November 15 2013

Inflation falls to 0.7% in the eurozone in October, fueling demands for more action to stimulate demand. Eurogroup ministers thrash out rules for bank rescues. Japanese shares rise as government slashes commitment to greenhouse gas emission curbs…


Powered by article titled “Brussels and ECB urged to act as eurozone inflation falls to 0.7% – live” was written by Phillip Inman and Nick Fletcher, for on Friday 15th November 2013 14.41 UTC

Some good news for Ireland, with Deutsche Bank creating 700 new jobs in the country’s financial sector. Henry McDonald in Dublin says:

The German bank is seeking to create a regional hub and centre of excellence in Dublin’s Eastpoint Business Park. It has been operating in Ireland since 1991 and already employs 300 workers.

The Global Head of Financial Institutions at Deutsche, Neilus De Groot said the high standard of Ireland’s graduates was a dominating factor in its decision. Most of the new workers will be hired in the next two years, he said.

The expansion in Deutsche’s Irish operation is being backed by the Republic’s Industrial Development Authority.

Ireland’s Minister for Jobs, Enterprise and Innovation Richard Bruton said that it was a huge vote of confidence in the country’s international financial services sector and in the Irish economy.

“International financial services is a key sector targeted as part of the Government’s Action Plan for Jobs.

“This is a sustainable, export-driven industry where Ireland has developed major strengths and we have put in place important changes to target substantial jobs growth in the coming years,” he added.

Deutsche Bank’s expansion comes in the same week that Enda Kenny revealed he is in discussions with Chancellor Angela Merkel to access funds for Irish small businesses from the German state KFW development bank.


Back in the US, industrial production fell unexpectedly in October. It slipped 0.1% month on month after a 0.7% rise in September, as output at power plants and mines declined. Rob Carnell of ING Bank said the figures would have little effect on the timing of the Federal Reserve easing off on its bond buying programme:

[This is] hardly the sort of figure that will send the Federal Reserve scrabbling to start the taper. But the headline appears worse than the underlying picture. Indeed, manufacturing production delivered a reasonable 0.3% month on month increase, and most of the softness was concentrated in utilities and mining, in particular natural gas extraction, where on-going price softness seems to have weighed on extraction activity, and production has been feeble for some months.

Together with a limp report from the Empire Manufacturing survey for November, delivered before the production data, the tone of newsflow since Janet Yellen’s Senate testimony, where she spelled out that taper required a notable improvement in the economy – has been mediocre.

Risk markets won’t be too upset by this.

Sterling has moved higher against the dollar and euro after Bank of England policymaker Martin Weale said it could not ignore inflation expectations, and may have to raise rates before all spare capacity in the economy is used up.

Upbeat UK economic data this week and comments from Bank governor Mark Carney have raised the prospects of interest rates rising more quickly than previously expected. Weale’s comments seem to be adding to that idea. He said:

We cannot risk a situation where people say we are deliberately looking the other way if the data show a significant change in inflation expectations.


Earlier, in a speech in London, European Central Bank board member Yves Mersch said it would not be easy to turn off the money taps, even as he repeated suggestions it could buy assets from banks if needed.He said:

Obviously it will not be an easy matter to get out of the low rates of our policies. We are not there yet…there are more questions that have to be addressed before we address this question. But that does not mean we are not considering (it) and we don’t have it at the back of our mind.

ECB member Peter Praet became the first of its policymakers to talk about asset buying, and today Mersch said it was an option, but there were difficulties:

In our mandate it says we can do asset purchases…but Europe is a little bit different in so far that we do not have a single sovereign signature.

Quotes courtesy Reuters.


Mixed signals from the US, where the New York state manufacturing sector unexpectedly shrank although business confidence was relatively stable.

The Federal Reserve’s Empire manufacturing index fell to -2.21 from 1.52 in October (anything below zero indicating a contraction). But the index of business conditions was 37.51, edging down from 40.76. Annalisa Piazza at Newedge Strategy said:

The outcome is much weaker than expected and it marks the lowest print since the start of the year.

The breakdown of the report shows a marked deterioration in all the main components, a sign that activity has registered some slowdown over the month despite less pressure on the fiscal side.

All in all, the picture described by today’s report is not encouraging as it looks like the effects of the fiscal debate and government shutdown have not waned yet.

Cyprus to lift capital controls

… in the next few months says Cypriot minister of finance Harris Georgiades in an interview with Reuters. Says restrictions are already looser than in March, when the independent southern section of the island was forced to close two banks and slap controls on money transfers to prevent economic collapse.

And with that, I’m handing over to my colleague Nick Fletcher.


More from the EU, this time its disease monitoring agency. In a sobering report, it says there are several categories of bacteria that cannot be killed with with carbapenems, the most powerful class of antibiotic drugs.

Reuters reports the European Centre for Diseases Prevention and Control saying the proportion of infections resistant to carbapenems has increased sharply in the last four years – particularly in southern Europe – and almost all European countries now have reported cases.
The most severe cases involve bloodstream infections, but drug-resistant bugs can also more frequently cause serious problems in the respiratory and urinary tracts.
Reuters said: “The ECDC data showed that the proportion of bloodstream infections due to Klebsiella pneumoniae, a common cause of illness in hospital patients, that were resistant to carbapenems was above 5 percent in 2012 in five countries – Greece, Cyprus, Italy, Romania and Slovakia.
“In recent years, there has been a rush for the exit by the drugs industry as its researchers have struggled to find leads for novel antimicrobial drugs. Companies have turned instead to more profitable lines of drug research, including treatments for cancer and chronic diseases. A consortium of drug firms berated the government in a letter today for allowing the NHS to reject drugs at the cost of many lives, though these are mostly anti-obesity and related drugs that are expected to be hugely profitable as the world gets fatter.
Reuters added: “Pfizer, once the leader in the field, closed its antibiotic research centre in Connecticut in 2011, to the dismay of many scientists. It now focuses anti-bacterial work on vaccines.
Others to have quit include Bristol-Myers Squibb and Eli Lilly, leaving only a handful of firms like “GlaxoSmithKline and Merck & Co in the game. Switzerland’s Roche, however, has re-entered the arena through a $550 million tie-up with privately held Polyphor this month to develop and commercialise an experimental antibiotic against hospital superbugs.”

EU disinflation is for the long term

Marie Diron, senior economic adviser to the EY Eurozone Forecast, says a look beneath the headline figures in today’s Eurozone inflation data shows it is a long term problem:
“Today’s inflation data are interesting not so much about the headline inflation rate, which we knew would be very low, but about evidence of how broad-based downward price pressures are. Lower energy prices have contributed to bring inflation down. This often proves to be temporary. Much more of a concern is the fall in inflation for non-energy goods. Prices of a wide range of these goods are either stagnating or falling. Inflation has also come down to very low levels for a range of services. These trends highlight the squeeze on profit margins from subdued demand in the Eurozone.

“This environment is unlikely to change in the near future, which means that the ECB should be ready not only for a long period of low inflation but also for the possibility that deflation sets in. In our view, the ECB should do more to avoid deflation. One possibility would be to provide clearer forward guidance about its monetary policy. This could have a significant impact on the euro exchange rate which would both help raise inflation and boost growth.”

The Rock blockade is lawful, says EU

Looks like the cigarette smuggling dispute between Spain and Gibraltar is going to rumble on after EU officials said Madrid’s near blockade of the island is lawful. Maybe blockade is a bit over the top. Maybe extra security is a better phrase. Well, Britain is not going to be happy. the extra checks that have upset so many locals are likely to carry on.

But who knows, maybe the Spanish have a point. Maybe they are suffering from Gibraltar’s ultra low cigarette tax, which makes its ciggies 40% cheaper than those sold on the mainland.

Come on Rock inhabitants, you know smoking is bad for you. Put a decent tax on fags. The the Spanish would have to think again, cos they always undermine their principled stand against Gibraltar’s independence when they refuse to give up Cueta, the “autonomous city of Spain” located on the north African coast where Tunisia should be.


China takes reform leap

AP is reporting that not only is the one child policy to be relaxed (parents can have two children if only one parent was an only child rather than previous policy of both parents being only children), but a host of business measures have also been agreed.

In that vein, China’s leaders have promised to open its markets wider to private and foreign competitors.
The country’s consumption tax will be expanded to cover polluting products. Property tax reform wil be accelerated. New environmental taxes to be devised. Also sectors protected from foreign investment to be opened up.
AP said Chinese leaders are under pressure to replace a “tapped-out growth model based on exports and investment”.
It said: “The ruling party pledged in Friday’s report to allow the creation of privately owned banks and to allow the market to allocate resources moves that will help more efficient private companies.
“As for foreign companies, the plan pledges to ease limits on foreign investment in e-commerce and other industries.”


Early repayments to ECB’s LTRO below expectations

Annalisa Piazza, analyst at Newedge Strategy, said in an note that ECB details of next week’s LTRO early repayments, just announced, illustrate how weak the European financial system remains.

“On Wed, 5 banks will repay a total of €3.155bn of the first 3y LTRO and 3 banks will repay a very modest €0.431bn of the second 3y LTRO. The total amount is just a touch below market expectations of €4bn (Reuters poll) and around €2bn below the average repayments of the past 4 weeks,” she said.
“Around €380bn out of the total €1013bn borrowed has been repaid so far.
The ECB remains “alert” on the development of liquidity conditions (excess liquidity below €200bn) but Draghi made clear during last week’s press conference that there is no direct correlation between liquidity and eonia rates. As such, no additional action was needed at the current juncture given the limited movements in money market rates. That said, the tone of the ECB remained extremely dovish and Draghi left the door open to any option in the coming months. We rule out that further liquidity will be injected in early 2014 but Q4 additional measures are still in the cards.”

Italy and Finland’s draft budget plans for 2014 at risk of breaking EU rules …

… while French, Spanish and Dutch draft plans barely make it, the European Commission said today.

If you want to know what losing national self determination feels like, you need look no further than the Brussels’ judgements on national budgets. Poland and Croatia face sanctions for running persistently high deficits. According to some analysts, Poland’s misdeeds could hamper its entry to the euro

Anyway, the review marks the first time Brussels has enjoyed such gorgeous, unalloyed power to criticise the finance proposals of member states, at least those inside the eurozone.

Technically, the EU’s executive arm is doing no more than reviewing the main assumptions of draft national budgets to assess if they are in line with EU laws. This is before they are submitted to national parliaments.

However, the commission can demand a revised budget plan from a euro zone country if its draft clearly breaks EU rules,

There are 19 EU countries under investigation at the moment for breaking various rules, after Germany was added this week for running monster current account surpluses that Brussels believes could be as bad for the currency zone as large annual deficits.

Italy, the eurozone’s third biggest economy, wants some leeway because its public debt is rising rather than falling and it suffers chronically low growth.
“There is a risk that the draft budgetary plan for 2014 will not be compliant with the rules,” the commission said in a statement. “In particular, the debt reduction benchmark in 2014 is not respected,” it said.
The commission said that the eurozone’s second biggest economy France had taken the recommended steps to reduce its budget gap below 3 percent in 2013, and its 2014 draft budget is in line with EU budget rules, but with no margin for error, reported Reuters .
Also, France’s structural reform plans made only “limited progress”, the commission said.

Oil bonanza in the North Sea

There is an exaggerated sense of the story in that headline, but nonetheless it is positive for employment in Aberdeen and Shetland, even if it will have the green lobby crying into its nettle tea (I prefer strawberry with a hint of mango).

Aberdeen-based EnQuest said it will generate billions in taxpayer revenues, create 20,000 construction jobs and 1,000 ongoing roles with its development of the Kraken oilfield east of the Shetland Islands. It will invest £4bn as part of the project.
The plans are understood to represent the largest UK North Sea investment announced this year.
The government has handed the company oil allowances enabling it to claim tax relief on around £800m of profits, which offsets the “billions in taxpayer revenues”, which these days mean extra income tax, national insurance and VAT, not corporation tax. All hail the holders of capital, we bow before you.

Back to the story. EnQuest chief executive Amjad Bseisu said: “Kraken is a transformational project for EnQuest and we are delighted to be able to proceed with it, working with the Government and our partners to maximise the extraction of approximately 140 million barrels of oil in this field, over its 25-year-long life.
“It is only by combining our skills and expertise with fiscal incentives, such as heavy oil allowances, that really substantial projects like Kraken are possible.”

Britain has the highest inflation among EU 28…

Along with Estonia.

Eurostat said: “In October 2013, the lowest annual rates were observed in Greece (-1.9%), Bulgaria (-1.1%) and Cyprus (-0.5%), and the highest in Estonia and the United Kingdom (both 2.2%) and Finland (1.7%). Compared with September 2013, annual inflation fell in twenty-three Member States, remained stable in one and rose in four. The lowest 12- month average rates up to October 2013 were registered in Greece (-0.4%), Latvia (0.3%) and Sweden (0.5%), and the highest in Romania (3.7%), Estonia (3.5%), Croatia and the Netherlands (both 2.9%).

“The largest upward impacts to euro area annual inflation came from electricity (+0.11 percentage points), accommodation services (+0.09) and tobacco (+0.08), while fuels for transport (-0.31), telecommunications (-0.16) and heating oil (-0.08) had the biggest downward impacts. ”

It illustrates the power of oil to move inflation up and down. While it is a huge drag on prices at the moment, an upwards move in the oil price would quickly reverse the situation.


Obamacare is not going so well….

Says the New York Post, which is obviously not the final arbiter on healthcare policy, but the headlines tweeted by Joe Weisenthal of Business Insider are not going to make for enjoyable reading in the White House. It is a lesson to all governments that a dodgy, hurried website can let down years of good work.

Eurozone inflation falls

Euro areaannual inflation was 0.7% in October 2013, down from 1.1% in September. A year earlier the rate was 2.5%. Monthly inflation was -0.1% in October 2013.

EU down to 0.9%


Nestle promotes jobs for young people

Food giant Nestle is to create 1,600 jobs for young people over the next three years, and hundreds of paid work experience placements. The company, which still wrestles with accusations of selling baby milk to African mothers, is already a major employer in the UK with centres in Buxton (bottling), York (chocolate) and Cumbria (coffee), while its head office recently moved from Croydon to Gatwick in Sussex.
The Press Association reports that the jobs will range from sales assistants to business management as well as working on the shop floor.

Chief executive Fiona Kendrick said: “Sadly, young people in the UK and Ireland are stuck in a catch-22 situation – they can’t get a job without experience, but can’t get experience without a job.
“As employers we value young people with experience, so we have to provide them with enough opportunities to gain it.”

Nestle said it will offer 300 paid work experience placements in its factories, offices and sales teams as well as helping social enterprise group MyKindaCrowd to give skills and employability training to more than 12,000 school and college students.

The placements will be for four weeks and will pay above the national minimum wage.


Japan stocks rise as greenhouse emission curbs slashed

Should have said earlier, but it is never too late to talk about the Japanese stock market, which rose to a sixth month high last night at 15,165, up almost 2% on the day. The strengthening dollar had something to do with it and gains on Wall Street. The US stock market maintained its upward trajectory following doveish remarks by Janet Yellen (see earlier post). Abenomics seems to have lost is lustre, but if the US dollar rises then japanese exports have a free run and Toyota’s profits will carry on rising.

In an unrelated move, the Japanese government increased its target for greenhouse gas emissions, which was probably inevitable after the shutdown of all its nuclear power stations. Some of them may reopen, though the Fukushima disaster means they are likely to stay shut and Japan’s reliance on imported liquid gas will continue.

Top of the Agenda: A European backstop for banks needed says Asmussen

Reuters reports that Joerg Asmussen, European Central Bank board member, said this morning that eurozone governments must put in place ways to financially support their banks in case they need more capital. Speaking ahead of the Eurogroup’s second day of meetings, Asmussen said health checks by the ECB found there were still plenty of banks with weak balance sheets. Today finance ministers are discussing backstops for banks in time for the ECB’s asset quality review, the results of which are due in October 2014.

“We will continue to discuss this today,” Asmussen said on entering the meeting.

“From the ECB side we always said it was absolutely necessary that we have credible backstops in place before the whole exercise starts, so we need three layers of backstops. These are first private markets, second domestic markets, or domestic bank rescue funds, and the third layer is the European Stability Mechanism (ESM) as it stands,” he said.


Guy Hands forced to accept low price for Infinis

An interesting development in the London listings market after energy generator Infinis priced its initial offering at the low end of its price range. Infinis is owned by Guy Hands’ Terra Firma private equity business, which is recovering from the loss of EMI after a tussle with US bank, and main debtholder, Citi. David Hellier in City AM says the IPO market has cooled after a strong run in response to poor results from the life assurance pensions provider Partnership, which had knock effects for recent float Just Retirement.


Nationwide says Help to Buy needs to be watched closely

The boss of Nationwide has been talking about the building society’s results this morning. He says current account 7-day switching has been a boon and brought a 47% increase in new customers since it was introduced. Graham Beale said he hopes to have 10% of current account market by 2020. But more interestingly, hinted that the feverish state of the London housing market was causing him concern and said it should be actively monitored by the authorities. At the moment the Treasury and the Bank of England are passing the buck between them over which one is responsible for an overheating housing market. The buck passing has annoyed Treasury select committee chairman and Tory MP Andrew Tyrie, who has written to BoE governor Mark Carney asking him to clarify the position.

Eurozone deflation fears are expected to heighten when the final readings for eurozone consumer price inflation (CPI) are published. They are expected to confirm price rises have slowed alarmingly.

The ECB’s Erkki Liikanen and Yves Mersch will speak today with markets looking for more comments on the policy outlook. Analysts reckon there will also be much speculation on divides in the ECB board’s ranks after the recent rate cut to 0.25%. The cut split opinion and pitted president Mario Draghi against some of his colleagues.

Mike van Dulken, Head of Research at Accendo Markets, said there is a general expectation for the FTSE 100 to open +5pts at 6675. “Another positive performance from both the US and Asian equity sessions after FedChairwoman-elect Janet Yellen supported her pre-released text with a robust testimony before the Senate Banking committee in defending theFed’s policies and stating that she doesn’t see tapering of QE3 for a good while yet with benefits exceeding costs for now and early withdrawal a big risk amid a fragile recovery,” he said in a note.

He continued: “Japan’s Nikkei again the outperformer (>15,000) thanks to a weaker JPY (USD/JPY >100) as officials signal they are prepared to fight to keep currency weak. Expectations and optimism about the release of some much-desired additional details on Chinese economic reforms next week also got markets excited helping China and Hong Kong muster good gains.”

Good morning, it’s Friday

Hi, I’m Phillip Inman, The Guardian’s economics correspondent. I’m stepping in for Graeme Wearden today.

This morning we can look forward to euro area inflation at 10am. There’s an Ecofin ministers meeting today – last night the Eurogroup told Greece to make more progress in its negotiations with the troika There’s usually an Ecofin press conference around lunchtime.

Janet Yellen was giving heavy hints in her testimony to Congress that she would keep monetary policy loose if given the job of succeeding Ben Bernanke as Federal Reserve boss. There should be some more market and analyst reaction today.

Also, I’ll keep an eye on the FTSE, which is coming off a peak in October, where it neared 6800. Was yesterday the beginning of another rally? © Guardian News & Media Limited 2010

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