September 2013

Sept. 29, 2013 (Allthingsforex.com) – The direction of the European Central Bank’s monetary policy and the state of the U.S. labor market will be the main themes of the week ahead as traders determine the odds of a taper announcement at the Fed’s October 29-30 meeting.

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

1.    JPY- Japan Tankan Index, a Bank of Japan quarterly survey of large and small businesses considered as the main indicator of economic conditions in Japan, Mon., Sept. 30, 7:50 pm, ET.

Since last December, the Tankan survey has been one of the reports representing gradual improvement in economic conditions by moving from negative into positive territory. The index is forecast to continue this trend with a larger expansion and a reading of 7 in Q2 2013 compared with 4 in the previous quarter. The report could keep the JPY well bid on reduced chances for additional easing by the Bank of Japan.

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Oct. 1, 12:30 am, ET.

Even though there is still room for rate cuts, if needed in the future, the Reserve Bank of Australia already reduced the benchmark rate by 25 bps in August and will not be in a rush to cut rates again in October and possibly for the rest of the year. The Aussie dollar has fallen significantly in recent months and could stay under pressure on risk aversion or if the central bank decides to keep the door open to further monetary policy easing.

3.    EUR- Euro-zone Unemployment Rate, the main measure of labor market conditions, Tues., Oct. 1, 5:00 am, ET.

No end in sight is expected for the euro-zone economy’s record-high unemployment with forecasts pointing to a reading of 12.1% in September, same as the previous month. The report could serve as a reminder that although the recessionary period has come to an end, unemployment is still a big hurdle for the 17-nation economy.

4.    USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Tues., Oct. 1, 10:00 am, ET.

Manufacturing activity in the U.S. has regained traction after the index unexpectedly dropped in contraction territory with a reading of 49.0 in May, but we could see a small monthly pullback to 55.3 in September from 55.7 in August.

5.    EUR- European Central Bank Interest Rate Announcement, Wed., Oct. 2, 7:45 am, ET.

Although activity in the euro-area has been picking up, ending the prolonged recession and the chronic contraction in euro-zone’s manufacturing and services sectors, the 17-nation economy is still struggling with record high unemployment. The European Central Bank will not tighten monetary policy anytime soon in this environment and will probably echo the message that policy will remain accommodative “for the foreseeable future”. The USD should be able to regain its strength against the EUR if the labor market data improves and the Fed gets ready to take the first step towards monetary policy tightening while the European Central Bank remains stuck in an easing mode.

6.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Oct. 2, 8:15 am, ET.

The anticipated small increase to 177K in September from 176K in August might fall short of instilling confidence in the ability of the private sector to create enough jobs to persuade the Fed that it’s time to start tapering of monthly asset purchases in October.

7.    USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Oct. 3, 8:30 am, ET.

Jobless claims are forecast to stay close to their four-year lows with a reading of 315K from 305K in the week before. The trend of declining claims for unemployment benefits is a good leading indicator of future improvement in the U.S. labor market and if this is coupled with stronger jobs creation in the months ahead, the USD should benefit.

8.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Thurs., Oct. 3, 10:00 am, ET.

The ISM services index is forecast to retreat from the August high of 58.6 with a reading of 57.2 in September.

9.    JPY- Bank of Japan Interest Rate Announcement, Fri., Oct. 4, around 12:00 am, ET.

With the prospect of a corporate tax cut to offset the hike in the consumption tax currently off the table, come April 2014, the Bank of Japan might be asked to pick up the slack with additional easing. But for the time being, economic conditions have improved and inflationary pressures have risen, creating an environment in which the Bank of Japan wouldn’t need to get more aggressive. The central bank will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. As the monetary policies of the Fed and the Bank of Japan diverge in the months ahead, the U.S. dollar should be able to resume its bullish trend against the yen.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Oct. 4, 8:30 am, ET.

Another disappointing nonfarm payrolls report will pretty much eliminate the odds of a Fed taper in 2013 and would contribute to what could become a miserable for the USD month of October. Weaker-than-expected readings and downward revisions for previous months have become a trend in the jobs data throughout the summer. Although we wouldn’t “bet the farm on it”, we could see a bit stronger job creation in September with the economy forecast to add up to 180K jobs compared with 169K in the previous month, while the unemployment rate stays at 7.3%. Should the NFP report surprise to the upside, the USD will regain its footing on expectations that there is still a chance that tapering of monthly asset purchases may be announced by the Fed at the October 29-30 meeting.


USA 

In the trading room today: EUR, USD, GBP and JPY New Trading Week Outlook. With a sequence of important economic data from the Eurozone, the U.S. and Japan on the horizon, we examine the busy release schedule for the new trading week and explore the outlook for the EUR, the USD and the JPY, we list the Top 10 economic events that will move the markets in the week ahead, we examine the consensus forecasts for the upcoming economic data, we analyze the bullish stance of the EUR vs USD, we take a look at the push higher in the GBP/USD currency pair, we keep an eye on the pullback in the USD/JPY pair, we highlight the market’s reaction to the Japanese CPI, the U.S. Personal Income and Outlays, we discuss new forecasts from Commerzbank and UBS, and prepare for the trading session ahead.

Greece ‘backsliding in democracy’ in face of joblessness, social unrest, corruption and disillusion with politicians, says thinktank. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc…

 


Powered by Guardian.co.ukThis article titled “Greece’s democracy in danger, warns Demos, as Greek reservists call for coup” was written by Helena Smith in Athens, for The Guardian on Thursday 26th September 2013 19.27 UTC

No country has displayed more of a “backslide in democracy” than Greece, the British thinktank Demos has said in a study highlighting the crisis-plagued country’s slide into economic, social and political disarray.

Released on the same day that judicial authorities ordered an investigation into a blog posting by an elite reservist group linked to Greece’s armed forces calling for a coup d’etat, the study singled out Greece and Hungary for being “the most significant democratic backsliders” in the EU.

“Researchers found Greece overwhelmed by high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” it said. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc and voiced fears over the rise of far-right extremism in the country.

The report was released as the fragile two-party coalition of the prime minister, Antonis Samaras, admitted it was worried by a call for a military coup posted overnight on Wednesday on the website of the Special Forces Reserve Union. “It must worry us,” said a government spokesman, Simos Kedikoglou. “The overwhelming majority in the armed forces are devoted to our democracy,” he said. “The few who are not will face the consequences.”

With tension running high after a crackdown on the neo-Nazi Golden Dawn party, a supreme court public prosecutor demanded an immediate inquiry into who may have written the post, which called for an interim government under “the guarantee of the armed forces”.

The special forces reservist unit who issued the social media call – whose members appeared in uniform to protest against a visit to Athens by the German chancellor, Angela Merkel – said Greece should renege on the conditions attached to an international bailout and set up special courts to prosecute those responsible for its worst financial crisis in modern times. Assets belonging to German companies, individuals or the state should be seized to pay off war reparations amassed during the Nazi occupation.

Underscoring the social upheaval that has followed economic meltdown, the blog post argued that the government had violated the constitution by failing to provide adequate health, education, justice and security.

Insiders said the mysterious post once again highlighted the infiltration of the armed forces by the extreme right. This week revelations emerged of Golden Dawn hit squads being trained by special forces commandos.

Fears are growing that instead of reining in the extremist organisation, the crackdown on the group may ultimately create a backlash. The party, whose leaders publicly admire Adolf Hitler and have adopted an emblem resembling the swastika, have held their ground in opinion polls despite a wave of public outrage over the murder of a Greek rap musician, Pavlos Fyssas, by one of its members. Golden Dawn, which won nearly 7% of the vote in elections last year and has 18 MPs in Athens’ 300-member parliament, has capitalised more than any other political force on Greece’s economic crisis. “Much will depend on how well it will withstand the pressure and they are tough guys who seem to be withstanding it well,” said Giorgos Kyrtos, a political commentator.

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In the trading room today: What will it Take for the USD to Regain its Footing? In the aftermath of the final reading for U.S. economic growth in the second quarter of the year, we focus on the USD and examine the factors that will play a key role in the greenback’s future efforts to regain its footing against the EUR and other currency majors, we analyze the range-bound price fluctuations in the EUR/USD currency pair, we keep an eye on the GBP/USD pair, we note the strengthening of the USD vs JPY, we highlight the market’s reaction to the U.K. and the U.S. GDP reports, we discuss new forecasts from BNP Paribas and Credit Suisse, and prepare for the trading session ahead.

Athens government seeks two-month extension. University of Athens ‘suspends operations. Germany’s firms more confident as recovery continues. UK mortgage approvals hit highest since Dec 2009. Long slog expected over German coalition…

 


Powered by Guardian.co.ukThis article titled “Greece pleads for more time over public sector reforms – live” was written by Graeme Wearden, for theguardian.com on Tuesday 24th September 2013 17.06 UTC

Italian PM Enrico Letta is discussing the future of Telecom Italia, after Spain’s Telefonica announced plans to take a much larger stake in its parent company (up to 70%).

Fab Goria tweets the key points:

And here’s more details of the University of Athens’ decision to suspend operations, because (it says) public sector job cuts have made it impossible to continue: University of Athens, NTUA Suspend Operations

Updated

Greek government pleads for more time over public sector layoffs

Over in Greece our correspondent Helena Smith reports that the government has appealed for more time to press on with the troika’s most controversial of demands yet: public sector dismissals.

Inspectors from the EU, ECB and IMF have yet to respond, on a day in which Greek public workers protested again.

And in another worrying development, the University of Athens has suspended all its operations, saying it cannot keep functioning with so many staff laid off.

Helena writes:

Barely two days after negotiations with visiting troika representatives began, prime minister Antonis Samaras’ coalition government has upped the ante asking for yet more time to implement reforms.

At a meeting with mission heads from the EU, ECB and IMF, the administrative reform minister Kyriakos Mitsotakis appealed for a two-month extension to the deadline Athens presently has to transfer some 12,500 civil servants into a so–called mobility scheme where employees would see their salaries drastically reduced before being moved, if lucky, to another government department.

Insiders at the ministry described the atmosphere of the talks “as very positive” – in sharp contrast to the environment outside where thousands of demonstrators gathered to issue howls of protests.

To underline that point about a positive atmosphere the meeting was even cut short, apparently by a good 40 minutes. But a source close to the troika was not so confident.

He said:

They [auditors] made it clear that they would come back with an answer Friday.

Yes, Greece has made progress but there is a feeling that what we are seeing is yet more stalling of the inevitable with the government once again biding time.

After a mad dash scramble the ministry managed to complete the first phase of the scheme – identifying 12,500 civil servants who could be transferred to the programme by the end of the month. Most are from the education sector and have included teachers, administrative staff and school guards.

But the effects of the crude fiscal logic that has often guided those decisions has not been without consequence.

Earlier today the University of Athens repeated that with layoffs making its “educational, research and administrative operation … objectively impossible” it regretted to inform the public that it was “forced to suspend all of its operations.”

“There is a possibility that the next six months could be lost but the bigger issue is not to lose the university altogether,” its rector Theodosis Pelegrinis said. The academic insisted the dismissals had been handled “in an excessive manner” without foresight or any proper review.

Describing the job losses as “incomprehensible” the university’s senate said the cuts would lead with mathematical precision to “undermining higher education and the young generation of Greece, the only real hope for overcoming the social and economic crisis in the years to come.”

Syriza, the radical left main opposition party that has spurred on protests, announced that its leader Alexis Tsipras would hold talks with school teachers tomorrow.

A bad day for cruise firm Carnival, which has been keelhauled to the bottom of the FTSE 100.

Carnival shares fell by 5.6% today, after it warned that bookings are sharply lower this year.

As my colleague Nick Fletcher explains, Carnival spooked the markets by reporting a 30% fall in third quarter earnings after problems with a number of its ships. Most famously, Costa Concordia, which was finally refloated last week after crashing in early 2012.

Bookings for the rest of 2013 and the first half of 2014 are down on the previous year, the company admitted.

It admitted it could take three years for the Costa brand to recover its reputation, following the Concordia disaster in Italy and another setback involving Costa’s Triumph vessel which stranded passengers for five days. Mechanical problems have dogged some of its other vessels.

Video: Top banker under fire over Libor answers

The Libor scandal has taken another twist this afternoon. 

The Wall Street Journal is reporting that Alex Wilmot-Sitwell, a former top UBS executive, is under fire over the testimony he gave to Parliament in January, regarding attempts by traders to fix the rate at which banks would lend to each other.

Wilmot-Sitwell told MPs on the Treasury Committee that he didn’t recall Tom Hayes, one of the traders at the heart of the scandal. But the WSJ’s David Enrich has discovered that Wilmot-Sitwell was included on various emails which discussed Hayes — who was charged over the Libor affair in June.

Mark Garnier MP, a member of the Treasury Committee, says Wilmot-Sitwell has “questions to answer”.

Here’s the full email chain

And here’s the WSJ’s story: Ex-UBS Executive Under Fire Over Libor Testimony

Greece threatened with demotion, again

FTSE Group, the stock market index company, has again threatened to expel Greece from its list of Developed Markets, and rank it as an Advanced Emerging market.

In its Annual Country Classification Review, published this afternoon, FTSE said it was leaving Greece on its Watch List, for yet another year. Greece was first placed on Watch for a possible downgrade in 2006. 

  • Argentina: Possible demotion from Frontier
  • China ‘A’ Share: Possible inclusion as Secondary Emerging
  • Greece: Possible demotion from Developed to Advanced Emerging
  • Kazakhstan: Possible inclusion as Frontier
  • Kuwait: Possible inclusion as Secondary Emerging
  • Mongolia: Possible inclusion as Frontier
  • Morocco: Possible demotion from Secondary Emerging to Frontier
  • Poland: Possible promotion from Advanced Emerging to Developed
  • Qatar: Possible promotion from Frontier to Secondary Emerging
  • Taiwan: Possible promotion from Advanced Emerging to Developed

Morocco and Qatar are new entries, while Ukraine has been booted off the list. It had been lined up for “possible promotion to Frontier market status”, but FTSE is now worried about:

…continuing delays in market developments and no timelines as to when the market developments regarding regulatory oversight, capital controls, treatment of minority shareholders and settlement will be implemented.

Updated

If you’ve not seen it already, do check out this article on Comment Is Free today about Greece’s neo nazi Golden Dawn party, and the investigation into links between the party and the Greek police.

Here’s a flavour:

For a period, Greece’s experience of general strikes, occupations and social movement protests came close to insurrection. This is as near to what Gramsci called a crisis of authority as one can get. The political control of the state has been breaking down. It is this breakdown of authority – which reactionaries blame on immigration, foreign control and communist agitation – that fuels Golden Dawn’s support.

The situation is toxic. Austerity has not run its course, any more than the recession, or the social misery engendered by it. The only recourse of the left is to render Golden Dawn useless by incapacitating it, obstructing its activities and shutting it down as an effective street-fighting fascist organisation.

More here (where regular reader Kizbot had been putting the world to rights in the comments):

Golden Dawn’s rise signals breakdown of the Greek state’s authority

Updated

A weak start on Wall Street, with the Dow Jones index dropping 55 points in early trading to 15345, –.35%.

Once again (again) traders are fretting over the question of when the Federal Reserve will start tapering its QE programme.

There are some big risers, though — particularly in the tech sector. Facebook are up 4% to a new lifetime high after an upgrade from Citi and predictions of a new access deal in China, while Yahoo’s up 3% to a six-year high.

No rush for the Bank’s probing Paul Tucker

Bank of England deputy governor Paul Tucker has joined the chorus of policymakers and it would appear he is singing from the same hymn sheet on forward guidance, reports my colleague Katie Allen.

She’s swiftly digested Tucker’s lunchtime speech (see 1.57pm for the snaps), and explains that Tucker’s speech matches other pronouncements from BoE policymakers this week, all defending the Bank’s new approach.

Katie writes:

Fellow Monetary Policy Committee (MPC) member David Miles said earlier today that he believed the Bank’s promise to keep interest rates low until the recovery is well entrenched could help nurture the nascent upturn.

On Monday, their colleague Ben Broadbent defended tying policy to the unemployment rate.
Tucker’s view is that forward guidance can be particularly useful during a period when the recovery is beginning to take hold. And he wants people to know the MPC is in no rush to take away its economic crutches.

According to the text of his speech to the Association for Financial Markets in Europe (AFME), he said:

Saying more about the committee’s approach to policy in this way might be particularly valuable during a period when signs of recovery have become more apparent. These are conditions in which it would be very easy for the financial markets, businesses and households to jump to the mistaken conclusion that monetary stimulus will soon begin to be withdrawn. Given the slack in the economy, the Committee is not in a rush.

On the question of the Bank’s credibility when it comes to keeping inflation in check, Tucker draws a contrast with the pre-independence era. He argues that it was precisely that credibility of the independent BoE’s commitment to keeping inflation in check that “enabled us to provide such exceptional monetary support to help the recovery.”

Tucker adds:

It is unimaginable that, prior to Bank independence in 1997, any government would have been able to hold the policy rate at effectively zero and make a further monetary injection of £375bn without inflationary expectations – and government financing costs – spiralling out of control.

Still, he does concede that just having a 2% inflation target – that keen UK data watchers will know has been missed for 45 successive months now – is not a license to endless money printing.

Tucker again:

Credibility is not to be taken for granted. Even we cannot provide stimulus without limit, without a wary eye to inflation expectations.

And there is a further note of caution on that long-standing puzzle for the Bank, productivity:

Tucker says:

Let’s be clear: we do not understand why productivity has been so weak. And that means that we are highly uncertain about the amount of slack in the economy currently and prospectively; uncertain about the extent of the consequent downward pressure on domestically-generated inflation; and, thus, uncertain about the path of output and employment consistent with non-inflationary growth.

And where does all that leave policymaking?

Tucker sums it up: “Provide stimulus; pause to see whether inflation expectations remain anchored; if, but only if, they are and more stimulus is needed, provide it etc. A ‘probing’ approach.”

Another resignation in Germany… this time at the Pirate Party, where leader Bernd Schlömer has reportedly told party members that he won’t run again.

Not a surprise, given the Pirates captured just 2.2% of votes.

Updated

Paul Tucker, the Bank of England’s outgoing deputy governor with responsibility for financial stability, is giving a speech on monetary policy in London.

We’ll have full details shortly. In the meantime, here’s the newswire snaps:

24-Sep-2013 13:45 – BANK OF ENGLAND’S TUCKER SAYS BOE DOES NOT UNDERSTAND WHY UK PRODUCTIVITY SO WEAK, TAKING “PROBING” APPROACH TO POLICY

24-Sep-201313:45 – BOE’S TUCKER – MPC APPROACH HAS BEEN TO PROVIDE STIMULUS; PAUSE TO SEE IF INFLATION EXPECTATIONS STAY ANCHORED; IF, THEY ARE AND MORE STIMULUS IS NEEDED, THEY PROVIDE IT

24-Sep-2013 13:45 – BOE’S TUCKER – IF RECOVERY DOES GAIN TRACTION, MPC WILL NEED TO AVOID MISPERCEPTIONS ABOUT LIKELY COURSE OF POLICY

24-Sep-2013 13:45 – BOE’S TUCKER – BY ADOPTING A PROBING APPROACH MPC CAN PROVIDE BROADLY THE RIGHT DEGREE OF STIMULUS WITHOUT DILUTING COMMITMENT TO PRICE STABILITY

24-Sep-2013 13:45 – BOE’S TUCKER – FORWARD GUIDANCE DOES NOT COMMIT MPC TO KEEPING POLICY LOOSE BEYOND THE POINT THAT WOULD BE PRUDENT

24-Sep-2013 13:45 – BOE’S TUCKER – AS DATA COMES IN, BOE UNEMPLOYMENT FORECASTS MORE LIKELY TO CHANGE THAN FORWARD GUIDANCE 

Speaking of Germany, finance minister Wolfgang Schäuble has warned that Angela Merkel’s next government (once formed) will not change its approach to Europe’s economic problems.

Schäuble told the “Leipziger Volkszeitung” newspaper that Merkel will continue to push for rigorous budgetary discipline across the eurozone.

Appeals for countries to be allowed to relax their deficit targets and borrow more to stimulate growth will not be granted, insisted Schäuble, adding:

I’m also in favor of more growth and more jobs

But I believe that only through budget consolidation and accompanying structural reforms can you get there.

At this stage, though, it’s not clear whether Schäuble will remain as finance minister in the next administration. It all depends on the coalition talks….

More here.

The fallout from Germany’s election continues. Jürgen Trittin, co-leader of the Green Party, has announced that he won’t run for the leadership again.

Trittin added that he and co-leader Katrin Göring-Eckardt would continue to hold “exploratory talks” with Angela Merkel’s Christian Democrats.

From Athens, our correspondent Helena Smith reports that today’s protests were “quite raucous”.

Photos from the scene show the usual array of anti-Troika slogans, calling for an end to Greece’s austerity programme.

As expected, today’s 48-hour strike has hit many public services. Associated Press flags up, though, that some local services kept running. Here’s AP’s early take:

Greek civil servants walked off the job Tuesday at the start of a 48-hour public sector strike, the second in as many weeks, to protest job cuts required for the country to continue receiving international rescue loans.

State school, tax office and hospital workers joined the strike, while ambulances services were to run with a reduced staff. Journalists joined in with a three-hour work stoppage, pulling any non-strike related news of the air.

But participation appeared low, with many services remaining open in central Athens, including post offices and some schools and tax offices.

Thousands of people marched peacefully, chanting anti-austerity slogans through the center of the capital and in the country’s second-largest city of Thessaloniki in the north.

Updated

Back in the markets, the Italian stock markets is the best performer this morning.

That’s after Spain’s Telefonica announced plans to take a bigger stake in Telecom Italia’s parent company.

Here’s the lunchtime prices:

David Madden, market analyst at IG, says traders are still pondering when the Federal Reserve might start to taper its bond-purchase scheme, and fretting about Germany.

He also flags up the comments from ECB senior policymakers today, and yesterday, about the possibility of another round of cheap loans for euro-area banks (see 11.07am for details)

The Federal Reserve is trying to keep investors in the dark as to what its next move will be. The decision to keep the bond-buying programme unchanged at $85 billion per month pushed equities higher, but speculation is mounting about what the next meeting will bring. As always, the Fed members are divided: James Bullard is hinting at tapering, while William Dudley isn’t convinced the US economy is strong enough yet.
Just as the Fed is looking to ease up on its stimulus package, the ECB stated it is on standby to pump cash into the banking system if required. Traders are becoming too dependent on stimulus packages, but they can provide a boost to equities in the short term.
Mineral extractors have lost the most ground today, due to softer commodity prices. Meanwhile, European equity traders are sitting on their hands while Angela Merkel puts together a new coalition government.

Back in Greece, one demonstrator is carrying a flag with a German slogan on it — clearly looking for an overseas audience (see below – it’s the blue banner in the background) .

It reads “Nein zu Spardiktaten und Nationalismus” or “no to austerity diktats and nationalism”

Here’s the full details of the OECD’s warning about the eurozone, from Reuters:

 The European common currency area remains “a considerable source of risk” even though the systemic risk from its debt crisis is scaling back, the Organisation for Economic Cooperation and Development’s chief economist said on Tuesday.

The OECD’s Pier Carlo Padoan told a conference in Lisbon positive economic growth in the euro zone should return only in 2014, expecting growth to be still negative this year despite a recovery in many countries, including Portugal.

He said that while pursuing structural fiscal consolidation in 2014, euro zone countries should allow automatic stabilisers to work and focus on fighting high unemployment rates.

OECD chief: global economy is slowly recovering

Some quotes from the OECD’s chief economist, Pier Carlo Padoan, just flashed up on the Reuters screen.

He’s warning that the eurozone economy is still poses significant risks to the global economy, but also sees signs of recovery:.

11:15 – OECD CHIEF ECONOMIST SAYS GLOBAL ECONOMY SLOWLY EXITING RECESSION, BUT FAR FROM SUSTAINABLE GROWTH

11:16 – OECD CHIEF ECONOMIST SAYS EURO AREA “STILL REMAINS CONSIDERABLE SOURCE OF RISK” 24-Sep-2013

11:20 – OECD CHIEF ECONOMIST SEES EURO AREA ENTERING POSITIVE GROWTH IN 2014, 2013 STILL SEEN NEGATIVE 

11:22 – OECD CHIEF ECONOMIST SAYS GROWTH IS COMING BACK FOR MANY COUNTRIES INCLUDING PORTUGAL 

Greek photojournalist Nikolas Georgiou is tweeting some photos from today’s protests. Here’s a couple:

The European Central Bank could help the eurozone banking sector with a third injection of ultra-cheap loans, ECB governing council member Ewald Nowotny said this morning.

Speaking in Venice, Nowotny (who’s also the head of Austria’s central bank) said it was too early to consider stopping the ECB’s ‘non-standard’ stimulus measures.

Asked about the prospects of another Long Term Refinancing Operation (in which the ECB would offer huge quantities of low-priced loans to banks), Nowotny replied:

It is certainly important to show all that we have in the way of instruments, which are flexible.

The ECB offered almost a trillion euros to eurozone banks in two LTROs, at the end of 2011 and in early 2012. Yesterday, ECB president Mario Draghi told MEPs that a third LTRO was a possibility, if conditions required it.

Updated

Greek public sector workers have marched towards the country’s parliament in Athens, at the start the 48-hour strike that began this morning. Syntagma metro station has been temporarily closed.

The public sector ADEDY union has declared, as it’s said so many times before, that the protest is an attempt to push the government to change course.

We call on the workers … the self-employed, the unemployed, the pensioners, the youth and everyone affected by these policies to give their resounding presence.

But the Greek government is more worried about the Troika’s visit this week. There are murmurs from Athens that the debt inspectors are pushing for progress on privatisations, where Greece is already facing a €1bn shortfall this year.

Kathimerini explains:

During a meeting at TAIPED’s headquarters, the mission chiefs of the European Central Bank, the European Commission and the International Monetary Fund called for more action so that this year’s revenue shortfall, amounting to 1 billion euros, can be covered in 2014.

At the troika’s focus were the privatizations of ports, water and sewage companies, and Hellenic Post. According to plans drawn up in January, these sell-off projects should have started in the second quarter of the year, while the aim now is for them to get started in the last quarter, given that the third will be over in a week’s time.

Another reason for optimism about this morning’s IFO surveyit’s the best reading of German business confidence since April 2012.

Here’s AP’s take:

A closely watched index of German business optimism rose for the fifth month in a row in September, reflecting the improved prospects for Europe’s largest economy.

The IFO institute’s index edged up to 107.7 points from 107.6 in August. Market analysts had expected it to rise slightly more, to 108.0

The index is based on a survey of 7,000 companies about how they think the situation is now, and how they see things going in the coming months. It’s a leading indicator, meaning it suggests where the economy is going in the months ahead.

Germany’s economy expanded 0.7% in the second quarter, helping the 17-country euro currency union return to growth after six quarters of shrinking output.

Reminder — there’s analyst reaction here.

Updated

UK mortgage approvals at highest since December 2009

Just in: UK mortgage approvals have hit their highest level since December 2009, in another sign of a revival (some would say a boom) in Britain’s housing market.

A total of 38,228 loans were approved in August, up from 37,428 in July. That’s nearly a 26% jump on a year ago, according to the British Bankers Association.

Last week, chancellor George Osborne insisted that Britain isn’t gripped by a housing boom. But clearly the market has been revived by signs of economic recovery, and by Osborne’s Help To Buy scheme.

Prices are particularly rampant in the UK capital. As the FT’s Alphaville site points out, the average house price increase over the last 12 months (£38,729) is bigger than the average net income of a London household (£38,688).

Houses beating households, London edition

Those income figures include people who can’t afford to get on the housing ladder, of course:

Updated

IFO: What the experts say

Here’s that reaction to the news that Germany’s IFO business conditions index rose this month, if only marginally (see last post).

Analysts broadly agree that Germany is on the road to recovery, particularly as firms are more optimistic about future prospects.

However, there’s also a little bit of concern that the current conditions index fell (from 112 to 111.4), showing that firms are finding life a little harder.

I’ve taken the quotes off the Reuters terminal:

Thomas Gitzel, VP Bank:

“The somewhat worse conditions index reading is offset by the improved expectations index. Everything is pointing to a faster pace of growth for Germany in the coming months. But what is especially pleasing is that the improved indicators in Germany are based on a more positive international climate. These include improved prospects for the stricken euro zone countries, the recovery in the U.S. economy and the brightening situation in China.”"This leads us to conclude that the current upward movement can be seen sustainable.”

Ralf Umlauf, Helaba:

This is good news. The German economy is gaining speed and growth in the third quarter should again be robust. It’s a little disappointing that the rise in the business climate is only due to higher expectations. The European Cental Bank is likely to feel confirmed in its wait-and-see stance. On the political side, it’s now important to form a government able to act in order to prevent potential strain on the mood from a cliffhanger.

Christine Volk, KfW

German growth is on course for recovery, with business expectations brightening. Europe, as Germany’s most important export market, is beginning to stabilise after a very long lean period and Germany is benefiting from that. Growth in 2014 could even reach 2 percent.

We are less optimistic about Europe. There is a lack of growth stimulus and the debt sustainability of some countries is still in doubt. Here there is potential for disappointment.

Ben May, Capital Economics

The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish. The rise in the headline business climate indicator was a touch smaller than the consensus forecast, but it left the index at its highest level since April 2012.

Updated

German business climate improves, but misses forecasts

German firms have reported that the business climate improved slightly in September, but they’re not as upbeat about the situation today as economists had expected.

That’s the top line from the monthly IFO survey, which was released a few minutes ago.

The IFO German Business Climate index came in at 107.7 in September – up from 107.6 in August, but lower than the 108.2 which the City had expected.

The Current Conditions index missed expectations, at 111.4 versus a consensus of 112.5. That’s also a fall compared with August’s reading of 112.0.

And IFO’s Future Expectations index came in at 104.2, just above the 104.0 that was pencilled in.

So, a mixed picture in Europe’s largest economy.

A year ago, the IFO business climate index was just 101.4 — so today’s 107.7 does show how the situation’s improved now Germany has left recession. But the fact firms aren’t as confident about current conditions as expected may show that growth this quarter will be a little weaker than hoped (although still quite robust)

Reaction to follow….

Updated

The most interesting corporate story this morning involves Spain’s Telefonica and Telecom Italia, whose shares jumped 4% in early trading.

Last night, Telefonica announced that it would raise its stake in Telecom Italia’s parent company, Telco, to 66%, and then eventually to 70%. It’s a complicated deal (see here) , but the upshot is that Telefonica will have a rather tighter grip on its Italian rival.

And as mrwicket flags up in the comments, the Italian press see it as a Spanish takeover:

Morning all.

The Italian papers are leading with ‘Telecom Italia becomes Spanish’. The deal was announced at midnight but seems a little more complicated than it appears.

At another midnight meeting, in a hotel in Palermo that used to be owned by the Graviano brothers, the Democratic Party decided to withdraw its support of its Governor of Sicily, Rosario Crocetta. Eleven months after the historic victory which ended the centre-right/mafia domination of the island, they pulled the plug.
Crocetta is openly (and genuinely) anti-mafia and a grass has said a boss has ordered his killing.

European stock markets have inched higher this morning, as traders await developments in Germany, or more clarity over when the Federal Reserve will start to slow its money-printing stimulus.

  • FTSE 100: up 12 points at 6569, +0.2%
  • German DAX: up 27 points at 8663, +0.3%
  • French CAC: up 18 points at 4190, +0.4%
  • Spanish IBEX: up 13 points at 9122, +0.14%
  • Italian FTSE MIB: up 48 points at 17962, +0.25%

Today’s public sector walkout in Greece is the second 48-hour strike in as many weeks.

It’s expected to hit schools and hospitals, and is timed to coincide with the Troika’s visit to Athens. As before, the unions are protesting about the government’s ‘mobility scheme’, part of the drive to cut thousands of public sector jobs.

The private sector GSEE union has called a four hour stoppage, from 11am local time (9am BST) – so it’ll be joining a protest rally in Athens.

While workers march through the streets, officials from the IMF, ECB and EU will be taking a close look at Greece’s budget for 2014. Greece’s Kathimerini newspaper reckons the Troika don’t share the Athens government’s optimism:

High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5 percent of GDP at the end of next year.

It is thought that one of the reasons Greece’s lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased.

With regard to the 2014 budget, the troika still has doubts about the effectiveness, in terms of revenue raising, of the unified property tax. Next year will be the first time the levy, which combines several property taxes into one, is applied.

Jürgen Baetz, AP’s man in Brussels, agrees that an alliance between Angela Merkel and the Greens looks increasingly unlikely.

Merkel’s coalition struggle

Looking at the German newspapers, Der Speigel has an interesting article about how Angela Merkel will find it difficult to reach a deal with the Green party, the only plausible alternative to a Grand Coalition with the Social Democrats.

It explains that some of Merkel’s advisors would prefer a Black-Green alliance, rather than a Black-Red deal with the SPD. But Horst Seehofer, party chief, is strongly opposed to a deal [Here's Spiegel's piece (in German)].

Seehofer told reporters last night that:

I have not heard anyone today calling on me to talk to the Greens.

Which leaves the SPD. But they remain nervous of another alliance with Merkel, having been burned by their first partnership eight years ago. That led to them posting their worst election results since the second world war in 2009.

Having seen history repeat itself last weekend when the Free Democrats were given the order of the boot from the Bundestag, the SPD may not want to risk it again.

As Bloomberg puts it:

The SPD, the second-place finishers in the Sept. 22 vote, may be reluctant to try again, picking up what its chairman suggested yesterday was a poisoned chalice.

The SPD won’t stand in line or make an application after Merkel ruined her current coalition partner,” Sigmar Gabriel told reporters yesterday in Berlin.

Updated

Caution over German coalition talks

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

Uncertainty abounds today, as Europe hunkers down to await progress on Germany’s coalition talks and Greece continues to told talks with its lenders in an atmosphere of tension and strife.

Ongoing confusion over the US Federal Reserve’s plans to slow its bond-buying stimulus programme (maybe next month? Maybe not until 2014?) are also casting a shadow over Europe, just when we’d hoped for some real clarity and progress.

As Michael Hewson of CMC Markets puts it:

If investors had been hoping that the latest Fed meeting and the result of the German elections would help bring much needed clarity to the uncertainty that has bedevilled markets for weeks now, the events of the last few days have soon dispelled that notion with the result that the current state of affairs is becoming quickly like the proverbial itch that you just can’t scratch.

This has inevitably meant that investors have become much less inclined to take on risk and has seen them start to once again err on the side of caution, pulling stocks down from recent all-time highs.

As we covered yesterday, the German coalition talks are going to be a long grind. Angela Merkel reached out to the Social Democrats yesterday, but their leadership group aren’t expected to meet until Friday.

This process could take several weeks, as the SPD is sure to drive as hard a bargain as it can in return for supporting Merkel’s CDU party

We’ll be watching for any developments in Germany through the day.

We’ll get another insight into the state of the German economy this morning, with the release of the monthly IFO survey. Due at 9am BST, it will show how confident businesses are about current conditions, and future prospects.

While in Greece, public sector unions have called another anti-austerity strike for today — with the usual protests in the streets of Athens.

There’s also a platoon of central bank officials holding speeches today — including no fewer than five members of the European Central Bank’s governing council. That’s Ewald Nowotny, Yves Mersch, Jorg Asmussen, Vitor Constancio and Benoit Coeure.

Two members of the Fed’s governing council are also due to speak later today – Sandra Pianalto and Ester George.

Updated

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In the trading room today: Is the EUR Rally vs USD Losing Steam? With the EUR taking the center stage in the current trading week but pulling back from the highs reached after the Fed meeting, we take a close look at the single currency and ponder if the EUR rally against the USD may be starting to lose steam, we analyze the latest trend developments in the EUR/USD currency pair, we note the price correction in GBP/USD pair, we keep an eye on the USD/JPY pair, we highlight the market’s reaction to the Euro-zone PMI and the German Ifo Business Climate Index, we discuss new forecasts from Credit Suisse and UBS, and prepare for the trading session ahead.

Mrs. Merkel wins 41.5% of the vote but fell short of an overall majority. A coalition with the SPD seems the most probable outcome. European markets in the red. Merkel press conference in Berlin- highlights. How Merkel stormed to victory…

 


Powered by Guardian.co.ukThis article titled “Markets fall as Merkel faces ‘difficult’ coalition talks – live” was written by Graeme Wearden, for theguardian.com on Monday 23rd September 2013 15.21 UTC

Here’s CMC Markets’ Michael Hewson with an update from the City (pretty much reinforcing what I posted at 4pm)

While we now know that Angela Merkel won the German elections over the weekend, such are the idiosyncrasies of the German electoral system that it could well be another two months before we have any idea as to what form the new government will take.

Mrs Merkel may have won 41.5% of the vote but she fell short of an overall majority and it seems likely that a coalition with the SPD seems the most probable outcome.

This could well be complicated as they are more sympathetic to the idea of a banking union, something that Mrs Merkel has been reluctant to countenance, and any disagreements are likely to complicate the decision making process at a time when key decisions are needed with respect to Greece, and the ESM in the coming months.

We’ve also seen some residual softness in European markets as a result of comments last week from St. Louis Fed President James Bullard about the possibility of an October taper as well as concerns over political deadlock surrounding the raising of the debt ceiling and this has translated into further weakness despite some encouraging PMI data from China, while French and German PMI’s were somewhat mixed.

Apologies – our comments system seems to be broken. Hopefully a temporary problem — it’s being looked into.

Markets fall

The prospect of lengthy coalition negotiations in Germany has helped to push European stock markets down, with the major indices all in the red.

The German DAX has fallen almost 0.5%, while the Spanish market is off around 0.8%

Here’s the details:

Not major falls, of course. But at the same time, there is no relief rally at all. Markets don’t like uncertainty, and paradoxically Merkel’s success – and the failure of the Free Democrats to get into the Bundestag — has created doubts over Germany’s next government.

Shares are also down because of confusion over US monetary policy, after the Federal Reserve chose not to start slowing its huge asset-purchasing scheme last week. Last Friday, St Louis Federal Reserve President James Bullard suggested ‘tapering’ could begin as soon as October if economic data was strong enough.

Other analysts reckon it might not happen until 2014….

Updated

JP Morgan: Coalition talks will take some time

Angela Merkel faces a “difficult few weeks” as she attempts to pull together a new administration, warns JP Morgan.

They reckon there’s a 70% chance of a Grand Coalition between the Christian Democrats and the Social Democrats, and a 25% chance of a deal between the CDU and the Greens. They’re not totally discounting the idea that CDU might govern alone, although without a Bundestag majority that would be a bold move.

JP Morgan said:

The process will take some time…

The reality is that the SPD’s willingness to engage or not with the CDU will be crucial. By early next week we should have more of a sense of the approach they are likely to take. For now, Gabriel and Steinbruck are playing down the chances of a deal in the near-term.

They also suggest that Wolfgang Schauble is likely to remain as finance minister:

It is too early to tell precisely what the trade-offs will be in the formation of a new coalition. However, the Chancellor will be in a much stronger position to demand that she keep the finance ministry than we would have expected a week ago. Continuity looks significantly more likely than it once did.

This might not please readers in countries hit hard by the eurozone debt crisis, where Schauble is blamed for Europe’s austerity push.

Here’s the full research note

Updated

Draghi also surprised the markets by telling MEPs that the ECB is ready to offer the banking sector more help by launching a third round of ultra-cheap loans (or long term refinancing operation) if necessary.

That has knocked the euro down to $1.3485, a fall of around one third of a US cent.

Updated

Draghi: too early to discuss another Greek bailout

Back at the European parliament, Mairo Draghi has been asked about whether Greece needs a third bailout.

He replied that it’s “premature to ask this”, as the European side of the readjustment for Greece runs until the end of 2014.

In our view it’s too early to discuss a follow-up programme now, or an extension of the current one.

Any decision on further aid would also depend on whether Greece can return to the financial markets by the end of next year, he added.

Earlier, Draghi appeared to defend the ECB’s role in the Troika — telling MEPs that while it provided help and advice, the Eurogroup (eurozone finance ministers) takes the decisions. In the long term, Draghi added, the ECB doesn’t see itself as part of the troika.

This prompted committee chair Sharon Bowles to joke: “The Eurogroup may or may not accept advice.”

MEP Sylvie Goulard wasn’t impressed, comparing the Eurogroup to a group of children who’ve generated a mess – it can be hard to know which one is really to blame .

Updated

Reuters has filed a full story about how Angela Merkel won cheers from the press pack in Berlin, by joking about how she decided what to wear today (as mentioned at 12.55pm)

Relishing a thumping election victory for her conservatives in Germany’s Sunday election, a smiling Angela Merkel said on Monday that conjecture about looming coalition talks presented her with a dilemma on what to wear.

With speculation swirling about her coalition options – which Germans tend to describe in terms of party colours – a relaxed-looking Merkel told reporters how she had tried to choose a neutral colour for the news conference.

“This morning I stood in front of my wardrobe and I thought red is no good, bright green is no good, blue was yesterday, what are you going to do?” said Merkel, who wore a dark jacket with a blue-green hue.”I decided for something very neutral,” she chuckled, raising a cheer and applause from reporters.

The Social Democrats (SPD), with whom she seems most likely to share power, have red as their colour while green represents the Greens who may offer Merkel another coalition option. Her own conservatives’ colour is black.

Updated

Back to the German elections…and the Open Europe thinktank has published a handy guide to the Key Players To Watch in the coalition discussions.

As I’ve suggested already today, the process could be slow …

Little progress is expected before the end of the week, with the SPD holding a small party conference on Friday where it will determine its strategy for the negotiations.

Open Europe suggests the Social Democratic Party chairman Sigmar Gabriel could become vice-chancellor if a grand coalition between the CDU and SPD is agreed, or he might get the defence or labour brief.

The SPD’s leader in the Bundestag, Frank-Walter Steinmeier, is likely to become foreign minister.

But what if the Greens form a coalition with CDU? It’s already in flux, with several senior players offering their resignations today after the party’s vote share fell to 8.4%, from 10.7%.

Open Europe explains:

The party’s chief whip, Volcker Beck, has already announced his resignation while the double party chairmanship, Claudia Roth and Cem Özdemir, offered their resignation this morning.

Both lead candidates, Katrin Göring-Eckar and Jürgen Trittin, seem to be dedicated to stay even though internal party pressure is increasing on the latter. Finally, the leader of the Green parliamentary group, Renate Künast, would need to be considered among the key players in a potential coalition with the CDU/CSU. What ministerial posts they could or would push for is unclear, but one would assume environmental and energy related posts would be top of the list

More here: As focus shifts to German coalition negotiations, who are the key players to watch? 

Updated

Heads-up: Mario Draghi is testifying at the European parliament’s committee on economic and monetary affairs (livestream here)

He’s starting by reading out a statement, largely reiterating what the ECB said at its monthly meeting at the start of this month.

inflation is still subdued, credit conditions are still poor, the eurozone economy remains weak (although now recovering) …

Updated

America’s manufacturing sector is expanding at a slower pace this month, according to data released a few minutes ago.

Markit’s “flash” manufacturing PMI came in at a three-month low of 52.8 – mirroring the slower growth reported in Germany and France this morning.

Updated

Protests over closure of Greek police service

There have been extraordinary scenes in Greece this morning, where police officers held a symbolic funeral for the municipal police service that’s being closed as part of the government’s austerity cuts.

Our Athens correspondent, Helena Smith, reports that municipal policemen and other public sector workers took to the streets to protest job dismissals today.

She writes:

At the start of a second week of intense industrial action in the public sector, Greek municipal police took drama to another level this morning, holding a mock funeral in the centre of Athens to protest internationally mandated cuts that have marked the death of the sector.

Hundreds of black clad protestors marched solemnly behind a hearse carrying a coffin before opening the casket outside the administrative reform ministry and dumping uniforms once worn by municipal police into it.

The images, captured on TV, appeared to take even hardened program presenters by surprise.

Under pressure from its troika of creditors at the EU, ECB and IMF, the government announced the disbandment of the force two months ago saying staff would be redeployed into a mobility scheme on reduced pay.

Protestors denounced the scheme as a euphemism for jobs cuts in a nation which, with about 1.4 million out of work, has already been hit by explosive levels of unemployment.

“A lot of us have no one working in our families. This is insane,” said one protestor standing outside the reform ministry, the government department in charge of implementing public sector cuts.

Meanwhile teachers, who have also thrown their weight behind a second week of strikes, demonstrated outside the education ministry where they have draped banners denouncing the dismissals and promising to “overturn” the deeply unpopular policies.

These protests could escalate tomorrow when ADEDY, the civil servants union, begins another 48-hour work stoppage.

All this comes as the Troika continue to conduct their audit of the Greek finances (see 8.57am)

Updated

Interesting … Social Democrats’ chairman, Sigmar Gabriel, has declared that there’s “nothing automatic” about forming a coalition with the Christian Democrats.

The comments come after Angela Merkel told reporters that she’d contacted Gabriel to begin coalition talks with the SPD (see 12.44pm for the details).

Here’s the Reuters newflash:

23-Sep-2013 13:07 – GERMAN SOCIAL DEMOCRATS’ CHAIRMAN SAYS NOTHING AUTOMATIC ABOUT COALITION WITH CONSERVATIVES, UP TO MERKEL TO FORM A MAJORITY 

The SPD’s losing candidate for the chancellorship, Peer Steinbrück, has also insisted that the ball is in Merkel’s court. He added that the issue of eurozone banking union (where Merkel’s government has taken a slow approach), must be part of any coalition talks.

Updated

Merkel also expressed “sincere respect” to the Irish people for what’s been achieved since the financial crisis struck. Prime minister Enda Kenny has shown a passionate commitment to reforms, she added.

When not slapping down impudent questions about her fashion sense, Angela Merkel also reiterated that her commitment to tough reforms in other parts of Europe has not weakened.

Asked about the Irish bailout, chancellor Merkel said Ireland was an example of a country where conditions are improving (it exited recession last week).

Its progress, though, was based on people recognising the mistakes of the past:

Chancellor Merkel caused much amusement among the press pack in Berlin when she was asked if there was any symbolism in her outfit at today’s press conference.

Does the choice of a blue-greenish teal jacket suggest an imminent coalition alliance with the Greens?

Not at all, insists Merkel (already famous for her wide range of coloured jackets). She jokes that she stood at the wardrobe this morning, thinking:

Red doesn’t go, green doesn’t go, blue was yesterday.

So she chose a “neutral” colour instead.

Updated

Angela Merkel appears to be on top form at her post-victory press conference – neatly avoiding a question from one hack about whether Europe needs a Marshall plan to stimulate a recovery.

Updated

Ok, here’s the key quotes from Angela Merkel about her coalition plans (via Reuters’ Berlin office)

We conservatives have a clear mandate to form a government and Germany needs a stable government, so we will carry out this mandate

We are, of course, open for talks and I have already had initial contact with the SPD chairman* who said the SPD must first hold a meeting of its leaders on Friday.

* That’s Sigmar Gabriel (rather than Peer Steinbruck, who was the SPD challenger for the chancellorship). 

Updated

Merkel says she wants to study the reasons for the rise in support for the eurosceptic Alternative for Germany party, but won’t change CDU policy on Europe in response.

Updated

Merkel: Europe must become more competitive

The election result is a strong vote for a united Europe, says Angela Merkel as her post-victory press conference continues.

The chancellor also underlines that there will be no let-up in Europe’s economic strategy. We are not at the end of the reform process in Europe, she declares. Europe must become more competitive.

Merkel also indicates that her CDU-CSU party will not govern alone, saying wants a “stable” government to run Germany for the next four years.

Merkel press conference highlights

Angela Merkel had told reporters that she has opened coalition talks, by making her first contact with the chairman of the Social Democrats (who came second to the CDU with 192 seats).

This does not exclude talks with other parties, she adds (such as the Greens, who came third with 63 seats, I imagine).

On Europe, she says that Germany’s current policy is “integration friendly”, and she sees no need to change it.

More to follow …

Updated

ECB president Mario Draghi has flown to Brussels today for an appearance at the European parliament.

Chiara De Felice, ANSA’s EU correspondent, reports that Draghi’s first priority was to catch up with the latest Italian sports news. Suggests he’s not worried about the German election.

Heads-up: Angela Merkel is giving a press conference now. Let’s see what she says about coalition plans…..

Updated

Spain’s tourism industry has notched up its busiest August ever, offering hope to one of the eurozone’s most hard-pressed members.

A record 8.3 million holidaymakers from abroad visited Spain last month, a 7.1% increase on the same month last year. It appears that this was partly owing to people avoiding unrest in Egypt and Turkey.

Total visitor numbers are up 4.5% this year, suggesting Spain’s on track to beat 2012′s record number of visitors.

The number of French visitors jumped by 9% to 1.8 million. while Russian tourist numbers jumped by 30% to 1.1 million (according to Reuters).

As the image above shows, Angela Merkel’s election dominated the Spanish papers today.

Updated

Video: Inside the campaign headquarters

This video clip, from the Wall Street Journal, shows the scene at Germany’s various party headquarters last night as the election results came in.

There’s a wide spectrum of emotion – from jubilation at CDU HQ to open-mouthed shock at the Free Democrats bash.

Updated

Peter Schaffrik, an analyst at RBC Capital Markets, explains that the stock markets are subdued today because it could take weeks to agree a new German coalition.

He warned:

The formation of a government is not straightforward at all.

If finding a new government takes too long, markets might get jumpy as regards the stability of the German government, particularly with key European issues coming up for a negotiation.

The Bundesbank has predicted this morning that the German economy is on track for further growth in the months ahead, although the pace of expansion may have faltered this quarter.

Germany’s central bank said growth in the third quarter of 2013 would not match the previous three months, but still sounded fairly upbeat in its new monthly report. Here’s a flavour:

A noticeable improvement in expectations for production and exports as well as a slow increase in incoming orders point to growth in coming months

The extraordinarily good consumer sentiment continues, supported by slowing inflation and an overall good situation on the labour market.

Updated

Merkel’s win: what the analysts say

Here’s some more analyst reaction to the German election results (see 9.49am for Saxo’s early take).

Jonathan Pryor of Investec Corporate Treasury:

 The significance for the euro of Merkel being re-elected is that currency markets are generally quite precious when it comes to political change so a third term for Merkel is likely to be euro positive.

The fact that her party will also be forced to enter into a coalition should be received well by markets considering that it’s likely, left to their own devices, the Conservative party would yield a firm austerity first view to the peripheral member states.

 Steven Englander of Citigroup:

This is a vote in favour of Merkel rather than a vote in favour of big changes

It’s most likely Merkel will govern in a grand coalition with the Social Democrats, so that’s a slight euro positive because the government would be somewhat more friendly to the peripheral nations in the currency bloc.

Barclays:

Chancellor Merkel’s CDU/CSU won about 42% of the vote in the federal elections, according to the latest estimates, but a poor showing by the FDP means a CDU/CSU/SPD “grand” coalition of the largest parties looks the most likely outcome, providing limited near-term implications for markets …

We do not expect much change from Merkel’s current stance and continued support for weaker euro area member states. The relatively strong showing of the euro-critical AfD, however, is likely to limit the room for any new financial concessions from the next German government.

Kit Juckes of Société Générale:

Angela Merkel won a resounding endorsement of her policies from the German voters, with the highest share of votes for the CDU since 1990, but she didn’t win enough to avoid a painful period of coalition-building and uncertainty.

The outcome leaves markets somewhat in limbo.

Monex Capital Markets:

Critically, the future shape of Germany’s government will dictate how the eurozone works through its problems. Anything that is seen to deviate too far from the harsh austerity measures of recent years could inject a degree of fear, not just in Europe but in markets worldwide.

And here’s some more media reaction:

Updated

Forgot to mention earlier, but China’s manufacturing activity has hit its highest level since March, bolstering hopes that its economy is performing well this month.

China’s manufacturing activity hits six-month high.

Updated

Although Alternative For Germany (AfD) didn’t quite hit the major 5% mark to win Bundestag seats, the eurosceptic party still made a pretty decent impact in the election.

In the Financial Times, Peter Spiegel reckons AfD could still influence Angela Merkel’s thinking over Europe:

The future of AfD

Although it failed to reach the 5 per cent threshold to get into the Bundestag – it ended up with 4.696 per cent of the vote – the anti-euro Alternative for Germany party (known by its German initials AfD) surprised many in Brussels by getting as close as it did.

It was once conventional wisdom that no anti-Europe party could attract significant support in Germany, but if AfD is able to use this result as a base to grow, it could force Ms Merkel to keep an eye over her shoulder as she gets into bed with the SPD. Exit polls show that AfD drew most heavily from disaffected FDP voters, assuaging some of the fears within the CDU that they would pull voters away from them.

But if the AfD emerges as the alternative conservative force in Germany amid the rubble of the FDP, that could shape the way Ms Merkel approaches Brussels.

More here: What does the German result mean for the EU?

Interestingly, AfD appears to have won support from across the political spectrum. This chart, via Alberto Nardelli, shows how it won 330,000 from the Free Democrats (helping to drive them out of the Bundestag) and 230,000 from the Green party:

Market update

The news that eurozone private sector output hit a 27-month high this month has pushed stock markets a little higher this morning (see above), led by the French CAC.

The euro is flat at $1.314 to the US dollar.

There’s still no real relief that Angela Merkel secured such a strong result, particularly as we don’t know whether she’ll hammer out a credible coalition.

John Hardy, head of FX Strategy at Saxo Bank, suggests that a Grand Coalition with the SPD might lead to further tensions over eurozone strategy, and prevent rapid progress on issues like banking union and closer political ties.

Hardy writes:

Germany’s election was good for Angela Merkel, but leaves Europe and the euro in extreme state of uncertainty. Merkel’s landslide victory comes with a twist as much of her party’s strength was due to voters abandoning ship from the coalition partner FDP. Thus, the election result leaves Merkel in need of forming an awkward coalition with either the SPD or the Greens.

The storyline goes that one of these coalitions will be more “EU friendly” as the parties to the left tend to lean toward more generosity toward the EU project than Merkel. But even a “grand coalition” with the SPD if likely to be anything but grand and the greater risk from here is that Germany’s leadership in Europe risks being as weak as Merkel’s victory in the elections was strong. That’s at least in part because every EU-related decision in Germany will be a nervous exercise in calculating the effects of domestic politics within an uncomfortable coalition.

From here, Merkel is likely to try to continue the approach that has brought her relative success so far, making small concessions here and there, such as a small third bailout in Greece, to stem the risk that any individual crisis triggers a wider contagion. What we won’t see is a new overall vision for Europe. The on-going Big Question for Europe is the fundamental tension that will tear Europe apart if it is not eventually addressed: the single currency and single central bank within a multiple-sovereign union.

The EU is a house without a foundation, and such a house can’t stand forever. And a new Merkel-led coalition will not put Germany on a path toward building that foundation, it will merely see Germany continuing to send out the repairmen to plaster over the cracks that are appearing in the walls as the house continues to destabilize.

Francesco Papadia, who used to run market operations for the European Central Bank, believes the German election results could be good news for the eurozone.

He tweets that Angel Merkel will no longer be ‘captive’ to right-wing views, should she form a grand coalition with the Social Democrats:

Graph: Eurozone recovery gathers pace

Here’s the graph showing how Europe’s private sector is growing at its fastest pace in 27 months (see previous post):

Markit says it shows the eurozone recovery is ‘gathering pace’ – with both services sector and manufacturing firms reporting a rise in activity:

• Flash Eurozone Services PMI Activity Index at 52.1 (50.7 in August). 27-month high. 

• Flash Eurozone Manufacturing PMI(3) at 51.1 

The revival is being driven by Germany, where activity is growing at its fastest rate since the start of this year (details)

although Markit also believes the wider eurozone private sector continues to grow this month:

And Europe’s jobs crisis continues, with another small fall in manufacturing employment. The full report is here.

Eurozone business activity at highest since June 2011

Just in: business activity in the eurozone is growing at its fastest rate in over two years, due to a surge in new orders.

That’s according to data provider Markit, which reports that its composite purchasing managers index has jumped to its highest level since June 2011. It hit 52.1 this month, up from August’s 51.5 (anything over 50=growth).

This follows the better than expected data from France (8.25am) and Germany (see 8.39am) this morning, which showed a service sector revival.

Chris Williamson, chief economist at Markit, says the data is very encouraging:

These surveys show a real underlying swell of improvement. It’s all looking very positive.

More to follow….

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While Germany was gripped by election fever, the Greek government was beginning a new round of talks with its lenders.

Troika officials are in Athens to assess whether Greece’s financial aid programe is on track. Overshadowing the talks is the question of whether Greece will get a third bailout in 2014.

The Wall Street Journal has a good take:

After a meeting lasting almost four hours with senior officials from the European commission, the International Monetary Fund and the European Central Bank– known locally as the troika – and the Greek finance minister, Yannis Stournaras, a senior finance ministry official said initial discussions focused on a broad range of issues including the execution of the 2013 budget.

‘We will continue to work through the week,’ said the official.

While the negotiations represent the latest round in the regular quarterly inspection visits that have accompanied Greece’s almost four-year-long debt crisis – and will decide on whether to unlock the country’s next aid tranche of €1bn ($1.35bn) – new budget and growth data also show Greece may be turning a corner.

Senior officials in Athens have spoken of gradually exiting the draconian austerity program tied to the bailouts, but they also warn that the turnaround has yet to be felt by the average Greek, and that extremism in the country is rising.

More here: Greece, Creditors Begin Talks on New Bailout

Meanwhile, Greek journalist Kostas Karkagiannis sums up the mood:

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Here’s a nice montage of how German newspapers are reporting Angela Merkel’s success, via the invaluable Electionista

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The key point from this morning’s French and German economic data could be that manufacturing output in both countries was weaker than expected.

Here’s some instant reaction:

German private sector picks up speed

German service sector companies, like the country’s chancellor, are enjoying a pretty successful September. Activity has reached its highest levels since the start of this year.

The monthly ‘flash’ survey of purchasing managers, just released, showed firms in Europe’s largest economy reporting stronger growth this month. This pushed the German PMI up to 53.8, up from August’s 53.5, and the best reading since January.

As in France (see last post) the service sector led the way:

• Flash Germany Services Activity Index at 54.4 (52.8 in August), 7-month high.

• Flash Germany Manufacturing PMI(3) at 51.3 (51.8 in August), 2-month low.

It indicates that Germany’s economy is continuing to expand this quarter, despite problems elsewhere in the euro area. A key factor in Angela Merkel’s victory last night.

Tim Moore, senior economist at Markit, suggested Germany could pull weaker neighbours forwards:

Germany’s economy remained firmly in recovery mode during September, and its strengthening performance should continue to reverberate across the euro area. Positive signs from the German economy are a crucial factor underpinning global business confidence at present, especially while some momentum has been lost across emerging markets.

German manufacturing and services output both rose again on the back of improved new business levels during September.

French private sector returns to growth

Encouraging economic news from France this morning – its private sector has returned to growth this month for the first time since February 2012.

The monthly ‘flash’ PMI (a survey of purchasing managers across the country) came in at a 19-month high 50.2 – up from August’s 48.8. That’s the first time it’s been above the 50-mark, which indicates growth, since the early months of last year.

(reminder, we get German PMI data in a few minutes)

Markit, which conducts the research, said French industry appears to have stabilised this month thanks to its service sector, where growth was a 20-month high. However, manufacturing output did fall slightly (to 49.5, worse than expected).

Jack Kennedy, senior economist at Markit, explained:

The latest Flash PMI data point to stabilising business conditions in France during September. A return to expansion for the service sector counterbalanced a weaker manufacturing performance, but new business trends were broadly flat across both sectors.

Employment also moved closer to stabilisation, which should help the economy remain on a firmer footing.

Updated

European markets open

As expected, there’s no sign of a Merkel rally in Europe’s stock markets after her historic election win over night.

In Frankfurt, the DAX index is up a measly 0.1%, as is the French CAC in Paris. In London, the FTSE fell 8 points at 6592.

Traders may be waiting to see how the coalition negotiations progress, and there’s talk that Merkel might struggle to strike a deal with the Social Democrats.

Via FT Alphaville:

As JP Morgan’s Alex White said, ‘One can hardly escape the fact that Merkel’s coalition partners in her last two terms lost double digit shares of the vote.’

Merkel’s win also means that the eurozone crisis may flare up again this autumn, as Mike van Dulken, Head of Research at Accendo Markets, points out:

With the election behind us, prepare for revival of discussions on tough eurozone issues put on hold for the summer.

Gary Jenkins of Swordfish Research agrees:

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Angela Merkel’s election success made the front page of the Guardian today:

Here’s our full story of the German election: Merkel secures third election win

And if you missed the action, my colleague Mark Rice-Oxley live-blogged it all here: Germany election results – live updates

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Our Europe editor, Ian Traynor, writes that Angela Merkel’s triumph is her reward for protecting German’s from the effects of the euro crisis:

Her victory demonstrates the gulf between Germany and the rest of the EU and the eurozone, although it is not clear what impact her third term will have on the direction of the crisis.

Merkel’s second term coincided exactly with the euro crisis. As she was forming her coalition with the Free Democrats (FDP) in October 2009, Greece went belly-up, prompting deep doubts about the euro and the survival of the EU.

She has been resented and criticised across Europe for her crisis management and responses. Berlin became alarmed at the resurrection of the “ugly German” stereotype in neighbouring countries. But German voters have voiced their approval.

More here: Angela Merkel’s election win is reward for weathering the euro crisis at home

Angela smashes her rivals

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

What a triumph for Angela Merkel, eh? Germany’s chancellor stormed to a third term last night, leading the Christian Democrats to their best election result in two decades. The CDU-CSU alliance have scooped 311 seats out of 630, just five seats short of an overall majority.

At one stage last night it looked like Merkel might win enough seats to govern alone. Instead, she will now start coalition talks with her rival parties — but not her old partners, the Free Democrats, who have been dramatically ousted from the Bundestag after failing to win 5% of the vote.

That 5% threshold proved a stretch too far for the new eurosceptic force in German politics, Alternative für Deutschland, on an impressive debut performance.

Forming a coalition with one of her left-wing rival could be tricky for Merkel, who admitted last night that “Maybe we won’t find anyone who wants to do anything with us”.

A grand coalition with the SPD (192 votes) is a possibility — but could take some time to hammer out (as in 2005, when coalition talks took two months).

The SDP could demand some serious concessions from Merkel, including possibly new finance minister.

As Reuters sums up:

During the campaign, the center-left party argued for a minimum wage and higher taxes on the wealthy — both opposed by Merkel. The party could also demand the finance ministry, pushing out respected 71-year-old incumbent Wolfgang Schaeuble.

Don’t expect a decision imminently, though.

And this uncertainty over Germany’s next government means there will be no relief rally in Europe’s financial markets, where the euro has inched a little higher this morning to €1.354.

The German DAX might rise a few points this morning , but other markets are expect to fall (the FTSE is being called down 15 points by IG).

From the City, Michael Hewson writes:

The likely outcome [for Merkel] looks set to be a grand coalition with the SPD. In any event her old coalition partners the FDP appear to have missed out badly, with the new euro sceptic party Alternative for Deutschland, the AfD, doing particularly well, coming in as it did from a standing start.

Whatever the look of any government that is formed, and this might take several days, one of the key factors that did come out of the campaign was the increasing opposition of a rising number of German voters to further bailouts of what they perceive as fiscally irresponsible peripheral European economies. Any new government that chooses to ignore this rising scepticism in subsequent months is likely to come unstuck at the ballot box in any new state or European elections.

And speaking of bailouts, Greece’s “Troika” of lenders returned to the country yesterday to start a new assessment of its financial programme. New public sector strikes have been called for later this week — putting more pressure on the Athens government.

We also get new survey data this morning which will show how Germany and France’s manufacturing and service sectors are performing this month.

I’ll be tracking all the action through the day as usual….

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