Archive for 2013

In the trading room today: Is a Fed Taper Already in the USD Price? Ahead of tomorrow’s FOMC monetary policy decision, we prepare for the possible outcomes of the U.S. central bank’s meeting and ponder if a Fed taper announcement might be already “baked” into the current exchange rate of the USD against other currency majors, we analyze the latest trend developments in the EUR/USD currency pair, we examine the test of an important support level for the GBP/USD pair, we keep an eye on the USD/JPY currency pair, we highlight the market’s reaction to the U.K. CPI, the Euro-zone ZEW Economic Sentiment Index, the U.S. CPI and Current Account, we discuss new forecasts from HSBC and UBS, and prepare for the trading session ahead.


USA 

Following Ireland’s exit from the bailout, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. Situation in the second-largest economy in the euro-area worsens with French firms suffering. France looks like the ‘sick man of Europe’…

 


Powered by Guardian.co.ukThis article titled “Draghi warns EU on banking supervision — business live” was written by Graeme Weardenand Nick Fletcher, for theguardian.com on Monday 16th December 2013 16.24 UTC

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow’s data from the Office for National Statistics – a measure often used for setting pay and pensions – is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow’s data could show CPI at the Bank of England’s government-set target of 2% for the first time since November 2009. They comment: “Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

“Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

“In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland’s exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Updated

Following the fifth and final review of Spain’s financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country’s banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks’ balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets – so as to reverse the rise in government debt – and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms – amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system – and to ensure effective implementation of all reforms.

Full report here.

Updated

The protests in Ukraine have put pressure on the country’s credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country’s credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here’s ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Markets jump as Fed fears ease and US deals enthuse investors

After days in the doldrums, markets are moving sharply higher. Investors have been selling shares in recent dayks amid concerns the US Federal Reserve could start turning off the money taps as early as this week’s meeting.

Strong US economic data – including industrial output today – has made that more likely, as has the signs of political agreement about the US budget. But on the whole, observers still think, in the main, the Fed will wait until next year.

So with a spate of acquisitions, including Avago Technologies paying $6.6bn for LSI Corporation, shares are back in favour for the moment. The Dow Jones Industrial Average is currently nearly 1% or 156 points higher, helping to pull the FTSE 100 to its highest levels of the day, up more than 1.3%.

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd’s of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd’s managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd’s of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB’s Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

…The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 – DRAGHI – UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 – DRAGHI – SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 – DRAGHI – ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 – DRAGHI – GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 – DRAGHI – GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 – DRAGHI – MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 – DRAGHI – WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 – DRAGHI – SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 – DRAGHI – SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 – DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Updated

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit’s monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up — it just reported a 1.1% jump in industrial output in November.

On that note, I’m handing over to my colleague Nick Fletcher.

Updated

Inga Beale’s appointment as boss of Lloyd’s of London will go a small way to closing the gender gap at the top of the City. But there’s still some way to go.

Currently there are just three women running FTSE 100 companies — Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd’s of London isn’t a listed company, so Beale won’t join the quartet.

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent — but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 — currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress…. except that women who do reach senior positions are in jobs that are traditionally lower paid.

Updated

How times change…. Inga Beale is appointed as Lloyd’s first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd’s decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd’s website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

Updated

Lloyd’s of London appoints first female CEO

Lloyd’s of London has appointed its first ever female chief executive.

Inga Beale will succeed Richard Ward in January. She currently runs Canopius Group, the Lloyd’s-based insurance and reinsurance group.

There had been many whispers in the City in recent days that Beale was in line for the top job at Lloyds, making her the first women to lead the insurance market in its 325-year history.

Beale has worked in insurance for three decades — beginning her career in insurance as an underwriter with Prudential. She’s also previously worked as Global Chief Underwriting Officer of Zurich Insurance, and as Group CEO of Converium Ltd.

John Nelson, Chairman of Lloyd’s, said:

I am absolutely delighted that we have appointed Inga as Chief Executive. She has 30 years’ experience in the insurance industry.

Her CEO experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make Inga the ideal Chief Executive for Lloyd’s. I very much look forward to working with her.

In the statement just published, Beale said Lloyd’s has “an extraordinary opportunity to increase its footprint and to cement its position as the global hub for specialist insurance and reinsurance”.

Back in June, she argued that more diverse boardrooms could deliver stronger results. Beale explained: 

I think the business is run differently if you have women around the decision making table and that’s why it’s good to have diversity, not just on the gender side.

Different people approach things differently and provide alternative views – diverse boards help companies make better decisions, which affect the bottom line.

It’s been a good few days for gender equality in the corporate world, with Mary Barra being appointed to lead General Motors last week.

Updated

The Eurozone’s trade surplus almost doubled year-on-year in October — but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone’s posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year’s €57.4bn.

The data also underlined today’s theme — the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Updated

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA’s recent problems — three profits warning, and the resignation of its CEO — could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

Updated

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results — and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That’s sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit’s view that today’s PMI data doesn’t make fresh stimulus from the European Central Bank more likely.

There’s also edginess ahead of the Federal Reserve’s meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O’Flanagan of Clear Currency reckons the Fed won’t taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

European market: morning update

It’s a positive start to the week in Europe’s stock markets.

The Spanish and Italian markets are the best performers, following the news that private firms in the periphery are enjoying their best month since April 2011, according to Markit

  • FTSE 100: up 32 points at 6,472, + 0.5%
  • German DAX: up 45 points at 9,052, +0.5%
  • French CAC: up 16 points at 4,076, + 0.4%
  • Spanish IBEX: up 141 points at 9,414, + 1.5%
  • Italian FTSE MIB: up 253 points at 18,089, +1.4%

Howard Archer of IHS sums up the good news in today’s data…..

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

… and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter.

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

France lags behind as eurozone recovery picks up

Activity across the Eurozone private sector has risen this month as the single currency area ends the year with ‘fragile’ growth, according to Markit’s new data published this morning.

It found that output in peripheral eurozone countries picked up in December.

With Germany already reporting solid growth this morning (see here), France looks increasingly like the ‘sick man of Europe’ as its firms struggle.

Markit’s Eurozone PMI Composite Output Index — which measures activity at thousands of firms across the eurozone — rose to 52.1 in December, up from 51.7 in November. That’s a ‘flash’ estimate, of course, but it suggests stronger growth in most parts of the euro area – not just Germany.

December is turning into a good month for eurozone manufacturers, with output rising for the sixth successive month. The rate of increase was the highest since April 2011 .

Service sector growth was more modest, though, with the rate of expansion hitting a four-month low (but there was still growth)

But as this graph shows, France was the laggard – with its service and manufacturing firms reporting a drop in activity (see 8.23am for details).

Chris Williamson, chief economist at Markit, said the data suggested the eurozone will grow modestly this quarter, by 0.2%. He fears that France could fall back into recession though, as the gap between the eurozone’s two biggest countries gets bigger .

Williamson explained:

The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track. The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.”

On the downside, the PMI is signalling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

The upturn is also uneven. Growth is concentrated in manufacturing, where rising exports have helped push growth of the sector to the fastest for two-and- a-half years, while weak domestic demand led to a further slowing in service sector growth.

However, it‟s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new “sick man of Europe‟, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.

There‟s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra- accommodative for quite some time.

And here’s some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high….

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace.

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Now over to Germany…..

Germany’s private sector is leaving France in the dust, Markit reports, led by its manufacturers.

Private sector output in the eurozone’s largest economy is growing steadily this month, for the eighth month in a row.

German factories saw output growth accelerate, pushing the manufacturing PMI up to a 30-month high of 54.2, up from 52.7 in November.

Service sector firms expanded at a slower pace than in November, but growth was still solid. The Service sector PMI was 54.0, down from 55.7.

This meant the composite German private sector PMI fell slightly to 55.2 in December, down slightly on November’s 55.4 — but still indicating healthy expansion.

That suggests Germany’s economy will grow this quarter.

Credit Agricole’s Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings…

And this graph shows how recent PMI data has been more negative than the official growth data:

Updated

French PMI: Instant reaction

Here’s how experts are reacting to the news of France’s weakening private sector:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France’s GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September — putting France back into recession (defined as two consecutive quarters of negative growth)

Williamson added:

The pipeline of work that companies have to deal with is drying up and we’ll get to a stage where, if that doesn’t turn around, there will be increased job losses.

French private sector keeps shrinking

France could be sliding into a double-dip recession, as its private sector activity continues to fall this month.

Data provider Markit reports that the rate of decline in French private sector output accelerated during December. It recorded the biggest contraction in output in seven months.

That suggesting that France’s economy is still shrinking, as manufacturers and service sector struggle to win new contracts.

The Markit Flash France Composite Output Index, slipped to 47.0, from 48.0 in November — that’s the second month in a row that it’s been below 50 points (which signals a drop in activity).

In a report shy of good news, Markit found that new orders are decreasing in the French private sector, meaning companies are relying on existing work to keep busy.

 Backlogs of work fell solidly and at the sharpest pace in eight months, it said. Staffing levels also continued to decline during December, as firms shed staff.

Andrew Harker, Senior Economist at Markit, said the readings “paint a worrying picture on the health of the French economy.

The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts.

Firms will hope that such reticence ends in the new year as they seek to avoid another protracted downturn.

Details to follow….

Chinese factory growth slows

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

The last full working week of 2013 (in these parts, anyway) begins with the news that growth in China’s factory sector has slowed this month, for the third month in a row.

It’s that stage in the month when data provider Markit produces its ‘flash’ estimates of activity in key economies, based on interviews with purchasing managers (We get data from France and Germany this morning too).

And China’s PMI has fallen to 50.5 for December, from November’s 50.8, with firms reporting that output growth slowed. That’s closer to the 50-point mark that splits expansion from contraction.

It may suggest the global economy is ending the year on a weaker note. As well as slowing output growth, firms also reported a drop in employment. On a happier note, new orders have picked up.

The news sent China’s stock market sliding to a four-week low, with the Shanghai Composite Index shedding 1.6%.

That’s set the tone for an edgy start to the week, as global investors await the US Federal Reserve’s monthly meeting on Wednesday night (where the Fed might take the plunge and slow the pace of its stimulus programme).

Also on the agenda– the implications of Germany’s new government, after the CDU and the SPD formally formed a coalition over the weekend.

And I’ll be keeping an eye on Greece, where the government and the Troika are continuing to hold talks over its bailout programme…..

Updated

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In the trading room today: USD Outlook ahead of the FOMC Meeting. With the long-anticipated FOMC meeting on December 17-18 taking the center stage in the week ahead, we examine the odds of a Fed taper announcement and explore the outlook for the USD against the EUR, the JPY and other currency majors, we list the Top 10 spotlight economic events that will move the markets in the week ahead, we examine the consensus forecast for the upcoming economic data, we analyze the price correction in the EUR/USD currency pair, we take a look at the pullback in the GBP/USD pair, we note the new 2013 high for the USD vs JPY, we highlight the market’s reaction to the Japanese Industrial Production, the U.S. Retail Sales and Jobless Claims, we discuss new forecasts from Goldman Sachs and Standard Chartered, and prepare for the trading session ahead.

December 12, 2013 (Allthingsforex.com) – The Swiss National Bank announced its quarterly monetary policy decision this morning with no deviation from the central bank’s commitment to defend the ceiling of 1.20 CHF per euro. Policy makers kept their economic growth outlook for 2013 unchanged, citing “unfavorable international environment and a strong Swiss franc” creating a challenging situation for the economy.

The following are excerpts from the speech of the SNB President Thomas Jordan during today’s press conference:

“… As you will have no doubt expected, the SNB is maintaining its minimum exchange rate of CHF 1.20 per euro. The Swiss franc is still high. With the three-month Libor already practic ally at zero, the minimum exchange rate continues to be the right tool for ensuring appropriate monetary conditions in Switzerland. If the Swiss franc were to appreciate, this would have significant consequences for the Swiss economy. On the one hand, an appreciation would lead to a further decline in import prices and a renewed threat of deflation.

In this regard, we should bear in mind that inflation in the last two years has been predominantly negative. On the other hand, with an ongoing unfavourable int ernational environment and a strong Swiss franc, the situation for our economy remains challenging.
Should it become necessary, we will therefore enforce the minimum exchange rate by buying foreign currency in unlimited quantities. And, if required, we will also take further measures. In addition, we are leaving the target range for the three-month Libor at 0.0–0.25%.
The SNB bases its monetary policy decision on a conditional inflation forecast, which assumes an unchanged three-month Libor of 0.0% over the next three years. You will find the relevant chart in your media kit. Compared to September, our forecast has been adjusted downwards slightly.
Reasons for this are the unexpectedly low rates of inflation for October and November, which serve as a lower departure point for the forecast, as well as the decline in inflation in the euro area and the slight fall in the oil price, which both help to dampen the inflation outlook. For 2013, we still anticipate inflation of –0.2%. For 2014 and 2015, the inflation forecast is down in each case by 0.1 percentage points and is now at 0.2% and 0.6% respectively. Consequently, no inflation risks can be identified for Switzerland in the foreseeable future”.

In the trading room today: Does the U.S. Budget Deal Mean Stronger USD? As the news of a U.S. budget agreement that would set government spending levels until 2015 removes some of the roadblocks to a reduction of the Fed’s monthly asset purchases, we ponder if the budget deal means a taper announcement and a stronger USD, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the GBP/USD pair, we note the loss of momentum of the USD vs JPY, we highlight the market’s reaction to the U.S. budget deal and the German CPI, we discuss new forecasts from UniCredit and Mizuho Bank, and prepare for the trading session ahead.

Breakthrough in Washington between Democrats and Republicans could end the damaging cycle of “crisis-driven decision making” and avoid another shutdown next year. How the deal was announced- full story and analysts’ reaction…

 


Powered by Guardian.co.ukThis article titled “US budget deal brings relief; Lloyds hit with record fine over bonuses – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 11th December 2013 13.25 UTC

Simon Chouffot, spokesperson for the Robin Hood Tax campaign, says the record fine imposed on Lloyds over its staff bonus schemes shows that the government is still being too soft on banking greed:

“The people who run Britain’s banks seem to hold the public in total contempt – pressurising staff into ripping the rest of us off. Businesses are supposed to serve customers – but with banks, it’s the other way around.”

“Issuing fines after the latest scandal happens to be unearthed will not fundamentally change the relationship between banks and society. The Government must get a grip on the culture of greed in the sector and ensure it starts contributing positively to society.

Worth noting that Lloyds says it has now mended its ways.after continuing to use incentive schemes such as the ‘champagne bonus’ more than two years after the taxpayer bailed it out.

Market update

Back in the markets, and the big three European indices are all positive — as traders take some comfort from the détente between Democrats and Republicans over the US budget (see opening post onwards for details and reaction).

BAE Systems is the biggest riser on the FTSE 100, up 2.5%, with analysts predicting defence stocks will benefit from the increased US spending.

Liberum Capital analysts:

This is progress and will allow budget prioritisation.

Economists say the US economy will benefit too:

FTSE 100: up 25 points at 6551, +0.4%

German DAX: up 29 points at 9143, +0.3%

French CAC: up 33 points at 4124, + 0.8%

The boss of Tesco Bank also agrees that whopping bonuses for bank sales staff are counter-productive.

Updated

Our Money editor, Patrick Collinson, argues that Lloyds didn’t heed banking scandals of the past when it offered its staff hefty bonuses for selling products, and demotion if they failed.

Here’s a flavour:

The FCA uncovered incentives such as “champagne bonuses” and “grand in your hand” that owe more to the culture of Wall Street trading that a high street bank giving advice on the hard-earned savings of the Mr and Mrs Migginses of Britain. If Lloyds staff failed to meet their targets, they could lose nearly half their salary. No wonder desperate employees ended up flogging policies to themselves and their family members to keep food on the table.

As usual, the directors of the bank will be contrite, will say that lessons have been learned, and that it’s different this time. But one important fact should always be remembered about Britain’s bankers. How many have been jailed since the start of the financial crisis? None. Until the penalties become personal, the likelihood of any lessons being learned will remain at zero.

More here: Lloyds has failed to learn the lessons of previous mis-selling fines

Updated

Back on Lloyds…….. and unions are saying that they warned against the kind of sales targets at the heart of today’s record fine (details from 9.21am)

Dominic Hook, Unite national officer, said:

Despite the countless reports and investigations into the conduct of the banks the industry clearly has not learned the lessons of the financial crisis nor heard the concerns of customers and staff in order to adequately change.

(reminder, our news story on the fine is here)

Nikos Magginas, economist at National Bank, agrees that there are some glimmers of hope amid the news that Greece’s unemployment rate has hit a new high of 27.4%.

Magginas said (via Reuters):

The decline in the number of those employed was the lowest since early 2010.

The data shows a stabilisation trend in the jobless rate and a slowdown in new job losses, helped by a strong performance in tourism.

Updated

Looking for more details of how Lloyds staff were lured into mis-selling products by a flawed bonus structure, leading to today’s record fine of £28m? Look no further….

Lloyds mis-selling scandal: Q&A

It includes what to do if you think you were caught up in the scandal.

Italian PM promises reforms

In Italy, prime minister Enrico Letta has warned MPs that the country will slide into chaos unless they back him in a confidence vote due later today.

Letta urged politicians to throw their weight behind his reform programme, ahead of the first test of his parliamentary muscle since Silvio Berlusconi quit his coalition — trimming Letta’s majority.

Letta was also scathing over Italy’s failure to reform, saying MPs had avoided meaningful changes for 20 years.

Reuters has the details:

“I’m determined to work with everything I have to prevent the country falling back into chaos,” he said, pledging to throw his weight behind efforts to fight a growing tide of political disillusion and hostility to the European Union.

He said the next 18 months would be devoted to a broad package of institutional reforms aimed at creating a stable basis for economic growth, which he said should reach 1 percent in 2014 and 2 percent in 2015.

As well as a new electoral law and measures to untangle the conflicting web of powers between different levels of the administration, he promised to overhaul parliament to remove the Senate’s power to vote no confidence in the government.

He said the upper house would become a review chamber for legislation passed in the lower house, removing one of the key factors causing stalemate in the Italian political system.

On the economic front, he promised to rein in the deficit, cut Italy’s towering public debt, the second highest in the euro zone as a proportion of the overall economy, lower taxes on families and companies, reduce unemployment and boost public investment.

Privatisations would continue and the government would consider allowing employees to buy shares in the post office and other public companies, he said.

The lower house of parliament is expected to hold a confidence vote in the early afternoon, followed by the Senate tonight. Letta is expected to win both votes.

Updated

Greek unemployment rate rises

Greece’s unemployment rate has risen to a new record high, but there may still be some reasons for optimism.

ELSTAT, the country’s statistics body, reported that the number of people classed as unemployed rose by 14,023 between August and September. That pushed the jobless rate up to 27.4% in September, up 0.1 percentage point on August’s 27.3%.

The number of unemployed people rose by 14,023 persons in September to 1,376,463, a 1% increase during the month.

But the number of people in work also rose, by 5,397, to 3,639,429.

Those classed as inactive (not working or looking for work) dropped by 5,296 persons, which may suggest more people are now trying (and failing) to find a job.

Still, on an annual basis, the unemployment total is up by 5.9% and the employment total is down by 1.5%.

And the youth jobless rate remains a scar, at 51.9%.

The data is seasonally adjusted. ELSTAT’s believes there has been “a relative stability in the estimated seasonally adjusted unemployment rate” since the summer, but we’ll need to wait several more months until the picture becomes clear.

Here’s the official release.

And here’s some reaction:

Updated

Fog update: it’s not cleared yet:

Here’s our news story on the fine imposed on Lloyds for operating flawed bonus schemes for its staff:

Lloyds Banking Group fined record £28m in new mis-selling scandal

Updated

Now here’s an idea to keep Britain’s bank bosses in line:

The Independent’s Ben Chu points to the scale of the bonuses which Lloyds offered its staff to encourage them to sell products:

Back in Europe, the Finnish prime minister says he’s not given up hope of a proper deal on banking union before the end of the year (despite the limited progress made last night). That’s via his official spokesman.

Updated

Champagne bonus, anyone?

The FCA’s ruling against Lloyds includes detail of the bonus schemes that drove staff to sell inappropriate products to its customers:

· Variable base salaries

Advisers could be automatically promoted and get a pay increase or be automatically demoted and have a pay reduction depending on their sales performance. For a Lloyds TSB adviser on a mid-level salary, not hitting 90% of their target over a period of 9 months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189 – almost a 50 per cent salary cut. In the worst example that the FCA saw, an adviser sold protection products to himself, his wife and a colleague in order to hit his target and prevent himself from being demoted.

· Bonus thresholds

Both firms had in place thresholds that meant should a certain sales target be reached large bonuses could be earned. At Lloyds TSB this incentive was called the ‘champagne bonus’ and could see an adviser receiving 35% of their monthly salary as a bonus as soon as they reached their sales target.

Updated

Lloyds responds

And here’s the full statement from Lloyds:

Lloyds Banking Group accepts the findings of an FCA investigation into its historic systems and controls governing bancassurance legacy incentive schemes for branch advisers, and has agreed to pay a fine of £28m.

The Group launched its new strategy in 2011 to fully refocus the business on its customers. As part of that approach, the Group has been addressing historic issues and ensuring that customers get fair and appropriate outcomes.

As soon as these issues were identified in 2011, the Group acted immediately to make significant changes to ensure that all its schemes focused on doing the right things for customers and providing good service. The FCA has acknowledged that we have made substantial improvements to systems and controls governing incentives.

Lloyds Banking Group has co-operated fully throughout the enforcement investigation and has agreed with the FCA the next steps with regard to customers.

The Group has already commenced a review to address potential customer impacts that may have occurred as a result of these failings. We are already contacting customers, and will continue to contact potentially affected customers over the coming months. Customers do not need to take any action at this stage to be included in the review and they will be contacted in due course.

The Group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had. We are determined to ensure that any customer impacts are dealt with quickly and fully.

Lloyds has accepted the FCA findings, and says the record £28m fine won’t have a ‘material impact’ on the group.

11-Dec-2013 09:27 – LLOYDS BANKING GROUP SAYS ACCEPTS FINDINGS OF FCA INVESTIGATION INTO SALES PRACTICES 

11-Dec-2013 09:26 – LLOYDS BANKING GROUP SAYS COST OF FCA ENFORCEMENT AND REVIEW IS NOT EXPECTED TO HAVE MATERIAL IMPACT ON GROUP 

Updated

The FCA’s description of Lloyds’ sales practices is depressing, but it’s not a shock. Back in March, my colleague Hilary Osborne exposed how there was still a dangerous “‘sell, sell, sell” culture at the heart of Halifax, a key part of Lloyds Banking Group.

She wrote:

An employee of Britain’s biggest banking group has described a “disheartening and demotivating” sales culture that pressurises staff into selling financial products to customers in order to meet strict points-based daily targets.

The man, who did not wish to be named, but we will call David Elliott, works as a financial consultant for Halifax.

He says his job chiefly entails trying to sell insurance to customers. “I’ve been a counter clerk, banking adviser, financial adviser and now I’m a financial consultant – so I’ve been at every level there is in a retail bank. It gradually gets worse the higher you climb the ladder and now I’m at the highest seller point in banking and the pressure is abnormal,” he says.

More here: Exposed: bank’s high-pressure sales culture continues

Updated

FCA: Lloyds investigation does not make pleasant reading

Tracey McDermott, the FCA’s director of enforcement and financial crime, said that the watchdog’s investigation found serious problems at Lloyds:

The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere.

Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite.

McDermott added that Lloyds TSB and Bank of Scotland have made “substantial changes” in recent months, reviewing its sales practices and paying compensation to those affected.

Record fine for Lloyds over mis-selling failings

Just in: the UK’s Financial Conduct Authority has hit Lloyds Banking Group with the biggest ever fine levied for retail banking misbehaviour in the UK, after using unacceptable sales targets to motivate its staff.

The FCA has penalised Lloyds £28m, after an investigation found widespread evidence that the bank ran flawed sales incentive schemes that encouraged staff to sell products to customers regardless of whether they were in their best interest.

In a damning indictment of how Lloyds ran its business, the FCA explained that staff at Lloyds TSB Bank and Bank of Scotland were put under undue pressure to hit sales targets or risk losing bonuses.

These bonuses could be almost half of an employee’s wage packet.

The products in question were mainly investment products (such as share ISAs) and protection products such as PPI.

At one stage, staff were offered “a grand in your hand” for hitting a particular target.

In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted, the FCA said.

Lloyds’s fine was increased by 10% because regulators had warned that its incentive schemes were poorly managed, and because it was fined for the unsuitable sale of bonds in 2003 “caused in part by the general pressure to meet sales targets”.

The FCA also found that Lloyds staff received bonuses even if the bank knew they’d sold unsuitable products:

229 advisers at Lloyds TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and 30 advisers received a bonus in the same circumstances on more the one occasion.

Updated

European finance ministers, incidentally, didn’t make as much progress as we’d hoped over banking reform last night. After a long, drawn-out meeting, ministers agreed some broad details, but couldn’t decide one key question — how to share the cost of dealing with a failed bank.

The FT’s Peter Spiegel and Alex Barker stayed up late for the action (or lack or) and reported:

A marathon negotiating session in Brussels produced a draft compromise, broadly based on Germany’s revised position, which sets out how eurozone countries cede power to a central bank resolution authority and establish a common funding network.

While the basic parameters are likely to survive in a final deal, several countries raised strong objections to Berlin-backed conditions that slowly phase in a single resolution fund – and gives big countries a greater say on when it can be used.

These voting arrangements and financing details – including the unaddressed issue of what happens should the bank resolution funds be exhausted – will be left to a final emergency meeting next Wednesday, on the eve a summit of EU leaders.

Here’s their full story: EU sets out framework for banking union

Updated

City traders also faced a challenge to find their offices in the fog gripping London today — as this lovely picture shows:

There’s a pretty muted reaction in the City, with the FTSE 100 up just 6 points.

It’s being dragged down a little by Royal Bank of Scotland – whose shares have fallen 1.6% as investors react to the news that finance director Nathan Bostock is resigning, apparently to join Santander.

Traders are also calculating that the outbreak of peace on Capitol Hill will encourage the Federal Reserve to begin slowing its stimulus programme, currently pumping $85bn into the system each month.

Budget deal: what the media say

The Financial Times reckons the deal is a decent start on the long road to dealing with America’s debts:

Due to its limited nature, the deal does not tackle broader fiscal problems affecting the US, such as the long-term cost of health and pension plans which could become more expensive as a consequence of the ageing population.

It also does not contain big changes to the tax code, which many on Capitol Hill want to see transformed.

“This bipartisan deal looks like a good step, but it doesn’t address the real drivers of our long-term debt,” said Michael Peterson, president of the Peter G Peterson Foundation, which advocates for a bigger deficit reduction deal. “We should all welcome our lawmakers coming together on a budget agreement that would end the recent cycle of governing by crisis. But make no mistake – we still have a lot more to do to put our nation on a sustainable fiscal path.

FT: US Congress strikes budget deal

Marketwatch points out that some in the Republican party could oppose it – -suggesting a battle to get it through the House of Representatives

House Speaker John Boehner praised the deal but didn’t address whether it can pass the House.

“While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings,” he said in a statement.

Sen. Marco Rubio, a Florida Republican who may run for president, quickly came out against the deal, calling it “irresponsible” and charging that it doesn’t reduce the U.S. debt.

Marketwatch: Murray, Ryan reach two-year U.S. budget deal

Business Insider breaks down the numbers;

The legislation provides $63 billion in sequester relief over two years, which is split evenly between defense and non-defense programs. This is offset by targeted spending cuts and non-tax revenues that total $85 billion. Ryan and Murray said that the deal reduces the deficit between $20 and $23 billion.

Murray said that the deal includes an additional $6 billion in revenue from additional federal worker pension contributions. Military employees take the same hit in the deal.

BI: BUDGET DEAL REACHED — Here’s What You Need To Know

And here’s the Guardian’s take:

Aspects of the deal may alarm both parties, particularly Democrats, who are being asked to accept additional spending cuts, no new taxes and increased pension contributions from public sector workers.

Nevertheless the prospect of ending years of political deadlock appeared to satisfy political leaders of both parties, whose expectations have been lowered by the recent government shutdown and a virtual standstill on a host of other issues.

US congressional leaders unveil two-year budget deal

The deal doesn’t address one problem, though — America’s debt ceiling. Congress still needs to agree to raise US borrowing limits in February 2014, or risk a default.

The thawing of relations between Republicans and Democrats on Capitol Hill may mean the debt ceiling is less of a poisoned pill?

Here’s Michael Hewson of CMC Markets’s take:

The new deal, if approved by Congress, which seems likely, would last until 2015, and ease the severity of some recent budget cuts, with slightly higher spending levels of $63bn.

This agreement, while a positive for markets, would then remove one potential land mine for markets ahead of February’s debt ceiling deadline, which still remains unresolved. It is likely that neither side will be pleased with the deal on the margins, but the hope is that enough Democrats and Republicans will be able to swallow it to be able to push it through Congress.

Updated

The agreement reached by Ryan and Murray comes to $85bn — made up of $63bn in cancelled sequestor cuts, and and around $22bn in deficit reduction.

Small beer, compared to America’s $17 trillion national debt — but enough to avert another shutdown in January.

Chris Weston of IG says it’s a cause to celebrate:

Finally US politics is starting to look like it can actually function without political partisanship or using the economy or markets as a bargaining tool like we’ve seen over the recent year.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, reckons the deal means investors should fret less about America’s fiscal problems in 2014.

He told CNBC the deal was good for stocks:

The short-term fiscal easing next year, the fact that Congress after years of dysfunctional behaviour has reached a compromise on their own without a crisis – all of those things are positive.

US budget deal could avert another crisis

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

There’s a sense of relief in the financial world this morning after an unexpected burst of bipartisan co-operation in Washington.

Democrats and Republicans negotiators have agreed a deal to set spending levels until 2015 – averting the risk of a repeat of the government shutdown which gripped the markets in October.

In a welcome development, Senate Budget Committee chairman Senator Patty Murray, and her House counterpart Paul Ryan, stood shoulder-to-shoulder to announce the proposal, which could be voted through within days.

Ryan declared:

I think this agreement is a clear improvement on the status quo. It makes sure we don’t lurch from crisis to crisis.

The plan hammered out by Murray and Ryan is significant for two reasons — it eases some of the pain of looming spending cuts (the sequester), and it could end the damaging pattern of deadlock between the two parties.

President Obama hailed both sides for breaking “the cycle of short-sighted, crisis-driven decision-making to get this done.”

Under the agreement, federal spending would be fixed at around $1.012tn — a compromise between the two sides.

It means an extra $63bn in government spending over the next two years — which should please the International Monetary Fund, which feared the US was tightening fiscal policy too fast.

That’s got implications for the European economies too — the sequester threatened to knock the eurozone’s already weak recovery off course. 

As our Washington Bureau chief Dan Roberts explains, the deal is not without its critics:

Rather than raising new taxes to pay for the sequester relief – something Republicans were implacably opposed to – negotiators agreed to raise additional government revenue through fees, such as airport charges and by demanding that federal workers pay more toward their pensions.

Union umbrella group, the AFL-CIO, has already hit out at the proposal, arguing that federal workers were acting as a “punching bag” for Republicans.

The deal still needs to be voted through Congress. And it doesn’t fix America’s fiscal challenges – but it’s a start.

As Murray put it:

For years we have lurched from crisis to crisis. That uncertainty was devastating to our fragile economic recovery.

Reaction to follow, along with other details of the day ahead….

Updated

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In the trading room today: Is a Correction of the EUR Gains Long Overdue? With the EUR nearing its recently established highs for the year, we examine the seemingly unstoppable rally of the single currency and ponder if the upcoming Fed meeting on December 17-18 could trigger a price correction of the euro’s gains against the USD, we analyze the move toward an important resistance level for the EUR/USD currency pair, we take a look at the GBP/USD pair following the comments from Bank of England’s Governor, we note the pullback in the USD/JPY pair, we highlight the market’s reaction to the U.K. Industrial Production and the Eurogroup meeting, we discuss new forecasts from Mizuho Bank and UBS, and prepare for the trading session ahead.