Economics

Finance institute forecasts net capital outflow from emerging markets for first time since 1988 leaving states vulnerable to capital drought. The IIF’s analysts say the current reversal is the latest wave of a homegrown downturn…

Powered by Guardian.co.ukThis article titled “Global investors brace for China crash, says IIF” was written by Heather Stewart, for theguardian.com on Thursday 1st October 2015 18.34 UTC

Global investors will suck capital out of emerging economies this year for the first time since 1988, as they brace themselves for a Chinese crash, according to the Institute of International Finance.

Capital flooded into promising emerging economies in the years that followed the global financial crisis of 2008-09, as investors bet that rapid expansion in countries such as Turkey and Brazil could help to offset stodgy growth in the debt-burdened US, Europe and Japan.

But with domestic investors in these and other emerging markets squirrelling their money overseas, at the same time as international investors calculate the costs of a sharp downturn in Chinese growth, the IIF, which represents the world’s financial industry, said: “We now expect that net capital flows to emerging markets in 2015 will be negative for the first time since 1988.”

capital flows to emerging markets set to turn negative

Capital flows to emerging markets look set to turn negative. Photograph: IIF

Unlike in 2008-09, when capital flows to emerging markets plunged abruptly as a result of the US sub-prime mortgage crisis, the IIF’s analysts say the current reversal is the latest wave of a homegrown downturn.

“This year’s slowdown represents a marked intensification of trends that have been underway since 2012, making the current episode feel more like a lengthening drought rather than a crisis event,” it says, in its latest monthly report on capital flows.

The IIF expects “only a moderate rebound” in 2016, as expectations for growth in emerging economies remain weak.

Mohamed El-Erian, economic advisor to Allianz, responding to the data, described emerging markets as “completely unhinged”, and warned that US growth may not be enough to rescue the global economy. “It’s not that powerful to pull everybody out,” he told CNBC.

Capital flight from China, where the prospects for growth have deteriorated sharply in recent months, and the authorities’ botched handling of the stock market crash in August undermined confidence in economic management, has been the main driver of the turnaround.

“The slump in private capital inflows is most dramatic for China,” the institute says. “Slowing growth due to excess industrial capacity, correction in the property sector and export weakness, together with monetary easing and the stock market bust have discouraged inflows.”

At the same time, domestic Chinese firms have been cutting back on their borrowing overseas, fearing that they may find themselves exposed if the yuan continues to depreciate, making it harder to repay foreign currency loans.

The IIF’s analysis shows that portfolio flows – sales of emerging market stocks and bonds – have been more important than the reversal of foreign direct investment (for example, multinationals closing down plants or business projects) in the recent shift.

It warns that several countries are likely to find their economies particularly vulnerable to this capital drought.

“Countries most in jeopardy from emerging-market turbulence include those with large current account deficits, questionable macro-policy frameworks, large corporate foreign exchange liabilities, and acute political uncertainties. Brazil and Turkey combine these features.

This warning echoed a one from the International Monetary Fund last week, that rising US interest rates could unleash a new financial crisis, as firms in emerging economies find themselves unable to service their debts.

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USA 

U.K. Manufacturing Sector growth slows in September, prompting manufacturers to lay off workers, against backdrop of uncertain global outlook. Eurozone manufacturing also lost momentum and output from Chinese factories continued to fall…

Powered by Guardian.co.ukThis article titled “UK manufacturing sector suffers job losses for first time in two years” was written by Julia Kollewe and Katie Allen, for theguardian.com on Thursday 1st October 2015 18.52 UTC

Tough export markets and weaker consumer spending continued to take their toll on UK factories last month, prompting the first job losses for the sector in more than two years, according to a survey that echoed signs of manufacturing weakness around the world.

The performance at UK factories was lacklustre in September, when growth slipped to a three-month low. Against the backdrop of warnings about the uncertain outlook for global growth, eurozone manufacturing also lost momentum and output from Chinese factories continued to fall.

For the UK, the first snapshot of manufacturing performance in September continued a downbeat trend. The key measure of factory activity slipped back to within a whisker of June’s two-month low, according to the Markit/CIPS manufacturing PMI report.

At 51.5 the main balance was still above the 50-mark that separates growth from contraction, but it marked a slowdown from 51.6 in August and economists said it would further convince policymakers at the Bank of England to hold off from raising interest rates from their current record low of 0.5%.

The survey reported manufacturing job losses for the first time since April 2013.

“Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling back of production at some firms in coming months,” said Rob Dobson, senior economist at Markit.

“The ongoing malaise of the manufacturing sector will add to broader growth worries and supports dovish calls for a first rise in interest rates to be held off until the industry returns to a firmer footing.”

The manufacturing sector has been growing for 30 months, according to the survey, but the pace has slowed since the start of the summer. While output growth improved slightly last month, growth in new orders tailed off to the weakest rate seen this year.

Manufacturing growth
Manufacturing growth in the UK. Illustration: Markit/CIPS

Manufacturing growth across the eurozone slowed to a five-month low, according to separate reports from Markit. Its factory PMI for the currency bloc slipped to 52.0 from 52.3 in August. Activity slowed in Germany and Spain, while the French factory sector is expanding again.

The slump at China’s factories also continued, but there were some signs of stabilisation. The Caixin China general manufacturing PMI found that production was still falling, forcing firms to lay off more people. The official manufacturing PMI published by the Beijing government also showed that manufacturing was still contracting, but at a slower rate.

Economists drew links between China’s downturn and the pressures on UK manufacturers already grappling with a relatively strong pound, which makes their goods more expensive to overseas buyers.

“Manufacturing continues to face headwinds from weaker demand from China and emerging markets – where the UK sends up to 15% of its exports – in addition to strength in sterling which is up 15% in effective terms compared to its February 2013 low,” said Kallum Pickering, senior UK economist at Berenberg bank.

He saw little prospect of manufacturing having boosted the wider economy in recent months but was optimistic EU and US demand would help the sector.

“For now, UK manufacturers might see export demand dwindling as the developing world struggles with slowing Chinese demand and weak commodity prices, but in the medium term rising demand from the UK’s biggest and closest trading partners should help underpin a recovery in UK manufacturing,” Pickering added.

Separate UK figures on productivity also pointed to recent weakness in the manufacturing sector. There was a 0.5% fall in factory output per hour in the second quarter, bucking the improving trend for the wider economy, according to the Office for National Statistics (ONS).

Across all sectors, productivity grew by 0.9% from the first to the second quarter on an output per hour measure. That took productivity to the highest level on record, but it was still 15% below where it would have been had pre-downturn trends continued, the ONS said.

Zach Witton, a deputy chief economist at EEF, the manufacturers’ organisation, said: “Today’s data suggests the challenging export environment and weak demand for investment goods in the oil and gas sector has started to take a toll on business confidence.”

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The US economy grew faster than previously thought by 3.9% in the second quarter of the year, exceeding economists’ expectations. New estimate fuels expectations the Federal Reserve will raise interest rates in 2015…

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Government data suggested the world’s biggest economy grew at an annual pace of 3.9% between April and June, exceeding economists’ expectations for the GDP estimate to stay unchanged at 3.7%. It marked an even stronger bounceback from the sluggish 0.6% growth recorded in the opening months of 2015 when an especially harsh winter hit economic activity.

The report followed comments on Thursday from the head of the US central bank, Janet Yellen, who said she could start raising borrowing costs from their record low “later this year”.

US GDP

The dollar strengthened against other currencies and US stock markets rallied after the upward revision to GDP, which the Commerce Department said was largely driven by consumer spending being stronger than previously thought.

Economists said the figures left the door open for the US central bank to raise interest rates from their current record low of close to zero at policy meetings in October or December.

“Yellen has confirmed a hike can still occur in 2015, so speculation over a December move is currently rife in the market – with short-term dollar bulls hoping for an October move,” said Alex Lydall, senior trader at foreign exchange business Foenix Partners.

“With the exception of inflation, economic indicators are still solid for the domestic economy in the US, so the pertinent question remains: will the Fed risk looking irresponsible and delay rate hikes into 2016, or will they take the plunge this year, with perhaps a more cautious hike than the expected 0.25%? The jury is still out.”

The Federal Reserve held off raising borrowing costs at its policy meeting last week as it cited volatility in the global economy. But Yellen indicated in a speech on Thursday this week that there was a still a good chance the first hike for almost a decade could come before the year is out. She said US economic prospects “generally appear solid” and it was best not to wait too long to tighten policy, which has been ultra-loose since the global financial crisis.

However, some experts noted that GDP figures did not give the most up-to-date picture of the economy’s performance and that more timely economic indicators painted a gloomier picture.

The revision had “little bearing on US policy”, said Chris Williamson, chief economist at economic data company Markit, which tracks business activity in the US and other economies.

“It does little to change the story that the economy rebounded strongly in the spring after the weak patch seen earlier in the year. More important are the forward-looking indicators, which include a number of red flag warnings that growth is slowing amid headwinds of the strong dollar, slumping oil prices, financial market volatility and emerging market jitters,” he added.

“The more up-to-date survey data play into the hands of dovish policymakers and will reduce the odds of interest rates rising any time soon.”

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Powered by Guardian.co.ukThis article titled “Protester disrupts European Central Bank press conference – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 15th April 2015 18.07 UTC

Closing summary: Protests in the heart of the ECB

It’s time for a closing summary.

Mario Draghi’s press conference in Frankfurt was dramatically disrupted today by an activist, in a protest against the European Central Bank’s policies.

In a remarkable security breach the protestor, understood to be Josephine Witt, leapt on the desk, showering glitter on the ECB president.

She also threw leaflets condemning the “undemocratic” Bank, and its role in the financial crisis, and chanted “End the ECB dictatorship” repeatedly, before being removed by security staff.

A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”.
A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”. Photograph: Marcus Golejewski/Demotix/Corbis

And there’s a video clip here.

The press conference was briefly suspended, before Draghi returned to tell reporters that his QE programme was delivering benefits to the eurozone economy, and to call for Europe’s labour market to be reformed to help younger people.

According to the ECB, Ms Witt registered as a journalist to attend today’s press conference in the Bank’s new Frankfurt headquarters. Staff took “immediate and effective action”, it said in a statement.

For example:

A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”.
. Photograph: Marcus Golejewski/Demotix/Corbis

Police confirmed that they arrested a 21-year-old woman at the scene; she was later released:

Witt told Bloomberg tonight that she was motivated to protest against Draghi because he’s never been elected.

What’s very concerning to me is that Mario Draghi as ECB president is not actually serving the societies, but imposing rules on them — without ever being elected,” the 21-year-old said.

“This press conference is the little, little bit of democracy that the ECB gave us. I used this opportunity to express my criticism.”

It’s the latest in a series of protests against the ECB since the financial crisis began; last month, anti-austerity protestors caused major disruption in Frankfurt.

Once the drama was over, Draghi rebuffed concerns that the ECB’s new QE stimulus programme might falter, for lack of eurozone debt to buy:

“Now the worries about potential scarcity of government bonds, sovereign bonds to be bought under our purchase programme are just a little exaggerated. We don’t see problems. Both direct and indirect evidence and market feedbacks show that there isn’t any problem and our programme is flexible enough in any event to be adjusted if circumstances were to change.”

And he also refused to countenance the idea that Greece might default:

“I don’t even want to contemplate that. And based on the Greek government leaders’ statements this option is not contemplated by themselves as well. So I’m not ready to discuss any possible situation like that.”

But rating agency S&P then raised the stakes tonight, by cutting Greece’s credit rating deeper into junk.

I’ll be back tomorrow for another busy day of liveblogging, but probably one free of today’s drama (right, Josephine?…)

Thanks for reading and commenting, as ever. GW

Updated

Ms Witt registered as a Vice reporter, according to the Telegraph:

The economics correspondent Pete Spence explains her motives:

Ms Witt said she would continue to engage in “hardcore activism” in response to what she believed was an “undemocratic” ECB. She added that recent protests in Frankfurt during the opening of the ECB’s new offices were a reaction to Mr Draghi’s leadership. “[He] never got a mandate, never got voted for or elected,” she said.

“He imposes policies on these societies that are completely undemocratic,” she added. A friend of Ms Witt said she opposes what she describes as “European neo-liberalism”, and argued that the ECB cannot act “without a state of surveillance, of police and violence”.

If you squint at the photos taken earlier, you can see this is indeed the paper swirling around Mario Draghi’s head.

Protesters aren’t usually verified on Twitter, so I can’t confirm whether this actually is today’s activist or not: #disclaimer

While the credit rating downgrade isn’t a surprise, Standard & Poor’s has some serious concerns over Greece.

S&P says Greece’s economic state is “highly uncertain”, and warns that:

“without deep economic reform or further relief, we expect Greece’s debt and other financial commitments will be unsustainable”.

Greece’s solvency increasingly hinges on “favourable business, financial, and economic conditions”, it adds.

But despite the current problems, S&P reckons the government will manage to continue to pay salaries,pensions in cash (rather than non-negotiable IOUs) despite “weakening cash fiscal receipts”.

S&P downgrades Greece

Breaking news: Greece’s credit rating has just been cut by Standard & Poor’s, which also left the country on a negative outlook.

Wonder what S&P think of the ECB’s security system…

Video: That protest in full

For those of you who haven’t seen the protest already, this video captures the moment Mario Draghi’s opening statement was dramatically disrupted


.

Updated

Hopefully the ECB tighten up their security checks, before someone else pretends to be an economics hack.

ECB: Protester registered as a journalist

ALTERNATIVE CROP A woman disrupts a press conference by Mario Draghi (C), President of the European Central Bank, (ECB) following a meeting of the Governing Council ain Frankfurt / Main, Germany, on April 15, 2015. The woman who charged at Draghi calling for an “end to the ECB dictatorship” was quickly escorted out of the premises by security officers before the news conference resumed. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
The moment Mario Draghi was glitterbombed, and had a “butterfly” protest statement thrown at him Photograph: Daniel Roland/AFP/Getty Images

The European Central Bank has now issued a formal response:

Statement on incident at ECB press conference

The European Central Bank’s press conference was briefly disrupted by a protester today, who jumped on to the stage and threw confetti. Staff from the ECB are investigating the incident.

Security staff took immediate and effective action.

Initial findings suggest that the activist registered as journalist for a news organisation she does not represent. Like all visitors to the ECB, she went through an identity check, metal detector and x-ray of her bag, before entering the building.

ECB President Mario Draghi remained unharmed and calmly proceeded with the press conference. <end>

Here is a copy of the paper thrown at Mario Draghi today, accusing the ECB of arrogance and creating human disasters through its policies (thanks to Pete Spence of the Telegraph).

There is a Femen activist called Josephine Witt (short profile here), although the statement suggests it is an attack on austerity rather than the patriarchy.

Updated

Today’s incident feels unprecedented in financial circles; I can’t recall any central bank protestor getting so close to their target before, especially inside the central bank’s own headquarters.

But it’s not the first time the ECB has been a target. Last month, 350 people were arrested after protests disrupted the official opening of the new headquarters in Frankfurt, with several police cars set ablaze.

And the ECB’s decision to hold its monthly meeting in Barcelona in 2012 backfired, with thousands of police on the streets as protest marches took place.

It’s important to note that Draghi is completely unharmed — not too surprising, given confetti doesn’t pose much risk to human health. He certainly got off lighter than WTO Director-General Renato Ruggiero, who in 1999 was hit with cream pies by environmental protesters.

Update: He’s not a central banker, of course, but we shouldn’t forget the attempt to ‘pie’ Rupert Murdoch in 2011 at the UK parliament.

Updated

Police: 21-year-old arrested

A woman is taken away by security after she interrupted a press conference by President of the European Central Bank (ECB) by throwing confettis following a meeting of the Governing Council in Frankfurt / Main, Germany, on April 15, 2015.
. Photograph: Daniel Roland/AFP/Getty Images

Frankfurt police say the protester is a 21-year old woman from Hamburg. She’s currently being questioned.

Updated

The FEMEN activist group have claimed responsibility for the protest.

Femen have previously demonstrated against Vladimir Putin over the Ukraine conflict, and against former IMF chief Dominique Strauss-Kahn.

Updated

Confirmation from Reuters:

  • GERMAN POLICE SAY HAVE DETAINED WOMAN WHO DISRUPTED ECB NEWS CONFERENCE, SHE IS BEING QUESTIONED – RTRS

The women who threw paper and confetti at Mario Draghi is now in custody in Frankfurt, according to Bloomberg.

After the drama:

ECB press conference, April 15 2015
. Photograph: ECB

And that’s the end of the press conference. Unusually, there is a small ripple of applause — which Mario Draghi says is “very comforting”.

A couple of people wander to the front to take photos, but Draghi’s swiftly out of the room before there’s any more drama.

Finally, Draghi takes a question from a group of young people who won a competition to attend today’s press conference.

They ask for his views on the employment market today, and the prospects when they enter the labour market in a couple of years.

Best question of the day, Draghi replies.

The key to improving the eurozone’s labour market is to eliminate “duel market conditions”, he says, so that young people have a fair change of getting employment.

We must make it easier to hire people, cut the time people are unemployed, and change educational structure to make sure people have the right skills. That’s the most important thing.

Finally, a question about the protest. A journalists asks whether the European Central Bank president is OK, as he seems pretty calm.

You’ve answered your own question there, Draghi smiles back.

He then returns to normal business, insisting that economic conditions are improving, and bank lending is improving.

However, the recovery is reliant on the ECB sticking with its monetary policy measures.

Clarification. Another photo just arrived, showing that the protestor was actually saying “End the ECB Dick-Tatorship”. A subtle difference.

A female activist (C) wearing a t-shirt with a slogan reading: ‘ECB Dick-Tatorship’ is subdued by ECB security personnel after an incident at the press conference of the European Central Bank in Frankfurt, Germany, 15 April 2015.
. Photograph: Boris Roessler/EPA

Updated

The European Central Bank says it is “investigating” today’s protest:

If you’re just tuning in, you can watch Mario Draghi’s press conference online here. He’s now covering weighty monetary policy issues, and their role in underpinning the eurozone recovery.

Amazingly, no-one has actually asked a question about the protest (“Are you OK, Mr Draghi?” might be a good place to start).

The ECB chief says that the press conference will run for another 10 minutes to make up for the time lost when it was dramatically disrupted.

Mario Draghi appears to be unshaken by the incident. He is now fielding questions about the eurozone. He says that he doesn’t even want to contemplate the possibility that Greece might default on its debts.

And he points to Spain as a success story, saying it is experiencing a “strong and employment rich recovery, supported by labour market reform”.

Bloomberg have uploaded a video clip too.

It shows that the protester was shouting “End the ECB dictatorship” before being bundled out.

Updated

Mario Draghi’s opening statement is now online here (without any reference to the disruption)

Here’s Associated Press’s early take on the protests:

A female protester interrupted the European Central Bank’s press conference on Wednesday, screaming “End ECB dictatorship” while she rushed the stage and threw what looked like confetti.

The action happened as ECB President Mario Draghi was delivering opening remarks after the bank’s latest policy meeting.

Draghi reappeared on stage a few minutes later and carried on with his remarks.

Some activists accuse the ECB of trying to enforce budget austerity measures on eurozone countries, such as Greece, that are under financial bailout programs.

Photos: Protester disrupts ECB press conference

Here are photos of the moment that the European Central Bank’s press conference was disrupted by a protester shouting “end the ECB dictatorship.” [see earlier blogpost onwards]

It shows she threw paper and confetti at the head of the ECB, Mario Draghi, before being carried out of the room:

A woman disrupts a press conference by Mario Draghi, President of the European Central Bank, (ECB) following a meeting of the Governing Council ain Frankfurt / Main, Germany, on April 15, 2015. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
. Photograph: Daniel Roland/AFP/Getty Images
Security officers detain a protester who jumped on the table in front of the European Central Bank President Mario Draghi during a news conference in Frankfurt, April 15, 2015. The news conference was disrupted on Wednesday when a woman in a black T-shirt jumped on the podium. REUTERS/Kai Pfaffenbach
. Photograph: Kai Pfaffenbach/REUTERS
A woman interrupts a press conference by Mario Draghi, President of the European Central Bank (ECB) following a meeting of the Governing Council in Frankfurt / Main, Germany, on April 15, 2015. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
. Photograph: Daniel Roland/AFP/Getty Images
Security officers detain a protester who jumped on the table in front of the European Central Bank President Mario Draghi during a news conference in Frankfurt, April 15, 2015. The news conference was disrupted on Wednesday when a woman in a black T-shirt jumped on the podium. REUTERS/Kai Pfaffenbach
. Photograph: Kai Pfaffenbach/REUTERS

Updated

Draghi has also played down concerns that the ECB’s QE stimulus programme will struggle to find enough eurozone bonds to buy.

Updated

Draghi is now taking questions from the media – no-one has asked if he’s OK following the attack, though.

Asked about Greece, he says that the ECB will support the Greek banks for as long as they are solvent. The ECB has now extended €110bn to the Greek financial sector, he adds.

Draghi concluded his statement by warning that the eurozone needs more supply side measures to tackle its high structural unemployment & low potential output growth.

Draghi appears completely unruffled by the disruption, and has returned to his statement.

He says the ECB is monitoring inflation closely, and still expects inflation to rise back towards its target in 2016 and 2017.

Here’s a better photo of the moment that Mario Draghi’s press conference was dramatically disrupted a few moments ago.

OK, we’re back now — Mario Draghi is unhurt, and he’s continuing with his opening statement.

A remarkable security breach, though — this press conference is taking place inside the ECB’s headquarters.

It looks like the protestor threw confetti at the ECB chief.

Updated

The protestor has been removed from the room, and the press conference has been suspended.

ECB press conference disrupted

Mario Draghi has then been dramatically cut off, as a woman rushed to the front press conference repeatedly shouting “End ECB dictatorship. End ECB dictatorship”*

She also threw something at the ECB chief – which looked like paper.

Updated

Press conference begins

Mario Draghi starts cheerfully, saying he’s “very pleased” to welcome the media to the press conference.

He confirms that the ECB began its stimulus programme as planned. It is proceeding smoothly.

There is “clear evidence” that the policy measures we have put in place are effective, he declares. Borrowing conditions for firms and households have “improved notably”.

The press room in Frankfurt is nicely packed…and there’s a burst of camera action as Draghi arrives.

Draghi
. Photograph: ECB

Angst breaking out across finance Twitter

Umm no sign of Mario yet….

Maybe the lifts are broken again, like in January…..

Mario Draghi’s press conference is being streamed live, here.

Reminder: we want to hear Mario Draghi’s views on his QE programme, Greece, and the state of the eurozone, when the press conference starts in around 5 minutes.

Updated

Lunchtime summary: Stock markets at 14-year high ahead of ECB

A quick recap.

The European Central Bank has voted to leave eurozone interest rates at their current record lows.

ECB president Mario Draghi will hold a press conference at 1.30pm BST (2.30pm Frankfurt), where he’s expected to discuss the state of the eurozone economy and the early success of his QE programme.

He may be asked whether the bond-buying programme could end early, if it’s successful.

European stock markets have hit their highest levels in 14 years, and the euro has fallen back, as investors prepare for this afternoon’s ECB press conference.

Traders are calculating that central banks will maintain accommodative monetary policy for some time, with the eurozone still in negative inflation and China’s economy slowing.

Nick Gartside, fund manager at JPM Global Bond Opportunities Fund, explains:

Globally investors should bear in mind this is not the time to fight central banks.

Powerful policies are forcing bond investors to sell bonds back to the central banks and redeploy those assets, and we cannot forget how much this supports risk assets.”

That’s helped to drive the FTSE 100 to a new alltime high, over 7100 points for the first time.

European stock markets, 1pm, April 15 2015
European stock markets, 1pm, April 15 2015 Photograph: Thomson Reuters

German bonds are hitting new highs, driving the interest rate on its 10-year bonds close to zero.

It’s been a worrying morning for Greece, though.

Slovakia’s finance minister has warned there is little chance of a deal to unlock aid next week, meaning:

“Greece is moving ever closer to the abyss.”

And new budget data has shown that Greece only achieved a primary surplus of 0.4% last year, well below target [details here].

The Kathimerini newspaper says this raises fresh fears over Greece’s financial health.

The budget figures show “that Greece needs external financing not just to meet redemptions but also to meet its current financing needs,” said James Nixon, chief European economist at Oxford Economics in London.

“There’s very little appetite in Europe to extend significant lending to Greece, and so that means that effectively there will be a demand for renewed austerity and further fiscal tightening.”

ECB leaves interest rates at record lows

FRANKFURT AM MAIN, GERMANY - JANUARY 21: The symbol of the Euro, the currency of the Eurozone, stands illuminated on January 21, 2015 in Frankfurt, Germany. The European Central Bank (ECB) is schedule to meet tomorrow and announce a large-scale bond buying program. The Euro has dropped sharply against the U.S. dollar in recent months. (Photo by Hannelore Foerster/Getty Images)
. Photograph: Hannelore Foerster/Getty Images

It’s official: The European Central Bank has voted to leave the key interest rates across the eurozone unchanged, at today’s meeting.

That means the benchmark rate remains at its lowest level ever, at 0.05%. Banks will still be charged 0.3% for overnight borrowing from the ECB, and hit with a negative interest rate of -0.2% for leaving cash in the ECB’s vaults.

  • ECB SAYS LEAVES BENCHMARK REFINANCING RATE UNCHANGED AT 0.05%
  • ECB SAYS LEAVES INTEREST RATE ON MARGINAL LENDING UNCHANGED AT 0.30%
  • ECB SAYS LEAVES INTEREST RATE ON DEPOSIT FACILITY UNCHANGED AT -0.20%

Here’s the statement. Now we must await Mario Draghi’s press conference, in just under 45 minutes.

Heads-up, the ECB is about to announce the decisions on monetary policy taken at today’s meeting:

Slovakia: Greece is close to the abyss

Slovak finance minister Peter Kazimir has thrown cold water on hopes of a breakthrough in the Greek bailout talks next week.

Speaking after a cabinet meeting in Bratislava, Kazimir warned that Greece is heading towards ‘the abyss”.

Reuters has the details:

“Given the we have lost a lot of time, I am sceptical,” Kazimir told reporters after a Slovak cabinet meeting when asked if he believed the Riga meeting could bring a breakthrough.

“Greece is moving ever closer to the abyss.”

Kazimir is a member of the Eurogroup, which will meet next Friday in Riga. Greece hopes that this will unlock some aid (as we reported last night).

However, German finance ministry spokesman Friederike von Tiesenhausen has just warned reporters in Berlin that talks are deadlocked:

He also denied this morning’s rumour that Germany was preparing for Greece to default.

The damage suffered by the Greek economy in the last four years has been exposed by new fiscal data published by statistics body Elstat this morning.

The figures confirm that Greece’s GDP shrank from €207bn in 2011 to €170bn in 2014.

And that means its national debt swelled from 171% of GDP to 177% GDP last year, despite the billions of Greek debt being written down in 2012 and heavy spending cuts.

The report also shows that Greece posted a small primary surplus [ie, ignoring debt repayments] of 0.4% of GDP in 2014; much lower than the 2% estimated by the previous Greek government last October.

Greek fiscal report
Greek fiscal report Photograph: Elstat

The broader deficit was 3.5% of GDP, slightly above the 3% target set by Brussels.

Today’s antitrust charge against Google over its Shopping service could be just the start, says competition commissioner Margrethe Vestager.

She’s briefing reporters in Brussels now, explaining that other services are also under the Commission’s microscope as it tries to ensure consumers aren’t exploited.

Vestager is also denying that there’s an anti-American tinge to the probe.

Brussels hits Google with antitrust charge

After five years of work, the European Commission has just hit Google with a charge that it abuses its dominant position in the search industry.

The case relates to Google’s shopping service; the EC says the search giant stifles competition by favouring its own pages.

Brussels has also opened a separate investigation into Google’s Android operating system.

Competition chief Margrethe Vestager says:

“I have also launched a formal antitrust investigation of Google’s conduct concerning mobile operating systems, apps and services. Smartphones, tablets and similar devices play an increasing role in many people’s daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints imposed by any company.”

Antitrust: Commission sends Statement of Objections to Google on comparison shopping service; opens separate formal investigation on Android

More to follow…

The Eurozone Rumour Mill is grinding hard this morning, with Germany’s Die Zeit newspaper claiming that Angela Merkel’s government is preparing a plan to keep Greece inside the euro area even if it defaults.

According to Die Zeit, Germany fears that Greece could soon miss a debt repayment, and could be prepared offer concessions if Athens can show its committed to reforms.

The German government is declining to comment…

The drop in short-term borrowing costs in the eurozone is truly remarkable, with only Greece missing out:

The Greek government has cleared one, rather small, hurdle this morning by auctioning over €800m of three-month debt.

This will cover the cost of repaying three-month bonds which mature soon. The debt was almost certainly bought by Greek banks, who will receive a yield of 2.7% [so Athens must pay much more to borrow until July than Berlin would pay to borrow until 2045]

Update: German’s ten-year government bonds just hit a new record high:

  • GERMAN 10-YEAR BUND YIELD FALLS TO RECORD LOW BELOW 0.1291%

Remarkable scenes in the bond markets today – German 30-year sovereign debt is changing hands at an effective interest rate of just 0.57%.

German 10-year bunds are now yielding just 0.13%, meaning Berlin can borrow for basically nothing for the next decade. And eight-year bund yields turned negative yesterday, meaning they’re worth more than their face value.

We can thank Mario Draghi for this situation. Under the ECB’s quantitative easing programme; it can buy bonds at negative yields as long as they’re not below its own deposit rate of -0.2% (what it charges banks to leave funds in the ECB vaults). Traders are piling into eurozone bonds, confident that they can sell them to Frankfurt at a guaranteed profit.

German two-year bond yields are already below this mark, at -0.27%. Some economists suggest the ECB may be forced to cut the deposit rate even lower, to find enough bonds to meet its QE targets.

The Turkish lira isn’t a pretty sight this morning — it just hit a record low against the US dollar.

Investors are getting jittery about June’s general election, and the sustained pressure which president Recep Tayyip Erdoğan is putting on Turkey’s central bank.

Erdogan has pushed hard for interest rate cuts to stimulate the economy, despite Turkey’s inflation rate rising to 7.6% last month.

His wider goal, if his AK party secures a sizeable victory in the election, is to rewrite Turkey’s constitution to create a full-blown presidential system giving him a tighter grip on power [officially the presidency is a ceremonial role, but Erdogan, a former prime minister, has other ideas, putting him at odds with his successor].

Nour Al-Hammoury, chief market strategist at ADS Securities in Abu Dhabi, is also keen to hear about how Mario Draghi might end his stimulus programme:

No one is expecting the ECB to change their policy, but questions will be asked about the length of the QE programme if European economies continue to grow more quickly than expected.

Investors will want to know whether the ECB has revised its exit strategy.

Mario Draghi could send the euro soaring if he gives any suggestion that his QE programme will be curtailed earlier than planned.

Currently the ECB is committed to buying €60bn of government bonds, and other debt, per month until September 2016. But there is speculation that it could ‘taper’ the plan if it succeeds in driving inflation and growth.

Ilya Spivak of DailyFX explains:

“The Eurozone economy has shown some signs of life in recent months and the central bank chief will almost certainly have to field questions about the possibility that QE will be cut short if growth and inflation mend faster than expected.

Rhetoric opening the door to such a possibility may be interpreted as a relative shift away from the ultra-dovish extreme on the policy outlook spectrum, boosting the Euro.”

Euro versus dollar, 2005-2015
Euro versus dollar over the last decade. Photograph: Thomson Reuters

The euro is currently worth $1.0607, close to its lowest level in 13 years. A weak single currency should help push inflation up, so Draghi is likely to dampen talk of tapering.

Updated

The FTSE 100 has just nudged a new record high of 7102 points.

High street chain Next is leading the way, up 2.3% after JP Morgan raised its price target.

Tony Cross of Trustnet Direct says the Chinese slowdown is the big story in the City this morning:

The big point of interest is the swathe of economic data we saw released from Beijing overnight – headline GDP was as expected at 7%, but a number of other readings fell short of expectations. However, rather than this initiating another rally for local markets, there’s growing concern that Chinese stocks are in bubble territory and as a result many traders have remained sidelined.

The Shanghai stock index has surged by a remarkable 28% this year, as retail investors pile into shares despite signs the economy is weakening. This kind of exuberance doesn’t always ends well….

Chinese investors look at prices of shares and the Shanghai Composite Index at a stock brokerage house in Shanghai today.
Chinese investors look at prices of shares and the Shanghai Composite Index at a stock brokerage house in Shanghai today. Photograph: Johannes Eisele/AFP/Getty Images

Here’s your regular reminder of Greece’s looming debt repayments, via Mike Bird of Business Insider.

Updated

I was going to knock up a list of key points to watch out for from the ECB today…. but Bloomberg’s Alessandro Speciale has already nailed it.

Here’s his list of five key points:

  • Must we really start worrying about tapering? (might the ECB end its QE bond-buying programme earlier than planned, if it succeeds in stimulating the economy
  • Are the March forecasts too optimistic? (minutes of the Bank’s last meeting showed some policymakers doubt the forecast of inflation hitting 1.8% in 2017)
  • Will the ECB find enough assets to buy? (some analysts suspect the pool of eurozone bonds could run dry as the QE programme mops them up)
  • What is the latest on Greece? (will the ECB keep providing emergency funding if the April 24 deadline for a deal is missed?)
  • Is there progress on structural reforms? (Draghi will surely repeat his regular plea to eurozone politicians not to slacken off)

European markets calm after Chinese growth slows

A woman walks at the Bund in front of the financial district of Pudong in Shanghai, in this March 5, 2015 file photo. China’s economy grew 7.0 percent in the first quarter of 2015, as expected but still its slowest rate in six years, reinforcing bets that policymakers will take more steps to bolster growth. REUTERS/Aly Song/Files
Shanghai’s financial district.

European stock markets are inching higher in early trading, as we await the ECB’s press conference this afternoon.

The FTSE 100 is up 10 points, with investors digesting the news overnight that China’s economy grew at its slowest pace in six years.

Chinese GDP expanded by an annual rate of 7% in the January-March quarter, according to government data, broadly in line with forecasts (and official targets).

But the underlying picture is less healthy, as Reuters explains:

Activity indicators, which are regarded as a more accurate picture of the economy, were all weaker in March than expected. Factory output climbed 5.6% in March from a year ago, below forecasts for a 6.9% gain.

Most tellingly, China’s power usage declined 3.7% compared with the previous year, the biggest drop since late 2008, when China’s economy was hit by the global financial crisis.

And that could mean more stimulus measures from Beijing…..

Updated

Greek bond yields spike on default fears

There’s an early selloff in Greek bonds this morning, despite the government claiming it will reach a deal with creditors next week.

Traders have driven the yield (or interest rate) on 10-year Greek bonds over 12%, from 11.9% last night.

Overnight, Bloomberg quoted an “international official” who said the two sides are not moving closer to a deal:

The Greek government’s refusal to proceed with any privatizations, and its pledges to reverse labor-market reform, pension reform and budget savings can’t be accepted by the country’s creditors, the official said, asking not to be named as talks between the two sides are not public.

Brussels insiders have been consistently less optimistic than their Greek counterparts since this crisis began.

The Agenda: It’s ECB Wednesday

The European Central Bank’s headquarters in Frankfurt.
The European Central Bank’s headquarters in Frankfurt. Photograph: Boris Roessler/EPA

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

The European Central Bank is top of the agenda today, as it holds its latest monetary policy committee meeting.

No, don’t adjust your calendars – it’s not Thursday already; the ECB is gathering a day earlier than usual so Mario Draghi can jet off to Washington for the International Monetary Fund’s Spring Meeting.

We’re not expecting any changes to eurozone interest rates (they can hardly go much lower, and it would be madness to raise them), so the real action comes at 1.30pm BST (2.30pm Frankfurt time) at Draghi’s press conference.

The ECB chief will be quizzed about his new QE bond-buying programme, which is giving the eurozone a much needed boost, and the state of the wider economy.

Stan Shamu of IG suspects Draghi will sound upbeat:

The press conference deserves some attention given Mario Draghi could make some positive commentary around signs of improvement in the economy.

Draghi’s views on the Greek crisis will also be worth hearing (as ever), as we tick towards another crunch deadline.

The ECB is understood to have thrown Athens a small lifeline last night, by offering its banks another €800m in emergency funding. That takes the total liquidity available to €74bn; Reuters reckons there’s around €4bn left.

Greece continues to loom over the markets today, amid speculation that it won’t reach a deal with its creditors at the next eurogroup meeting on 24 April.

Last night, deputy foreign minister Euclid Tsakalotos rejected such talk, declaring:

“I am absolutely confident an agreement will be reached on 24 April. Deals are always done five or three or one minute before midnight, it’s not unusual that they should go right to the brink.”

Or occasionally, right over the brink…..

I’ll be tracking all the main events through the day.

Updated

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Financial markets focused on the more downbeat indicators of construction and industrial production that some say might be a sign that the UK economy may be losing steam along with its largest trading partner the eurozone…

– >

Powered by Guardian.co.ukThis article titled “Official data points to loss of momentum in UK economy” was written by Katie Allen, for The Guardian on Friday 9th January 2015 16.30 UTC

Further evidence of a slowing British economy came on Friday as official figures showed a surprise drop in construction in November and falling industrial output as oil and gas output declined sharply.

But the data showed a bounceback in factory output that buoyed hopes for the manufacturing sector and good news on exports suggested UK companies could weather troubles in their biggest trading partner, the eurozone.

Financial markets focused on the more downbeat indicators, taking them as the latest evidence the economy lost steam in the final months of 2014. The pound lost ground against the dollar as traders bet the Bank of England would be in no hurry to raise interest rates from their record low, given the mixed signals on the economy.

“Disappointing official data are adding to survey evidence which indicate that the rate of UK economic growth slowed towards the end of last year,” said Chris Williamson, chief economist at data analysts Markit.

“Looking at all of the official statistics and survey evidence currently available, the data collectively point to the economy growing 0.5% in the fourth quarter, down from 0.7% in the third quarter,” he added.

While economists said it was too soon to say whether the slowdown at the end of the year continued into 2015, the latest figures will be unwelcome to the Conservatives as they seek to convince voters that the recovery remains on track.

“On balance, there is further evidence that UK growth is slowing as we head towards the general election,” said Simon Wells, chief UK economist at HSBC.

Among the bright spots for the economy in a clutch of reports from the Office for National Statistics was the news that manufacturing output rose by 0.7% in November, reversing October’s fall and beating economists’ expectations for growth of just 0.3%. On the year, output was up 2.7%.

But the wider industrial sector which also includes utilities, mining and oil and gas production, fell 0.1%. That drop was driven largely by a 5.5% fall in oil and gas output. The ONS said the weakness was partly down to maintenance work at two North Sea oil fields.

Respected thinktank the National Institute of Economic and Social Research said following the latest industrial production numbers it estimated growth slowed to 0.6% in the final three months of last year, after 0.7% in the three months to November 2014.

Separate official figures from the construction sector showed output fell by 2.0% on the month in November, defying economists’ forecasts for growth and contrasting with surveys of the sector.

The news on trade was more encouraging, however, as the ONS reported the narrowest trade deficit since June 2013.

The manufacturing sector is still not back to its pre-crisis strength and exports have not grown as fast as the government would have hoped. Progress has been slow in the government’s push to rebalance the economy away from overdependence on domestic demand, but some economists are predicting a strong 2015 for manufacturing.

A drop in oil prices to their lowest level in more than five years has buoyed hopes for the sector. Maeve Johnston at the thinktank Capital Economics cautioned it was far from certain oil prices will remain so low, but the fall should help “reinvigorate the recovery”.

“Indeed, if low oil prices are sustained, it should greatly reduce costs for the manufacturing sector, providing some welcome support over 2015. And sustained low oil prices would also ensure that the improvement in the trade deficit proves to be more than a flash in the pan,” she said.

The trade numbers beat expectations as the ONS reported the goods trade gap narrowed by £1bn to £8.8bn in November, as exports edged down but imports fell faster. Economists had forecast a £9.4bn gap. The less erratic figures for the three months to November showed exports grew by £2bn and imports shrank by £0.5bn.

The details showed exporters continued to benefit from targeting markets beyond the deflation-hit eurozone. Exports to countries outside the European Union increased by £2.1bn, or 6.0%, in the three months to November from the previous three months. Exports to the EU decreased by £0.1bn, or 0.3%. At the same time, the UK recorded its largest ever deficit with Germany, reflecting a decrease in exports and a slight increase in imports.

The trade gap for goods and services taken together fell to its lowest since June 2013, at £1.4bn in November.

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The latest US growth figures show America has recovered from its winter contraction. US GDP grew by annualized rate of 4.0% in Q2, while the Q1 reading was revised higher to show a smaller contraction by 2.1%. More details here…

 


Powered by Guardian.co.ukThis article titled “US economy beats forecasts with 4.0% growth – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 30th July 2014 13.23 UTC

Ben Brettell, Hargreaves Lansdown Senior Economist, is encouraged that the US economy has bounced back faster than expected.

“The rebound was driven by lower energy prices, strength in the manufacturing sector and increased demand for exports. A healthier labour market is boosting consumer confidence, which is at a near-seven-year high.

However, the IMF and the Federal Reserve disagree on prospects for the year as a whole, with the IMF forecasting a disappointing 1.7% and the Fed a more optimistic 2.1%-2.3%.

Paul Ashworth, chief US economist at Capital Economics, reckons the Fed will raise US interest rates in eight months time.

This GDP report supports our view that an improving economy will persuade the Fed to begin raising rates in March next year.

US GDP reaction starts here

Nancy Curtin, CIO at Close Brothers Asset Management, says that growth in the US has stepped up a level in recent months.

“The US economy has a spring back in its step after the disastrous impact of arctic conditions in the first quarter. Since the weather abated, data has been broadly positive.

Strong figures for the service sector combined with resurgent consumer confidence and improving manufacturing all hinted at a revival in fortunes, and the second quarter reading has delivered in spades.”

US dollar rises after GDP report

The US dollar has rallied on the back of the US GDP report, gaining 0.2% against both the pound and the euro.

Traders are calculating that the growth report means the Federal Reserve is likely to raise interest rates a little earlier than before.

Dovish Fed members, though, are likely to remain focused on the US labour market. As Janet Yellen pointed out to senators this month, wage growth remains weak.

A stronger dollar is also good news for the eurozone:

Reminder: Fed policymakers are meeting today, and are expected to trim their stimulus programme by $10bn per month, from $35bn to $25bn.

Neil King, the WSJ’s global economics editor, isn’t getting carried away with excitement either:

Don’t forget, GDP estimates can go down as well as up.

As our US business and economics editor Heidi Moore tweets, a growth rate of 4.0% per year may prove too good to be true:

Updated

US GDP: some detail

So, what drove the US recovery in the second quarter?

Consumers played a big role. The Commerce Department says consumer spending grew by 2.5%, with Americans buying more long-lasting manufactured goods. Spending on services also rose.

But some economists are worried that the growth figures are flattered because companies expanded their inventories – stocking up on goods and materials for the future.

Inventory building provided around a third of the total growth recorded in Q2.

Business investment, government spending and investment in home building all picked up too.

And exports jumped by 9.5%, having slumped by 9.2% in the first quarter — as ice and snow hampered US companies.

The Commerce Department has also revised last year’s GDP figures — showing that America grew more rapidly than previously estimated in 2013.

The revisions to Q1 GDP means that the US economy has grown by 0.9% so far this year.

More good news. The US economy did not shrink as badly as feared in January-March.

The Commerce Department has revised up its estimate of GDP in the quarter, to an annualised rate of -2.1%, from -2.9% before.

US economy grew by 4.0% annualised rate in Q2 – beating forecasts

Breaking: The US economy grew by 4% on an annualised basis in the second three months of 2014.

That’s a much stronger bounceback than expected, and means US GDP rose by 1.0% on a quarter-on-quarter basis.

America has put its winter contraction firmly behind it — that’s going to calm some nerves. Bloomberg are calling it a “really strong” report.

Encouragingly, business investment has risen strongly during the quarter — by 5.5%.

Lots more detail and reaction to follow!

Updated

US growth figures: a preamble

The waiting is nearly over…. We’re about to find out whether the US economy has bounced back from its winter contraction.

The first estimate of America’s GDP for April-June is due shortly, at 8.30am Washington time or 1.30pm BST.

Economists think GDP will rise by around 0.7% to 0.8% in the quarter, showing the economy is growing at an annualised rate of around 3%.

A strong reading would suggest America’s economy is back on track. A weak reading, though, will raise fears over the strength of the global recovery….

Interesting….trading has been suspended on the Moscow stock market. No reason was given, according to Reuters….

Russian shares rise after sanctions, but trouble lies ahead

Russia’s stock market has shrugged off the sanctions announced by the US authorities last night.

The RTS index of the largest Russian companies has jumped by 2.3% so far today, with almost every share gaining ground.

And the Russian currency has also strengthened, to 35.8 rubles to $1, from 35.8 last night.

Moscow investors may have been reassured by Russia‘s central bank, which has pledged to support the financial institutions hit by US sanctions.

In an online statement, the bank promised to “take adequate measures” to support targeted institutions.

The long term consequences of the deterioration of relations between Russia and the West could be severe, though.

David Savage, sanctions expert at law firm Eversheds, warns that Russia’s economic growth will suffer:

“This latest wave of sanctions should come as no surprise. The impact of these far-reaching measures is as yet unknown, but with both the EU and the US imposing further restrictions on Russia’s financial sector, as well its weapons and energy industries, it seems likely that the Russian economy will increasingly stagnate over the coming months.

The corollary of this, of course, is that EU and US companies with Russian interests are also likely to experience some financial discomfort going forward.”

And there’s a good piece in the FT about the end of a “25-year chapter with Russia”

Barclays chief executive, Antony Jenkins, apparently supports the proposed tough rules for the City ‘in principle’:

The British Bankers’ Association is concerned that the new rules on bonus clawbacks and management accountability could make it hard for the City to hire and keep staff.

Really? These new rules (details) should only affect bankers who make an almighty botch of the job – Britain’s had its fair share of them, thanks.

Associated Press is reporting that the central bank of Albania has been burgled, losing 713 million leke (or just over £4m), from its reserve storage building.

Two bank employees have been arrested, according to AP, which adds:

The Bank of Albania, which is in charge of the country’s price stability and manages 16 private banks, said Wednesday that the cash was stolen over time. It did not provide further details, but insisted that the bank’s operations had not been affected and it was supplying the country’s banking system with the necessary liquidity.

Local media reported that one of the suspects acknowledged the theft over the last four years, saying he had spent much of the money on gambling. The bank, police and judicial authorities declined to comment on the report.

A Greek update

Over to Greece where the government has forged ahead with a series of steps aimed clearly at placating international creditors and the population at large.

Our correspondent Helena Smith reports on this week’ developments:

After appointing a new team to head the country’s privatization agency – the fifth such change since 2012 – finance ministry officials signaled that a major shift in doing business with foreign lenders keeping the country afloat was also underway.

Instead of holding talks in Athens, the next round of negotiations, currently scheduled for September, would take place in the neutral setting of Paris, they said, before mission chiefs and technical teams representing the EU, ECB and IMF wrap up the review with a quick visit to the Greek capital at the end of the month. “The spectre of the troika coming in for long, drawn out talks will, we hope, soon belong to the past,” one insider confided. “We want to de-dramatise the process.”

With the prospect of early elections a distinct possibility if political parties fail to muster enough votes to elect a new president in February, the ruling coalition is keen to avoid political tensions at a time when the stridently anti-austerity main opposition Syriza party, the victor of Euro elections in May, is gaining ground.

Prime minister Antonis Samaras has reportedly beseeched troika heads to change the location of the of talks for several months arguing that the presence of international monitors on such a regular basis in the Greek capital is not only fuel for the fire of anti-bailout but severely undermining for the government itself and the morale of Greeks at large.

Ministers – targeted by anti-bailout protestors from unionists to sacked cleaners – have frequently complained of the drama surrounding such visits including the lack of respect the international mission chiefs have often displayed for politicians in Athens.

The Greek finance minister Gikas Hardouvelis, an economics professor appointed to the post in June, will no doubt see the change of tact as particularly encouraging, Helena adds:

The no-nonsense Hardouvelis, who has promised to implement a number of reforms in what he says will be an “American August,” has openly spoken of changing the timbre of relations with the troika, insisting that the enormous sacrifices made by Greeks have to be respected. The academic came to the job asking that lenders split their review of the economy in two parts between fiscal and structural goals and the finding gap the debt-stricken country s likely to face in 2015. Ministers hope the shift will help Athens negotiate a new memorandum that Greeks will feel they own – many currently feel that bailout terms have been thrust upon them.

The government hopes, meanwhile, to show creditors that it also means business, tabling a huge omnibus bill of reforms in parliament on Tuesday signed by 13 ministers. The far-reaching legislation – changes range from new tax laws to relaxation of commercial activities on Greek seashores – is due to be voted on by August 8 and is key to the country receiving its next 1 bn euro aid installment in September.

Similarly, Greek officials hope that the new team overseeing the sale of state assets will kick-start long delayed privatizations even if they also concede that the process will likely be linked to debt reduction talks that the government hopes to launch in the fall.

Updated

Back in the eurozone, and Ireland’s unemployment rate has fallen to 11.5% in the latest sign that its economy is slowly healing.

The number of people on the ‘Live Register’ fell by 3,400 in July to 382,800, on a seasonally-adjusted basis.

So far this year, the Irish jobless total has dropped by 8.5%.

Some instant reaction to the new proposals to raise standards in British banking:

(that’s the clock will start ticking when the bonus is awarded, rather than waiting until they are actually paid)

(this ‘bright idea’ was proposed by the ResPublica thinktank yesterday)

UK bankers face tougher bonus clawbacks and a new ‘approval regime’

It’s official: British bankers could see their bonuses clawed back seven years after they are granted, under new rules to clean up the City.

Bonuses will also be held back for longer, to give more time for incompetence or malpractice to come to light.

Britain’s financial watchdogs have also proposed a “new approval regime” for senior executives who could cause “serious harm” to customers, or bring a bank crashing down.

That will force banks to explain exactly who is responsible for what, making it harder for top bankers to evade responsibility. And new conduct rules will spell out the behaviour expected from them.

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) say their joint proposals “will make it easier for firms and regulators to hold individuals to account”.

Here are the key proposals to improve accountability:

  • A new Senior Managers Regime which will clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and require banks to regularly vet their senior managers for fitness and propriety;
  • A Certification Regime requiring firms to assess fitness and propriety of staff in positions where the decisions they make who could pose significant harm to the bank or any of its customers; and
  • A new set of Conduct Rules, which take the form of brief statements of high level principle, setting out the standards of behaviour for bank employees.

And on pay:

  • Increasing the alignment between risk and reward over the longer term, by requiring firms to defer payment of variable remuneration (e.g. bonuses) for a minimum of five or seven years depending on seniority, with a phased approach to vesting;
  • Further enhancing the ability of firms to recover variable remuneration, even if paid out or vested, from senior management if risk management or conduct failings come to light at a later date;
  • Options to address the problem that employees can sometimes evade the application of malus – reductions in unvested awards – by changing firms; and
  • Strengthening the existing presumption against discretionary payments where banks have been bailed out.
  • The PRA has also today published final rules on clawback which introduce a seven-year minimum period for clawback from the date of award. These rules will come into force on 1 January 2015.

The curious case of Barclays’ vanishing compensation ratio

Back to Barclays’ results — and City experts are scratching their heads wondering why it has stopped telling us how much money is being set aside for its investment bankers.

City editor Jill Treanor explains:

One of the numbers analysts and journalists look for in Barclays’ numbers is the compensation to income ratio – a measure how much of income is being kept aside to pay investment bankers.

In the first quarter of the year, the figure was 46%, as set out here on p16.

But it seems Barclays, which has been publishing this number on a quarterly basis, is no longer going to do so. The number is not there in the interim results published today and the finance director said today “we don’t disclose this at the half year”.

What price transparency? City veteran Christopher Wheeler isn’t impressed:

Ireland’s finance minister, Michael Noonan, has just welcomed Allied Irish Bank’s first profit since the crisis:

  • IRISH FIN MIN SAYS ALLIED IRISH BANKS RETURN TO PROFITABILITY VERY GOOD NEWS FOR TAXPAYER, MAKES IT A MORE VALUABLE BANK

Allied Irish Bank posts first profit since the crisis

One of Ireland’s state-owned banks is back profit for the first time since the financial crash that brought the Republic to the brink of national bankruptcy.

From Dublin, Henry McDonald reports on this landmark moment in Ireland’s recovery.

Allied Irish Bank, which was rescued by the taxpayer, reported today it has made a €437m profit in the first six months of 2014.

The AIB received more than 20 billion euros in state aid since 2009 and was one of the banks that over-lent to builders and property speculators during the Celtic Tiger boom.

In Northern Ireland and Britain AIB operates under the name First Trust Bank.

Return to profitability comes as the Irish banking sector prepares for a European wide financial stress test in the autumn carried out by the European Central Bank.

The head of AIB, which is still 99.8% owned by tax payers, said the recovery in the overall Irish economy had helped the bank back to profitability.

AIB’s chief executive officer, David Duffy, said the bank had “achieved its stated aim of returning to sustainable profitability” with its half year results “reflecting strong improvements” in its performance in several areas.

“As the Irish economy and the bank recovers, we remain focused on growth and maximising value for the Irish State, as 99.8% shareholder, and all other stakeholders over time,” he said.

But like all Irish banks, AIB still faces a major problem – tens of thousands of home owners are still in mortgage arrears, with many of them trapped in negative equity.

Britain’s energy regulator, which has faced accusations of toothlessness in the past, has announced new price proposals that will cut bills, a little.

Ofgem’s plan will see UK electricity bills fall by £1 per month on average, and will also lead to distribution companies spending £17bn upgrading the UK’s energy network.

More here: UK electricity bills to fall by £12 a year, Ofgem says

Updated

A quick round-up of some other corporate news:

Two more UK firms, British American Tobacco and contract caterer Compass, have warned that the strong pound is eating into their profits.

The Brazil World Cup has helped ITV post a 40% surge in pre-tax profits. CEO Adam Crozier says.

“In the first six months of the year, we again delivered double-digit profit growth in every area of the business and increased revenues by 7%.

Rightmove is benefitting from the upturn in the UK property sector, with revenue up 20%.

While new low-calorie sandwiches and a better hot drinks range has lured more customers into Greggs – the UK bakery chain has posted a 3% rise in sales, and a 48% surge in profits.

Heads-up. British bankers are about to be told that they’ll face some of the strictest bonus regulations in the world.

The proposal won’t stop huge payments being handed out, but they will give authorities the ability to claw back bonuses within the next seven years.

This would mean that a banker could be forced to return the cash if unexpected losses come to light, or unexpected losses.

The banking watchdog, the Prudential Regulation Authority, will announce the plans at 10am.

Sky News reckons the PRA has abandoned the idea of making the bonus rules retrospective, though.

David Roman of the Wall Street Journal also flags up that Spain’s economy is outpacing most European rivals.

Economists say this level of growth [+0.6% in Q2] is likely to make Spain the best or one of the best economic performers in the euro zone in the quarter, largely due to a series of effective economic reforms and because of a rebound effect after a long economic slump

Updated

Bloomberg’s Maxime Sbaihi reckon’s Spain’s economy is growing faster than the experts predicted.

The Spanish economy does now appear to be outperforming the rest of the eurozone — which is most unlikely to match Spain’s 0.6% growth in the last three months.

Both France and Germany are expected to report lacklustre growth.

Updated

Spanish growth hits six-year high, but prices fall

Spain has taken another major step away from the darkest days of the eurozone crisis, by posting its strongest growth since the financial crisis began.

Spanish GDP rose by 0.6% in the second quarter of 2014, its National Statistics Institute reported.

That’s stronger than the 0.5% expected, and means growth accelerated from the 0.4% growth in January-March.

Over the last year, Spanish GDP has risen by 1.2%.

Another welcome signal that the Spanish economy is recovering – hopefully it will drag down its record unemployment levels (currently 24.5%).

However, Spain is also being hit by the deflationary pressures in the eurozone.

New inflation figures, also just released, show that the consumer prices index fell by 0.3% annually in July.

That means that nominal GDP (growth plus inflation) remains weak, at just +0.3.

No major drama on Barclays’ early conference call.

Finance director Tushar Morzaria did confirm that US authorities have another year to assess whether its foreign exchange operations have broken the law (as Jill flagged up earlier).

Reuters sums it up:

  • BARCLAYS FINANCE DIRECTOR SAYS NET HEADCOUNT DOWN JUST UNDER 5,000 SO FAR THIS YEAR
  • BARCLAYS FINANCE DIRECTOR SAYS NON-PROSECUTION AGREEMENT WITH US DOJ EXTENDED BY 1 YEAR MAINLY FOR FURTHER ASSESSMENT OF FX MARKET ACTIVITIES
  • BARCLAYS FINANCE DIRECTOR SAYS CONFIDENT LEVERAGE RATIO WILL BE GREATER THAN 4 PCT IN 2016 AND BEYOND

Joshua Raymond of City Index is worried that Barclays investment bank suffered such a steep fall in profits, down almost 50% in the last six months.

He warns:

What will be troubling for some investors is not just the fact that investment banking continues to sap underlying numbers for the group as a whole, but the deterioration in the last quarter and the potential impact on the group’s full-year performance unless market activity picks up.

Barclays shares rise

Barclays shares have jumped 3% at the start of trading, putting it at the top of the FTSE 100 leaderboard.

City traders clearly aren’t worried that it has set aside another £900m to compensate PPI customers, or that profits at its investment bank halved.

There are some encouraging signs in today’s results.

For example, Barclays’ Personal and Corporate Banking division has cut its bad loans, thanks to “the improving UK economic environment”..

Buried in Barclays results statement is the news that the US Department of Justice has extended its “non-prosecution agreement” for another year.

That gives the DoJ another 12 months to decide whether Barclays foreign exchange operations have broken any US laws.

Several inquiries are underway into whether FX traders conspired to fix currency rates.

Barclays sets aside another £900m for PPI mis-selling

Britain’s PPI mis-selling scandal has taken another twist this morning.

Barclays, Britain’s third-biggest bank, has hiked its provision for compensating customers who were wrongly sold payment protection insurance protection by a futher £900m.

That pushes Barclays total PPI bill towards £5bn — a remarkable bill for selling insurance products which its customers simply didn’t need.

Not quite the image that CEO “St” Antony Jenkins is striving for.

The news comes as Barclays reports a 7% drop in underlying profits. Earnings were driven down by a weaker performance at from investment banking, where revenues slumped by 18% and profits almost halved.

Jenkins, who is trying to reshape Barclays and shrink the investment bank, says:

Performance in the Investment Bank was impacted by the repositioning underway as well as difficult trading conditions in the quarter, but it is where we expected it to be at this point.

US GDP awaited

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

Has America’s economy bounced back from the shock of its winter slowdown? We’ll find out today (1.30pm) UK time, when the first estimate of US GDP for April-June is released.

Economists predict strong growth, of at least 0.7% to 0.8%, or 3% on an annualised basis. That would reverse the unexpected slump in January-March, when annualised GDP shrank by 2.9% as grim winter weather gripped America.

If that doesn’t happen, it will spark fresh concerns over the state of the global economy.

As Michael Hewson of CMC Markets explains:

For some time now we’ve heard all manner of speculation that the slowdown in the US economy seen in Q1 was an aberration, caused by the worst winter in living memory.

The slowdown in Q1, we were told, would be more than offset by a strong bounce back in Q2.

World financial markets will be watching Argentina nervously. It has until the end of today to reach an agreement with its holdout bondholders, or else default on the debt.

Talks have been taking place in New York in a final bid to cut a deal:

Last-ditch New York talks on Argentina debt

Investors will also be digesting the latest raft of sanctions imposed on Russia by the US and EU last night, targeting weapons, energy and finance.

Three large banks – VTB Bank OAO, Bank of Moscow and the Russian Agricultural Bank – have been cut off from the US economy.

Lots of corporate results today, led by Barclays, which is holding a conference call at 8am. A clutch of other companies, including ITV, Taylor Wimpey, Rightmove and Greggs, are also reporting.

And then tonight, the US Federal Reserve ends its monthly meeting — it’s likely to trim its bond-buying stimulus programme by another $10bn/month.

We’ll be tracking all the action through the day.

 

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Live coverage of the latest GDP data, showing that the UK economy is, at long last, larger than in 2008 as it grew by 0.8% in April-June quarter. But on a per capita basis, GDP is still below the peak. Service sector surged, while construction shrank…

 


Powered by Guardian.co.ukThis article titled “UK economy finally above pre-crisis peak, as GDP rises by 0.8% in Q2 – business live” was written by Graeme Wearden, for theguardian.com on Friday 25th July 2014 12.05 UTC

The first quarter of 2008 was also the time in which Northern Rock, stricken by the credit crunch, was formally nationalised by the Labour government.

Northern Rock was later sold to Virgin Money. And today, they’ve announced they are creating 200 new jobs this year, including 120 in the North East.

The announcement coincides with George Osborne’s trip to Newcastle today.

Updated

Here’s a video clip of George Osborne explaining how Britain hasn’t completed the task of recovering from the Great Recession.

Read the news story here

Rather than trudging back to 9.30am, new readers might prefer to read our news story on today’s growth figures:

GDP surpasses pre-recession high as economic growth hits 0.8%

Larry Elliott: Chancellor is right not to be smug

Our economics editor, Larry Elliott, says the chancellor is wise to resist crowing today (as I flagged up earlier, George Osborne tweeted that there’s still “a long way to go” to complete the recovery).

Larry writes:

For one thing, this has been the mother and father of a recession and it has taken far longer than Osborne expected for the economy to respond to the Bank of England’s cheap money medicine.

There have been four deep downturns since the second world war; two presided over by Labour governments, two by Conservative. After the first oil shock in the mid-1970s, it took 12 quarters for the economy to return finally to its pre-recession level of output; after the recession in Margaret Thatcher’s first term it took 16 quarters; after the recession following the Lawson boom of the late 1980s its took 10 quarters. This time it has taken 25 quarters.

The second reason it makes sense for Osborne not to crow too much is that in terms of output per head of population, the downturn is still not over. The population has risen since the economy went into recession in early 2008 and at the current rate it will be 2017 or 2018 before the losses in per capita GDP are made up.

More here: George Osborne is right not to be smug over GDP numbers

Updated

Unions are flagging up up that most people are not feeling the recovery in their pocket:

Wage growth, or rather the lack of it, is one of the clearest signs that Britain’s recovery isn’t feeding through to the workers.

Pay rises have been lagging behind inflation since the crisis began, and hit their lowest level since 2001 in the three months to May (at just +0.7%).

Today’s GDP report is only the first stab at assessing the UK economy’s performance in the second quarter of 2014.

It doesn’t actually contain any data from June at all — the Office for National Statistics just estimates how the various sectors performed, based on history and the data from April and May.

John Bulford, economic advisor to the EY ITEM Club, reckons the 0.8% growth reading could be revised up next month:

The disparity between official figures, which show manufacturing output growing by just 0.2% and construction contracting by 0.5%, and business survey data, which show both sectors roaring ahead, is glaring. With that in mind, it would not be a surprise to see the Q2 figures revised up in the next release in mid-August.”

Guess who had another ‘helpful suggestion’….

Updated

Ben Chu has pulled together another great chart, showing how Britain’s GDP per capita (economic size divided by the total population) has also lagged most of the G7 group of advanced economies since 2008.

Updated

Chart: How Britain lagged the G7 since 2008

Italy is the only member of the G7 to have recorded slower growth than the UK since the first quarter of 2008

That was the time when the credit crunch was transforming into the biggest financial crisis to grip the world since the Great Depression.

Ben Chu of the Independent has helpfully tweeted this chart to show it:

At which point, the Conservative team at the Treasury suggested he might like to rescale it to 2010 (when the coalition took power).

Better, but still not top of the class…

Guy Ellison at Investec Wealth & Investment, says Britain’s recovery has been “a long slog”:

The UK is the second to last member of the G7 group of economies to reach the milestone and took much longer to rebound than in past recessions.

Geraint Johnes, director at Lancaster University’s Work Foundation, has rubbished the notion that today’s growth figures are a triumph for George Osborne’s austerity programme.

After all, the chancellor did (sensibly) drop the idea of eliminating the deficit in this parliament after it became clear that he was spiralling off course.

Johnes says:

“What do the figures say about the effectiveness of austerity and the management of the economy? The Chancellor’s actions trump his rhetoric. Austerity was effectively abandoned a couple of years ago, and the economy has flourished – albeit in patches – since.

And next year’s growth is unlikely to match the “rather remarkable results” being achieved at present, Johnes adds.

Updated

Summary

Rob Wood, economist at Berenberg, agrees that growth was “not balanced this quarter”:

The service sector (+1.0%) was strong while manufacturing (+0.2%) and construction (-0.5%) were weak. The longer the recovery remains unbalanced the less sustainable it may seem to aim for growth continuing around these rates.

That being said, manufacturing and construction suffered from an usually weak May and could bounce back strongly in June and through Q3

Manufacturing data from other European countries was also weak in May, suggesting the global economy had a hiccup.

A lot of people are hammering home the fact that the UK’s recovery has been the slowest in living memory.

This tweet from RBS shows the tortoise-like nature of the rebound:

And the FT explains just how badly it compares it to previous recessions over the last 100 years:

Ed Balls: GDP per head won’t recover till 2017

Better late than never, George.

That broadly sums up Ed Balls’ response to the GDP data, who points out that America’s economy hit its pre-crisis peak back in 2011.

The shadow chancellor says:

“At long last our economy is back to the size it was before the global banking crisis – three years after the US reached the same point.

“But with GDP per head not set to recover for three more years and most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed.”

Balls adds that Labour measures, such as more free childcare and a 10p starting rate of tax, will make the recovery fairer. More here.

Jeremy Cook, chief economist at currency company World First, says the recovery is “engendered, sustainable and flourishing”.

“Once again, it was services that drove the economy onwards, rising by 1%. Construction slipped back in Q2, falling by 0.5% following a strong Q1 helped by home building and repair efforts to flooded properties in the west country.

“Industrial production rose 0.4%. The recession prompted a renewal of the phrase “Keep Calm and Carry On” and all in the UK will be hoping that this expansion does just that.”

 

Simon Baptist, of the Economist Intelligence Unit, points out that the recovery has been “notable for its extremely slow pace”:

Austerity in this parliament has been a drag on growth.

Markets needed to see a long term plan to big ticket items like pensions, healthcare and welfare spending; the government has done some of this for which it deserves credit, but growth now is in spite of austerity not because of it.

GDP reaction starts here

Ben Brettell, senior economist at Hargreaves Lansdown, warns that the UK economy “isn’t as strong as it looks”.

He also points out that GDP per person is still lagging (check out this chart)

While it has surpassed its pre-crisis peak in absolute terms, a larger population means GDP per capita is around 6% lower. The economy has been growing by adding jobs, but there is an underlying issue with productivity, and this is why we are not seeing any meaningful increase in wages.

Despite another upgraded growth forecast from the IMF I believe significant challenges lie ahead.

Don’t forget, GDP per capita is still below 2008 peak

I flagged this up earlier, but it really can’t be repeated too many times:

Britain’s GDP per person is nowhere near the level it reached before the recession.

The ONS hasn’t issued a new estimate today but, based on earlier data, GDP per capita is probably at least 5% smaller than in 2008.

Updated

The Liberal Democrats want their share of the credit, declaring that they have “cleared up Labour’s economic mess”.

Lib Dem Treasury Minister Danny Alexander says Britain has passed a major milestone today.

“The main reason that we stepped forward to form the coalition was to sort out Labour’s economic mess and rebuild a stronger economy and a fairer society for the future.

“By forming the coalition we gave the country a long term economic recovery plan based on Liberal Democrat values and policies and the stability to see it through.”

George Osborne: we’ve got a long way to go

Chancellor George Osborne is touring the North of England today – designed to show that the government takes regional regeneration seriously.

He’s tweeting from Newcastle:

Britain’s manufacturing sector didn’t enjoy a blowout quarter — its activity expanded by just 0.2% in the April-June quarter, down from 1.5% in January-March.

The key chart: GDP finally over pre-crisis peak

And here’s confirmation that the 0.8% growth in the last quarter was almost totally due to the service sector (which makes up around three-quarters of the economy)

Britain’s agriculture sector also shrank during the quarter, by 0.2%.

On an annual basis, the UK economy is 3.1% bigger than a year ago.

The construction sector contracted during the quarter – with its output shrinking by 0.5%.

Britain’s industrial sector grew by just 0.4% in the quarter, a slowdown compared to the 0.7% in Q1.

Britain’s service sector continues to drive the recovery.

It expanded by 1.0% between April and June, which is the strongest growth since the third quarter of 2012.

The Office for National Statistics confirms that the UK economy is now 0.2% larger than at the previous peak, in the first three months of 2008.

UK economy grew by 0.8% in second quarter of 2014

Here we go! The UK economy grew by 0.8% in the second quarter of this year.

That’s means Britain’s GDP is finally above the previous peak set in 2008.

Lots more detail and reaction to follow…

Ed Balls has rather pre-empted today’s growth figures, in an article in today’s Guardian.

In it, the shadow chancellor argues that there’s no cause for complacent celebrations, just because GDP has reached its pre-crisis levels (assuming it does….)

Not only is it two years later than the chancellor’s original plan said, and three years after the US reached the same point, it’s also the case that GDP per head won’t recover to where it was for around another three years – in other words, a lost decade for living standards.

Conservative complacency won’t help working people

Just over 20 minutes to wait until we learn how fast the UK economy grew in the second quarter of 2014.

Paul Hollingsworth of Capital Economics says it will be “another milestone for the recovery”, if GDP comes in at +0.8% as expected, 0.2% above the 2008 previous peak.

GDP per capita still lagging behind

There’s a very important reason to be cautious about today’s growth numbers, which explains why many people don’t feel the benefits of the recovery.

GDP per capita (ie, the amount of economic output divided by the number of people in Britain) is still more than 5% below the pre-crisis peak.

As the ONS said this month, “GDP per head has recovered relatively slowly since 2009″, and was 5.6%. This chart confirms it:

Tax campaigner Richard Murphy comments:

And that means almost everyone in this country is still worse off than they were in 2008. That’s nothing for the government to celebrate.

Lloyds close to Libor deal

RBS isn’t the only bank tackling “conduct and litigation issues”, of course.

Its UK rival, Lloyds Banking Group, has confirmed this morning that it is close to reaching a settlement over its role in Libor-rigging.

This is the scandal in which traders allegedly conspired to fix benchmark interest rates that underpin many financial markets. Lloyds is expected to pay a fine of £200-£300m.

Updated

Today’s GDP figures should also show that the UK economy has grown for the last six quarters — the longest sustained run of rising output since 2008.

RBS shares surge 12% after rushing out better-than-expected results

Royal Bank of Scotland has surprised the City by rushing out its results a week early, in the latest sign that conditions are improving in the UK economy.

RBS, which was rescued by the taxpayer after the great recession struck, has reported an unexpected rise in pre-tax profits, thanks to a fall in bad loans and a general improvement in economic conditions.

Shares surged by over 12% when trading began in London, even though CEO Ross McEwan cautioned that it still faces a number of “conduct and litigation issues”.

Here’s our full story:

RBS reports largest profits since bailout as share price soars

To hit its pre-crisis peak, UK GDP must have risen by at least 0.6% in the last quarter, I reckon.

Most economic data from April, May and June has suggested that growth remained quite strong, which is why economists expect GDP to have risen by 0.8% or 0.9%.

The slowest recovery since at least 1920

It’s wise to be cautious when economists talk about X or Y being the best or worst ‘on record’.

Reliable statistics don’t go back terribly far — for example, the central bankers faced with the Great Depression were hampered by limited knowledge about how their economies were faring*.

But it’s clear that this UK recovery has been the slowest in at least 100 years.

This graph from the NEISR thinktank (which includes their estimate for today’s GDP data) compares the last six recessions, going back to 1920.

* – the excellent Lords of Finance explains this well.

UK growth figures to show state of the recovery

Good morning.

After the longest downturn in recent UK economic history, has Britain’s economy finally returned to the levels before the 2008 financial crisis?

Economists think so, and we’ll find out for sure at 9.30am this morning when the Office for National Statistics issues its first estimate of UK growth for the second quarter of 2014.

The ONS is expected to report that GDP expanded by 0.8% or 0.9% between April and June. That would match, or exceed, the growth seen in the first three months of this year, showing that the UK recovery continues to outpace other advanced economies.

And with an election just 10 months away, the figures are eagerly awaited in both Westminster and the City.

Just yesterday, the International Monetary Fund upgraded its forecast for UK growth again – it now expects GDP to rise by a punchy 3.2% this year. Good news for George Osborne.

IMF predicts Britain’s GDP growth rate will surge to 3.2% by year end

But critics of the chancellor argue that Britain is enjoying another of those consumer-driven recoveries that have caused such trouble in the past.

So we’ll be scrutinising today’s data for evidence of whether the economy is really rebalancing, or not.

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Dovish Fed chair Janet Yellen sends markets surging. U.S. dollar comes under pressure following the Fed announcement with the pound rallying to near five-year highs. The Confederation of British Industry fears exports could suffer from strong pound…

 


Powered by Guardian.co.ukThis article titled “Stock markets rally and pound hits near five-year high after Federal Reserve meeting – business live” was written by Graeme Wearden, for theguardian.com on Thursday 19th June 2014 13.40 UTC

In parliament the Treasury Committee has given its stamp of approval to Kristin Forbes, MIT professor, joining the Bank of England’s monetary policy committee.

After a hearing yesterday, Andrew Tyrie MP, said:

 

“The Committee is satisfied that Professor Forbes has the professional competence and personal independence to be appointed to the Monetary Policy Committee and wishes her every success in her new role.

“The Committee also welcomes the fresh perspective Professor Forbes should bring to the MPC from her economics and public policy experience in the US.”

During the hearing, the Committee appeared concerned that Forbes – an expert on financial contagion – has not worked specifically on monetary policy before. She explained that her work on macro-economic themes such as how crises spread, and on global capital flows, were crucial to modern monetary policy.

Updated

European lunchtime summary: Fed cheers the markets

Last night’s dovish tone from the US central bank has lifted European stock markets, pushed the pound higher, and sent the VIX volatility index down to its lowest level in around eight years.

The Fed sparked the rally last night, by giving no clear indication of when interest rates might rise, and by refusing to panic about the recent pick-up in inflation.

As Kit Juckes of SocGen put it:

In the end, Janet Yellen’s dovish bias ruled. The Fed is more worried about anchoring long-term rate expectations than preparing the market for rate hikes.

Other economists pointed out that the Fed is not willing to risk knocking the US economy back by raising rates too soon:

European stock markets are close to their highest level in six years. Here’s a snapshot, after Japan’s Nikkei hit a four-and-a-half month high:

  • FTSE 100: up 0.7% at 6827, +48 points
  • German Dax: up 0.85% at 10015, +84 points
  • French CAC: up 1% at 4575, + 45 points
  • Italian FTSE MIB: up 1% at 22251, +222 points
  • Spanish IBEX: up 1.1% at 11234, +122 points

Global investors were also cheered by the Fed’s declaration that “[US] economic activity has rebounded in recent months”.

It’s the financial markets favourite cocktail — the promise of more loose monetary policy today, and the prospect of growth tomorrow.

David Thebault, head of quantitative sales trading at Global Equities, commented:

“The overall tone was pretty dovish and the forecast for economic growth seems lower than expected, which is good for equities. Central banks continue to drive markets big time.”

The Euro STOXX 50 Volatility index, Europe’s main “fear gauge”, tumbled 9 percent to 12.6 – a level not seen since 2006.

The pound is trading steadily at its highest level since August 2009, at $1.7035 to the US dollar – prompting the CBI to warn it could hurt exports.

And the dollar remains lower today against most currencies — as traders adjust to the fact that Janet Yellen did not, as some predicted, give hints about when interest rates might rise.

Ioan Smith, director at KCG, said (via Reuters)

“There was a fear that the Fed would pick up more of a hawkish rhetoric, which they didn’t do.

It was probably patience on their part, even after the uptick in inflation in May.”

Updated

The oil price has reached a new nine-month high today.

Brent crude hit $114.80 per barrel for the first time since September 2013. That’s partly due to the dollar having weakened, but also caused by fears that the insurgency in Iraq could hit supplies.

Over to Reuters for details:

Government forces battled Sunni militants for control of Iraq’s biggest refinery as Prime Minister Nuri al-Maliki waited for a U.S. response to an appeal for air strikes to beat back the threat to Baghdad.

The Baiji refinery, 200 km (130 miles) north of the Iraqi capital near Tikrit, was a battlefield as troops loyal to the Shi’ite-led government held off insurgents from the Islamic State of Iraq and the Levant and its allies who had stormed the perimeter, threatening national energy supplies. (Full Story)

If the 300,000 barrels per day (bpd) refinery stays closed for long, Baghdad will need to import oil products to meet its own domestic consumption, further tightening oil markets.

“This would stress an already reasonably tight global balance further, depending on its duration,” oil analysts at Vienna-based consultancy JBC Energy said in a note to clients.

Updated

Encouraging jobs data from America just hit the wires – the number of people filing new claims for unemployment fell last week, from 318,000 to 312,000.

And the ‘continued claims’ total dropped to 2.561m, from 2.615m — Reuters says that’s the lowest level since October 2007.

Updated

Paddy Power have issued new odds on where the pound will end the year – and they suggest sterling will continue to rally from today’s $1.702:

In good news for holidaymakers the 5/6 favourite is between $1.76 to 2.00, while there’s 8/1 should it head north from there.

It’s 9/2 for $1.50 or less and 11/8 to finish the year between $1.51 and $1.75.

One of the Bank of England’s interest rate setters, Ian McCafferty, has confirmed that the Monetary Policy Committee is inching closer to raising borrowing costs.

In a speech just released, McCafferty also said the decision will “critically” depend on data (inflation and wage growth, me thinks).

  • BANK OF ENGLAND’S MCCAFFERTY – DECISION ON WHEN TO RAISE RATES IS BECOMING “MORE BALANCED”
  • BOE’S MCCAFFERTY – SHOULD NOT HOLD BACK TOO LONG ON RAISING RATES TO ENSURE INCREASES ARE GRADUAL
  • BOE’S MCCAFFERTY – MUCH UK PRODUCTIVITY WEAKNESS MAY BE PERSISTENT
  • BOE’S MCCAFFERTY – DECISION ON WHEN TO RAISE RATES DEPENDS “CRITICALLY” ON COMING MONTHS’ DATA

No end to the protests in Greece

Our Greek correspondent Helena Smith reports that the protests outside the Athens finance ministry are growing, with sacked cleaning workers becoming increasingly organised in their push to be reinstated.

Helena says:

Just passed the finance ministry on Servias Karaegorgis street off Syntagma Square, and despite the rowdy demonstrations earlier today there is an air of festivity about the cleaners’ burgeoning protest.

The entrance to the ministry now resembles a tent city with laid off school guards and school teachers also pitching tents, tables and chairs outside the building. A blackboard proclaimed that this was the 44th day the cleaners have been there.

“And we are going to stay for as long as it takes,” said Despoina Kostopoulou, aged 53, and the cleaners’ de facto spokeswoman. “Our aim is to get our jobs back and if that means us being here all through the summer so be it,” she said adding that around 15 cleaners slept outside the building every night.

“Every day we will plan a protest. This weekend I am going to Yannina to give a speech. We are becoming much more organised and as you can see solidarity for our position is growing. The school guards and teachers came around 15 days ago. They have helped boost our morale.”

Updated

CBI warns strong pound could hit exports

The strong pound risks denting Britain’s recovery, by making it harder for manufacturers to export, the CBI has warned this morning.

Katja Hall, CBI deputy director-general, is concerned that the strength of sterling – to a near five-year high of $1.702 today – will hurt overseas orders.

Hall said:

“Demand for British made goods remains buoyant and that’s helped drive this quarter’s further rise in output.

“Growth is broad-based, with the recovery spreading its roots, and firms have high hopes for the coming quarter.

“However, the recent rise in Sterling could impact on the resilient export orders we’ve seen lately.

On the other hand — factory owners should be reassured that the US Fed thinks America’s economy will recover pretty strongly through the rest of this year.

Hall was speaking after the CBI’s monthly survey of manufacturers showed that factories are raking in new business. Order books have swelled to a six-month high – close to the 18-year high achieved last December.

The CBI reports:

Demand for UK-made goods rose strongly in June…

This strength was broad-based, with above average results in 14 out of the 17 sectors. The food and drink sector was particularly robust, reporting its fullest order books in just under four years.

Ukraine has a new central bank governor — former investment banker Valeria Hontareva (also written as Gontareva).

Hontareva’s appointment was “overwhelmingly” approved by the Ukraine parliament this morning, having been nominated by new president Petro Poroshenko.

Hontareva has previously held senior roles at ING and Société Générale, and ran headed local investment bank Investment Capital Ukraine.

In her new role, she’ll be negotiating with the IMF over the financial assistance Ukraine needs since the Crimea crisis began.

She told MPs that:

“My appointment can be seen as a positive signal for bankers and a positive signal for international investors.”

The Ukrainian Hrynvia has strengthened a little today against the (generally weakening) dollar, up 0.75% to 11.86 to $1.

Updated

In the City, the hottest ticket of the day appears to be a place at the annual general meeting of Quindell, the technology outsourcing and consultancy company.

Perhaps sensing trouble ahead, Quindell took the precaution of banning her Majesty’s press pack from the event. But Twitter user Private-Investor is there, and reports that hordes of shareholders have descended

So why the rush? Well, back in April, Quindell’s shares tumbled after US research firm (and short seller) Gotham Research launched a remarkable attack on the company, questioning its profitability – which Quindell swiftly rebutted.

Its share price remains bruised, though:

Will Hedden of IG says the London stock market is “holding on to the coat tails of US markets and a dovish Federal Reserve meeting,” with the FTSE 100 now up 58 points, or 0.86%.

Less than half a dozen blue chips are trading in the red, with no notable fallers. On the upside Rolls-Royce (+6%) has powered to the top spot, having promised shareholders a billion pounds in buybacks, after it sold its gas turbine unit to Siemens earlier in the year.

Janet Yellen’s relaxed approach to last month’s rise in US inflation has helped drive shares up. Hedden points out that the VIX index, which tracks volatility, has hit a seven year low:

The Fed’s reaction to recent inflation data as ‘noise’ created a nice echo for equity bulls, with US indices pushing back towards their early June all-time highs and the VIX printing a low close not seen since February 2007.

Updated

As the US dollar keeps weakening, the pound has touched a new near-five year high of $1.7028.

As flagged up earlier, travellers on Britain’s West Coast line can look forward to four more years of Virgin Trains, after the company paid £430m to keep running the service.

The deal comes two years after the government handed the line to rival First Group, only to slam on the brakes after flaws in the process were exposed.

Virgin has promised to spend £20m brushing up the stations, convert some 1st class carriages into standard class for the rest of us to cram into, and install super-fast WiFi:

Virgin Trains to run west coast mainline until 2018

UK retail sales fall by 0.5% in May

UK retail sales fell back in May, but sales of football replica shirts stopped the decline being worse, according to data just released.

The amount spent in the retail industry increased by 3.2% last month, compared with May 2013, but was 0.5% lower than the previous month.

That’s the first monthly fall of the year, but largely as expected after retailers benefitted from the late Easter in April.

And there was a 28.9% surge in spending at sporting goods and toy stores, compared to a year ago.

A new fitness frenzy? Not exactly…The Office for National Statistics explains that events in Brazil are probably responsible:

Feedback from retailers in these stores has suggested that the increase in sales in May 2014 is due to the build-up of the FIFA World Cup. A better picture of the impact of the World Cup on retail sales statistics will be available when June data are released on 24 July 2014.

The data also gives little sign of inflationary pressures, with average prices paid at the till falling. The ONS says:

Average prices of goods sold in May 2014 showed continued deflation of 0.7%, fuel once again providing the largest contribution, falling by 2.2%. Food stores were the only sector to show an increase (0.4%) however, this series continues to fall and is now at its lowest level since March 2006 (0.3%).

And here are the key charts:

Updated

European stock markets are close to their highest level in over six years, reports Reuters, after this morning’s rally (see 8.19am):

The rise left the FTSEurofirst 300 just 0.1 percent off of its 2014 high set earlier this month, which was the index’s highest level since January 2008.

In Greece, cleaning workers who lost their jobs last summer in the austerity cutbacks are protesting outside the office of New Democracy, the governing party.

Via Twitter, here are a couple of photos from the scene from crisis-watcher @inflammatory_

These cleaning staff have been calling for their jobs back for many months. In May a judge ruled they should be reinstated, only for another court to suspend that ruling. And still they fight on.

Updated

The strength of the pound should reduce inflationary pressures in the UK, points out economist Shaun Richards:

The weakness of the dollar has also pushed the euro higher – which will not be welcome, as eurozone inflation is running at just 0.5% per year (compared to 1.5% in the UK).

Pound hits highest level against US dollar since August 2009

Sterling has hit its highest level in almost five years against the US dollar this morning, as currency traders reacted to last night’s events.

The pound pushed back over the $1.70 mark to hit $1.7017, a level not seen since August 2009.

Janet Yellen’s dovish words on inflation and unemployment have pushed down the dollar, as has the news that Federal Reserve policymakers believe interest rates will eventually peak at a low level (3.75%, down from 4%).

Updated

European stock markets rally after Fed meeting

Europe’s stock markets are open, and they’re rallying in early trading as traders take their cue from last night’s Federal Reserve meeting.

The FTSE 100 has jumped by 46 points, or nearly 0.7%, to 6825. The German, Spanish, Italian and French markets all rose by 0.8%.

The biggest riser in London is Rolls-Royce, which announced a bit share buyback this morning. But share are gaining across the board – here’s the risers and fallers:

Traders are pushing shares higher after Fed chair Janet Yellen gave no indication that recent increases in inflation, and drops in unemployment, required a rise in borrowing costs.

As Jasper Lawler of City firm CMC Markets explains:

Yellen didn’t seem too concerned about the recent rise in consumer price inflation and chose to emphasise the risks that low inflation could pose to economic performance.

For unemployment, the Chair referenced the decreasing participation rate saying some of the improvements to the headline rate were as a result of “shadow unemployment or discouragement”; both of which impy a continued need for stimulus.

Australia’s stock market has enjoyed its best day’s trading of the year, sharing in the wider Asian rally.

The Federal Reserve’s upbeat view of the US economy drove investors into buying mining stocks, scenting profits if the world’s biggest economy picked up pace.

And the lack of any hints of an early US interest rate rise also drove shares up.

From Melbourne, Stan Shamu of IG explains:

The boards have lit up in Asia today after the Fed delivered a dovish tone, while the market seemed to have been positioned for a slightly more hawkish tone.

This saw US equities extend gains to fresh record levels and this has also resonated through to Asian markets.

Updated

There’s nothing like a dovish central bank to get the stock markets moving upwards, and Janet Yellen appears to have done the trick last night – sending most Asian markets rallying.

The Federal Reserve was upbeat about US economic prospects (as we wrote last night), despite actually cutting its growth forecast for 2014 following the bad winter.

And while the Fed “tapered” its bond-buying package by another $10bn per month, to $35bn, Yellen gave no indication of exactly when interest rates might start to rise.

And Fed members’ own forecast of where interest rates might reach in the long term fell from 4% to 3.75%.

That sent the S&P 500 to a fresh record high last night, and Japan’s Nikkei has followed the trend – hitting a four-month high.

As Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo, explained:

“The Fed sees the U.S. economy as on track, while it hinted of low interest rates in the long term.”

Coming up today: Federal Reserve reaction; Argentina’s battle against default…

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

Today I’ll be watching the reaction to yesterday’s Federal Reserve meeting, where it cut its stimulus programme by another $10bn….

…we’ll also keep an eye on Argentina’s battle to avoid default over the row with holdout creditors.

In Europe, the International Monetary Fund will be presenting its assessment of the eurozone economy to finance ministers — and arguing that the European Central Bank should consider buying government bonds.

As one source put it to Reuters:

“The draft from the euro zone mission restates more strongly the request previously made to the ECB to do more to fight the risks of deflation.

“It doesn’t mention ‘quantitative easing’ but it does talk about bond purchasing programmes.”

While in the UK, the latest retail sales figures will show if consumers kept spending in May.

In the corporate world, Virgin Rail Group has announced it has secured a new deal to keep running the West Coast Main Line.

More to follow on all those issues, along with other news through the day….

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The latest health check of Britain and Europe’s service sectors show both PMI indexes strengthening. U.S. trade deficit narrows on exports expansion. OECD warns UK over house prices. Markit: strongest eurozone growth since May 2011…

 


Powered by Guardian.co.ukThis article titled “AstraZeneca hits back at Pfizer; Europe’s service sector growth jumps – business live” was written by Graeme Wearden, for theguardian.com on Tuesday 6th May 2014 13.06 UTC

Over in the US, the country’s trade deficit narrowed in March as exports improved.

According to the Commerce Department the trade gap fell 3.6% to $40.4bn, down from $41.9bn in February (revised from a reported $42.3bn). This is virtually in line with a forecast of $40.3bn. Reuters reports:

March’s shortfall, however, was a little bigger than what the government had assumed in its advance first-quarter gross domestic product estimate last week, suggesting the economy contracted in the first three months of the year.

The trade report was the latest indication that the government is likely to lower its growth estimate to show a contraction when it publishes revisions later this month.

Updated

Ahead of this week’s meeting of the European Central Bank, which has to decide whether to cut rates or unveil a bond buying programme, Italian 10 year bond yields have fallen below 3% for the first time.

Interesting….

Lunchtime summary

Time to recap, after a busy morning.

AstraZeneca has intensified its opposition to Pfizer’s takeover offer, with a new strategic update. The UK pharma firm announced that it can grow its revenues to $45bn by 2023, a jump of up to 80%.

The takeover battle is becoming a political hot potato — with two parliamentary committees planning to hold inquiries.

MPs will also discuss the issue at an urgent question in the House of Commons, at 3.30pm today.

The OECD has urged the British government to consider reining in the housing market, and also raised its growth forecasts for the UK and the eurozone.

But it also wants the ECB to cut interest rates to ward off the threat of deflation.

Britain’s service sector has recorded its biggest jump in activity since last December, suggesting the recovery remains strong.

In Europe, private sector activity grew at its most rapid rate in three years, lead by Germany, Ireland and Spain. France, though, appeared to stall.

In the City, Balfour Beatty shares are down almost 20% after a shock profits warning, and the departure of its CEO.

And Barclays has reported that profits at its investment banking arm have halved.

I’m off to a meeting now, so Nick Fletcher will be covering any developments.

Updated

Just hearing that a government minister will discuss Pfizer’s bid to take over AstraZeneca at 3.30pm, at an urgent question.

I think our politics blogger, Andy Sparrow, will cover it (it clashes with an AstraZeneca conference call). Here’s his liveblog.

Britain’s MPs are fighting over themselves to quiz the bosses of AstraZeneca and Pfizer.

The chairman of Parliament’s Science and Technology committee, Andrew Miller, just confirmed that it will hear from both companies — just a few minutes after the Business committee announced it will hold a hearing soon.

Via Reuters:

  • BRITISH PARLIAMENT’S SCIENCE COMMITTEE TO CALL PFIZER AND ASTRAZENECA TOP MANAGEMENT TO ANSWER QUESTIONS ON POTENTIAL TAKEOVER – COMMITTEE CHAIRMAN
  • UK SCIENCE COMMITTEE WANTS ‘A LOT MORE INFORMATION’ ON IMPACT ON UK SCIENCE BASE, INTELLECTUAL PROPERTY FROM POTENTIAL PFIZER TAKEOVER OF ASTRAZENECA – COMMITTEE CHAIRMAN
  • BRITISH PARLIAMENT’S SCIENCE COMMITTEE WANTS TO SPEAK TO PFIZER AND ASTRAZENECA BOSSES NEXT WEEK ON POTENTIAL TAKEOVER – COMMITTEE CHAIRMAN

This interactive map lets you explore the OECD’s new Economic Outlook report (as explained at 10.38am, it cut its global growth forecasts, but hiked them for the UK and the eurozone)

OECD Economic Forecasts, May 2014

AstraZeneca renews battle against Pfizer with strategic update

AstraZeneca has just issued another rebuttal to Pfizer, by publishing a new strategic update which argues it has strong prospects as an independent firm.

The UK pharmaceutical firm declared that can achieve annual revenues of $45bn within the decade – that’s a new target – thanks to its strong drugs pipeline and the progress made by its management recently.

Astra says the strategic update shows its:

excellent growth prospects, rapidly progressing pipeline and the future delivery of shareholder value as an independent company

AstraZeneca also declared that it is making good progress in its mission to achieve “scientific leadership, strengthening its growth platforms and returning to growth”

The presentation (online here) says Astra’s future prospects are underpinned by five key areas:

  • Brilinta [AZ's heart treatment drug] ~$3.5 billion in 2023, driven by investment in on-going clinical studies to access broader opportunities;
  • Diabetes ~$8 billion in 2023, reinforced by the strong launch of Farxiga/Forxiga in the US and Germany, the fixed dose combination saxagliptin/dapagliflozin, and the rapid integration of the BMS alliance;
  • Respiratory ~$8 billion in 2023, driven by a strong current product franchise and a diverse emerging pipeline covering a broad set of patients;
  • Emerging Markets – mid-to-high single-digit growth, building on the growth in China and introduction of innovative products. Q1 growth in China of 22% (at CER); and
  • Japan – low single-digit growth, sustained by key products including Nexium, Crestor and Symbicort which enjoy medium-term market exclusivity.

The message is clear – Pfizer’s takeover off is unwelcome; it should sling its hook and take its £63bn takeover offer with it.

Or as Leif Johansson, chairman of AstraZeneca, put it:

“The increasingly visible success of our independent strategy highlights the future prospects for our shareholders. These are benefits that should fully accrue to AstraZeneca’s shareholders.”

You can read the OECD’s warning about the UK housing market here (a pdf of the full Economic outook).

I can’t cut-n-paste from it, but here’s the key section:

Updated

The parliamentary Business, Innovation and Skills Committee has confirmed that it will hold a hearing into Pfizer’s proposed takeover of AstraZeneca.

BIS says:

Both Pfizer and AstraZeneca will be among those invited to appear before the Committee. Further details will follow in due course.

AstraZeneca shares are down almost 2% this morning at £47.15, as it continues to resist Pfizer’s offer of £50 per share.

Last night Leif Johansson, chairman of AstraZeneca, urged prime minister David Cameron to remain on the sidelines rather than giving ammunition to Pfizer.

Updated

OECD warns UK over booming house prices

The Organisation for Economic Co-operation and Development (OECD) has urged the UK government to consider reining in the surge in house prices,and also predicted the British economy will growth strongly this year.

The OECD suggested that the government’s Help to Buy mortgage guarantee scheme could be scaled back, to address the danger that prices become dangerously high and unaffordable. It also suggested that higher capital requirements or tighter loan-to-value ratios could be imposed to prevent a dangerous bubble forming.

In its latest twice-yearly assessment of the global economy, the OECD said that:

“Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house price inflation

House prices … significantly exceed long-term averages relative to rents and household incomes.”

The OECD also hiked its forecast for UK growth this year to a punchy 3.2%, from just 2.4% six months ago.

Skills & Enterprise minister Matt Hancock hailed the news.

But the OECD also cut its forecast for global GDP growth to 3.4% this year, down from 3.6% back in November.

It trimmed its forecast for US growth in 2014 to 2.6%, from 2.9%, but raised its forecast for the euro area to 1.2%, from 1.0%.

On the eurozone, the OECD also advised the European Central Bank should cut its main interest rate to zero and keep it there for at least 18 months, to ward off the risk of deflation. Banks could also be hit by ‘negative interest rates’ to encourage them to lend.

The OECD warned that:

Very low underlying inflation and large economic slack are expected to persist for several quarters [in the eurozone],”

“Accordingly, the main refinancing policy rate should be reduced to zero, and possibly the deposit rate to a slightly negative level, and they should be maintained at these levels at least until end-2015.”

More here:

OECD urges European Central Bank to act over low inflation

Updated

Another gobbet of good economic news from the eurozone – retail sales rose by 0.3% across the region in March. City economists had expected a 0.2% decline.

The UK economy is growing faster than the Bank of England had expected, says Rob Wood of Berenberg, following the news that the UK service sector grew pretty rapidly last month.

Wood writes:

Another very strong quarter is on the way in the UK. There is certainly very little sign of the slowdown in growth that the BoE had been banking on in their February forecasts, when they planned for interest rates staying on hold until mid-2015.

And neither should there be with consumer and business confidence returning, wage growth picking up and monetary policy still extremely supportive….

Record low interest rates are no-longer necessary. The economy is growing rapidly and, if anything, is picking up pace. Inflation is close to the BoE’s target and unemployment is falling rapidly.

Last week, Britain’s manufacturing sector reported the strongest growth in five months, matching today’s strong service sector figures.

Wood reckons the first rate rise won’t come until the first quarter of next year, but hawkish BoE policymakers could start breaking ranks and voting for rate rises by late summer.

News that Britain’s service sector grew strongly last month has driven the pound higher against the US dollar, to a near five-year high of $1.695.

Traders are anticipating that the strength of the UK recovery is going to force the Bank of England into an interest rate rise, sooner than the BoE has indicated.

The Bank’s monetary policy committee has plenty to think about, when it begins its two-day meeting on Wednesday.

Markit: UK private sector creating 100,000 new jobs/month as services growth accelerates

Britain’s service sector has posted its strongest growth of 2014, as firms rapidly taken on more staff to deal with increased demand as the recovery continues.

Markit’s monthly UK services PMI jumped to 58.7 in April, up from March’s 57.6 - showing strong growth, and the 16th monthly expansion in a row.

There is no sign of the UK recovery “running out of steam”, Markit reckons.

Firms reported a sharp increase in new orders, “with clients willing to commit to new contracts against the backdrop of an increasingly positive economic climate”.

And UK firms are also confident about the future — business confidence was only slightly lower than February’s four-and-a-half year peak.

Markit’s chief economist, Chris Williamson, says survey shows that UK private sector created around 100,000 new jobs in April (last week it reported that manufacturers took on 10,000 new staff).

He says:

The UK economic recovery shows no signs of running out of steam, and growth could even accelerate further in the second quarter.

“The upturn in service sector growth matches a similar acceleration to a near-record high for manufacturing output, while construction activity also continues to surge higher.

“These service sector numbers are especially important as, due to its sheer size, the sector is providing the main thrust behind the country’s economic recovery this year.

“The April numbers point to the economy growing by at least 0.8% again in the second quarter and, with confidence about the future rising again in April, there’s no end in sight for the current super- strong growth spell.

“The survey also brings news that private sector employment rose at a record pace in April, signalling 100,000 jobs being created each month.

The full report is online here (pdf).

Updated

Howard Archer of IHS Global Insight agrees that the eurozone recovery “gained traction”, with Markit reporting that every country’s service sector grew in April:

Encouragingly, services expansion picked up markedly in Germany in April, while particularly welcome news saw Spanish activity expand for a sixth successive month and at the fastest rate since March 2007. This fuels hopes that Spanish recovery is really taking hold. Meanwhile, Italy achieved modest renewed services expansion in April after a dip in March, although progress remains limited.

Meanwhile, Irish services expansion was particularly strong as it reached an 86-month high.

However, French services activity faltered anew and only just managed to expand for a second month running in April, which fuels concern about the underlying strength of the economy.

Chris Williamson, chief economist at Markit, predicts that the eurozone will grow by at least 0.5% in the second quarter of 2014, based on April’s strong PMI report.

He explains:

“The final PMI confirms the earlier flash estimate, indicating that the Eurozone started the second quarter with the fastest growth seen for three years.

But what about France?

“The upturn is led by Germany while France continues to lag, with the French PMI merely indicating near-stagnant growth.

On the periphery…. the most exciting news is the strong upturns that are becoming apparent in Spain and Ireland, where the rates of growth rose to the fastest for seven and eight years respectively. Italy’s recovery is meanwhile also gaining momentum, with the pace of growth rising to one of the fastest seen over the past three years.”

And Williamson is confident that the eurozone will shake off the threat of deflation:

“The upturn in the rate of expansion further reduces the likelihood of the ECB considering it necessary to cut interest rates or embark on any other non- conventional stimulus measures, for which the bar is already high. While prices charged continued to fall in April, the accelerating speed of the recovery suggests price pressures should pick up in coming months to allay deflationary fears.”

Eurozone private sector growth hits three-year high, but France lags behind

Europe’s private sector is growing at its fastest pace in almost three years, as firms in most countries report a welcome rise in activity.

Data from across the region shows that the manufacturing sector led the way, while service sector business activity rose at the fastest pace for 34 months.

France, though, remains a laggard, with companies in the eurozone’s second-largest member reporting lacklustre growth and a drop in new orders.

That’s the verdict of Markit’s monthly healthcheck of the euro economy, which found that economic growth hit its fastest rate since May 2011. It said:

The recovery in the eurozone economy gathered pace at the start of the second quarter, with the combined output of the manufacturing and service sectors rising at the fastest pace for almost three years in April.

Markit’s composite PMI, rose to 54.0 in April, up from 53.1 in March, to highest level since May 2011.

The outlook is also positive, with new orders and backlogs of work rising further and an increase in employment across the sector.

As reported earlier, Ireland and Spain led the way with the strongest rise in activity since 2007 — Irish firms also reported the fastest jobs creation in almost eight years. Germany and Italy (8.50am) also saw sharper expansions in activity and new orders.

But France’s weak performance (see 8.55am) is a concern.

As Markit put it:

France was the only nation to buck the trend, treading water with near stagnant output growth and a slight drop in new business. The sluggish performance of France was mainly centred on the service sector, highlighting the ongoing weakness of the French domestic market.

Updated

Germany’s service sector enjoyed another strong month in April, with its service sector PMI rising to 54.7 from 53.0 in March.

Firms said they’d hired more staff to deal with rising workloads, to handle a rise in new orders.

Updated

Growth in France’s service sector almost stalled last month, as Europe’s second largest economy struggled to match the recovery seen in, say, Spain and Ireland.

The French Service sector PMI fell to 50.4. from 51.5 in March, showing a sharp slowdown took place last month. It’s still growth, but only just….

Jack Kennedy, a senior economist at Markit, explains that French firms remain nervous:

“The French service sector virtually stalled in April amid flagging new business intakes.

“Companies reported that persistent client uncertainty had held back spending, suggesting a lack of confidence in the sustainability of the recovery.”

Italy’s service sector has started growing again, thanks to a jump in new orders.

The Italian service sector PMI rose to 51.1 in April, showing it expanded after sliding into contraction territory in March (when it hit 49.5). That may indicate that Italy’s economy is avoiding dropping back into recession.

But companies continued to shed jobs, and also reported that prices kept falling.

Markit, which compiled the report, said:

Despite the upturn in activity in April and there being a strong degree of optimism regarding the year-ahead outlook, services firms still maintained a preference for lower staffing numbers. Employment levels fell solidly on the month, and to the greatest extent so far this year.

Encouraging firms to part with staff was a continued lack of pressure on capacity. Indeed, backlogs of work were reduced for the thirty-eighth month in succession, and at a solid rate that was the fastest since January.

FastFT makes a great point about Barclays — the tumble in investment banking earnings (see 8.10am) meant it is now paying a bigger share of its profits to its staff.

They explain:

Barclays revealed on Tuesday that it pared pay costs in the investment bank by 20% year on year, a significant cut – but less of a hit than the 28% fall in revenues across the business.

What may be more difficult for shareholders to stomach is that the unit’s huge slide in income meant that Barclays was forced to set aside a much bigger proportion of revenue to pay its bankers – again after a poor performance.

Barclays’ so-called compensation ratio jumped to 46% in the first three months, up from 41% in the same period last year.

That means that for every £100 taken in by the investment bank, £46 went to pay staff.

How does this square with CEO Antony Jenkins’ bid to regain trust and change the culture of the bank?….

Spanish service firms post strongest growth since financial crisis began

Spain has followed Ireland’s lead, with its service sector firms also reporting their best month since March 2007, before the financial crisis began.

And Spanish firms also reported that they took on more staff — making some impact into Spain’s huge jobless total.

Data firm Markit reported:

The recovery in the Spanish service sector gathered pace in April with activity and new business each growing at rates not seen since the economic crisis began in late-2007. Employment also increased, ending a two-month sequence of job cuts.

The Spanish Service PMI jumped to 56.5 in April — the highest reading in seven years, signalling strong growth. That’s up from 54.0 in March.

Companies reported strong growth in new business, with orders rising at their fastest pace since November 2006.

But while input prices rose, competitive pressures forced firms to cut their prices again — adding to weak inflation in Spain.

Andrew Harker, senior economist at Markit, said:

The Spanish service sector put in its best monthly performance since prior to the start of the economic crisis in April according to the latest PMI data, with workloads rising strongly.

A pleasing aspect of the latest data is the rise in employment, with the labour market having previously given little cause for optimism. While there is still a long way to go, improving sentiment in the wider economy does seem to be feeding through to gains at service providers in Spain, suggesting that this time positive momentum could be sustained.”

The euro has also risen against the US dollar this morning to $1.391 – its highest level in almost seven weeks.

The pound is looking perky this morning . It just hit its highest level in almost five years against the US dollar, up 0.4% to $1.693.

Balfour Beatty shares plunge 16% as profits warning prompts CEO’s exit

Ouch. Shares in Balfour Beatty have slumped 16% at the start of trading in London, after it announced an unscheduled profits warning and the unexpected departure of its CEO.

The infrastructure firm warned shareholders this morning hat profits at its UK construction arm will be £30m below forecasts.

Both its mechanical and electrical engineering and major buildings projects businesses have been suffering “significant operational issues”, meaning they’ve not been able to take advantage of the recent recovery in UK construction.

Those problems began last year, and Balfour Beatty has struggled to stamp them out since.

It warned the City that:

These conditions have continued into 2014 and, taken together with poor operational delivery issues on a number of contracts and low order intake, the business has experienced an extremely challenging first quarter. As a result, our performance expectations for this business in 2014 are significantly lower than previously anticipated. Furthermore, in major building projects we have experienced further cost increases and delays, mainly on specific projects we highlighted in March.

Chief executive Andrew McNaughton has fallen on his sword (spade?), quitting with immediate effect.

In a brief statement, chairman Steve Marshall wished McNaughton well for the future.

More than £300m has been wiped off the company’s value this morning — its shares are down 16% at 239p, a fall of 46p.

2014 has not been a great year for Barclays’ investment bankers.

Investment bank profits fell 49% to £668m in the first three months of the year, it reported this morning, after a period of “difficult trading conditions”.

My colleague Sean Farrell explains that this poor show dented Barclay’s overall business:

Poor performance at the investment bank dragged Barclays’ adjusted pretax profit down 5% to £1.69bn. Profit from retail banking rose 20% to £360m, Barclays said in a trading update.

The bank said: “We continue to be cautious about the trading environment in which we operate and as a consequence we remain focused on structurally reducing the cost base in order to improve returns.”

Updated

Irish service sector creates more jobs as growth hits seven-year high

A surge in new business has helped Irish service sector companies to grow at their fastest rate since February 2007.

Investec’s monthly survey of the sector also found that firms created new jobs at the fastest rate in seven and a half years, suggesting confidence is growing as Ireland puts its bailout programme behind it. The economic recovery in the UK may also be a factor.

The Investec Purchasing Managers’ Index of activity in the services sector rose to 61.9 in April from 60.7 in March, the highest reading since February 2007. Anything over 50 points = growth.

Activity in Ireland’s service sector, (which makes up around 70% of the economy) has now been growing for the last 21 months.

The rate of job creation was “substantial”, and the fastest in seven-and-a-half years, Investec said. This mean employment levels have now increased for the last 20 months.

Investec reckons that new orders jumped at the fastest rate since September 2006, mainly due to a “general strengthening of economic conditions”

The rate of expansion in new export orders also quickened and was one of the fastest in the series history. A number of respondents indicated that the UK had been a source of new business.

And company bosses are upbeat — 58% of respondents forecast a rise in activity over the next 12 months, against 4% that predict a fall.

Philip O‟Sullivan, Chief Economist at Investec Ireland, believes Ireland’s economy is going to perform well this year:

“Taken together, today‟s report and last week‟s Investec Manufacturing PMI release show strong momentum across much of the private sector in Ireland. With an improving outlook both at home and across the country‟s main trading partners, we expect that this momentum will be sustained over the remainder of this year at least.”

Updated

Service sector PMI surveys to show European recovery continues

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

Today we’ll be tracking the latest healthcheck of Europe’s private sector, with the release of the monthly PMI surveys which track activity across thousands of firms.

The first one is already out — and Ireland’s service sector has posted its fastest surge in activity in seven years, as its economy recovers from the turmoil of the banking crisis (more on this shortly).

Data from other countries is released in the next couple of hours. It is expected to show solid growth across most of the eurozone, and also in the UK. But France probably lagged a long way behind Germany.

We’ll also be tracking the AstraZeneca bid, with US rival Pfizer refusing to drop its attempts to merge with its UK rival.

And in the corporate world, Barclays is reporting its latest financial results – including a sharp drop in income at its investment banking arm.

While building group Balfour Beatty has just surprised the City with a profits warning, and the departure of its CEO.

And European finance ministers are meeting in Brussels – on the agenda, the eurozone financial transaction tax, and efforts to combat corporate tax avoidance.

I’ll be tracking all the developments through the day….

Updated

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Forecast for U.K. economic growth of 1.9% this year raised to 2.4% with IMF chief Christine Lagarde declaring ‘optimism is in the air’. IMF may also upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year…

 


Powered by Guardian.co.ukThis article titled “IMF upgrades UK economic growth forecasts as global economy expands” was written by Katie Allen, for theguardian.com on Monday 20th January 2014 12.14 UTC

The International Monetary Fund is widely expected to raise its outlook for the UK this week, nudging up the country’s growth forecasts by more than for any other major economy.

The Washington-based fund is due to unveil an update on Tuesday to its World Economic Outlook from last October. Back then it forecast UK national output would rise 1.9% in 2014. Now it is expected to predict growth of 2.4%, according to a Sky News report.

The IMF is also expected to upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year. That would reflect the cautiously optimistic tone in a New Year’s speech from its managing director, Christine Lagarde, last week.

“This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous … the year in which the seven weak years, economically speaking, slide into seven strong years,” she said.

If confirmed, the substantial upgrade to the UK will be a welcome boost to Chancellor George Osborne and his much repeated assertion that the coalition’s “economic plan is working”.

But in the past the IMF has echoed other economists, including experts at the UK’s own Office for Budget Responsibility, that the UK remains over-dependent on consumer spending to grow.

The latest crop of official data underscored those concerns, with weaker outturns for construction and manufacturing and a jump in Christmas retail sales.

Economists generally feel, however, that overall growth will pick up this year and the IMF is just the latest of a string of forecasters to raise the UK’s outlook.

The business group CBI has pencilled in 2014 growth of 2.4%, the British Chambers of Commerce expects 2.7% and the OBR forecasts 2.4%.

A report from EY Item Club on Monday forecast UK economic growth would pick up to 2.7% this year from 1.9% in 2013. It too warned the recovery was not built on solid foundations, however, due largely to the pressure on household incomes.

Peter Spencer, chief economic advisor to the EY ITEM Club comments: “It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving to be the government’s Achilles heel and could prove to be the weak spot in the recovery.

“Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio.”

There have also been warnings that the recovery is not being felt throughout the UK, and is instead largely benefiting London and the south-east.

A study by the TUC trade unions group on Monday said the recent recovery in jobs had failed to reach the north-east, the north-west, Wales and the south-west, leaving them in the same situation or worse at providing jobs than they were 20 years ago.

The US-based IMF could not be immediately reached for comment.

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