European Central Bank holds rates, prepares new loans- press conference live

The ECB kept the main refinancing rate at 0.15 percent today after last month’s cut. Rolling coverage of the ECB’s monthly press conference in Frankfurt. UK service sector posts strong growth. Eurozone registers its best quarter in three years…

 


Powered by Guardian.co.ukThis article titled “European Central Bank press conference and US jobs report – live” was written by Graeme Wearden and Angela Monaghan, for theguardian.com on Thursday 3rd July 2014 13.38 UTC

And finally, Mario Draghi is asked about a research paper suggesting that the eurozone banking sector is too fat, and would benefit from consolidation. What’s his take?

It’s an interesting paper, very interesting, the ECB governor replies.

Banks are a product of history, he point out. The industry has developed over centuries influenced by all kinds of factors

A programme of mergers and acquisitions would be challenging, he points out, but not impossible.

Would it be inappropriate? One can’t really rule out the need for this.

And with that, he clears off — the ECB is now holding a press conference to explain the details of its TLTRO programme.

Draghi embarks on a long answer to a question on credit availability in the euro area.

The key points is that there’s been marginal improvement in credit growth, but it’s very timid.

Draghi does seem a little heated about market expectations today.

Asked whether there is less pressure on the ECB to take further unconventional measures, he warns that there is a risk of “continuing self-fulfilling expectations”.

Maybe we should move to a six-monthly reporting cycle, he jokes (I think).

Updated

Draghi doesn’t appear to appreciate being asked about operating in the shadow of the Federal Reserve, with the markets being more driven by the Fed than the ECB.

Updated

Will the ECB take a closer look at the legal risks being run by eurozone banks, following BNP Paribas’s $8.8bn fine for sanction-busting?

There is already provisioning for legal risk, Draghi replies, but he agrees that this is a most important issue, and the ECB isn’t blind to it.

The issue is to see whether these provisions are adequate, and also to look where banks carry out their activities.

Updated

Draghi gently chides the financial markets for their habit of reacting strongly to gobbets of information flying their way.

We often see market reaction that have no relation to fundamentals… we act when needed, he says.

No escape from World Cup analogies…

Draghi says the shift to a six-week meeting cycle is designed to allow the ECB to publish minutes in an orderly way without spooking the markets.

Not quite convinced by this one — the Bank of England manages it. But maybe I’m missing something…

The better than expected US non-farm payroll data showed job creation in June was widespread across sectors but professional and business services, retail, food and drink and health care saw the strongest growth.

The number of unemployed people fell by 325,000 to 9.5m in June, while the labour force participation rate was 62.8% for a third month.

Updated

The euro has fallen through the $1.36 point against the dollar, as traders take a view that Draghi is being quite dovish today.

Draghi reiterates the point that the ECB is still committed to potentially using unconventional measures if needed.

We don’t think our job is finished, not at all.

ECB expert Lorcan Roche Kelly points out that we may be wrong to talk about minutes — we might get Federal Reserve-style forecasts for future interest rates, growth and inflation.

Could interest rates be cut further, or do last month’s cuts mean we’ve hit rock bottom?

Draghi says he can’t rule out technical adjustment to rates, and justifies the negative interest rates impose on banks, saying they helped to avoid narrowing the rate corridor.

Claire Jones of the FT seeks more information on the ECB’s plan to release minutes — what will they include?

It’s too early to say, Draghi replies. The governing council need to decide what to put into the accounts, and what to leave out — such as whether to include voting details.

And what do you think about the warning from BIS last weekend that central banks risk creating a new crisis by leaving interest rates so low?

Draghi explains that policymakers discussed this over the weekend. We think that monetary policy is perfectly appropriate to delivering our mandate of price stability.

But we are sensitive to the presence of potential financial stability risks, he adds – saying the ECB has already taken various steps to prevent its measures fuelling excessive risk.

And he then makes an important point that the rules of central banking have changed since the crisis:

The first line of defence against financial stablity risks should be the macro-prudential tools.

I don’t think people would support raising interest rates now…that would be an interesting proposition, and not one I could support.

Yesterday, the Bank op England’s Andy Haldane said macro-prudential tools are a “new arm” for central banks to use.

Updated

Draghi’s giving a long answer about the ECB’s work on creating an ABS (asset-backed securities) market – in which loans could be bundled up and sold on.

He says it’s crucial to make sure that no exotic derivatives, such “as CDS-squared” securities, are used. This is meant to encourage proper lending.

But he also points out that if interest rates stay so low, then banks may be less interested in ABS’s as they can access cash very cheaply today.

Here’s our news story on the US jobs data:

US adds 288,000 jobs in June as unemployment rate drops to 6.1%

A six-weekly cycle means three or four fewer meetings per year for the ECB.

I’m sure Draghi will miss seeing the press pack as often, though

Updated

Next question — how will the ECB timetable its move to six-weekly meetings, and will it synchronise its meetings with the Federal Reserve?

We don’t plan to synchronise our meetings with anyone else, really, says Draghi — sounding a little dismissive of the suggestion that the mighty ECB might play second fiddle to anyone else.

ECB Q&A begins

Onto questions — can Draghi give more details about the TLTRO programme?

The ECB governor says that this offer of cheap loans to banks will be a big help in driving inflation back towards target.

Banks can bid for loans individually, or in groups. They’ll be able to borrow up to 7% of their total lending to the eurozone non-financial sector.

And they’ll be able to generate extra loans if they hit certain benchmarks (designed to encourage lending to the ‘real economy’)

Six TLTROs will take place at quarterly intervals.

Draghi concedes that it’s complicated, but also attractive to banks.

ECB to release minutes, and shift to six-week meetings cycle

Draghi’s pulled a rabbit out of the hat – The ECB is to move to a six-week cycle of meetings, rather than monthly.

So, eight meetings a year (like the Federal Reserve), rather than 12.

And it will start to publish the minutes of its meetings, from January 2015.

Draghi makes his usual plea to governments not to unravel progress in structural reforms.

On the economic picture, Draghi says that eurozone unemployment is still too high.

Risks to the economic outlook are still to the downside, including the threat from geopolitical developments.

Updated

The ECB will publish more details about its €400bn TLTRO programme (announced last month) after the press conference.

TLTRO offers cheap loans to commercial banks, as long as they use the cash to lend to small businesses.

Draghi: Governing council unanimous in its commitment to unconventional measures, if needed

Mario Draghi reiterates the ECB’s forward guidance, that eurozone interest rates will remain at present or lower levels for an extended period.

And he emphasises that “the governing council is also unanimous in its commitment to use unconventional instruments’ if necessary, to address the risk of too-prolonged period of low inflation.

So QE is still in the toolbox,

Mario Draghi’s appeared in Frankfurt, and started reading out his prepared statement.

No early fireworks. He says that the European economy maintained its moderate recovery in the second quarter

Inflation expectations remain firmly anchored, he adds.

The measures we announced last month have helped to further ease our monetary policy stance.

Updated

Breaking: US non-farm payrolls jump by 288,000

US non-farm payrolls rose by 288,000 in June, much sharper than expected. Economists polled by Reuters were expecting a 212,000 rise.

The figure for May was also revised up to 224,000 from an earlier estimate of 217,000.

Meanwhile the unemployment rate dropped to 6.1%, which is the lowest rate since September 2008, the same month that US investment bank Lehman Brothers collapsed. Economists had expected the jobless rate to remain unchanged at 6.3%.

Growth in average hourly earnings was unchanged in June at 0.2%.

So all in all a strong jobs report from the US Bureau of Labor Statistics.

Reaction to the numbers is coming in.

Angus Campbell, senior analyst at FxPro:

Many investors have been waiting for stronger evidence that the world’s largest economy is in good shape and today certainly does that. This will allow the Federal Reserve to continue in its tapering and even prepare the ground for raising rates next year.

Dennis de Jong, managing director at UFXMarkets:

This is the fifth successive month the reading has risen above 200,000 with job growth significantly rebounding this quarter following a poor start to the year.

The third quarter officially opened yesterday ahead of Independence Day celebrations. Positive news has been sparse of late and this is as good an excuse as any to enjoy this weekend’s fireworks.

Rob Carnell, chief economist, ING Global:

Without a clear step up in wages, and whilst the unemployment rate remains 6-something percent, we suspect the Fed will be loathe to change its formal stance with respect to the taper, or to the possibility of normalising rates.

The time is soon coming that the FOMC will have to change its tack with respect to its policy stance, and forward guidance. Today’s release takes us a little closer to that point, but as FOMC chair Yellen’s recent testimony shows, they are not there yet.

Updated

One minute to go…. our friends in the US are getting a little excited (reminder, today’s non-farm payroll has been brought forward a day because of the Fourth of July holidays tomorrow)

Non-farm payroll and ECB press conference – a pre-amble

OK, it’s about to get quite busy.

At 1.30pm BST sharp, the US Bureau of Labour Statistics will release data showing how many new jobs were created in the US in June.

Economists expect that the latest US non-farm payroll report probably increased by around 215,000. The unemployment rate, 6.3% last month, may fall further.

But the big interest could be on how much US workers’ wages rose last month. That will help show whether inflationary pressures are building.

At the same moment, Mario Draghi will start explaining this month’s interest rate decision (no change).

Journalists in Frankfurt will quiz the ECB chairman on a range of issues, including:

• is the central bank any closer to launching quantitative easing

• What progress has been made on developing a programme to allow loans to small firms to be bundled together and sold on (which could encourage banks to lend).

• What’s his view of the eurozone economy, given this month’s PMI surveys have suggested growth slowed in June?

Angela Monaghan and I will try to cover both stories between us…

European Central Bank leaves interest rates unchanged

File this one under ‘unsurprising’.

The European Central Bank has left interest rates unchanged across the eurozone.

This means the main refinancing rate stays at its record low of 0.15%.

Banks are still being hit with negative interest rates when they leave cash at the ECB — with the deposit facility rate pegged at -0.10%.

And the marginal lending rate (charged when banks borrow overnight from the ECB) remains at 0.4%.

Mario Draghi will discuss the decision at his press conference in Frankfurt at 1.30pm BST, or 2.30pm.

With 80 minutes to go until the US jobs data is released, predictions are flying around.

Bloomberg has been tracking the various guesstimates being posted on social media, and reports that the average prediction is that around 230,000 new jobs were created last month.

Of course, the number of jobs created isn’t the only thing that matters. The unemployment rate could trickle down from 6.3% to 6.2%.

But a lot of economists will be looking at the earnings data, for signs that US wages are creeping up. That would add to inflationary pressure in the US economy, a key factor in how the Federal Reserve normalises monetary policy.

Updated

Missed this earlier… but Markit’s Chris Williamson predicted that France’s economy shrank by 0.1% in the last quarter (see here for details of this morning’s service sector survey)

Irish economy bounces back

Ireland has taken another step away from the turmoil of its bailout, by posting solid growth for the first three months of the year.

Gross national product across Ireland rose by 0.5% in the January-March quarter, and was 3.4% higher than a year ago.

And GDP, which includes multinational companies based in Ireland, jumped by a whopping 2.7% in the quarter, and was 4.1% higher on an annual basis.

Last year’s growth figures have been revised higher too, to show that GDP rose by 0.2% during 2013, up from -0.3%.

Updated

Over in Slovenia, the outgoing prime minister is trying to slam the brakes on the country’s privatisation programme, at least temporarily.

Alenka Bratusek tweeted that she will propose pausing the process until a snap election has been held, on 13 July.

Which translates as:

“I will propose to the government today that we require SDH to stop all privatisation processes until a new government is in place.”

SDH is the government body handling the privatisation of around 15 state-controlled companies. These asset sales are part of Slovenia’s strategy to clean up its banking sector and avoid a bailout.

They are also unpopular with the Slovenian public, so Bratusek may be looking to drum up support ahead of the election. The vote was called after Bratusek lost the leadership of her party, amid unhappiness with her austerity programme.

The leader of the opposition SMC party, which is leading the polls, said yesterday that he opposes selling off telecom operator Telekom Slovenia and airport Aerodrom Ljubljana, although it’s not clear if it can be halted.

Even a temporary pause in the sell-off process is likely to push down the amount of money that Slovenia can raise, according to Primoz Cencelj, a fixed-income portfolio manager at investment firm KD Skladi (via Reuters).

Speaking of the Bank of England…deputy governor Sir Jon Cunliffe has warned that the housing market is the “biggest risk” to the UK economy.

Here’s our take:

Housing market threatening UK economy, Bank of England official says

Foreign exchange traders are also suggesting that the first UK interest rate rise could come in four months time

Jake Trask, corporate dealer at UKForex, explains:

An interesting note in the service sector report concerned the plummeting rate of unemployment: currently sitting at 6.6%, it expects the rate to possibly dip below 6% by the end of the year, adding to the argument for an interest rate rise in time for November’s Inflation Report.

With MPC members becoming more and more hawkish in tone recently, this is still a distinct possibility.”

The Bank of England is likely to raise interest rates before Christmas, reckons Rob Wood, chief UK economist at Berenberg.

Wood says that this morning’s service sector PMI report, which followed upbeat surveys from the UK’s builders and factory, shows the recovery is ‘increasingly balanced’.

And the reports of wage growth suggests that the spare capacity in the economy is being used up.

Wood says:

Booming employment strengthens the case for a November rate hike.

The PMIs signal that further very rapid falls in unemployment are in prospect, which will put pressure on the BoE to hike rates earlier than they may have been planning on a few months ago. We expect the first rate hike in November this year.

Services firms reported a record increase in payrolls in June, while manufacturers said jobs numbers increased the most in 39 months. The tightening labour market is feeding through to better wage growth according to the PMIs. Services firms reported stronger pay growth, while construction firms recorded rapid input cost inflation.

David Noble, CEO of the Chartered Institute of Purchasing & Supply, says today’s report shows there was a “hiring spree” in the UK service sector last month, as new business poured in:

As levels of activity surged higher, along with strong customer demand and favourable market conditions, job creation accelerated to a record survey high in June.

With optimism increasing and momentum continuing to build, there is no evidence to suggest that the speed in the recovery is about to slow down anytime soon.

But despite the jump in employment, firms also reported an increased backlog of work….and a rise in wages.

Noble explains:

Reflecting these shortages in staffing levels, wages increased during this month, pushing running costs up. Services companies have been, however, only able to pass on a limited proportion of these higher costs to clients.

Overall in June, the UK services sector, alongside strong performances from manufacturing and construction, has cemented expectations that the economic recovery can power ahead into the second half of the year.”

UK service sector hires staff at ‘unprecented’ pace

Britain’s service sector has recorded another month of strong growth, with firms taking on new staff at a record rate and pushing up wages.

Data firm Markit’s monthly survey of the sector showed that activity within Britain’s dominant sector continued to rise in June.

With new business hitting its highest level this year, firms hired more staff at an “unprecedented” rate. And there are encouraging signs that workers are managing to squeeze pay rises out of their bosses.

As Markit explains:

A by-product of the tightening service sector labour market was reports of increased wages.

The headline service sector PMI did fall a little, to 57.7 from 58.6 in May. But that still shows a healthy rise in activity (any reading over 50=growth).

And with new business volumes at a six month high, business confidence remained strong.

Chris Williamson, Chief Economist at Markit, says the UK economy continued to “boom” in June:

“Alongside an ongoing surge in construction and the largest quarterly rise in manufacturing output for 20 years, the services PMI confirms that the economy is firing on all cylinders. We expect the economy to grow by 0.8% again in the second quarter, taking GDP to a new all-time high.

“A renewed upturn in growth of new orders across all three sectors suggests that the economy should also pick up speed again as we move into the second half of the year.

Reaction to follow….

Updated

Ahha, here’s a handy chart showing how the Swedish central bank loosened monetary policy this morning, by cutting rates and predicting they will stay low for longer.

Eurozone posts best quarter in three years, says Markit

The eurozone’s private sector has just posted its best quarter of growth since the debt crisis began, according to data firm Markit.

But there are fears that the recovery may be slowing.

Markit’s monthly PMI surveys suggest that the euro area grew 0.4% in the last quarter, twice as fast as in Q1.

But the date for June is a little less bright — Markit’s Eurozone Composite Output Index fell to 52.8, down from 53.5 in May. That’s the lowest reading this year.

As Markit puts it:

The eurozone economy saw further solid growth of output in June, rounding off the best quarter of economic expansion in the region for three years.

The outlook for the second half of the year was mixed, however, as signs that the upturn in output was losing momentum were offset by stronger inflows of incoming new business.

But as flagged up earlier, France’s private sector lagged behind, with the sharpest contraction of output for four months in June.

Business activity and new orders contracted in both the French manufacturing and service sectors.

Chris Williamson, chief economist at Markit, is cautious, but reckons :

“At first glance, June’s PMI survey results make grim reading and raise worries that the euro area’s recovery is already fading. Output growth slowed for a second successive month, to the weakest since December. Growth in the region’s main engine, Germany, is fading, while France has entered another downturn.

“Dig a little deeper, however, and there are grounds for optimism. We should not lose sight of the fact that, even with the slowdown, the June data round off the best quarter for three years. We should expect economic growth to strengthen from the 0.2% rise seen in the first quarter to perhaps 0.4% in the second quarter.

“With new orders rising at the fastest rate for three years, the pace of economic growth should also pick up again as we move into the second half of the year.”

German service sector growth slows

Germany’s service sector has reported a slowdown in growth — with its PMI dipping to 54.6, from 56.0 in May.

That means the wider German private sector has expanded at its slowest rate in eight months; another sign that the eurozone recovery is slowing a little.

But the overall picture in Germany still looks decent. Service sector firms said they were benefitting from a jump in new orders, leading them to keep taking on more staff.

The rate of job creation eased only marginally from May‟s near three-year high and was sharp overall.

Markit. which compiled the report, predicts that the German economy grew by 0.7% in the last three months — a marginal slowdown on the 0.8% in the first quarter.

Updated

French service sector shrinks again

But there’s more gloom for France — activity in its service sector activity has fallen for the second month running.

Its service sector PMI slipped to a four-month low of 48.2, down from 49.1 in May, which means a sharper contraction (any reading below 50 shows a fall in activity)

French firms reported that outstanding business fell, leading firms to cut staff for the eighth month running.

This follows a weak manufacturing PMI report earlier this week. Put together, it indicates that the French private sector is struggling.

Duncan Head, the Markit economist who compiled the report comments:

“The French service sector disappointed during June, contracting for the second month in a row. Companies pointed to lacklustre demand as the primary cause of the sustained fall in new business. In response, firms shed staff for the eighth month in sequence.

To add to the concern, strong competitive pressures continued to weigh on companies’ pricing power while input cost inflation continued to grow, placing greater constraints on firms’ operating margins. As was the case last month, there appears to be limited evidence of an up- turn in the French economy after the poor GDP figures from earlier in the year.”

Updated

Italian service sector’s recovery gathers pace

Italy’s service sector has posted its strongest rise in activity since November 2010.

Its Services PMI jumped to 53.9, up from, 51.6, showing an acceleration in growth.

Firms reported a jump in incoming new work in the sector, the sharpest since July 2007.

And after some rough years, Italian firms are more upbeat about the future. The confidence measure hit its second-highest level in the past 37 months, down only slightly on March’s recent high.

Anecdotal evidence suggested that companies are hopeful of expansion in market activity leading to new contract wins.

Sweden announces shock 0.5% interest rate cut

The Swedish central bank has just surprised the markets by slashing interest rates by 0.5 percentage points, to just 0.25%.

The Riksbank made the shock move after concluding the inflationary pressures are even lower than it thought in April.

It also adjusted its forward guidance; declaring that it doesn’t expect to start raising rates until the end of 2015.

The move sent the Swedish crown sliding to its weakest level against the euro this year. Analysts had only expected a quarter-point rate cut.

The announcement also shows that the decision wasn’t unanimous. Two members of the rate-setting committee, including central bank chief Stefan Ingves himself,

The statement says:

Governor Stefan Ingves and First Deputy Governor Kerstin af Jochnick entered a reservation against the decision to cut the repo rate to 0.25 and against the repo-rate path in the Monetary Policy Report.

They advocated cutting the repo rate by 0.25 percentage points to 0.5 per cent and a repo-rate path in which the repo rate remains at 0.5 per cent until 2016 and is slowly raised thereafter.

Update: the Norwegian Krone was also hit:

Updated

Spanish service sector keeps growing

The first major European service sector report is out — and it shows that Spain’s service companies continued to grow in June, but at a slower pace.

The Spanish service sector PMI came in at 54.8 in June, down from 55.7 in May. That means the sector has grown for the last eight months, helping to pull the economy out of recession.

However, this is the weakest rise in activity in three months.

On the jobs front, companies increased their staffing levels during June. Employment rose for the third month running, although the rate of job creation remained only modest, Markit (which compiled the report) said.

Updated

Balfour Beatty shares dive 10% after warning on profits

Shares in Balfour Beatty have slumped 10% after a disappointing trading update this morning.

The engineering firm told investors that trading has worsened at its mechanical and electrical engineering division (already a sore spot) had worsened, meaning profits will be £35m below forecast.

Balfour said it had found new problems at its Engineering Services business, as it “strengthened management control and project reviews”. They include:

design changes, project delays, rework on projects and contractual disputes on a number of projects.

Balfour had tried to reassure investors that its overall profit forecast was unchanged, as it can generate profits by selling its stake in certain public-private partnerships.

But investors aren’t impressed, sending shares sliding 23p to 209p. That knocks around £160m off its market value, I reckon.

Updated

Greek citizens face the prospect of power cuts today, as workers at the country’s Public Power Corporation begin a series of rolling blackouts.

They’re protesting against the government’s plans to sell off PPC, as part of its bailout programme. A bill to partly privatise the company is being debated in parliament today.

The unions are planning to put different areas of Greece offline at different times, rather than pulling all the switches at once.

Union chief Giorgos Adamidis told the Kathimerini newspaper:

“There is no danger of a blackout,”

“We are going on strike at all of PPC’s production units and mines from Komotini to Arcadia but nobody said that all the plants would go off line at the same time. The action will be staggered because nobody wants the country to be plunged into darkness.”

Non-farm payroll: what’s expected

As usual, economists have a wide range of forecasts for how many new jobs were created across the US economy last month.

Predictions for today’s non-farm payroll range from a paltry 160,000 new jobs to a rip-roaring 290,000.

So the correct answer is “probably in there somewhere”, as Michael Hewson of CMC Markets puts it.

Capital Economics predict that non-farm payroll employment increased by a healthy 200,000 in June.

That would be similar to May’s increase of 217,000 and would probably be enough to push the unemployment rate down to 6.2%, from 6.3% in May

Initial jobless claims have remained close to a seven-year low and the employment balances of most of the activity surveys have improved.

This chart from Marketwatch shows how the NFP has been pretty steady so far this year:

Waiting for Mario Draghi and non-farm payroll

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

There’s a bumper crop of economic data heading down the slipway today.

The monthly US unemployment payroll report, always a big event for the markets, has been hauled forward from tomorrow because of the Fourth of July holiday.

Economists will be looking to see whether American firms kept hiring staff at a steady rate last month; a strong increase in the payroll will suggest the US economy recovered from its ‘deep freeze’ contraction last winter.

Conversely, a weak number will raise fears that the recovery isn’t as strong as hoped, and could cause ructions in the markets.

The Non-Farm is released at 1.30pm BST….

…which, slightly irksomely, is also the moment when Mario Draghi, ECB president, begins his monthly press conference.

We’re not expecting any changes in monetary policy today, given the stimulus measures taken a month ago, but you can’t rule out a few fireworks from “Super Mario”.

We also get fresh information on the health of the European economy, with the monthly PMI reports for the service sector. Analysts fear that France’s service sector will have suffered a fall in activity, while Germany, Spain and Italy should all have grown.

And in the corporate world, Poundland are reporting that profits have jumped by a quarter, while cinema chain Cineworld is blaming the World Cup for a dip in admissions in the last few weeks (more on those shortly).

I’ll be tracking the key points through the day…

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