June 2013

In the trading room today: USD, EUR and GBP to Take the Center Stage Next Week. With the European Central Bank and the Bank of England meetings, as well as the U.S. Non-farm Payrolls, on the horizon, we explain why the week ahead could prove pivotal for the future direction of the USD, the EUR and the GBP, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the bounce in the EUR/USD currency pair, we take a close look at the GBP/USD pair, we continue to monitor the renewed rally of the USD vs JPY, we highlight the market’s reaction to the German Retail Sales, the UK GDP, and the Japanese CPI, we discuss new forecasts from BNP Paribas and UBS, and prepare for the trading session ahead.


USA 

UK double-dip never happened… but UK economy still weaker than thought. European Union deal sees creditors pay for failed bank rescues. What the ministers said.  Ireland is back in recession after its GDP data was revised sharply lower…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Bank rescue rules agreed, as EU Summit begins” was written by Graeme Wearden, for theguardian.com on Thursday 27th June 2013 17.49 UTC

6.49pm BST

Key event

EU leaders have now got down to work in Brussels, and probably won't hold a press conference until late tonight.

So I'm going to stop the liveblog — and catch up on developments in the morning. We'll have more news on the EU summit on the website this evening, and I'll be back in the morning.

Thanks and goodnight. GW

6.28pm BST

More details leaking out…

6.22pm BST

Van Rompuy: let’s make progress on youth unemployment

EC president Herman Van Rompuy opened the EU summit tonight by urging leaders to take "concrete action" on two key issues – youth unemployment, and the credit crunch that is holding small firms back.

You can watch a recording here.

It suggests that the draft statement that emerged earlier today, outlining new 'investment plan' to fight joblessness and drive growth, is on the money (see 4.36pm).

6.17pm BST

Photos: EU leaders get down to business

A couple of photos from inside the EU headquarters in Brussels, as tonight's Summit got underway:

European Commission President  Jose Manuel Barroso arrives for a roundtable meeting at the EU headquarters on June 7, 2013 in Brussels, during European Union leaders summit.
European Commission President Jose Manuel Barroso. Photograph: BERTRAND LANGLOIS/AFP/Getty Images
epa03763157 British Prime Minister David Cameron and Luxembourg's Prime Minister Jean-Claude Juncker (R) during a European Council summit in Brussels, Belgium, 27 June 2013
British PM David Cameron (left) and Luxembourg’s Prime Minister Jean-Claude Juncker. Photograph: OLIVIER HOSLET/EPA

6.05pm BST

Fed’s Lockhart urges calm over tapering

City analysts had predicted earlier this week that the Federal Reserve might respond to last week's tumbling markets with some reassuring statements….and lo, the Atlanta Fed's president is doing just that.

Dennis Lockhart, in a speech in Marietta, argued that the financial markets had mis-interpreted Ben Bernanke last week. No reason to panic about the US 'tapering' its quantitative easing, he soothed. If growth falters, we'll keep stimulating.

Here's Lockhart's key quotes:

The pace of purchases, the composition of purchases and the ultimate size of the Fed's balance sheet still depend on how economic conditions evolve.

If inflation expectations of the public and those indicated by financial markets soften appreciably, we policymakers would have to re-evaluate the appropriateness of policy for the situation.

And this seems to be driving another rally in government bonds, with US Treasuries, UK gilts, German bunds, and peripheral debt from the eurozone all strengthening.

Here's the 10-year bond yields tonight: (falling yields means higher prices):

• US: 2.47%, down 6 basis points (ie, from 2.53% last night)

• UK: 2.42%, down 2bp

• Germany: 1.729%, down 3bp

• Spain: 4.75%, down 5bp

• Italy: 4.58%, down 13bp

• Greece: 10.69%, down 45bp

5.52pm BST

Markets close

Shares up, volatility down. That's the simple story from Europe's stock markets today — particularly after William Dudley of the New York Fed suggested America's bond-buying stimulus package will continue for longer than Ben Bernanke indicated last week (see 3.37pm).

Here's the closing prices:

Stock markets, closing prices, June 27
Photograph: Thomson Reuters

With the FTSE 100 finishing 77 points higher, IG's David Madden said pessimists in the City were starting to get edgy,. They'll probably take the initiative again soon, though, he added:

After three strong ‘up’ days for the FTSE 100, the bears can be forgiven for feeling downcast. With the index straying into triple-digit territory, everyone has been reminded that the volatility of June is not likely to go away as we move into the next month. It looks as if we might have one last hurrah ahead of month-end before reality sets in once again.

4.36pm BST

Over in Brussels, a draft copy of the agreement that will be announced at the end of today/tomorrow's EU summit is circulating. It suggests leaders will announce a new 'investment plan', in an effort to tackle the youth jobless crisis (or at least look like they're tackling the youth jobless crisis)

4.10pm BST

Open Europe: positives and negatives from bank bailout deal

Open Europe has published its views of the EU bank rescue deal agreed early this morning:

Bank bail-in plans finally agreed, but its only a small step towards banking union

It welcomes the fact that bank creditors, not taxpayers, will be on the hook for future losses, but is concerned about the 'flexibility' given to national governments over whether to contribute to a rescue (under the plan, a state could cover up to 5% of a bank's liabilities, after creditors have contributed 8%)

Here's a flavour of Open Europe's analysis:

Positives

  • Reaching a deal is positive in itself, as it adds some much needed certainty following the Cypriot crisis. It also keeps the progress towards banking union inching along.
  • The burden has been shifted away from taxpayers towards bank creditors.
  • The added flexibility is important between eurozone and non-eurozone countries, with the UK and Sweden scoring some important caveats. The deal highlights that non-eurozone countries can still have influence on such rules and the acceptance of the need for flexibility between the two groups.

Negatives

  • From a eurozone point of view, the flexibility could be counterproductive, particularly the use of exemptions in exceptional circumstances. How exactly will this be defined and determined? If at national level, then there could be clear political pressure in a crisis to invoke this. For example, it is hard to imagine that the crises in Greece, Portugal, Ireland and Spain would not have triggered this in some way.
  • Could see cost of bank funding rise, particularly in terms of unsecured credit due to fairly strong depositor preference.
  • Lots of unanswered questions – not least, when and how will these rules apply? It’s not clear in exactly what situation and at what time the new rules would kick in. Does it rely on a request for aid from the bank or the national government?
  • Furthermore, there are questions over how this will work practically in different circumstances – for example, the difference between a bank which has almost completely failed and one which is simply struggling to recapitalise.
  • The timeline also still seems very long, with the actual bail-in rules not in force until 2018, even though the directive is due to be in place by 2015. That said, the broad template may well still apply, particularly where banking union is involved.

More here.

3.57pm BST

Shares rally on Fed comments

After a quiet day in Europe, stock markets are now romping ahead with the FTSE 100 up by 105 points, and the Dow Jones 150 points to the good.

The trigger is comments from a member of the Federal Reserve's Open Market committee, suggesting that the UE economy might not be strong enough to to justify ending its stimulus package.

William Dudley, the head of the New York Federal Reserve, told an audience in New York that:

Economic circumstances could diverge significantly from the FOMC’s expectations.

If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher pace for longer.

The suggestion that the Fed might not start to 'taper' its bn/month bond-buying programme is music to the markets' ears, it seems…..

3.20pm BST

EU budget deal cheers Brussels, but Cameron shows concern

European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny participate in a media conference at EU headquarters in Brussels on Thursday, June 27, 2013.
European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny announcing today’s deal. Photograph: Virginia Mayo/AP

Eurocrats are in cheerful mood as they prepare to get the EU summit underway.

Not only because of the bank rescue framework agreed overnight. but because a 'political deal' has been struck over the sticky problem of the next EU budget.

The 'multi-year financial framework', covering spending for the next seven years, was agreed back in February and famously included the first-ever real-term cut in spending. MEPs, though, promptly blocked it.

But this morning, European Commission president Jose Manuel Barroso and Irish PM Enda Kenny (in his final few days holding the rotating presidency) announced that a deal had been reached.

Under the compromise, the final budget size is unchanged at €960bn, but there will be more flexibility about how unspent commitments can be reassigned between budget areas, and different years.

Barroso declared that the plan is a boost for Europe, as it will help Brussels to invest in projects to boost growth and employment:

This is really important for these citizens and these regions in Europe that badly need investment.

European Parliament President Martin Schulz said he was "optimistic" that MEPs will give their approval next week.

AP's take is here: EU strikes .3 trillion multi-annual budget deal

and the FT's is here: EU reaches €960bn budget deal

Britain's Prime Minister David Cameron arrives at a European Union leaders summit in Brussels June 27, 2013.
Photograph: FRANCOIS LENOIR/REUTERS

David Cameron appeared to show some concern about today's agreement, though, telling reporters in Brussels that Europe must stick to the terms of the original deal.

The key point is that not all the commitments in the EU budget are actually delivered. This extra flexibility agreed today could mean less money remains unspent.

2.03pm BST

Heads-up: European leaders have started arriving for the EU Council summit in Brussels.

Updated at 2.03pm BST

1.34pm BST

Photos: Portugal’s general strike

Portugal's anti-austerity general strike is in full swing. A group of protesters in Lisbon blocking a road to show their opposition to the country's deep spending cuts:


Protesters holding a banner that reads in Portuguese: “We Stop the Austerity. General Strike”, block one of the main Lisbon avenues. Photograph: Francisco Seco/AP
Portuguese police officers try to clear the street of protesters as they block one of Lisbon's main avenues during a general strike,
Portuguese police officers try to clear the street of protesters. Photograph: Francisco Seco/AP

Local reports say that while transport links were badly hit, few private workers are taking part in the walkout – partly because they cannot afford to lose a day's pay.

Carlos Silva, leader of Portugal's UGT union, acknowledging that the private sector has less opportunity to take part in industrial action.

Silva also declared:

These austerity policies punish the country, violate the people, penalise workers and pensioners, so the strike will be a cry of resistance to these policies.

A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon, on June 27, 2013.
A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon. Photograph: PATRICIA DE MELO MOREIRA/AFP/Getty Images

12.41pm BST

Greek opinion poll data

Over to Greece, and the latest opinion poll data shows that the governing New Democracy is maintaining a narrow lead.

Despite the row over the closure of state broadcaster ERT, ND came top with 22% of support followed by the opposition left-wing Syriza group on 20.8%.

The extremist Golden Dawn party is still third on 9.1%, then PASOK (ND's junior coalition partner) on 6.1%, Independent Greeks on 5.5% and the Communist Party on 5.1%.

Democratic Left, which quit the coalition last Friday, is now polling just 3% support – any lower and it won't qualify for seats in the parliament.

12.30pm BST

Irish recession: what the analysts say

Here's a round-up of economist reaction to Ireland's fall back into recession, via Reuters.

AUSTIN HUGHES, CHIEF ECONOMIST, KBC IRELAND

The economy is on a slightly weaker trajectory than was generally envisaged, but it's not entirely surprising given the global backdrop that exports have performed poorly." "The economy is still making uneven progress, but it's very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014. For my money, this suggests we use most of the promissory note savings on the economy and avoid even weaker growth over the next year." "These numbers are very volatile, the reality is there is still a marginal improvement in employment, so i don't think these numbers are saying we are tumbling into a dramatically poorer condition. But it does say that it is uneven, any sort of progression is very modest. Its flatlining.

PHILIP O'SULIIVAN, CHIEF ECONOMIST, INVESTEC IRELAND

It's not a huge surprise what's out today. Merchandise exports were quite weak due to patent cliff effects, so there was going to be a bit of an expectation that that was going to be a bit of a drag anyway." "The other thing to note is that retail sales were quite poor too which was a bit of a negative read through in terms of personal consumption, and a certain amount of that was down to a disappointing couple of months for car sales. Things should get better as the year goes on.

ALAN MCQUAID, ECONOMIST, MERRION STOCKBROKERS

It's not a good number and it clearly shows that we're not immune to what's going on globally. Given these numbers you'd be hard pushed to have growth for the year as a whole." "Whether it puts your bailout into question… I think the NTMA (debt agency) would argue that they're flush with money so there's no serious issue there and I think if they want to leave (the bailout), they will leave.

Updated at 12.30pm BST

11.41am BST

Ireland in recession – the details

The news that Ireland's economy has shrunk for three quarters in a row has dashed any hopes of a recovery, my colleague Lisa O'Carroll writes.

Today's revised gross domestic produce for 2012 show the economy flatlined with GDP rising by just +0.2%, revised down from +0.9%.

GDP for the third and fourth quarters of 2012 was lower than previously stated, at -1% and -0.2%, the central statistics office in Ireland said on Thursday. 

The economy continued to contract in the first quarter of 2013 when GDP growth stood at now -0.6%. This was due to falling exports and weakening consumer spending, said the CSO.

Karl Whelan, professor of economics at University College Dublin, tweeted that the Irish ministers should heed the data and stop discussing Ireland's 'recovery':

The full release is here. It shows that Gross National Product (which strips out foreign companies based in Ireland) did rise during the last quarter.

Irish GDP/GNP data
Photograph: Ireland’s Central Statistics Office

Updated at 11.41am BST

11.18am BST

Ireland back in recession

Now this is a nasty surprise. Ireland is back in recession after its GDP data was revised sharply lower.

Figures just released show that the Irish economy has actually been shrinking for the last nine months, including a 0.6% contraction in the first quarter of this year.

Details and reaction to follow

10.53am BST

Key event

Back to the EU bank bailout deal agreed in the early hours in Brussels (in which bondholders, shareholders and depositors with over €100,000 in the bank would contribute to future rescue deals if a bank failed).

Tim Dolan, a partner at the international law firm SJ Berwin, comments on the deal:

This deal creates a clear set of rules for dealing with failing banks which should lead to a level playing field between banks based in larger and smaller European nations. The risk with this deal was that smaller European nations would be left having to require failing banks to resort to obtaining support from creditors while larger European nations would be able to support failing banks by deploying taxpayer support. This deal should ensure broad consistency.

All creditors of banks, and particularly unsecured bondholders, need to understand that there is a greater risk that they will suffer some loss should their bank fail in the future. There is also a greater risk that, in the event of a complete collapse of a bank, shareholders and large depositors will be required to provide some support before the taxpayer.

10.16am BST

Updated at 10.30am BST

10.12am BST

10.11am BST

Here's some reaction to the UK GDP revisions (see 9.35am onwards) from Jeremy Cook, chief economist at the foreign exchange company, World First:

This data release highlights the problems that Britons are currently facing in a nut shell. Levels of disposable income have fallen to the lowest since 1987 as inflation bites at wage packets whilst savings ratio falls have shown that people are using life savings to keep their heads above water.

Whether the UK entered a double-dip or, as today’s numbers show, it didn’t matters little to the man on the street who is seeing large falls in real term wage growth as a result of the lack of business output.

Sterling has fallen in the aftermath of this announcement, and although this data is 3 months old and could be considered stale, the lack of real improvement since leaves the government and the new Bank of England Governor a lot to do.

10.08am BST

Disposable income ravaged

Another gloomy point in today's UK economic data – disposable income fell at its biggest rate since 1987 in the first three months of this year.

9.57am BST

The pound has fallen since the new GDP data was released, down almost half a cent against the US dollar at .526.

Updated at 10.02am BST

9.57am BST

Jonathan Portes of the National Institute of Economic and Social Research makes the same point. Today's new data shows the UK suffered a severe downturn, and has only managed a feeble recovery since.

9.53am BST

Britain's economy is still 3.9% lower than its pre-recession peak, the ONS's new data shows (see 9.35am onwards).

That's even worse than the 2.6% previously estimated. So we've lost the double-dip, but the original dip was even more of a shocker.

9.51am BST

9.45am BST

Instant reaction

The elimination of Britain's double-dip recession is getting plenty of attention, but the fact that the original downturn was even more severe is more important.

Chris Giles of the Financial Times comments:

Updated at 9.45am BST

9.41am BST

Key event

The ONS also confirmed that Britain's economy grew by 0.3% in the first three months of this year, as previously expected. However the year-on-year figure has been revised down to just +0.3%, from +0.6% before.

That's because of the revisions the ONS has made to legacy data.

Updated at 9.41am BST

9.35am BST

ONS: double-dip never happened but UK recession was deeper

It's official, Britain never suffered a double-dip recession.

The Office for National Statistics has just reported that the economy did not shrinking in the first quarter of 2012, as previously thought.

However, it's not all good news. After carrying out a major revision of recent economic data, the ONS has calculated that UK GDP actually tumbled by a jaw-dropping 7.2% in the aftermath of the financial crisis of 2008. Not 6.3% as previously thought.

More to follow!

9.27am BST

General strike under way in Portugal

Workers hold flags at a picket line at the beginning of a general strike in Lisbon June 26, 2013.
Last night, workers gathered at a picket line in Lisbon at the beginning of today’s general strike. Photograph: JOSE MANUEL RIBEIRO/REUTERS

The general strike called by Portugal's two biggest unions is underway, as workers register their anger over the country's austerity programme.

Reuters reports that public transport has come "to a virtual standstill":

Trains were not running, metro and ferry services stopped in Lisbon, and many bus routes were suspended, forcing those who chose to go to work take longer, alternative routes that were served by fewer buses than usual. State-owned airline TAP has warned of possible disruption but not cancelled any flights.

9.07am BST

German unemployment data released

Germany's labour market continues to outperform the rest of the eurozone.

Data just released shows that the jobless total fell by 12,000 this month, on a seasonally adjusted basis. Economist had expected a rise of 8,000. It leaves Germany's jobless rate flat at 6.8% (May's original reading of 6.9% was revised down) compared to a eurozone average of 12.2%.

8.56am BST

Our Europe editor, Ian Traynor, suggests we shouldn't expect major progress at the EU summit which starts later today:

8.47am BST

Reuters' Hugo Dixon gave the EU deal (see opening post for details) a cautious welcome:

Updated at 8.47am BST

8.45am BST

French consumer confidence hits alltime low

Gloom in France — consumers are at their most pessimistic since records began in 1972, according to data released this morning.

The French statistics agency INSEE reported that consumer confidence slid again, to its lowest level since it began monitoring morale in 1972. French consumers are also more downbeat than ever before about their future living prospects.

At just 78, the reading was somewhat shy of analyst forecasts of 81, and far from the long-term average of 100.

The French economy is currently in recession, with unemployment moving steadily higher, and the government trying to cut public spending to hit EU deficit targets. Consumers have plenty of reasons to worry.

8.34am BST

Morgan Stanley's analysts aren't too impressed with the plan:

8.31am BST

The Wall Street Journal flags up that weaker euro-zone governments would be able to borrow from the currency union's rescue fund, the European Stability Mechanism, to top up their own backstops. But it won't be easy:

Taxpayer-funded bailouts will only be allowed under "extraordinary circumstances," when it is technically impossible to impose losses on certain creditors in a rush or when a government is worried about effects on financial stability, officials said. Such exceptions will have to be authorized by the European Commission, the EU's executive arm.

Rich countries like Germany and Finland worked hard to make it as difficult as possible for poorer countries to tap the euro-zone rescue fund.

Ministers agreed that the common fund could eventually be used to recapitalize failing banks directly, but only to protect depositors—not shareholders or bondholders—and if the bank's home government has run out of money.

More here.

8.21am BST

What the ministers said

Speaking to reporters after the deal was agreed, Dutch finance minister Jeroen Dijsselbloem argued it was a significant step forward:

If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill," he said.

"The financial sector itself will now to a very, very large extent become responsible for dealing with its own problems.

(that's from the BBC's take on the deal)

Dijsselbloem had been heavily criticised a few months ago for indicating that the Cyprus bailout (which forced massive losses on some large depositors) was a template for future rescue deals. He backtracked on the comments, but this deal confirms that the Cypriot experience could be repeated across the continent.

And German finance minister Wolfgang Schaeuble confirmed this point, telling reporters:

They can affect German savers just as well as they can affect any other investor in the world.

France's Pierre Moscovici told the press pack that Europe's bailout fund could still be used for bank rescues (after creditors have been hit). Reuters got the quotes:

French Finance Minister Pierre Moscovici signalled that ministers also agreed to French demands that the euro zone's rescue fund, the European Stability Mechanism, can be used to help banks in the 17-nation currency area that run into trouble.

It makes the whole thing coherent," said Moscovici. "It creates a solidity for the system and a system of solidarity.

Finish Minister of finance Jutta URPILAINEN (L) is talking with the swedish Minister of finance Anders BORG (C) and the Romanian Minister or Budget Liviu VOINEA (R) prior an european finance Ministers meeting in the EU council headquarter.
Finish minister of finance Jutta Urpilainen (left) talking with Sweden’s Anders Borg and Romania’s Liviu Voinea (right) before last night’s meeting began. Photograph: Thierry Tronnel/Corbis

Updated at 8.26am BST

8.07am BST

Bank rules agreed: media round-up

In the Financial Times, Alex Barker describes the deal as the eurozone's "flagship effort to bolster Europe’s patchy national defences against bank failure".

Barker explains how ministers finally agreed some flexibility:

Under the compromise, after the minimum bail-in is implemented, countries are additionally given an option to dip into resolution funds or state resources to recapitalise the bank and shield other creditors. The intervention is capped at 5 per cent of the bank’s total liabilities and is contingent on Brussels approval.

This issue of national flexibility bedevilled the talks for months, as member states jockeyed to tailor the rules to suit their own banks and past experiences of handling financial crises. A German-led group pushed for strict, automatic bail-in procedures, while France and some non-eurozone countries demanded more national discretion.

Jurgen Baetz of Associated Press writes that the deal gives "new credibility" to Europe's push for banking union.

He writes:

Following the 2008-2009 financial crisis, countries like Ireland, Britain and Germany each had to pump dozens of billions of fresh capital into ailing banks to avoid the financial system from collapsing.

To avoid that happening again, finance ministers discussed who should contribute in which order and how much to a bank's rescue – a so-called bail-in – so that ordinary taxpayers aren't left with the bill.

"Bail-in is now the rule," stressed Ireland's Finance Minister Michael Noonan, adding the rules put an end to moral hazard by making it clear that banks will suffer before the government might come in to help, if at all. "This is a revolutionary change in the way banks are treated," he added.

But John O'Donnell and Robin Emmott of Reuters warn that banking union is far from agreed:

Thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.

The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of "executioner" as early as next week, officials said.

"The most important discussion has yet to start and that is how decisions on restructuring will be made," said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. "It's premature to say that Europe is getting its act together."

7.35am BST

New bank rescue rules force losses on creditors

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

Europe's finance ministers have finally agreed new rules to handle the cost of future bank bailouts, which will see losses forced onto creditors such as large depositers as well as bond holders and shareholders.

After another late-night session in Brussels, ministers hammered out rules that will mean creditors are 'bailed in' to help cover the cost of future rescue deals. It's meant to end the era of taxpayers automatically picking up the tab, and should help Europe move towards proper banking union.

The key to the deal is that 8% of a failing bank's total liabilities – first shareholders, then junior bondholders, then 'uninsured deposits' (over €100,000) – must be effectively 'wiped out' before public funds can be used.

Deposits of under €100,000 remain protected. And the deal also puts big deposits held by large companies ahead in the firing line before those of smaller companies and individuals.

Michael Noonan, the Irish finance minister, described it as a revolutionary change in the way banks are treated in the European Union.

The deal also leaves some discretion for national goverments to decide whether to step in, as Jurgen Baetz of Associated Press explains:

Those forced losses will go as high as 8% of a bank's total liabilities, only then would national governments kick in and top it up with a bailout possibly worth another 5% of the liabilities.

The negotiations were complicated because some nations feared being bound by overly rigid European rules. Others warned that too much flexibility would create new imbalances between the bloc's weaker and stronger economies and a lack of common rules would destroy certainty for investors and erode trust in the financial system.

Another key point: member states are expected to set up "ex-ante resolution funds", eventually holding a sum equal to 0.8% of national deposits, to fund their own contributions.

The draft deal still needs the approval of the EU parliament, and is expected to begin in 2018.

I'll pull together reaction to the deal, and more details, shortly.

The deal comes before an EU summit where countries could agree further steps to move closer to full banking union. Leaders will also discuss plans to fight Europe's youth unemployment crisis.

Also coming up today — a general strike is taking place in Portugal in protest at the country's ongoing austerity measures; and new GDP data for the UK is released at 9.30am BST.

Updated at 8.10am BST

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In the trading room today: Is the EUR Set to Transition Back into the $1.20′s? As the EUR looks set to test the $1.30 mark, we examine the factors behind the weakness of the single currency and ponder if the market might be ready to transition the EUR/USD exchange rate back into the $1.20′s, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the weekly range in the USD/JPY pair, we note the renewed weakness of the GBP vs USD, we highlight the market’s reaction to the U.S. Consumer Confidence, New Home Sales and GDP, we discuss new forecasts from Bank of America and Commerzbank, and prepare for the trading session ahead.

Samaras: We must meet troika targets. Spain and Italy pay higher yields. China’s central bank tries to calm nerves by promising to help banks who were short of liquidity as it continues its clampdown on the shadow banking sector. Decent US data today…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Greek PM warns ‘no time to waste’ to avoid more austerity – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 25th June 2013 15.40 UTC

6.23pm BST

Closing summary

Time to wrap up for the day. Here's a brief closing summary:

Greek prime minister Antonis Samaras has told his new cabinet that they must meet the targets set with the Troika, if Greece is to avoid even more austerity. Samaras also made growth, employment and stability the priorities as he looked to grab the political momentum back after the turmoil caused by the closure of state broadcaster ERT. Details at 12.19 and 1.29pm

But as our Athens correspondent Helena Smith points out, simply changing the ministers won't end Greece's long recession, or help it comply with its tough bailout programm. Analysis from Helena is at 4.22pm.

Spain and Italy saw their borrowing costs jump, at debt sales today. Analyst Nick Spiro warned that the peripheral bond market was feeling the heat after recent turbulence (see 11.18am)

Stock markets have recovered some of yesterday losses. Closing prices at 5.55pm.

The markets were calmed by reassuring words from the Chinese central bank, which promised to help banks who were short of liquidity as it continued its clampdown on the shadow banking sector (see 8.47am and 4.40pm).

Strong US data also showed that the American economy continues to recover, with a jump in consumer confidence, house prices and durable goods sales (see 1.39pm onwards).

The scandal in Ireland over secret tape recordings of the management of Anglo Irish bank continued. The latest revelations showed senior managers singing "Deutschland, Deutschland, über alles" as they secured help from Europe (see 4.54pm onwards).

I'll be back tomorrow. Until then, thanks and goodnight. GW

5.58pm BST

Hogs left scratching their heads

On Wall Street, the S&P 500 is up 1% while the Dow is 0.7% higher

David Jones of IG Index reckons it's a lacklustre response to the news today that US house prices rose at their highest rate since summer 2008, with consumer confidence at a record high:

Today’s avalanche of US data has done little to put the fight back into Wall Street, which is currently struggling to show much enthusiasm for a meaningful rally. Almost everything was better than expected, but even this burst of good news couldn’t tempt the bulls out of hiding. It appears that, far from being the ‘feral hogs’ suggested by the Fed’s Richard Fisher, investors are just trying to do the same thing as the Fed, looking at each piece of news and working out where it fits in the great jigsaw puzzle of global equity markets.

Updated at 5.58pm BST

5.55pm BST

European markets end up

Europe's stock markets ended the day higher, buoyed by soothing words from central bankers through the day, and decent US data this afternoon.

A few weeks ago, strong US consumer confidence data, house price figures and durable goods sales would probably have sent the markets falling as traders anticipated its impact on the US stimulus package. Now that the Federal Reserve has laid out its position, perhaps data can be taken on its merits.

Having said that, today's rally isn't terribly strong (indeed, shares fell again in Italy). Here's the closing prices:

• FTSE 100: up 72 points at 6101, + 1.2%

• German GAX: up 118 points at 7811, +1,55%

• French CAC: up 54 points at 3649, +1.5%

• Spanish IBEX: up 54.5 points at 7607, +0.7%

• Italian FTSE MIB: down 55 points at 15056, -0.37%

5.07pm BST

Enda Kenny tells parliament: Police had Anglo tapes for years

A picture of a cassette tape and the Irish Independent Newspaper as Government ministers were unaware that conversations between former Anglo Irish bankers were recorded.
Photograph: Niall Carson/PA

Irish Premier Enda Kenny has now confirmed that the Irish police have had the Anglo Irish Bank tapes for four years, Henry McDonald reports.

He told the Dail this evening that the Gardaí were in possession of the tapes and that they had been originally handed over to the force four years ago when they began their criminal investigations into the running of the bank.

A Garda spokesman had earlier refused to say if the force has been
in possession of the Anglo Irish tapes for four years.

The Garda investigation into the bank has become of the most complex
in Irish criminal history. Detectives are having to trawl through
more than one million emails and documents since the bank was
nationalised four years ago.

Sources in Dublin said the material includes the taped conversations that has caused national outrage in the Republic.

Irish Independent: TAPE RECORDINGS from inside doomed Anglo Irish Bank reveal for the first time how the bank's top executives lied to the Government about the true extent of losses at the institution.
Irish Independent

Updated at 5.08pm BST

4.54pm BST

Anglo Irish Bank tapes: executives mocked Germans amid bailout

The Anglo Irish Bank tape scandal which broke yesterday has deepenened after it emerged that executives at the stricken bank sung "Deutschland, Deutschland, über alles" as they secured a state guarantee for their bank deposits.

Fresh tape recordings released today have shown senior managers joking about how financial help from Germany was flowing their way, a day after the Irish Independent produced evidence that Anglo had deliberately low-balled the cost of its bailout.

Our Dublin correspondent, Henry McDonald, reports:

The bankers are heard joking and singing as the bank's then chief executive, David Drumm, urges his executives to "get the fucking money in" in September 2008, when the state stepped in.

The Irish government had intervened that month with a guarantee of the bank's deposits to keep the institution afloat – a move that angered London and Berlin because it enticed money from British and German savers.

The latest recordings to be leaked from inside the bank will compound national outrage in Ireland over the behaviour of Anglo Irish bankers. One senior executive, then director of capital markets, John Bowe, was recorded boasting that he had picked a random figure of €7bn (£5.9bn) "out of my arse" as the cost of the state rescuing them.

Here's Henry's full story: Anglo Irish Bank tapes: executives mock Germans amid bailout

And here's Monday's story: Ireland's rage justified – Enda Kenny

4.40pm BST

Missed this earlier today, but the Financial Times has published more details of the statement issued by China's central bank.

It explains how the People's Bank of China promised more support for the country's financial institutions if they hit liquidity problems:

PBOC said:

If banks have temporary shortages in their planned funding, the central bank will give them liquidity support

If institutions have problems in managing their liquidity, the central bank will apply appropriate measures under the circumstances to maintain the overall stability of money markets.

More here.

4.22pm BST

Greek reshuffle – analysis from Helena Smith

Greek Minister of Tourism Olga Kefalogianni (centre) and newly appointed Shipping Minister Adonis Georgiadis (left) arrive for a cabinet meeting at the Greek Parliament in Athens, Greece, 25 June 2013.
Greek minister of tourism Olga Kefalogianni (centre) arrives for today’s cabinet meeting. Photograph: ALKIS KONSTANTINIDIS/EPA

From Athens, our correspondent Helena Smith writes:

Another year. Another government reshuffle.

Overseeing his first cabinet meeting today – his ministers smiling like school children on their first day — Prime Minister Antonis Samaras rammed home the message that there was “not a minute to lose.”

If Greece is to be spared yet more austerity, and the turmoil that would inevitably entail, the new government will have to work around-the-clock, no Sundays, no holidays, no leisure time at all. 

We have, of course, heard this before uttered from the lips of every leader since the eruption of Greece’s great economic crisis.

On the ground, at least, Greeks may be forgiven for believing that the real truth lies not so much in the notion of hard labour but the rules of the game being changed altogether.

Whichever way you look at them the numbers still don’t add up.

The make-over will buy time in what, anyway, is likely to be a slow motion summer in the run-up to late September’s German election – but it unlikely to keep drama at bay. For many, the government is still doomed to fail precisely because the problems the country now faces – economically, politically and socially – are too big to tackle. 

With the departure of the small Democratic Left (Dimar) from the alliance, the government has lost the pretext it once had not to press ahead with pressing reforms, starting with lay-offs in the public sector. Similarly, there will be little excuse not to pull off a slew of privatisations in the months ahead.

Greek Prime Minister Antonis Samaras arrives for a cabinet meeting at the Greek Parliament in Athens, Greece, 25 June 2013.
Antonis Samaras arrives for today’s cabinet meeting, with his new team in tow. Photograph: ALKIS KONSTANTINIDIS/EPA

Placing Kykiakos Mitsotakis at the helm of the Administrative Reform ministry (a key post for Athens’ troika of creditors at the EU, ECB and IMF) was a stroke of genius. An energetic liberal, Mitsotakis is one of the brightest members of the new cabinet and an ardent advocate of reform.

Putting Pandelis Kapsis at the helm of a new ministry that will overhaul the state broadcaster, ERT, is also an inspired move. Pragmatic, honest and urbane no one in Athens is more aware of the shortcomings of the Greek media scene than the former newspaper editor.

In terms of the mechanics of power, the socialist Pasok leader Evangelos Venizelos undoubtedly emerges as the big winner. From his new post as deputy prime minister (and foreign minister) he will have much greater control of the internal workings of the government.

Outgoing Greek Foreign Minister Dimitris Avramopoulos (R) speaks during the delivery and reception ceremony as newly appointed Greek government Vice-President and Foreign Minister Evangelos Venizelos (L) looks on, in Athens, Greece, 25 June 2013.
Outgoing Greek foreign minister Dimitris Avramopoulos (right) speaks during the delivery and reception ceremony as Venizelos looks on. Photograph: ALKIS KONSTANTINIDIS/EPA

But the enforced compromise that has also come with the balancing act of putting two parties in a power-sharing arrangement has also placed a patina of weakness over this government.

None more so than the appointment of two lightweights to the very portfolios – the ministries of health and labour – that account for two thirds of the budget deficit and are the bane of all economic policy making in Greece.

Updated at 6.08pm BST

4.07pm BST

Handy advice for those of you in the markets:

3.25pm BST

US consumer confidence hits five-year high

A third piece of strong American data today: consumer confidence has soared ahead in June to a five-year high, leaving analyst forecasts in the dust.

The Conference Board reported that US consumer confidence jumped to 81.4 on its index, up from 74.3 in May (slightly revised lowed). That suggests Americans are more positive about conditions in the business sector and the labour market than at any time since the collapse of Lehman Brothers.

With house prices (2.18pm) and durable goods orders (1.39pm) also up today, the broad picture is that America's economy is recovering. There are fears, of course, that the fiscal cutbacks this year could derail it (thus the IMF's call this month for the 'sequester' to be scrapped). But analysts are quite optimistic.

Here's Capital Economics' take on the 3.6% jump in durable orders:

While the 3.6% m/m jump in durable goods orders in May was mainly due to a 51% m/m rebound in volatile commercial aircraft orders, the rest of the report was relatively upbeat.

Even if second-quarter business investment growth turns out to be trivial, the third quarter should be better.

Updated at 3.27pm BST

2.48pm BST

Wall Street joins the rally

Wall Street is open, and shares are rallying on the back of today's strong US data and the calming words from Mario Draghi (2pm), Sir Mervyn King (12.01pm), and China's central bank (8.47am).

The Dow Jones is up around 0.75% in early trading, gaining 109 points to 14766. The S&P 500 and the Nasdaq are showing similar gains.

And that's helping to support other markets, with the European stock markets up by at least 1%, Here's the latest prices:

Stock markets, June 25, 2.45pm
Photograph: Thomson Reuters

2.18pm BST

Record rise in US house prices

More strong US data. American house prices have risen by 12.1% over the last 12 months, the biggest annual gain since March 2006.

The S&P/Case-Shiller index, which tracks prices in 20 cities, also found that prices jumped 2.5% in April alone (stripping out seasonal adjustments). That's the biggest month-on-month rise in the survey's history.

David M. Blitzer, who chairs the S&P committee, said the recovery was 'definitely broad-based':

Atlanta, Las Vegas, Phoenix and San Francisco posted year-over-year gains of over 20% in April.

San Francisco was the highest at 23.9%. Phoenix posted 12 consecutive months of double-digit growth. Recent economic data on home sales and inventories confirm the housing recovery’s strength.

S&P/Case Shiller house price index, June 2013
S&P/Case Shiller house price index, from 1988 to today.

2.00pm BST

Draghi: Too early to tighten ECB monetary policy

Mario Draghi talks during the 2013 Economic Conference held by the CDU Economic Council in Berlin, Germany, 25 June 2013.
Mario Draghi at the 2013 Economic Conference held by the CDU Economic Council in Berlin. Photograph: Tim Brakemeier/dpa/Corbis

ECB president Mario Draghi has become the latest central banker to pour soothing words over the financial markets today, following Sir Mervyn King (12.01) and the People's Bank of China (8.47am).

Draghi insisted the ECB was nowhere close to tightening its accomodative monetary policy, given the current record jobless levels and subdued inflation.

Speaking at an event in Berlin, Draghi said:

In terms of monetary policy, price stability is assured, and the overall economic outlook still warrants an accommodative stance, the exit from which by the way is still distant since inflation is low and unemployment (is) high.

Draghi also cited his OMT (Outright Monetary Transactions) bond-buying programme. He said (not for the first time) it had delivered substantial benefits by driving down bond yields and encouraging deposits back to peripheral banks.

OMT is even more vital today than a year ago when it was announced, Draghi suggested, given developments elsewhere in the global economy:

Because of OMT, the euro area is a more stable and resilient place to invest in than it was a year ago.

Indeed, I would say that OMT is even more essential now as we see potential changes in the monetary policy stance with associated uncertainty in other jurisdictions of the integrated global economy.

Presumably he's thinking of the Federal Reserve…..

The full text of Draghi's speech is here: Stable Euro, Strong Europe.

The ECB tweeted some other highlights:

Updated at 3.30pm BST

1.39pm BST

Decent economic data from America — durable goods orders rose by 3.6% in May, which is slightly better thatn expected. April's figure has also been revised a little higher (from 3.5% to 3.6%).

That may suggest the Federal Reserve is on the money when it predicted last week that the US economy was recovering.

Updated at 1.45pm BST

1.29pm BST

Ministers attend the first cabinet meeting after the swearing-in ceremony of the new government in Athens on June 25, 2013.
Ministers attend the first cabinet meeting after the swearing-in ceremony of the new government in Athens on June 25, 2013. Photograph: LOUISA GOULIAMAKI/AFP/Getty Images

Associated Press confirms that Greek prime minister Antonis Samaras stressed the need for stability and unity as he addressed his new cabinet this afternoon (as covered at 12.19pm).

Here's AP's take:

"Stability is today more necessary than ever," Samaras told his ministers in the new cabinet's first meeting, held immediately after the swearing-in ceremony. "This government doesn't have a moment to lose."

And as I flagged up earlier, the rejigged government must swiftly conclude negotiations with its international creditors when Troika officials return to the country, probably in the next few days.

Here's more from AP:

Structural reforms, achieving a primary surplus a budget surplus without taking into account interest on outstanding loans and preparing the country to hold the European Union's rotating six-month presidency next year were among the government's top priorities, he said.

Samaras also insisted the coalition government's aim "was from the start, and continues to be, the exhaustion of its four-year term."

Other priorities included bringing down unemployment, which has reached a record higher above 27 percent, and supporting the more vulnerable segments of society, he said.

1.12pm BST

Italy’s bond yields inch up

In the bond markets, Italy's government debt is dropping in value again this lunchtime.

That follows this morning's auction of two-year bonds, which saw buyers demand higher rates of return (see 11.18am for details)

The yield (or interest rate) on Italian 10-year bonds has risen to 4.85% so far today, up from 4.8% on Monday night.

A small enough move, but it takes Italy's benchmark yield closer to the highest point of the year (4.91% in February).

As this graph shows, there's been a rapid change since the Fed's press conference last Wednesday night (when Ben Bernanke suggested America's bond-buying stimulus might end by next summer)

Italian 10-year bond yields, to June 25
Italian 10-year bond yield over the last 12 months. Photograph: Thomson Reuters

If the trend continues, Italian 10-year bonds will be yielding more than 5% again – a point Spain reached yesterday, and is clinging onto today.

Safer sovereign bonds have strenthened slightly today, amid calming words from the central banks of China and the UK today.

Here's the key 10-year bond yields:

• Spain: flat at 5.04%

• Italy: up 5 basis points (0.05%) at 4.85%

• Greece: down 14bp at 11.49%

• Portugal: up 9bp at 6.91%

• UK: down 10bp at 2.46%

• US: down 5bp at 2.49%

• Germany: down 4bp at 1.77%

• France: down 3bp at 2.42%

1.06pm BST

12.19pm BST

Antonis Samaras: Greece must avoid more austerity

Greek Prime Minister Antonis Samaras (C)  talks with his Finance minister Yiannis Stournaras (R) while socialist Evangelos Venizelos (L) looks on, during the first cabinet meeting.
Antonis Samaras (centre) with finance minister Yiannis Stournaras (right) and deputy PM Evangelos Venizelos (left) at today’s cabinet meeting. Photograph: LOUISA GOULIAMAKI/AFP/Getty Images

Greece's prime minister has told his new cabinet that there is no time to waste if they are to avoid having to impose further austerity measures.

Speaking after ministers were sworn in this morning, Antonis Samaras said his government's top priorities are to get the Greek economy growing again and hit the targets agreed with international lenders.

Samaras told the first meeting of the new cabinet that there was no time to lose:

Our immediate priority is to return to recovery ahead of time, defeat unemployment, bring in investment, avoid new measures and create jobs for the youth.

We have no choice but to succeed and we are determined to succeed.

With his majority now down to 153 (out of 300), Samaras said his government must take 'stable steps', with everyone pulling in the same direction.

As he put it:

Each of us has his own political beliefs but the overriding ideology right now is saving the country.

As explained at 8.05am, the soclalist Pasok party has been given more cabinet seats following the withdrawal of the other junior partner, Democratic Left, last week.

Last week, Greece's Troika of lenders suspended their assessment of the Greek economy, but they're due to resume work by the end of June. That review will determine whether Greece is still meeting its commitments.

Updated at 12.19pm BST

12.13pm BST

Photos: Greek government sworn in

Just in, a couple of photos from the Greek cabinet swearing-in:

Greece's Prime Minister Antonis Samaras (2nd L) and Greek President Karolos Papoulias (L) attend a swearing in ceremony at the Presidential Palace in Athens June 25, 2013.
Greece’s Prime Minister Antonis Samaras (second left) and Greek President Karolos Papoulias (left). Photograph: JOHN KOLESIDIS/REUTERS
Ministers of the reshuffled Greek government are sworn in at the Presidential Palace in Athens, in the presence of Greek President Karolos Papoulias and Prime Minister Antonis Samaras, in Athens, Greece, 25 June 2013.
Photograph: ALEXANDROS VLACHOS/EPA

Updated at 12.29pm BST

12.01pm BST

Here's my colleague Katie Allen's report on Sir Mervyn King's appearance at the Treasury select committee today: Interest rate rises not imminent, says Sir Mervyn King

Here's a flavour:

Global markets have "jumped the gun" in betting that interest rates will go back to normal levels anytime soon, outgoing Bank of England governor Mervyn King warned as he reacted to the widespread sell-off following Federal Reserve comments last week.

Speaking at his last hearing with the all-party Treasury committee, outgoing governor King raised concerns over bank lobbying and bemoaned the "disaster" of austerity in some parts of the eurozone. He advised his successor, the Canadian Mark Carney, to be "true to himself"

11.59am BST

Spain's economy minister Luis de Guindos has predicted that the country's unemployment crisis is easing (our correspondent in Madrid, Martin Roberts, reports).

De Guindos said the next batch of quarterly unemployment figures would be "much better" than a record 6.2 million reached in the first three months of the year, equivalent to 27.2% of the working population or the second highest rate in the EU.

In a keynote speech to a business conference in Madrid, de Guindos said:

(The data) will show that there is effective job recovery and falling unemployment which goes beyond seasonal effects.

The number of those registered as unemployed fell by 2% in May to 4.9 million, but that does not include the long-term jobless in a country where benefits last two years at most.

The minister also expected the economy, which has been contracting since mid-2011, to begin to turn around in the second quarter, and be close to zero after falling by 0.5% between January and March, adding:

…and the possibility of growth in the third quarter is not far-fetched.

The government forecasts Spain's economy will shrink by 1.3% during 2013 as a whole, and to grow by 0.5% next year.

De Guindos added.

The question today is not whether the Spanish economy will recover, but how firm the recovery will be, how firm the exit from the recession we are in.

11.41am BST

King: eurozone austerity has been a disaster

One last highlight from Sir Mervyn King's farewell skit at the Treasury select committee.

Challenged about his support for austerity, the outgoing governor said he had never backed fiscal cutbacks on their own, insisting:

Austerity in countries who have no other way to generate growth has been a disaster.

The evidence could be seen in parts of the eurozone, King added.

11.18am BST

Italy and Spain see borrowing costs jump

Italy and Spain both saw their borrowing costs rise at debt auctions this morning, raising fears that the market turbulence is hitting the eurozone's weaker members.

Spain sold €930m of three-month bills at average yield (or interest rate) of 0.869%, up from 0.331% at the last auction, and €2.14bn of nine-month bills at yields of 1.441%, up from 0.789%.

Demand for the 3-month bills was down sharply (a bid-to-cover ratio of 2.9 vs 4.3), but the Spanish Treasury did receive slightly more bids for the longer-dated bills than last time (it was 2.4 times over-subscribed from 2.2 last time).

Italy also saw its borrowing costs jump at an auction of €3.5bn of two-year bonds. Buyers of the debt demanded yields of 2.4%, up from a eurozone-era record low of 1.1% last time.

That's an important point — Spain and Italy had seen their borrowing costs fall steadily this year, thanks to central bank stimulus measures and the European Central Bank's promise to buy the bonds of countries in distress (if they signed up for reforms).

But bond analyst Nick Spiro, of Spiro Sovereign Strategy, says peripheral eurozone government debt markets have entered "a much more volatile phase", now that the Federal Reserve is planning to scale back its bond-buying.

Spiro explains:

Confidence in the central bank "put", the main pillar of support for Italian and Spanish bonds, has been badly shaken. The fortunes of Italy's bond market now hinge on investor perceptions of the credibility of US monetary policy as opposed to the ECB's policy actions. 

Today's Italian sale underrscores "the growing fears about the adverse consequences of a withdrawal of liquidity", Spiro explains.

The other factor in Italy, of course, is the seven-year jail term and public office ban imposed on Silvio Berlusconi yesterday. The former PM is appealing (so to speak), but it puts more pressure on Italy's fragile coalition government.

Members of the public celebrate after Silvio Berlusconi was sentenced to seven years in prison, outside the Justice Building on June 24, 2013 in Milan, Italy.
Members of the public celebrate after Silvio Berlusconi was sentenced to seven years in prison yesterday. Photograph: Pier Marco Tacca/Getty Images

As Spiro puts it:

On the domestic front, Mr Berlusconi's conviction adds another layer of political risk at a time when the Letta government is deeply divided over fiscal policy and Italy's economy remains mired in recession.

Further pressure on Italy's bond market will inflame political tensions, with Mr Berlusconi's PdL heaping more pressure on Mr Letta to take a tougher line with Germany and the ECB.

11.06am BST

10.41am BST

Greek cabinet being sworn in

Greece's president, Karolos Papoulias, is just beginning the swearing-in of the new Greek cabinet (see 8.05am for details).

10.35am BST

In the markets

Shares are continuing to push higher this morning, with the FTSE 100 now up 50 points at 6079.

But the mood in the City remains very cautious, given fears over China's economy and the looming withdrawal of the Federal Reserve's stimulus.

Here's a round-up of the latest chat this morning;

Matt Basi, head of UK sales trading at CMC Markets:

Substantial intraday swings in the major indices have been a feature of the market correction we’ve seen over the past few weeks, as the bull/bear debate rages over proposed Fed tapering, a potential Chinese slow down and the consequences for medium-term equity valuations.

In the context of these moves this morning’s bounce is being viewed with suspicion in some quarters, with many traders awaiting the next leg down in what they see as an inevitable continuation of the correction.

Rupert Osborne, futures dealer at IG:

It seems that the rush for the exits has come to a halt for now, but, like the proverbial parrot, this bout of risk aversion may not be dead, but just resting. It is still a struggle to work out the real outlook for markets, since the dust kicked up by last week’s Fed meeting will take weeks to settle. The Fed might be supposed to remain aloof from market panic, but it cannot have escaped them that the reaction to their upcoming policy changes has been less than positive.

The FTSE 100’s 6000 level has held for now, which will come as relief to many who had watched the markets press relentlessly lower over the past month. Both banks and miners are in better form so far this morning, looking to take back some of their China-inspired losses. A rally of a thousand points begins with a single step, but it would take a brave person to suggest that the bottom is now in and that the only way is up once again.

10.23am BST

Bank of England on market turbulence and interest rates

A few highlights from Sir Mervyn King's final appearance at parliament as Bank of England governor.

King took a pop at Britain's commercial banks, saying they had put "tremendous pressure" on Bank officials and the government in an attempt to water down regulations.

"At least one call took place" to the Treasury, King claimed.

The recent market turbulence was raised. Ben Broadbent, a member of the Monetary Policy Committee, said the market reaction to Ben Bernanke's statement last week was 'not predictable', and showed how cautious central bankers must be about unwinding stimulus packages.

King said that there was no real chance of interest rates returning to 'normal levels' anytime soon, as the world has not yet returned to normal market conditions.

Martin Weale, another MPC policymaker, agreed, saying:

I certainly think it would be quite wrong to try and give any timetable for any sort of return to a more normal pattern of interest rates.

Live coverage in Andy Sparrow's live blog,

Updated at 10.23am BST

9.55am BST

Mark Carney backs China and announces Libor review

Mark Carney (right) at the Financial Stability Board press conference at the Bank for International Settlements in Basel.  EPA/PATRICK STRAUB
Mark Carney (right) at the Financial Stability Board press conference at the Bank for International Settlements in Basel. EPA/PATRICK STRAUB Photograph: PATRICK STRAUB/EPA

The next governor of the Bank of England, Mark Carney, has offered his support to China over its shadow banking clampdown.

Discussing the recent market volatility, Carney told reporters that:

I would say the authorities have the situation well in hand.

Carney was speaking after the latest meeting of the Financial Stability Board, which sets rules for global banks, and which he chairs.

The FSB's meeting included a discussion of liquidity developments in all major global markets, so China's liquidity squeeze was probably high on the list.

The FSB also announced a task force would review Libor, following the recent scandal involving traders manipulating the rate.

Carney siad the steering group would report back next year on whether the benchmark should be changed, and when.

Carney told the press conference:

What has to be taken into account is the robustness of the standard.

We have to recognize that even some transactions benchmarks could be manipulated, it depends on depth of the market.

(quotes via Reuters).

9.36am BST

Watch and follow Sir Mervyn King here

Sir Mervyn King
Sir Mervyn King at the Treasury Select Committee today

Sir Mervyn King is beginning his final appearance at the Treasury Committee – and our politics live blogger, Andy Sparrow, is going to cover the full action in his liveblog:

Sir Mervyn King's final appearance at Treasury committee: Politics live blog

And if you'd like to watch it: It's being live-streamed here.

Updated at 10.12am BST

9.17am BST

City analysts are somewhat confused about what the China's central bank actually announced at its press conference (8.47am). Still, the pledge to 'guide market rates' and provide 'appropriate liquidity management' is being taken as an encouraging sign.

9.06am BST

Europe’s stock markets recover

After yesterday's heavy selloff, European stock markets are recovering this morning.

There's relief that China's central bank has pledged to handle its liquidity squeeze responsibly (see 8.47am), and predicted that the recent volatility will calm down once 'seasonal factors' fade. The installation of a new Greek cabinet should calm fears that the country's government might collapse (see 8.05am).

Here's the early prices:

• FTSE 100: up 26 points at 6056, +0.45%

• German DAX: up 71 point at 7764, + 0.94%

• France's CAC: up 38 points at 3633, +1%

• Italian FTSE MIB: up 95 points at 15206, +0.6%

• Spain's IBEX: up 53 points at 7607, +0.7%

Not a strong recovery — and traders still appear somewhat cowed by recent events. The FTSE 100, for example, is down almost 800 points, or 11%, since May 22.

Rebecca O'Keeffe, head of investment at Interactive Investor, explains:

After a week of truly horrific returns, investors had really started to feel the pain with both equity and bond markets racing towards bear territory.

At one stage overnight, it looked likely that the markets would continue their extensive fall, but Chinese equity markets pared back almost all of their overnight losses and European markets have opened higher. However, it is the commodities sector which remains the focus of attention.

The recent policy changes in China are a nightmare for the sector and it is likely that volatility will remain high until there is clear direction from Chinese authorities.

8.47am BST

Chinese central bank tries to calm nerves

An investor looks at a computer screen showing stock information at a brokerage house in Shanghai June 25, 2013.
A brokerage house in Shanghai this morning. Photograph: ALY SONG/REUTERS

China's central bank has just held a press conference at which it pledged to manage liquidity in the Chinese financial sector in a 'flexible' manner.

The briefing looks like an attempt to calm nerves over the situation in China. It comes after days of wild market moves in the stock market and the 'interbank market' (where banks lend to each other), amid the clampdown on credit and the shadow banking sector.

Reuters has the details:

China's central bank said on Tuesday that it would guide market rates to reasonable levels, and it expected seasonal factors that caused a recent spike in interbank market rates would gradually fade.

Appropriate liquidity management will help maintain reasonable growth in China's money and total social financing, and the People's Bank of China will manage liquidity in a flexible manner, Ling Tao, vice head of the central bank's Shanghai branch, told reporters in a news briefing for a financial forum in the city.

Short-term cash rates had soared last week after the People's Bank of China (PBOC) allowed funding to tighten in an apparent effort to curb credit channeled into China's vast "shadow banking" system.

Updated at 9.14am BST

8.30am BST

A shattering trading day in China

China's main stock index, the CSI300, closed down 0.3% a few minutes ago. But that doesn't begin to convey what a dramatic session it was.

Shares tumbled through the morning, showing ongoing fears over the government's clampdown on liquidity, reckless lending and shadow bank in the Chinese financial sector.

But from more than 5% down, the CSI 300 then recovered on rumours that the country's central bank would hold a press conference after the market closed.

China's CSI 300 market, June 25th
Photograph: Thomson Reuters

That press conference is taking place right now. Details to follow…..

Updated at 8.31am BST

8.26am BST

Greek government reshuffle, early reaction

Greek newspaper Kathimerini calls the shake-up in Greece a 'broad reshuffle', with key posts for the junior Pasok party:

The government announced a broad reshuffle on Monday night, just a few days after the junior coalition partner pulled out of the administration, with PASOK leader Evangelos Venizelos assuming the dual role of deputy prime minister and foreign minister, conservative New Democracy’s Kyriakos Mitsotakis taking on the tough task of administrative reform, while Yannis Stournaras kept his post as finance minister, as expected.

The new cabinet, which includes several members of PASOK in ministerial and deputy ministerial posts, is to be sworn in at 12.30 p.m. on Tuesday in a ceremony to be presided over by President Karolos Papoulias.

More from Kathimerini here.

While Greek Reporter points out that the both Antonis Samaras and Venizelos have changed their positions:

After repeatedly vowing he would not do so, Greek Prime Minister Antonis Samaras has shaken up his cabinet to reward PASOK leader Evangelos Venizelos, his remaining partner, with the key posts of Deputy Prime Minister and Foreign Minister, as well as giving the Socialists other top jobs.

Venizelos, who last year refused to allow any of his members to join a shaky coalition that then included the tiny Democratic Left (DIMAR) out of apparent fear the government wouldn’t last in the face of unrelenting austerity measures, changed his stance after backing a decision by Samaras, the New Democracy Conservative leader to shut down the national broadcaster ERT and fire all 2,656 workers to satisfy international lenders.

Here's Greek Reporter's full story.

Updated at 8.55am BST

8.05am BST

Greek PM shuffles the pack

Greek Presidential guards perform a change of shift in front of the parliament in Athens June 24, 2013.
Greek Presidential guards perform a change of shift in front of the parliament in Athens. Photograph: JOHN KOLESIDIS/REUTERS

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

It looks like a lively day ahead, with the Greek cabinet being reshuffled, the markets lively as ever, and Bank of England governor Sir Mervyn King giving his last public appearance before standing down.

In Athens, a new cabinet is being sworn in at lunchtime as prime minister Antonis Samaras tries to put the disorder caused by the closure of Greece's state broadcaster behind him.

Details of the reshuffle emerged last night, and the new team should be sworn in at 12.30pm local time (10.30am BST).

As we'd suspected, the socialist Pasok party (now the only junior member of the coalition) gets more responsibility with leader Evangelos Venizelos becoming foreign minister and deputy PM.

Two other Pasok leading players, Yiannis Maniatis and Michalis Chrysochoidis, get Environment and Transport Ministry.

There's no change at the top of the finance ministry, though, with Yannis Stournaras remaining as finance minister.

The reshuffle is meant to stitch the government more closely together, after Samaras was blasted a high-handed approach to his junior partners (one of whom, Democratic Left, has had enough and quit last week). But with the coalition only holding 153 seats (out of 300), the key question is whether Samaras and Venizelos can keep their teams onside.

The reshuffle has already provoked some confusion. New Democracy’s Sophia Voultepsi was briefly reported to have taken the Deputy Health Minister brief, before declining it for 'personal reasons'.

And the appointment of conservative MP Adonis Georgiadis to the Health Ministry also raised eyebrows, given his previous support for an anti-semetic book titled 'Jews: The Whole Truth’ (more details here).

While Pantelis Kapsis, a former government spokesman under the technocratic government of Lucas Papademos, will run a new ministry for the state broadcaster. He'll be tasked with creating a successor to ERT (whose closure sparked the latest political crisis in Greece).

I'd be very interested to know what Greek readers think of the new cabinet.

Meaanwhile, the financial markets in Europe remain gripped by the danger of a credit crunch in China, and the Federal Reserve's plans to withdraw its stimulus package.

Asian markets have seen a volatile day's trading, with the Chinese Shanghai Composite falling more than 5% at one stage before rallying strongly. European stocks are expected to rise after yesterday's selloff, but bonds will be closely watched for signs that borrowing costs are inching up.

And in London, Sir Mervyn King and senior colleagues from the Bank of England will be appearing at the Treasury Select Committee at Parliament to discuss the Bank's May 2013 Inflation Report. It's King's final public outing before he leaves Threadneedle Street at the end of the week….

I'll be tracking events in Greece, London and across the financial markets through the day….

Updated at 8.14am BST

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In the trading room today: Will the USD Maintain Strength after the Fed Dust Settles? With the series of U.S. economic data underway, we take a close look at the USD as the dust from last week’s FOMC meeting settles and explore the future direction of the greenback against the EUR and other currency majors, we analyze the price correction of the recent EUR losses vs USD, we note the pullback in the USD/JPY currency pair, we keep an eye on the GBP/USD pair, we highlight the market’s reaction to the German Ifo Business Climate and Expectations Index and the Italian Retail Sales, we discuss new forecasts from HSBC and UBS, and prepare for the trading session ahead.

FTSE 100 at 5-month low, UK 10-year bond yields hit 2.5%. Britain’s borrowing costs at their highest since October 2011. Greek reshuffle expected. Spain and Italy’s borrowing costs rise in early trading. Liquidity clampdown sent Chinese stocks reeling…

 


Powered by Guardian.co.ukThis article titled “Stock markets fall and bond yields rise after China enters bear market territory – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 24th June 2013 14.19 UTC

7.19pm BST

Closing summary

Time to stop for the day, after a session dominated by financial news (there was a dearth of eurozone political and social developments today, I'm afraid):

My colleagues Jill Treanor and Phillip Inman have filed a full report on today's market action. Here's a flavour:

Fears that the Federal Reserve is preparing to remove its stimulus from the US economy coupled with anxiety that China is being gripped by its own credit crunch sent jitters through global stock and bond markets.

The rout hit yields on UK government bonds – gilts – which hit their highest level since October 2011 in what analysts said was one of the most rapid moves ever witnessed on the market. Yields, which move inversely to price, on 10 year gilts have now risen a full percentage point to edge towards 2.6% in just two months, a rapid pace of change in the potential cost of government borrowing that could in turn increase the price at which companies and households borrow.

The FTSE 100, which only in May was testing all-time highs, lost another 70 points to sit just above 6,000 – a key level it only moved through at the start of 2013 – while the Dow Jones Industrial Index in the US suffered a 200 point loss in the first half an hour of trading. Commodity prices, such as copper, were also lower.

Yields on US government bonds, known as Treasuries, also hit two year highs as investors digested recent remarks by Fed chairman Ben Bernanke that he might begin to slow down the central bank’s bn monthly purchases of bonds which are being used to simulate the economy.

Governments in the eurozone, particularly the fragile economies of Spain and Italy, also faced their highest borrowing costs since May as yields rose on fears about the action of the Fed.

The full story is here: Fed fears and China credit crunch concerns send jitters through markets

Otherwise..

• The closing European stock market prices are covered at 6.02pm

• The details of China's rout overnight, as its clampdown on shadow banking continues, are in the opening post

• And the latest bond yields are rounded up at 6.24pm

• Secret tapes have added weight to the theory that Anglo Irish bank deliberately misled the Dublin government when it sought financial help, as explained at 2.29pm

• Details of Silvio Berlusconi's conviction, jail term, and ban from public office start at 4.33pm onwards

• And don't miss Richard Fisher, head of the Dallas Federal Reserve, on 'feral hogs' and 'cold turkey' at 6.57pm.

I'll be back tomorrow. Until then, thanks and goodnight.

Updated at 7.19pm BST

6.57pm BST

Fed’s Fisher hogs limelight with turkey talk

Just time to flag up some remarkable quotes from a (non-voting) member of the Federal Reserve's Open Market Committee, Richard Fisher.

Speaking in London tonight, Bank of Dallas president Fisher backed withdrawing the Fed's stimulus package, in a gradual fashion.

Fisher (one of the Fed's more hawkish members) declared:

I'm not in favour of going from wild turkey to cold turkey over night.

But Fisher didn't stop there with the animal analogies. In an interview with the Financial Times he laid into the the “feral hogs” of financial markets, who he said were overreacting to the prospect of the Fed tapering its bond-buying.

The Fed won't be knocked off-course by a few days of turbulence, he insisted, as that would encourage speculators to wade in and try to force a u-turn. He's not forgotten the sight of George Soros 'breaking' the Bank of England over two decades ago.

Or, as Fisher put it:

My personal feeling is that you don’t walk up to a lion and flinch.

adding….

I don’t think anyone can break the Fed . . . . But I do believe that big money does organise itself somewhat like feral hogs. If they detect a weakness or a bad scent, they’ll go after it.

Full interview here: FOMC member warns off ‘feral hogs’ in markets

6.28pm BST

Our Wall Street correspondent, Dominic Rushe, sums up the action in New York so far: US stock markets fall sharply over Fed comments and China growth concerns

Here's a flavour:

Gus Faucher, senior economist with PNC Bank, said the US sell-off was an overreaction that was unlikely to continue.

"I think the fundamentals in the US are solid," he said. "The economy is continuing to expand, companies continue to add jobs, demand is holding up, profits continue to improve." The sell-off was probably a "necessary correction" after major gains in recent months, he said.

6.24pm BST

Bond yields rise across the board

The fact that Britain's borrowing costs hit a 20-month high today will probably get plenty of attention tonight and tomorrow. But it's really part of a broader theme today, with US Treasury yields rising again as the Fed prepares to slow its monetary easing.

And to address a point IfigEusLannuon raised this morning (in the comments), the difference, or 'spread', between different countries is increasing — showing that weaker countries are being seen as a proportionately bigger risk.

In particular, the spread between German yields and those of Spain and Italy have widened.

Here's the details of the key 10-year bond yields tonight:

• UK: 2.545%, up 13.8 basis points (ie, 0.138% higher than Friday)

• US: 2.599%, up 8bp

• Germany: 1.8%, up 8bp

• France: 2.449%, up 12bp

• Spain: 5.07%, up 18bp

• Italy: 4.82%, up 24bp

• Portugal: 6.848%, up 39bp

• Greece: 11.6%, up 32bp

(all yields are from Tradeweb, via Reuters)

US Treasuries are under the closest scrutiny (although Spain also merits attention at >5%). John Higgins of Capital Economics reckons that there's little danger of a 'bloodbath' in the Treasury market, given the Fed's strategy for slowing QE.

Higgins explains:

The central bank is poised to trim its purchases rather than halt them all of a sudden, and it could well step them up again to prevent any rise in yields that it considers “disorderly”.

Finally, and perhaps most importantly, we don’t expect the federal funds rate to be hiked for perhaps a year and a half or so after unconventional easing is first scaled back.

The upshot is that while the best days for Treasuries are probably now over, we think there is no need to hit the panic button.

Updated at 6.42pm BST

6.02pm BST

Markets close with shares in retreat

After another day of heavy selling, UK gilts have closed at their weakest point in 20 months and the FTSE 100 has closed at its lowest level since early January.

And that picture is mirrored across the markets, with all the major indices posting substantial losses and bond yields up — particularly in the eurozone periphery.

As I've been mentioning through the day, the turbulence is being blamed on two factors; fears that China is heading into liquidity crunch as its central bank squeezes shadow banks; and lingering worries about America's quantitative easing stimulus programme being slowed soon.

Here's a full round-up of the closing equity markets:

FTSE 100: down 87 points at 6029, -1.42%

German DAX: down 96 points at 7692, – 1.24%

French CAC: down 62 points at 3595, -1.71%

Spanish IBEX: down 147 points at 7553, -1.91%

Italian FTSE MIB: down 142 points at 15112, – 0.93%

There were only six risers on the FTSE 100, where the list of biggest losers included several mining giants (Vedanta, GlencoreXstrata, Anglo America and Rio Tinto).

FTSE 100 top fallers, close of trading, June 24
Photograph: Thomson Reuters

Michael Hewson of CMC Markets explained:

Fears of a continued cash squeeze in the Chinese banking system has seen European markets continue their soft tone on fears that a dislocation in the Chinese banking system will cause further downward revisions in forward expectations for Chinese growth over the coming months.

This uncertainty combined with rising apprehension over the pace of future asset purchases from the Federal Reserve has seen stock markets pick up where they left off last week and hit fresh lows for 2013, as investors mull over the twin impact of the removal of the unlimited free money that they have become used to over the last three years. It is probably more than anything else that motivated the weekend warning from the Bank of International Settlements that monetary policy was now reaching the limits of its effectiveness and as such central banks should focus on preparing their escape routes.

The biggest decliners have once again been the basic resource stocks as concerns over Chinese demand continue to bear down on the mining sector as it continues to hit fresh three year lows on virtually a weekly basis.

Updated at 6.03pm BST

4.53pm BST

President of the court Giulia Turri (C) reads the sentence for former Italian prime minister Silvio Berlusconi in Milan June 24, 2013.
President of the court, Giulia Turri (centre), reads the sentence for former Italian prime minister Silvio Berlusconi in Milan a few minutes ago. Photograph: ALESSANDRO GAROFALO/REUTERS

Here's Reuters' early story on Berlusconi's conviction this afternoon:

A Milan court sentenced former Italian prime minister Silvio Berlusconi on Monday to seven years in jail and banned him from public office after finding him guilty of paying for sex with a minor and abusing his powers of office to cover up the affair.

The verdict adds to mounting complications facing Prime Minister Enrico Letta, whose fragile left-right coalition government is supported by Berlusconi's centre-right People of Freedom (PDL) party.

Berlusconi was found guilty of paying for sex with former teenaged nightclub dancer Karima El Mahroug, better known under her stage name "Ruby the Heartstealer", during the now notorious "bunga bunga" sex parties at his palatial home near Milan.

The panel of three judges, all women, also found the 76 year-old former premier guilty of abuse of office by arranging to have her released from police custody when she was detained in a separate theft case.

Berlusconi will not have to serve any jail time unless the sentence is confirmed on appeal.

Updated at 5.00pm BST

4.45pm BST

Regarding Berlusconi's conviction and sentencing, this preview piece by Lizzy Davies sets out the background of the trial, and the role of nightclub dancer Karima el-Mahroug, or Ruby Rubacuori (Heartstealer).

4.33pm BST

Berlusconi sentenced to seven years and banned from office

Silvio Berlusconi verdict
Silvio Berlusconi verdict Photograph: /Sky News

Breaking news: Silvio Berlusconi has been sentenced to seven years in jail and banned from public office having been found guilty of paying for underage sex, and abuse of office.

The sentence, handed down in the last few moments, is actually more severe that the prosecution in the case dubbed Rubygate had sought.

However, the former PM is not being led down to the cells… instead the verdict will now go to an appeal.

Still, the decision of the three judges raises fresh concerns over the stability of Italys coalition, as Berlusconi's party could potentially withdraw their support for prime minister Enrico Letta.

Updated at 4.43pm BST

3.19pm BST

Wall Street has kept falling – with the Dow now down 220 points, or nearly 1.5%.

Marketwatch confirms that the prospect of a liquidity crunch in China is a big worry today, as much as the Fed's plans to slow its asset purchase scheme:

U.S. stocks are declining “due to the concern over the state of the Chinese economy and the implications for the rest of the world,” said Stephen Pope, managing partner at Spotlight Ideas, in an email

“I am convinced we have overdone the downside with regard to that [Federal Reserve] story, but now with China we have another excuse to trade with timidity.”

And here's confirmation that all the main markets are in the red again:

Stock markets, 3pm, 24th June 2013
Photograph: Thomson Reuters

2.49pm BST

Wall Street opens, and shares fall

Wall Street is open, and shares are falling in early trading, following today's losses in Europe and the China rout (see 1.13pm for the round-up).

The Dow Jones industrial average is down 160 points at 14638, or -1/1%, with similar falls on the S&P and the Nasdaq.

And with government bond yields still around their earlier highs, the other poing to flag up is that volatility (as tracked by the 'fear index, Vix) is up 11%:

2.29pm BST

The Anglo Irish Tapes

Irish Independent, June 24
Photograph: http://www.independent.ie

The most remarkable story of the day comes from Ireland. Secret tapes released this morning give the clearest signal yet that senior bankers at Anglo Irish Bank deliberately tricked the Irish government into a rescue deal on 2008.

The recordings, released by the Irish Independent today, show John Bowe and Peter Fitzgerald discussing their request for €7bn of emergency funding to keep Anglo Irish running, once the financial crisis struck.

The final bill was €30bn, helping to precipitate Ireland's own bailout.

There have long been suspicions that Anglo's management knew the full scale of the crisis and hid it from the Dublin government, who fatefully decided to pick up the bill on the taxpayers' behalf.

Our correspondent in Ireland, Henry McDonald, explains:

On tape Fitzgerald asks Bowe how did he arrive at the figure of €7bn to which the latter replies: "Just as Drummer [the then Anglo Irish Bank CEO David Drumm now in exile and disgrace in Boston] would say, 'picked it out my arse.'"

The conversation also tends to back up the view that Anglo Irish bankers knew that €7bn would never be enough to save the bank but once they had hoodwinked the Dublin government the taxpayer would keep picking up the tab.

In their exchange Bowe says: "Yeah, and that number is seven, but the reality is that actually we need more than that. But you know the strategy here is you pull them in, you get them to write a big cheque and they have to keep, they have to have support their money, you know."

Here's Henry's full story: Irish bankers 'hoodwinked' government over bailout, secret recordings show

And you can listen to the recordings on the Irish Independent's site (the third recording, 'strategy', is the real humdinger).

1.55pm BST

On the subject of Britain's rising borrowing costs to a 20-month low, maverick Tory MP Douglas Carswell tweets:

The yield on UK 10-year bonds is a decent indication of how much it will cost George Osborne to sell new debt to service the deficit.

Last month, 10-year gilts were yielding just 1.6%. They've risen sharply since, but today's rise to 2.5% is still low on historic terms.

10-year gilts were yielding 5% in July 2008, shortly before the collapse of Lehman Brothers, as this graph shows:

UK 10-year bond yields, to June 24
Photograph: /Thomson Reuters

The big question, though, is how much will they rise in the month ahead? A return to higher bond yields might be welcomed as a sign that normality is returning to the markets, yet it could inflame the crisis by

1) forcing sizeable losses on investors who bought bonds when yields were at record lows (and thus prices at record highs).

2) pushing up sovereign borrowing costs – potentially a problem for countries running sizeable deficits (the UK is on track to borrow some £120bn this year, or around 7.4% of GDP).

Updated at 3.04pm BST

1.13pm BST

Markets hit new lows for the day

The selloff in Europe's stock markets is accelerating, with the FTSE 100 now down 85 points at 6030, its lowest level since early January.

And with bonds falling, Britain's borrowing costs are at their highest level since October 2011.

Other European markets are also falling deeper into the red, with Spain's IBEX and France's CAC both down by over 2%.

And Wall Street is also expected to join the selloff in a couple of hours, with the Dow Jones expected to shed 150 points as US traders react to China's tumbling stock market (as explained this morning, Chinese indices suffered their worst day's trading in nearly four years as the clampdown on its shadow banking sector continues).

Fawad Razaqzada, market strategist at GFT Markets, said China's liquidity squeeze came as investors were still digesting the prospect of the Federal Reserve winding down its stimulus programme.

Razaqzada explained:

Surging interbank lending rates in China are pointing to a liquidity squeeze and there's little apparent sign of intervention by government to ease the situation.

As a result the Shanghai composite is off by over 5% and markets elsewhere in the region are telling a similar tale…

This does mean that just as traders were coming to terms with the end of QE, there's another significant factor they need to be pricing into the market, too.

And that 'pricing in' process has seen government bonds under the cosh again, as nerves stalk the trading floors

Prices are falling across the board and driving up interest rates — both for riskier eurozone members and 'safe-haven' countries such as the US.

UK gilts are falling in line with the market, which pushes Britain's borrowing cost to a 20-month high of 2.55% (for 10-years).

Here's the latest 10-year bond yields (the classic measure of borrowing costs):

Spain: 5.03%, up 14 basis points (14bp) [from 4.89% on Friday]

Italy: 4.79%, up 20bp

Greece: 11.62%, up 30bp

US: 2.63%, up 12bp

UK: 2.55%, up 14bp

France: 2.53%, up 20bp

Germany: 1.82%, up 10bp

Here's a selection of instant reaction:

Updated at 1.27pm BST

12.34pm BST

ERT sit-in continues

People gather outside the ERT office to show their support, on 24 June.
People gather outside the ERT office to show their support earlier today. Photograph: Nikolas Georgiou/Demotix/Corbis

Also in Greece, employees of its ERT state broadcaster are continuing their sit-in at its Athens HQ.

Despite repeated demands for them to exit the building, the occuption is entering its 14th day, with increasingly weary-looking staff continuing to broadcast.

The Greek finance ministry called on workers to leave "to allow for the unhindered and immediate implementation" of the Council of State's decision last (that a limited service should be restored, but ERT should still close).

A giant monitor in the courtyard displays an ERT broadcast.
A giant monitor in the courtyard outside ERT’s headquarters displays an ERT broadcast. Photograph: Nikolas Georgiou/Demotix/Corbis

12.17pm BST

Greek reshuffle on cards today

Greece's Prime Minister's Antonis Samaras leaving his office in Athens June 24, 2013
Greece’s prime minister’s Antonis Samaras leaving his office in Athens this morning. Photograph: JOHN KOLESIDIS/REUTERS

Over in Greece, the two parties which still make up the country's coalition are discussing a cabinet reshuffle today.

Following the exit of Democratic Left on Friday, prime minister Antonis Samaras and Evangelos Venizeloz of Pasok must now reshape their government.

Kathimerini has mopped up the latest chatter, including the suggestion that Venizelos might become foreign minister (our correspondent Helena Smith explained last week that the Pasok leader wanted his party to have more prominence in the government:

Here's the latest:

According to sources, the ratio of New Democracy to PASOK ministers in the new cabinet will be 2:1.

There were rumors that Venizelos may assume the post of foreign minister, currently held by Dimitris Avramopoulos, as well as the position of deputy prime minister. Among those expected to keep their posts are Development Minister Costis Hatzidakis, Public Order Minister Nikos Dendias, Tourism Minister Olga Kefaloyianni and Education Minister Constantinos Arvanitopoulos. Finance Minister Yannis Stournaras is also expected to remain in place.

There's no immediate risk of the government collapsing. Samaras still controls 153 of the 300 seats in parliament, and Dem. Left could still support him in key votes despite quitting the coalition.

11.52am BST

The copper price has dropped to a new three-year low this morning.

Fears over China's slowing economy are being blamed, along with the US dollar strengthening again as investors pull money out of bonds and shares.

Having fallen last week, copper dropped again this morning to as low as ,613. China mops up around 40% of world copper output, so the new push against risky lending in its shadow banking sector is also hitting the metal.

From the WSJ:

“The outlook for Chinese demand in the short term is negative,” Phillip Futures Investment Analyst Joyce Liu said, adding that tight liquidity will mean higher costs for companies importing copper into China.

11.00am BST

FTSE 100, the details

Here's a graph showing how the FTSE 100 has now shed all its gains through the year after today's drop, and a list of the top fallers on the index.

FTSE 100 over the last year, to June 24
Photograph: Thomson Reuters
FTSE 100 top fallers, June 24
Photograph: Thomson Reuters

10.13am BST

FTSE hits five-month low as Chinese bear market looms

The FTSE 100 index of leading shares has dropped to its lowest level since January, as the slump in China's stock market overnight hits Europe's stock markets.

After a slow start, the main European indices are all falling again, adding to last week's hefty losses. The Footsie fell as low as 6057, a drop of 58 points. Spain's IBEX is the worse performer, down 1.5%.

The Chinese benchmark index, the CSI 300, is now in a 'bear market' — its 6.3% tumble this morning means its more than 20% off its peak.

The China selloff (sparked by the clampdown on its shadow banking - see 8.39am) and the Federal Reserve's plan to turn the stimulus tap down are proving a nasty cocktail for the markets.

Mike van Dulken, head of research at Accendo Markets, said the worries over the Fed were being "compounded" by the liquidity sqeeze in China and fears over its domestic economy, adding:

One thing this sell-off has demonstrated is how much more quickly markets tend to correct, even after a sharp ascent like that from mid-April.

Commodity prices are also slding again, pushing the price of a barrel of Brent crude oil below 0/barrel. Gold is also down again, losing another to ,281 per ounce.

There's no real let-up in the market gloom — as Aurelija Augulyte of Nordea Markets points out:

9.40am BST

Encouraging economic data from Germany – where business morale has risen for the second month in a row.

The IFO index rose to 105.9, from 105.7 in May, with German companies saying they are more confident of an economic revival later this year. No signs of full-blown euphoria, just a steady improvement in business confidence.

The recent huge flooding in parts of Germany also didn't cause any alarm, it seems.

Dr Jörg Zeuner of KFW summed it up:

Companies remained confident in June and continue to expect a good domestic economy. The devastating floods in Southern and Eastern Germany hardly influenced this outlook.

That's a good signal and confirms our expectations of a moderate economic revival in the second half. Risks in the international environment continue, such as recently the fierce reaction of investors to the monetary policy comments from the U.S. central bank.

9.26am BST

Kit Juckes, Société Générale's top currency expert, reckons that the US Federal Reserve may attempt to stop the government bond selloff in the next few days – having lit the touchpaper last week.

He writes:

At some pont this week (and I'm betting it is before Wednesday evening), the Fed will make sufficiently clear its concerns about market turmoil to stop the relentless rise in Treasury yields.

Of course, now that the genie has been let out of the bottle and the great big carry bubble has been burst, we won't go back to the halcyon days before taper entered the dictionary, but we will get a little bit of relief.

9.09am BST

Verdict expected in Silvio Berlusconi’s underage sex trial

Over in Milan, the underage sex case brought against Silvio Berlusconi is about to be resolved — in a development that could have serious political implications.

The judges hearing the case against the former Italian prime minister, who still has considerable political influence, just retired to consider their verdict.

The allegations against Berlusconi revolve around 'Ruby the heart stealer', a nightclub dancer. If convicted, the two-time PM could be jailed for four years.

Italy's treacle-slow political system means that Berlusconi would not be immediately incarcerated even if found guilty — he could make two appeals first.

But as my colleague Lizzy Davies explains, the case has a political dimension – especially given Berlusconi's other legal problems:

There are concerns…that the real effect of a guilty verdict could be on the country's unstable political landscape and Enrico Letta's government, which almost every day sees fresh bickering between Berlusconi's People of Freedom party (PdL) and the centre-left Democratic party (PD).

For the moment, Berlusconi is insisting that he supports the government regardless of his legal problems. But there is anger among the ranks of the PdL, and some party figures would like to see their leader withdraw support from the coalition if his "persecution" by the courts continues – a move that would trigger fresh elections.

Walston said the risk of immediate political instability as a result of the Ruby trial was small. A far bigger concern for Berlusconi and his allies is a tax fraud case in which he has already exhausted one appeal and is approaching a definitive ruling by the court of cassation, Italy's supreme court.

If that conviction is upheld, a four-year jail sentence – and, crucially, a five-year ban on public office – would come into force.

Here's Lizzy's full story on the case: Silvio Berlusconi's underage sex trial verdict expected

8.54am BST

UK gilt yields also up

Britain's government debt is also falling this morning, pushing up the yield on UK gilts. The 10-year version is now trading at a yield (interest rate) of 2.45%.

It's a small move – up from 2.41% on Friday night. But the yield has been climbing higher for the last seven weeks – at the start of May, 10-year gilts were yielding just 1.62%….

Updated at 8.54am BST

8.43am BST

Another sign of jitters this morning — the Euro STOXX 50 Volatility index has hit a four-month high in early trading.

8.39am BST

China’s stock market routed by liquidity fears

China's CSI 300 market, to June 24
China’s CSI 300 market over the last 3 months, which has tumbled as fears over its shadow banking sector grew. Photograph: /Thomson Reuters

China's stock market has suffered its biggest daily fall in almost four years, as the crackdown on its shadow banking system continues.

The benchmark CSI300 index slumped by 6.3%, its biggest daily fall since 31 August 2009. Financial stocks were particularly badly hit.

Stocks tumbled after China's central bank signalled that its crackdown on the country's shadow banking sector would continue, fanning fears of a credit crunch.

The People's Bank of China stated this morning that liquidity in the country's financial system was "reasonable" — which was taken a signal that it would maintain the liquidity squeeze that began last week.

PBOC also declared that China's commercial banks need to 'improve' the way they manage liquidity and control risks. In other words — help us stabilise the market by cleaning up your balance sheets.

The PBOC appears to be determined to clamp down on riskier areas of banking, such as underground lending and speculation, which increase leverage in the Chinese financial market – at a time when the wider economy is strugglng.

Reuters has more details:

"It's much easier to borrow money today, but costs remain high. Our business is apparently affected, but mainly on side business, such as wealth management," said a trader at a mid-sized commercial bank in Shanghai.

"Maybe this is what the central bank hopes as the government is calling for more money to be used for real economy."

On a positive note – the interest rate China's banks charge to lend money to each other fell this morning.

8.16am BST

As this graph shows, Spain's borrowing costs hit a near three-month high this morning, but are still lower than a year ago when a bailout looks likely:

Spanish 10-year bond yields, over the last two years. Photograph; Thomsen Reuters
Spanish 10-year bond yield, over the last two years. Photograph; Thomsen Reuters

Updated at 8.16am BST

8.00am BST

Bond yields on the rise again

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

The government bond sell-off which began last week continues in earnest this Monday morning, putting renewed presure on Spain and Italy

Sovereign debt is falling across the board in early trading, pushing up the borrowing costs of countries around the world. And some of the eurozone's weaker members are being hit hard.

As I type, Spain's 10-year bond yield just hit 5% for the first time since the start of April, up from 4.88% on Friday. Italy's debt is also being pummelled, driving its 10-year yield up to 4.71% (from 4.58%).

These bond yields are still some distance away from the danger zone (typically 7% is seen as the level where countries risk being locked out of the markets).

But the speed of the reversal is a concern, as the markets remain spooked by the prospect of the US Federal Reserve withdrawing its stimulus measures.

It looks like we're in for a rough ride for a while. As Ian WIlliams of Peel Hunt put it:

The transition towards a more growth-driven phase of market performance is likely to remain bumpy though the summer as the long awaited improvement in corporate earnings has been slow to emerge.

US Treasuries (America's government debt) is also sliding again this morning, pushing up its own 10-year bond yields by another 10 basis points (0.1%) to 2.61%.

Meanwhile, over in China, fears over the ongoing liquidity squeeze in its banking system have sent its stock markets tumbling, in their biggest daily fall in four years (more on this shortly).

Plenty to watch in the markets today…..

While in the political sphere, I'll be monitoring events in Athens where the ruling coalition is down to just two parties after Democratic Left quit the government last Friday….

Updated at 8.14am BST

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Jun. 23, 2013 (Allthingsforex.com) – A sequence of notable economic data from the United States will offer traders an opportunity to assess economic conditions in the world’s largest economy and to gauge the odds of tapering of the Fed’s monthly asset purchases.

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

The report could confirm that Germany is gaining momentum with the business outlook in the euro-zone’s largest economy forecast to be more optimistic at 106.0 in June, compared with a reading of 105.7 in the previous month.

2.    USD- U.S. Durable Goods Orders, a gauge of industrial activity measuring orders for durable goods placed with domestic manufacturers, Tues., Jun. 25, 8:30 am, ET.

Durable goods orders are expected to rise for another month by 3.0% m/m in May, slightly lower than the 3.5% m/m increase in April.

3.    USD- U.S. Consumer Confidence and New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Tues., Jun. 25, 10:00 am, ET.

A small pullback in consumer confidence could bring the index lower to 75. 6 in May from 76.2 in April, while the U.S. new home sales are forecast to increase 462K in May compared with 454K in the previous month.

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

The final reading of the U.S. Q1 GDP is expected to show the economy growing at a faster pace by 2.4% q/a in the first quarter after managing to avoid contraction and expanding by 0.4% q/a in the final quarter of last year. 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.

5.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Jun. 27, 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. Luckily, the economy averted an unprecedented triple-dip recession and expanded by 0.3% q/q the first quarter of 2013. The final reading should be in line with the preliminary estimates and should confirm the 0.3% q/q growth in Q1. However, if this number is revised lower, the GBP could come under pressure on expectations of more easing by the Bank of England.

6.    EUR- EU Summit, Thurs., Jun. 27, and Fri., Jun. 28, all day event.

EU leaders are due to meet for a special economic summit to discuss measures to spur growth in the region. With pro- and anti-austerity views creating divisions between the members of the 27-nation union on how to get the economy growing, it would not be a surprise to see the two-day event resulting in a deadlock. The EUR would not be likely to benefit from another unproductive EU Summit.

7.     USD- U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Thurs., Jun. 27, 8:30 am, ET.

Consumer spending in the U.S. is forecast to rise by 0.4% m/m in May after the unexpected 0.2% m/m drop in April. The Fed’s preferred core PCE Index could show inflation inching slightly higher by 0.1% m/m after staying flat in the previous month, but not enough to prompt the Federal Open Markets Committee to make sudden changes to its current monetary policy.

8.    USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Thurs., Jun. 27, 10:00 am, ET.

Pending home sales in the United States are expected to register a bigger increase by 1.1% m/m in May, compared with 0.3% m/m in April.

9.    JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Jun. 27, 7:30 pm, ET.

The massive QE operations of the Bank of Japan could finally begin to create inflationary pressures. The Japanese national core inflation gauge is forecast to rise to 0% y/y in May, up from -0.4% y/y in April. With the index climbing from deflation territory, the report could lend support to the JPY on expectations that the Bank of Japan might not need to become even more aggressive with further measures to fight deflation.

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., Jun. 28, 9:55 am, ET.

The final reading of the U.S. consumer sentiment index for June is forecast to be revised higher to 83.1 from a preliminary estimate of 82.7. The report will wrap up what is expected to be a week of decent U.S. economic data that could boost the USD as the market prices expectations that the Fed could start reducing its monthly asset purchases this fall.