. So, this is nothing that is of short-term relevance.

That's helped to send the euro popping back against the US dollar, up 0.3% this morning at just over .31.

Updated at 9.00am BST

8.46am BST

US jobs data dominates the markets

Good morning, and welcome to our rolling coverage of the latest events across the eurozone and the wider global economy.

It's a quieter morning after the drama of yesterday, when the European Central Bank slashed borrowing costs to a record low of 0.5% and hinted at imposing negative interest rates on banks which stash money with it overnight.

The big action will come this afternoon – when America reports its employment data for April. The non-farm payroll (always 'eagerly awaited') will give us a decent idea of how the world's largest economy is performing, particularly as last month's reading was extremely weak.

All week, economists have been cutting their forecasts for how many new jobs were created in America. They started at 155,000, but now it's down to around 140,000.

Another disappointing reading might well add to fears that America's economy has entered a softer patch, with analysts already expecting GDP growth to slow this quarter as the 'sequester' government cutbacks hit home.

Meanwhile, there's lots of analysis and reaction from the ECB to wade through (more to follow), and the EC is releasing its new Spring Economic Forecasts.

I'll also be watching the usual hotspots of action, such as Italy, Cyprus and Greece — where there's outrage after a Golden Dawn MP apparently tried to pulled a gun on the Athens mayor and accidentally punched a 12 year old girl.

I wish I was making that up, but as Kathimerini explains:

A crackdown by municipal authorities on an attempt by extreme-right Golden Dawn to distribute free food in central Syntagma Square on Thursday prompted one of the party’s MPs to attempt an assault on Athens Mayor Giorgos Kaminis during which the MP apparently tried to pull out a gun.

According to witnesses, Giorgos Germenis tried to punch Kaminis after the mayor asked police to stop Golden Dawn from distributing food in Syntagma. Police were sent to the square early on Thursday and used tear gas to force members of Golden Dawn to retreat from the area, taking with them a refrigerated truck containing meat, potatoes and other food.

A few hours after the police crackdown, Germenis visited the offices of City Hall’s solidarity initiative, which happens to be close to Golden Dawn’s old headquarters near Larissis railway station, while workers were giving Easter candles to children and their parents.

Witnesses said the MP lunged at Kaminis and tried to punch him but hit a 12-year-old girl instead, leaving her with a lightly bruised forehead. According to municipal employees, and to Kaminis, Germenis had a gun in his trouser pocket and tried to pull it out but was stopped by security guards.

Updated at 8.52am BST © Guardian News & Media Limited 2010

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