May 8 2013

In the trading room today: Can the GBP Continue its Rally vs USD? Ahead of tomorrow’s UK Industrial Production report and the Bank of England monetary policy announcement, we focus on the GBP and explore how these important events could impact the future direction of the pound sterling, we analyze the recently established weekly range in the GBP/USD currency pair, we note the resilience of the EUR vs. USD, we keep an eye on the USD/JPY currency pair, we take a look at the AUD and NZD ahead of the labor market reports from “down under”, we highlight the market’s reaction to the news of intervention by the Reserve Bank of New Zealand, the Chinese Trade Balance, the Swiss CPI, and the German Industrial Production, we discuss new forecasts from Bank of New York-Mellon and Credit Suisse, and prepare for the trading session ahead.


German industrial production up 1.2% in March. Rehn and Asmussen quizzed on Cyprus. Encouraging Chinese trade data sends Japanese Nikkei to new five-year high. IMF officials fly in for annual health check on the UK economy…


Powered by article titled “European markets rally as German industry bounces back – as it happened” was written by Graeme Wearden, for on Wednesday 8th May 2013 15.09 UTC

6.08pm BST

Closing summary

Time to stop, after a fairly slow-moving day, I'm afraid. Here's a closing summary.

Germany's economy may be recovering faster than thought after fresh industrial production data beat forecasts. The 1.2% jump in industrial output was hailed as a sign that Europe's largest economy would dodge recession (see 11.10am onwards)

There was further relief after China's trade data showed an increase in both imports and exports. Although some analysts questioned the figures, they were taken as a positive sign for the global economy (see 8.26am for the detail, and 10.44am for the concerns).

World stock markets kept climbing. Japan's Nikkei hit a five and a half-year high overnight, while Europe's markets finished at their highest levels since 2008. But some City analysts fear that a rally based on accomodative central banks will end in tears… (see 5.22pm)

The inquest into the Cyprus bailout continued. MEPs quizzed commissioner Olli Rehn and the ECB's Jörg Asmussen over the errors that led up to its rescue package. Both men tried to pin the blame on the failures of the Cyprus government, and argued that banking union and new resolution mechanisms would avoid a repeat (see 9.07am onwards)

The International Labour Organisation warned that the youth unemployment crisis is worsening. Those aged 15-25 are almost three times as likely to be jobless as older workers. (see 2.07pm)

Poland's central bank cut interest rates to a new record low. Norway, though, held borrowing costs unchanged (see 12.37pm onwards).

Back tomorrow. Goodnight!

5.46pm BST

Life after the Troika

During Jorg Asmussen's testimony at the European Parliament today, the ECB executive talked about how the much-criticised Troika won't be needed one day.

I missed the key quotes, but Matina Stevis of the WSJ has filed a news story on it tonight.

Here's a flavour:

Europe should eventually put an end to the much-criticized "troika" of International Monetary Fund, European Commission and European Central Bank ad hoc teams managing the euro-zone bailouts, ECB executive-board member Joerg Asmussen said Wednesday.

Future economic crises should be dealt with using the European Union's own institutions, he added, calling for a strong EU crisis-mechanism framework to handle future financial turmoil.

Mr. Asmussen didn't mention the IMF as part of his vision for future European crisis-resolution. The IMF has participated in the troika from the start of the crisis and contributes money to the four euro-zone bailouts, although much less than the euro zone.

"The [troika] setup is a bit of a strange [one]…decided in a crisis mood. So this has to be changed," Mr. Asmussen said.

And here's the full story: Call to End Troika in Europe Crises.

Keeping future bailout packages within the EU might calm some of the accusations that policies are being imposed undemocratically, and could also remove some of the tensions in negotiations.

It's not going to happen anytime soon, though….

5.22pm BST

Caution as European shares hit five year high

European stock markets have closed at their highest levels since before the collapse of Lehman Brothers in 2008.

In Germany, the DAX has finished at a new record high, following its strong industrial production data. It was also helped by solid results from Deutsche Telekom, which hiked its profit forecasts.

In the City, the FTSE 100 finished at levels not seen since December 2007, helping the wider FTSEurofirst300 index to a five-year high.

But it's not hard to find analysts warning that the rally is built on shaky ground, with accomodative central banks underpinning share prices.

Here's the closing prices:

• FTSE 100: up 26 points at 6583, + 0.4%

• German DAX: up 70 points at 8251, +0.8%

• French CAC: up 35 points at 3956, + 0.9%

• Spanish IBEX: up 53 points at 8597, + 0.6%

• Italian FTSE MIB: up 133 points at 17255, + 0.78%

Torben Kaaber, chief executive of Saxo Capital Markets, said the decent-looking (if dubious) Chinese trade data also pushed shares up.

Kaaber, though, warns that the rally could soon unravel:

As long as China keeps growing and the US keeps announcing positive corporate results, then Europe will continue to have oxygen pumped into its lungs.

This is artificial strength, however.

There are still too many bogeymen lurking under the European bed to believe that the upward trajectory of European indices, including the FTSE, is a sure sign of rude economic health.

If you pump a 9 stone librarian full of steroids and get him to compete in the Sumo Wrestling World Championships, he may last for a short while but will still eventually, inevitably get squashed. We could be seeing a similar situation across European markets.

4.03pm BST

Video: Alex the Lazy Greek

The Omikron Project, a Greek group that aims to dispel stereotypes about their country, released a new video today starring Alex The Lazy Greek (who isn't lazy really).

It uses official data to show that Greeks aren't actually the workshy, indulged characters you might see painted in the media sometimes:

The figures seem to check out.

One of Greece's biggest problems, though, is its relatively poor productivity. As Paul Krugman wrote almost a year ago, joining the euro actually masked that issus, until the crisis blew up.

Fifteen years ago Greece was no paradise, but it wasn’t in crisis either. Unemployment was high but not catastrophic, and the nation more or less paid its way on world markets, earning enough from exports, tourism, shipping and other sources to more or less pay for its imports.

Then Greece joined the euro, and a terrible thing happened: people started believing that it was a safe place to invest.

Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble.

And then the bubble burst, at which point the fundamental flaws in the whole euro system became all too apparent.

And as Krugman point out, America – a single currency region with full political union – can support areas of lower productivity without imposing tough fiscal programmes.

Updated at 4.09pm BST

3.44pm BST

Open Europe: time to kick-start the EU services market

Is fully opening up Europe's service market the key to the recovery? And should some countries stop waiting patiently for a deal on liberalisation, and strike their own deal?

Open Europe, the think tank, believes it is, and they should. It released a new report today arguing that a fully liberalised EU services sector would boost European GDP by almost €300bn, or around 2.3%.

Yet Europe still doesn't have a complete single market in services — despite politicians such as David Cameron often lobbying for it at EU Summits. The solution could be for a smaller group of countries to 'go it alone' using the so-called ‘enhanced cooperation’ procedure, under which the Financial Transaction Tax is being implemented.

As Open Europe’s director Mats Persson put it:

EU-mandated reform programmes are already being used to open up and liberalise the services sector in places such as Greece and Portugal so, logically, the very same reforms should happen at the EU level.

Governments now have the chance to show they’re committed to ‘more Europe’ in the area where it really matters – reigniting economic growth and boosting employment.

And Dr Adam Marshall of the British Chambers of Commerce argues that countries with dominant service sectors are missing out because it's not as easy for them to do business across the EU as for manufacturers:

The single market in services, which would benefit Britain, has barely started – in contrast to the single market in goods, which has benefited Germany for years now.

Interview: Dr Adam Marshall of the British Chambers of Commerce

And here's the full report: “Kick-starting growth: How to reignite the EU’s services sector”

2.32pm BST

McDonald’s sees European sales drop

The eurozone downturn appears to be hitting fast-food giant McDonald's.

It has reported a 2.4% drop in sales in Europe, it's biggest market, in April. A drop in demand in Continental Europe was blamed:

Positive performance in the U.K. and Russia more than offset by Germany, France and other markets.

That took the shine off a 0.7% rise in US sales last month, and helped to drag total sales down by 0.6%. In the Asia-Pacific region, sales were down 2.9% — which it partly attributed to bird flu outbreaks.

McDonald's chief executive Don Thompson warned that the company faces "a persistently challenging macro environment".

Here's the official statement.

Updated at 2.34pm BST

2.07pm BST

Warning over youth unemployment crisis

Unemployed brothers Andrew (L) and Jonathan Courtman smoke during the day in Corby Town Centre on April 24, 2013 in Corby, England. A recent study pin pointed Corby as Britain's youth unemployment capital.
Unemployed brothers Andrew (left) and Jonathan Courtman in Corby, dubbed Britain’s youth unemployment capital. Photograph: Christopher Furlong/Getty Images

The global youth unemployment situation is nearing danger point, an influential UN body warned today.

The International Labour Office said that young people are nearly three times more likely to be out of work than older adults. And as the financial crisis has rumbled on, many are giving up on ever finding employment.

The Lost Generation is becoming a predictably depressing reality —

In a new report, the ILO flaggged up that the global youth unemployment rate is rising again.

The weakening of the global recovery in 2012 and 2013 has further aggravated the youth jobs crisis and the queues for available jobs have become longer and longer for some unfortunate jobseekers.

So long, in fact, that many youth are giving up on the job search.

The youth jobless rate was 11.5% in 2007. It peaked at 12.7% in 2009 before falling back, but has now climbed again to 12.6%. It is forecast to reach 12.8% by 2018.

My colleague Katie Allen has the full story here: Young people 'almost three times more likely than adults' to be unemployed

And the FT explains that This Time It's Different, in a bad way:

In the past, youth unemployment has in some countries risen quickly during recession, but fallen quickly afterwards. This time, the length of the downturn is causing particular problems. In the majority of countries in the OECD club of mostly rich nations, one-third or more of young jobseekers have been unemployed for at least six months, up from a quarter in 2008

FT: UN warns global youth unemployment will continue to rise

1.40pm BST

Spanish PM: bailout risk is diminishing

Spain's Prime Minister Mariano Rajoy listens to a debate in the Spanish parliament in Madrid, Wednesday May 8, 2013.
Spain’s Prime Minister Mariano Rajoy in parliament today. Photograph: Paul White/AP

Missed this earlier — Spain's prime minister, Mariano Rajoy, told the Madrid parliament this morning that the country was increasingly unlikely to need a bailout.

Rajoy told MPs that his austerity measures and reforms — deeply unpopular in Spain — are starting to pay off.

Associated Press has the details:

Conservative Prime Minister Mariano Rajoy told Parliament on Wednesday that Spain was no longer close to a financial abyss and the threat of needing a bailout had receded.

Rajoy said his policies were "beginning to work," though he said much remained to be done.

The premier claimed one major achievement was the sharp drop in recent months of the country's borrowing costs on bond markets. He said that could save the country up to 1 billion euros (.31 billion) this year.

Spain's 10-year bonds are trading at a yield of around 4.1% today, indicating it can borrow much cheaper than last summer when yields topped 7%.

But the real economy still looks dire — with unemployment at 27% (and 54% for young people), and no hope of the recession ending soon.

1.05pm BST

Norway holds rates

The central bank of Norway has resisted joining the ranks of the rate-cutters, and has just voted to leave interest rates unchanged.

Updated at 1.09pm BST

12.53pm BST

That rate cut means Poland's interest rates are now at a record low – as in the US, the eurozone, Japan, Australia, the UK…

12.37pm BST

Poland cuts interest rates

Just in – the central bank of Poland has cut interest rates by 25 basis points, becoming the latest county to ease monetary policy.

This cuts the headline cost of borrowing in Poland to 3%, from 3.25%.

12.32pm BST

12.31pm BST

German industrial production cheers analysts

Carsten Brzeski, ING's senior economist, reckons Germany is emerging from its winter contraction, when GDP shrank by 0.5% in the last three months of 2012.

Commenting on Germany's strong industrial output data (see 11.10am onwards), Brzeski said:

It looks as if the outlook for German industry is clearing slowly but surely…

There's a lot of contradictory signs… but industrial production looks OK – we will get out of the contraction of the fourth quarter and though we're not accelerating as much as in 2010, we won't have a recession.

One contradictory sign is the latest PMI data, which has shown Germany's private sector contracting slightly in April.

Greg Smith, head of corporate dealing at foreign exchange company World First, is also cheered by today's data:

It seems like the German juggernaut is still powering ahead, which will be a welcome boost for Merkel and the Eurozone in general.

This news follows on from upbeat German factory orders yesterday and, coupled with stronger trade figures overnight from China, means that the global economy has had a good 24 hours or so – although we shouldn’t get carried away as the underlying growth picture remains fragile.

Germany's economy ministry was also upbeat about prospects in the manufacturing sector, saying improving order levels and a recovery in the construction industry should provide further impetus later this year.

12.20pm BST

The Athens stock market has joined today's rally, rising by over 7% – driven by bank shares.

Generally, though, the City is pretty quiet:

11.34am BST

European markets keep rising

European stock markets have climbed higher after Germany's industrial data was released, with its DAX index hitting a new record intraday high.

German DAX: up 48 points at 8230, + 0.6%

• French CAC: up 27 points at 3948, + 0.7%

• FTSE 100: up 15 points at 6573, + 0.24%

• Spanish IBEX: up 40 points at 8584, + 0.47%

• Italian FTSE MIB: up 90 points at 17213, + 0.5%

Yusuf Heusen, sales trader at IG, suggests we're entering a phase where economic data comes in stronger but without the chance of monetary policy being tightened.

For investors nothing could be sweeter, so it will take a fairly substantial chunk of bad news to disrupt the positive narrative.

11.24am BST

Germany's forecast-beating industrial output in March (see 11.10) was partly driven by a surge in energy use, which made up for a sharp drop in construction.

Here's the details of the 1.2% rise in industrial output:

Manufacturing output: +1.4%, of which:

  • Intermediate goods: +0.6%
  • Capital goods: +2.1%
  • Consumer goods: +1.0% (durables: +2.2%; non-durables: 0.7%)

Energy: +4.0

Construction: -3.1%

Updated at 11.25am BST

11.10am BST

German industrial output beats forecasts

German industrial output jumped last month, according to data just released which bolsters hopes that Europe's largest economy has avoided falling into recession.

Industrial output rose by 1.2% month-on-month in March, rather better than consensus (of -0.1% on average, according to Reuters).

The news follows yesterday's rise in German factory orders (+2.0%),

It means German industrial output fose by 0.2% in the first three months of 2013, after a 2.6% drop in the last three months of 2012. An encouraging signal for German GDP.

The euro swiftly rose half a cent against the US dollar, to .313.

Updated at 11.31am BST

10.44am BST

About that Chinese trade data….

I mentioned earlier (opening post) that the strong Chinese trade data was being treated with suspicion by some analysts…

…well, Business Insider just helpfully posted a research note from Nomura, which argues that the figures are being artificially inflated as Chinese sellers are effectively 'over-charging' as a way of drawing extra capital into the country.

Nomura analyst Zhiwei Zhang explained:

We believe exports to destinations like Hong Kong, a major financial hub, are likely being over-invoiced in an attempt to circumvent capital controls and bring foreign capital into China.

This view is supported by the recent SAFE announcement of capital flow controls on 5 May, which identified trade as a potential channel for unregulated capital flows.

Updated at 10.45am BST

10.31am BST

Greece sells short-term bonds ahead of China trip

In the debt markets, Greece just sold €1.3bn of six-month bills, at an average yield of 4.2%.

That's a drop on the 4.25% demanded by bond traders at the previous auction.

Some reassurance for the Athens government, as it tries to attract new investment to Greece. Prime minister Antonis Samaras* will fly to China next week in the hope of drumming up new businesss

Kathimerini has the latest:

The government was buoyed by the news on Tuesday that German company Hochtief had sold its 26.7 percent stake in the management of Athens International Airport to a Canadian pension fund. Samaras is also keen to come back with trade agreements from China when he visits for five days later this month.

The prime minister stepped up preparations for his trip on Tuesday, when he met with Development Minister Costis Hatzidakis. It is expected that as many as 60 Greek businessmen as well as representatives of the state privatization fund, TAIPED, will accompany Samaras on his visit between May 15 and 19.

* – NOT Nicos Anastasiades as originally scribbled – thanks to kind readers for flagging up my error

Updated at 10.59am BST

10.01am BST

Tweet of the day

10.00am BST

A few more key points from the Asmussen/Rehn hearing (see here onwards)

9.49am BST

Asmussen, who is Germany's man on the executive board of the European Central Bank, denies being influenced by domestic concerns during the Cyprus negotiations:

Updated at 9.59am BST

9.45am BST

Great question for the European Central Bank from Greek MEP Thodoros Skylakakis — why did the ECB extend emergency loans to certain Cypriot banks, and allow them to increase their borrowing, in the run-up to the bailout request.

Asmussen explains that Laiki Bank needed emergency liquidity assistance after it suffered large losses on its Greek bonds. The ECB reckoned that the ELA loan was a fair decision, as long as it believed that Laiki could be recapitalised.

Yet…. the total ELA assistance came to upwards of €9bn — or more than half Cyprus's annual economic output:

Skylakakis wasn't happy with Asmussen's answer — but at least someone's asking the key questions about how the Cyprus debacle occured:

Updated at 9.47am BST

9.26am BST

MEPs are pushing for answers on how the Cyprus rescue deal was so badly botched, but Rehn and Asmussen aren't taking the blame.

Rehn argued that the Nicosia government froze in the face of the crisis:

In Cyprus, and I speak with some experience of years of crisis management. We saw the usual pattern of a country in front of an impossible situation and leading to a programme.

First there is a sense of denial, which leads to delays.

Then there is a draining of funding. With Cyprus there was a loan from Russia which bought time, but was not used to implement structural reforms.

And finally, the Cyprus people were hit with a "very painful" moment when its government finally asked for help.

In other words — 'don't blame us, blame the Cypriots":

Updated at 9.48am BST

9.17am BST

Asmussen's full statement is online here.

Updated at 9.48am BST

9.10am BST

Lessons from Cyprus…

Jörg Asmussen says the lessons from the Cyprus financial crisis are that Europe needs to agree a banking union, and agree a European framework for the resolution of financial institutions

Here's the key quote:

This should include a clear set of commonly known ex ante rules for bail-in, buffers of ‘bail-inable’ assets and depositor preference.

Regarding the latter, the new framework should place depositors at the top of the creditor hierarchy and ensure that the role of DGS in resolution is limited to insuring eligible depositors. This will contribute to reducing the risks to financial stability by providing legal certainty and predictability to resolution.

Thirdly, a single resolution mechanism (SRM) should be set up. It would include a resolution fund which would allow a bank to access "temporary, fiscally neutral, public funding".

Updated at 9.48am BST

9.07am BST

Asmussen: Cyprus crisis dragged on too long

Jorg Asmussen
Jörg Asmussen today.

EC commissioner Olli Rehn and Jörg Asmussen of the European Central Bank are now appearing at the European Parliament's Committee on Economic and Monetary Affairs.

It's being streamed live here.

We're hoping to hear more details about how the Cyprus bailout was handled (and mishandled).

Asmussen is explaining the ECB's approach to Cyprus, saying that the negotiations over its aid package dragged on too long, until the ECB had no choice but to withdraw its emergency liquidity assistance unless Cyprus's banks were restructured.

He admits, too that Cyprus's banking sector is still not stabilised (with capital controls still in place).

Olli Rehn also spoke, and told MEPs that the first tranche of the Cyprus bailout will be released soon. Rehn also claimed that the EU stood by the Cypriot people — and stating that 'insured deposits' (below €100,000) must be protected in future.

8.56am BST

Dutch manufacturing slides

A sharp fall in Netherlands manufacturing production this morning has added to concerns over the Dutch economy.

Manufacturing output fell 2% month-on-month in March, on a seasonally-adjusted basis (or 5.3% if you strip out seaonal variations). That's a nasty reversal on February's 0.5% expansion.

The Dutch economy fell back into recession three months ago, as the eurozone financial crisis reached the Northern core. This doesn't offer much hope that it's returning to growth.

8.42am BST

The agenda

Two top eurozone officials, Olli Rehn and Jörg Asmussen, will be answering questions about the Cyprus bailout in the European parliament this morning.

Also coming up. we get German Industrial Production for March at 11am BST.

And interest rate decisions from Norway (1pm BST) and Poland — they could follow recent trends and cut the cost of borrowing.

Updated at 8.44am BST

8.26am BST

Chinese trade data sends Nikkei higher (again)

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

The share rally underpined by the world's accomodative central banks continues. Asian stock markets have rallied again overnight, with Japan's Nikkei closing at a new five-year high.

The latest flurry of optimism was sparked by surprisingly strong trade data from China in the early hours of the morning. It posted a 14.7% year-on-year rise in exports, and a 16.8% jump in imports, which eased fears about both the strength of its economy, and global demand generally (although some economists were rather sniffy about the accuracy of the data, as China's exports don't actually match the import data from its Asian partners – details here).

With many central banks poised to ease monetary policy if needed, the financial markets seem happy to cheer the good news, while ignoring the bad.

• Japan's Nikkei, up 105 points at 14285, + 0.74%

• Hong Kong Hang Seng, up 152 points at 23199, + 0.66%

Passers-by talk each other in front of an electronic stock board of a securities firm in Tokyo, Wednesday, April 8, 2013.
An electronic stock board of a securities firm in Tokyo earlier today. Photograph: Koji Sasahara/AP

This followed another upbeat day on Wall Street, where the Dow Jones closed above the 15,000 mark for the first time.

As Michael Hewson of CMC Markets put it:

With central banks across the globe in full blown easing mode what could possibly go wrong?

Poor economic data is shrugged off as an irrelevance, note the indifferent reaction to the ugly French manufacturing data yesterday, while positive economic data like yesterday’s much better than expected German factory orders data for March; helps make the case for some form of economic turnaround.

And in Europe the main stock markets are inching higher, in more cautious mood after the German DAX hit a record high yesterday.

But while the financial markets remain upbeat, the real European economy remains troubled.

And in the UK, we'll be watching out for the IMF. Officials from the International Monetary Fund are arriving for the start of their annual assessment of the British economy.

This could see another front opening up in the ongoing battle between those favouring a fresh economic stimulus and those committed to fiscal consolidation — though the clash will be fought behind the closed doors of the Treasury in the coming days.

As usual I'll be tracking events across the eurozone and beyond through the day…

Updated at 8.34am BST © Guardian News & Media Limited 2010

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