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Polling data shows that Sunday’s German elections will be close, and could determine eurozone economic policy for the next stage of the crisis. Tight fight expected. Latest polling shows election is neck-and-neck. Grand coalition probably the most likely option…

 


Powered by Guardian.co.ukThis article titled “Markets await German elections; India surprises with interest rate rise – live” was written by Graeme Wearden (earlier) and Nick Fletcher (now), for theguardian.com on Friday 20th September 2013 16.11 UTC

Here’s some Friday night ratings action:

On Malta Fitch said:

There has been significant fiscal slippage. Malta’s general government deficit was 3.3% of GDP in 2012, well above both the government’s target (2.2%) and Fitch’s September 2012 forecast (2.6% of GDP). This slippage has carried over to 2013, when Fitch forecasts a deficit of 3.6% of GDP, compared with 2.7% in the original 2013 budget. The European Commission has re-opened the excessive deficit procedure (EDP) against Malta, with the deadline for correcting the excessive deficit set for 2014. In its previous rating review (September 2012), Fitch identified material fiscal slippage in 2012 as a negative rating trigger.

And on Croatia being cut to junk:

Croatia’s fiscal outlook has deteriorated since Fitch’s previous sovereign rating review in November 2012. The agency has revised up its forecast for this year’s general government deficit to 4.7% in 2013 from 3.9%, while general government debt/GDP is now expected to peak at 66% of GDP in 2016, up from our previous forecast of 62%.

A structurally weak growth outlook has impaired the prospects for fiscal consolidation and the attainment of public debt sustainability.

A look at the possible problems facing Angela Merkel should she win the German election this weekend, courtesy of the Wall Street Journal. A taster below with the full story here:

Angela Merkel has become Europe’s most popular leader by telling Germans they don’t need to change, and by shielding them from much of Europe’s debt-crisis pain at the same time.

But as Ms. Merkel heads into a likely third term as Germany’s chancellor, there are increasing calls from the business community, which she has counted among her most loyal supporters, and others for her to move more quickly to confront simmering domestic problems that they worry will eventually endanger German prosperity.

The time to fix the problems—energy costs, worn-out roads and gaps in education among them—is now, they say, while the economy is healthy.

In the corporate world, Vodafone has received clearance from the European Commission for its takeover of Kabel Deutschland, and with that final hurdle passed, the deal is expected to be completed on 14 October.

Eurozone consumer confidence rose to a two year high in September, according to new figures from the European Commission, but is still in negative territory.

The index rose to -14.9 from -15.6 in August, compared to expectations of a figure of around -15. The news that strong German and French growth had helped pull the eurozone out of recession clearly helped sentiment, although the recovery remains fragile, as evidenced by Italy cutting its growth forecasts earlier today. Annalisa Piazza at Newedge Strategy said:

Consumer confidence is expected to have supported by the relative good news on the development of the EMU economy (that has finally emerged from a 6-quarter recession). News that the ECB is willing to maintain the current accommodative policy might have also played a role as households see reduced risks to their disposable income in the future. On the other hand, the still high unemployment rate and geopolitical uncertainties are likely to have put a lid on a more pronounced uptick in September.

Dow Jones opens lower after Fed taper comments

Wall Street has opened lower, not surprisingly given Fed official James Bullard’s comments that tapering might begin in October. The Fed gave markets at boost following Wednesday’s surprise decision by the US central bank to maintain its $85bn a month bond buying programme.

But after Bullard’s hint, the Dow Jones Industrial Average is down 22 points or 0.14% in early trading. However the Nasdaq had edged higher, up 0.15%, helped by a near 3% rise in Apple shares on the day queues form for the tech giant’s latest iPhones.

More German polling figures, showing the SPD and AfD edging up:

Updated

Across the Atlantic, observers are still trying to get their heads around Ben Bernanke’s decision on Wednesday not to start scaling back the US Federal Reserve’s $85bn a month bond buying programme.

Most economists had expected a move to wean the markets off the quantitative easing fix this month, but Bernanke pointed to the US economy still being too fragile.

But today Fed official James Bullard suggested to Bloomberg that the so-called tapering might now start in October. So we have all the “will-they-won’t-they” speculation to look forward to for another few weeks yet.

Updated

Budget airline Ryanair has promised to mend its ways, after being rebuked about its “abrupt” culture by shareholders today.

Reuters writes:

Ryanair, Europe’s biggest budget airline, has promised to transform its “abrupt culture” in a bid to win customers from costlier rivals, admitting for the first time that a reputation for treating its passengers badly might have become a problem.

The Irish firm, this week voted the worst of the 100 biggest brands serving the British market by readers of consumer magazine Which?, said on Friday it would become more lenient on fining customers over bag sizes and overhaul the way it communicates.

“We should try to eliminate things that unnecessarily piss people off,” chief executive Michael O’Leary told the company’s annual general meeting, after several shareholders complained about the impact of customer service on sales.

That’s the spirit.

More here: Ryanair must stop ‘unnecessarily pissing people off’, says O’Leary

And on that note, I’m going to fly home. Nick Fletcher has the controls. Thanks for reading and commenting.

Maybe see you online on Sunday night for the election excitement? Our foreign team will be all over it, and I’ll be on Twitter as @graemewearden as usual.

Updated

Forsa: German election is neck-and-neck

New polling data from Germany has just been released, showing that Sunday’s election is neck-and-neck with neither side on track for a clear majority.

The poll from Forsa found that the current CDU/CSU-FDP coalition would win 45% of the vote, as would their main rivals. Another key point, the eurosceptics Alternative For Germany would not hit the 5% threshold.

  • CDU/CSU 40%.
  • SPD 26%. 
  • Greens 10%.
  • LINKE 9%. 
  • FDP 5%
  • AfD 4%
  • Pirates 2%

I didn’t mention earlier, but the SDP has ruled out forming a government with the more left-wing Linke party, given its views on foreign affairs and its opposition to NATO. That could change in the heat of coalition talks, of course.

Today’s UK public finance figures mean George Osborne is on track to hit his fiscal targets for this year.

My colleague Katie Allen explains all:

A drop in government spending helped cut Britain’s borrowing last month, prompting economists to forecast that the chancellor is on track to meet his fiscal target for this year.

Borrowing for the last financial year as a whole was also revised down slightly by the Office for National Statistics as it published data on the public finances.

As mentioned earlier, Britain ran a deficit of £13.2bn in August – smaller than last year’s £14.4bn.

Katie continues:

The government’s progress on cutting Britain’s deficit – the gap between the government’s income and spending – was described as “painfully slow” by one business group. But analysts said the public finances appeared to be on an improving trend.

More here: Osborne on track to meet fiscal target as UK public borrowing falls

In the City, the Foxton’s estate agent chain continues to enjoy a stellar first day on the stock market. Its shares are up 20% this morning, at 277p from the 230p it floated at.

The FT says it shows “a recovery in both share offerings and the residential property market in the UK”.

Joshua Raymond, chief marketing strategist of Cityindex.co.uk, calls it a “hugely impressive” debut, and deliciously timed, too.

With London house prices shooting in the midst of a pricing bubble thanks in part to the Help to Buy Scheme, investors are trying to gain exposure to firms that directly benefit from this and as such the Foxtons IPO could not have been better timed in terms of its attractiveness.

Or as one fund manager puts it:

Updated

Thanks to BigBlue80 for flagging up the polling data which suggests Angela Merkel’s current CDU-CSU/FDP coalition would not get enough votes to return to power.

In the past, the most reliable of the large pollsters was the Institut für Demoskopie (IfD) Allensbach

They predict the following:
CDU/CSU 39,0%
SPD 26,0%
Grüne 11,0%
Linke 9,0%
FDP 6,0%
AfD 3,5%
Piraten 2,0%
Sonstige 3,5%

I.e. 45% for the current CDU/FDP coalition and 46% for the three major left parties.
It’s quite certain that Merkel stays chancellor although I would not completely discount the option of a SPD-Left-Green coalition. Which sounds like change but would mainly lead to too much instability to get anything done.

AfD might only influence politics in the sense that Merkel will have to watch her right-flank in the next few years. While these one-trick ponies usually don’t last long, they would have 4 years to embarass Germany abroad.

Updated

Speaking of eurosceptics….

Italy cuts growth targets

The Italian government has bowed to the inevitable today, tearing up its growth targets and admitting that its budget deficit is heading over target.

Enrico Letta’s government cut its forecast for 2013 to a contraction of -1.7%, down from -1.3% before. In 2014, it expects growth of 1%, down from 1.3%.

Both forecasts remain more optimistic than the IMF’s own targets — the Fund expects a 1.8% contraction in 2013 and a 0.7% expansion in 2014.

That difference could matter — on Letta’s calculations, the Italian deficit is on track to hit 3.1% this year. That’s over the EU’s target, and econony minister Fabrizio Saccomanni told reporters that it will be “corrected quickly”.

Sounds like the EU are putting pressure over the deficit too:

Saccomanni also predicted that Italy’s two-year recession will end soon, with GDP flat this quarter and then rising in the last three months of this year.

Updated

Tony Connelly, Europe Editor for RTE News, reports that the eurosceptic Alternative für Deutschland party are in good spirits ahead of Sunday’s election.

Party loyalists are confident they’ll win enough support to claim seats in the Bundestag. They’re also looking ahead to next year’s European elections.

Emma Tunney, an intern with Open Europe, attended one of Angela Merkel’s campaign rallies this week, and writes that Europe was only raised late in the chancellor’s speech:

Here her stance was clear – Germany must hold the course. Germany’s continued commitment to help its friends is necessary, that said she was quick to add that Germany had every right to expect those receiving assistance make meaningful changes to their financial systems.

Her assertion of a CDU rejection of the possibility of mutualizing European debt was well received, and was perhaps the most definitive statement on what we could expect should she become Chancellor once again.

Parish notice: my colleagues on the foreign desk have been tracking the twists and turns of the German general election in their own blog: German Elections Blog 2013.

Updated

From Berlin, my colleague Philip Oltermann flags up that the unfolding story of how US intelligence have been accessing Europe’s electronic communications was raised by Peer Steinbrück yesterday,

The NSA affair became a German election issue on Thursday when Social Democrat candidate Peer Steinbrück accused Angela Merkel of “negligent” treatment of the issue.

He said the revelations of US internet surveillance represented a “far-reaching interference with our basic democratic rights and personal self-determination”, and that Merkel had failed to “protect German citizens’ freedoms and interests”.

More here: Peer Steinbrück accuses Angela Merkel of negligence over NSA revelations

Electionista has crunched the recent polling data and concluded that Angela Merkel’s CDU-CSU/FDP coalition has just a 50.5% chance of winning a majority on Sunday:

On that point….

Updated

AP: Tight fight in Germany

Here AP’s latest dispatch from the German political frontline. It explains how the Free Democrat party are battling to hit the crucial 5% mark to get into the Bundestag.

Chancellor Angela Merkel’s conservatives and her struggling coalition partners were fighting over votes Friday in the final stretch of campaigning for Germany’s election as polls pointed to a tight outcome.

Merkel is heavily favored to emerge from Sunday’s election with a third term, but her hopes of continuing the current coalition of her conservatives and the pro-market Free Democrats are in the balance.

A ZDF television poll conducted Wednesday and Thursday showed a statistically insignificant one-point lead for the alliance over the combined opposition in line with other recent surveys showing a dead heat.

The Free Democrats are pushing hard for Merkel supporters’ votes after being ejected from Bavaria’s state legislature in a regional vote last weekend. In national polls, they’re hovering around the 5 percent support needed to keep their seats in Parliament.

Merkel and her conservative Union bloc are pushing back, saying they have no votes to give away. If the coalition loses its majority, the likeliest outcome would be a “grand coalition” between Merkel’s party and the center-left Social Democrats and the conservatives want to be as strong as possible.

“I would advise us all in the final hours before the election to fight our political opponents and not argue over each other’s votes,” Bavarian governor Horst Seehofer, who led Merkel’s conservative bloc to victory there, told the daily Die Welt.

The Free Democrats have “potential of well over 5 percent,” he was quoted as saying. They won nearly 15% at the last election.

“I think it’s a very strange understanding of democracy when the impression is raised that citizens’ votes belong to the chancellor,” the Free Democrats’ general secretary, Patrick Doering, shot back on n-tv television.

ZDF’s poll of 1,369 people gave Merkel’s conservatives 40 percent support and the Free Democrats 5.5%. Challenger Peer Steinbrueck’s Social Democrats polled 27%, their Green allies 9% and the hard-line Left Party with which the center-left parties say they won’t work 8.5%.

The poll showed a new anti-euro party, Alternative for Germany, at 4% not enough to win parliamentary seats. It gave a margin of error of plus or minus up to three percentage points.

But do note the caveat from earlier – some analysts think AfD are doing better than that…..

Looking back at the German election… here’s a handy graphic showing how last night’s polling data would translate into seats in the Bundestag:

The CDU’s 266 seats,plus the FDP’s 37, would give the current coalition a small majority –which could make for some tight votes on future eurozone policy.

Updated

On a lighter note, there’s a correction in the Financial Times today that deserves a wide audience (with many thanks to Luke Baker of Reuters)

Updated

Britain’s public finances were a little better than expected in August. The monthly deficit came in at £13.157bn, compared with estimates of around £13.3bn. Government revenues rose by 1.4%, and spending dipped by 2.2%.

So far this year, the UK had borrowed £46.8bn to balance the books, compared to £50.5bn for the first eight months of 2012. More to follow.

Updated

Corporate news

In the UK business world, the Office for Fair Trading has launched an investigation into possible price fixing on sports bras.

More here: OFT probes sports bra price fixing

And everyone’s favourite (?!) estate agent, Foxtons, has launched on the London stock market. Floated at 230p a share (valuing the firm at nearly £650m), its shares have leapt to 280p. Even London house prices aren’t going up that fast.

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

European stock markets are mostly lower today, but there’s not much afoot.

The initial rally sparked by the Federal Reserve’s decision on Wednesday not to taper its stimulus package has worn off, and traders appear to be hunkering down ahead of the German election.

The German stock market has been pulled down by a profit warning from Adidas last night.

Adidas blamed adverse currency effects, a distribution problem in Russia and poor trading at its golf business.

• FTSE 100: down 6 points at 6618, down 0.1%

German DAX: down 9 points at 8681, down 0.12%

French CAC: down 5 points at 4200,-0.12%

Italian FTSE MIB: down 1 point at 18056, – 0.01%

Spanish IBEX: up 11 points at 9,165, +0.13%

Updated

Here’s some early reaction to India’s surprise interest rate decision, which I’ve taken from Reuters.

Anjali Verma, chief economist at PhillipCapital:

Hiking the repo rate was unexpected. The governor is clearly worried about inflation. He is saying the improved international conditions will take care of the current account deficit funding and his focus will shift to fiscal deficit and inflation, which were taking a backseat.

Anubhuti Sahay, economist at Standard Chartered:

The statement clearly has a strong hawkish bias as it states that with a relatively more stable exchange rate, monetary policy formulation will be determined once again by internal determinants viz inflation and fiscal deficit.

Abheek Barua, chief economist at HDFC Bank:

The long-term signal is that the RBI is still concerned with inflation.

Easing short end of the curve, which it has done by cutting the MSF (marginal standing facility), reducing CRR requirements and etc. is a strong pro-growth signal. I think it (MSF) might be reduced even further.

India battles inflation with surprise rate hike

India’s new central bank governor Raghuram Rajan made a splashy debut in the monetary policy world this morning.

The Reserve Bank of India surprised the markets by announcing a quarter-point rise in India’s headline interest rate, from 7.25% to 7.5%.

However, the RBI also announced that it will unwind some of the “exceptional measures” put in place to support the Indian Rupee, after it slumped to record lows against the US dollar this summer.

Rajan’s message with today’s rate hike is that the RBI will make fighting India’s inflation problem its top priority. The cost of living is rising at 6.1% in India.

As Rajan put it in today’s statement:

Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately.

The RBI raised rates despite recognising that the Indian economy is weakening, with “continuing sluggishness in industrial activity and service.”

Clearly, Rajan is showing that he’s taking price stability as his mantra. The minutes point out that that the RBI has struggled with this in the past:

What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence. Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency.

A rate hike usually pushes currencies up. However, the rupee promptly dived as the news hit the wires, as traders realised that the RBI was also cutting some of the exceptional measures introduced to support its currency. The rupee fell from 61.7 to the dollar to as low as 62.55.

Stocks also fell on the Indian stock market — with the Sensex sliding over 2.1% so far today.

* – for the record, the RBI trimmed its marginal standing facility rate by 75 basis points from 10.25 to 9.5 per cent, and cut the minimum proportion of the cash reserve ratio that banks must maintain at the RBI from 99 per cent to 95 per cent.

Updated

Interest in the German election extends to the Asian markets, reports IG’s man in Melbourne, Chris Weston.

There’s no panic, but investors are calculating how the result will affect eurozone crisis policy. He writes:

The market sees the election really going one of two ways; either the status quo is resumed (i.e. CDU, CSU and FDP remain in power) or perhaps a grand coalition with the SPD party is put together after a short period of negotiations.

Given the SPD’s previous positive stance on backing a redemption fund, backed by Eurobonds, if they did help govern in future we could see a spike in EUR/USD on the prospect of a more euro-friendly government in place. On the other hand if the AfD (right wing, anti-euro party) get over 5% of votes and thus gain representation in parliament, we could see EUR and US futures gap lower on Monday.

Eurozone concerns have had limited influence on price action of late, but the prospect of having the AfD party having representation in parliament could have implications on eurozone policy going forward. The first thing that springs to mind is Greece.

We know the Greeks have a funding problem; the IMF talked openly about it July; highlighting a €4.4bn funding gap in its current program for 2014 and €6.5bn in 2015.

Given all new loans have to be fully agreed on in the Bundestag (German lower house of parliament); AfD representation in parliament could cause disruptions and uncertainty here.

Updated

On the campaign trail….

Angela Merkel and Peer Steinbrück, the SPD’s candidate for the chancellorship, held election rallies last night in a late drive to win votes before Sunday’s election (see opening post)

Both politicians attracted a healthy turnout of supporters, as these photos show:

Updated

German election looms

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

Germany’s general election has loomed over the eurozone for most of 2013. Finally, it’s all-but upon us.

Germans head to the polls on Sunday in a crunch poll that will determine how Europe’s largest countryeconomy is governed for the next four years. There’s no doubt that Angela Merkel’s CDU-CSU party will win the most votes. But there’s real uncertainty over whether her coalition with the Free Democrats can be repeated, or whether we’ll see a grand coalition with left-leaning rivals.

Poll after poll this week have confirmed that it’s just too close to call (do make your predictions in the comments).

The latest survey, released last night by FGW, suggested that Merkel’s coalition would just win enough votes to take power again.

It put CDU at 40%, the Social Democrats at 27%, FDP at 5.5%, Linke at 8.5%, the Greens at 9%, and then the eurosceptic Alternative for Deutscheland at 4% (not enough to win seats).

So, that’s the CDU-FDP on 45.5%, and other major parties at 44.5%.

The key factor is that a party needs 5% of votes to actually get into the Bundestag. And the whisper in Germany (and in the comments section of this blog this week) is the AfD might be doing better than the pollsters believe.

If AfD clear the 5% mark, as some polls have suggested, then German politics will be dramatically shaken up.

Here’s what some respected euro journalists have been tweeting:

So, the eyes of Europe could be on Germany this weekend, and for sometime after if it’s an unclear result.

Traders in the City are already watching with interest, as CMC’s Michael Hewson writes:

It still remains uncertain as to what the electoral maths will be with respect to any new coalition government.

A rising Eurosceptic movement in Germany could well complicate things significantly after a poll by German newspaper Bild showed that the AfD party could well be on course for more than 5% of the vote in the election this weekend.

A move above this threshold would mean that the party would gain seats in the Bundestag and as such would mean that they would have much greater influence over policy as well as make the likelihood of a less stable coalition a real possibility as neither the CDU, or the SPD would have enough votes to form a government with any prospective coalition partners.

I’ll be tracking events through the day as usual. We’ve already had one piece of interesting news outside Europe — India’s central bank has surprised the markets by raising interest rates. More on that shortly…. 

Updated

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USA 

New governor tells MPs his pledge to keep interest rates at record lows for up to three years has reinforced recovery. Carney points out that he is the only serving central bank governor among the G7 countries to have increased rates while heading the Bank of Canada…

 


Powered by Guardian.co.ukThis article titled “Bank of England governor Mark Carney rattled as he defends forward guidance” was written by Heather Stewart, for theguardian.com on Thursday 12th September 2013 11.17 UTC

The Bank of England governor, Mark Carney, has launched a staunch defence of his pledge to keep interest rates at record lows for up to three years, claiming that it has “reinforced recovery”.

Carney faced tough questioning from the cross-party Treasury select committee of MPs about the likely consequences of the monetary policy committee’s new “forward guidance” strategy.

But he insisted: “Overall, my view is that the announcement has reinforced recovery. It’s made policy more effective, and more effective policy is stimulative at the margin.”

The new governor also stressed that despite the MPC’s expectation that rates will remain on hold for up to three years, he would be ready to push up borrowing costs if necessary.

“I’m not afraid to raise interest rates,” he said, pointing out that he is the only serving central bank governor among the G7 countries to have increased rates – in his previous post, in Canada.

City investors have pushed up long-term borrowing costs in financial markets sharply since the MPC announced its new pledge to leave borrowing costs unchanged at 0.5%, at least until unemployment falls to 7%.

But Carney, who was handpicked by George Osborne to kickstart recovery and took over in Threadneedle Street at the start of July, at times appeared rattled. He said the recent increase in long-term rates, which sent 10-year government bond yields through 3% last week for the first time in more than two years, was “benign”.

He also repeatedly refused to be drawn on whether the new approach represented a loosening of policy – equivalent to a reduction in interest rates – in itself.

Carney denied that the new framework, involving “knockouts” if inflation appears to be getting out of control, is too complex. But Andrew Tyrie, the committee’s Tory chairman, complained that Carney’s account of the Bank’s new approach would be difficult to explain “down the Dog and Duck”.

Asked about the plight of savers, whose savings are being eroded by inflation with interest rates at rock bottom, the governor said he had “great sympathy”, but the best thing the Bank could do to help was to generate a sustainable economic recovery.

“Our job is to make sure that that’s not another false dawn, and ensure that this economy reaches, as soon as possible, a speed of escape velocity, so that it can sustain higher interest rates.”

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FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria…

 


Powered by Guardian.co.ukThis article titled “FTSE hits four week high as Syrian tensions ease, but GlaxoSmithKline falls on competition fears” was written by Nick Fletcher, for theguardian.com on Tuesday 10th September 2013 16.01 UTC

Leading shares moved higher on more good economic data from China and hopes of a resolution to the Syrian dispute.

But GlaxoSmithKline missed out on the gains, falling 41.5p to 1598.5p on the prospective arrival of generic copies of its lung treatment Advair in the US, after draft guidance from regulators set out requirements for competitors.

Savvas Neophytou at Panmure Gordon said Glaxo’s prospects were still dependent on Advair, which accounted for around 18% of revenues and 25% of profits. He said:

Following the investigation on selling practices in China and the failed trial on cancer candidate MAGE-A3 last week, the group’s risk profile is increased with news overnight that the FDA had published draft guidance for the development of substitutable generic copies of combination inhaled drugs. This may result in increased competition to Glaxo’s biggest selling product Advair. In recent years, the risk of a directly substitutable generic in the US had subsided, with a number of draft recommendations withdrawn. To boot, GSK’s management has been more confident in dismissing the risk as relatively low probability.

Clearly generics will have to still undertake some sort of clinical trial (the length of which is yet to be determined) and that is onerous in the case of many generic manufacturers. Thus, in a worst case scenario, more competitors may enter the market but this is unlikely to become an 80%-90% discount generic market which is often the case when multiple generics are launched in pharmaceutical markets.

He kept his buy recommendation and £18.50 target:

Although not the cheapest, the company has been through the majority of its patent expiries, big liability settlements and boasts a strong balance sheet and very little M&A risk. With shareholder returns remaining strong, we remain buyers.

Reckitt Benckiser rose 81p to £44.45 despite a sell note from Liberum on worries about competition for its suboxone heroin substitute. Liberum said:

Orexo’s Zubsolv tablets, competition for Reckitt’s Suboxone film, will start retailing on September 16 with list prices as much as 25% below the price of Suboxone. We think consensus is wrong to assume no impact on Suboxone film earnings by 2014.

Overall the FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria. The other major concern troubling the market – when the US Federal Reserve might end its bond buying programme – could become clearer after next week’s Fed meeting.

Airlines benefited from the relaxation of Syrian tensions, as the oil price dipped. British Airways owner International Airlines Group climbed 14.3p to 319.8p while easyJet jumped 81p to £13.58.

A fall in precious metal prices – a traditional haven in times of worry – saw Randgold Resources lose 225p to £46.89 and Mexican miner Fresnillo fall 44p to £12.25.

But Glencore Xstrata added 7.45p to 328o.75p after revealing higher than expected cost savings from its recent merger.

Glencore finally completed its $46bn takeover of Xstrata four months ago and promised last year the deal would provide $500m of synergies, partly through selling Xstrata’s minerals and metals through Glencore’s marketing outlets. In a presentation to the City, the company said the savings would be quadrupled to $2bn. Not only will it cut costs, it will shelve risky projects and reduce capital expenditure.

Elsewhere Whitbread dropped 78p to £31.38 after investors took profits following signs of a slowdown at its Costa Coffee chain.

BG continued to slide after Monday’s production warning which accompanied a City presentation. Its shares fell another 12p to £12.05, and Neill Morton at Investec said:

This interesting seminar essentially expanded on themes set out in BG’s recent strategy presentation in May. As such, there was little to change our earnings forecasts. Unfortunately, the ‘new news’ on the day was the production warning for 2014 (Egypt, Norway, US) with possible knock-on effects into 2015. We lower our earnings forecasts by around 4% and expect BG’s latest warning to cast a cloud over near-term share price performance.

Among the mid-caps fund management group Ashmore was 19.3p better at 382.2p after full year profits rose 6% to a better than expected £257.6m. Chip designer Imagination Technologies rose 14.9p to 302p ahead of the launch of the new Apple iPhone while larger rival Arm added 23.5p to 941p.

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US Non-farm payrolls reported below forecasts. Downward revisions mean 74,000 fewer new jobs for the months of June and July. Market reaction: gold up, dollar down. Greek recession slowing. UK trade deficit widens – details and reaction…

 


Powered by Guardian.co.ukThis article titled “US labour market misses expectations with 169,000 new jobs in August -as it happened” was written by Graeme Wearden, for theguardian.com on Friday 6th September 2013 15.45 UTC

Key event

Europe’s stock markets have closed for the week. There were decent gains in Spain and Italy (both up 1.2%) and little change in London, where the FTSE finished just 14 points higher at 6547.

And government bond yields remain higher today, pushing down bond yields (see 2.01pm)

US trading continues to be volatile, still driven by Syria-related headlines as well as today’s jobs data. The Dow Jones index is back in positive territory for the day, up 40 points at 14977….

And that’s where I’m going to clock off. Back on Monday for more of the same. Thanks, and goodnight. GW.

Back in Greece, schoolteachers have decided to take the sheen off Greek prime minister Antonis Samaras’ much-anticipated speech on the state of the county’s economy tomorrow (details at 11.18am) by announcing rolling strikes later this month.

Our correspondent in Athens, Helena Smith, reports:

Just as Antonis Samaras is preparing to talk up the Greek economy – in a speech that is expected to emphasise that the debt-stricken nation’s dependence on foreign lenders could “soon” be over – unions are girding for battle. Primary and secondary school teachers have announced five-day rolling strikes beginning September 16. Educators in both sectors voted overwhelmingly to conduct the strikes in a massive display of opposition over government plans to lay off thousands of teachers by the end of the year.

The protests, which will begin with a protest demonstration in Syntagma square tonight, are likely to wreak havoc on the education system and be a major embarrassment for a government desperately trying to keep the social peace by insisting that Greece’s days under international stewardship are now numbered. “If need be we will bring the whole system down,” exclaimed one leading unionist as she demonstrated outside the national economy ministry recently. “After so many years of recession and cuts, these measures are totally barbaric.”

Athens’ former mayor Nikitas Kaklamanis, a member of Samaras’ centre right New Democracy party, has added to the gloom telling radio listeners today that the government’s much-touted “success story” was well and truly over.

“Some time ago I asked the finance minister how many investments above one million euro, either by Greeks or foreigners, had been made in Greece in 2012 and do you know what the answer was? Four!,” he said. “To speak about development and growth when that is the official answer is to make a mockery of the situation. I believe that the success story has well and truly been relocated to the past.”

The National Institute of Economic and Social Research thinktank has predicted that the UK economy grew by a rumbustious 0.9% in the three months to the end of August, or more than 3.6% on an annualised basis.

That follows a string of strong economic data in recent weeks, and is an improvement on last month’s reading — when NIESR estimated that GDP rose by 0.7% in the May-July quarter.

The group also predicted slower growth in the months ahead:

Looking ahead, the rate of growth will likely soften, somewhat, over coming quarters. The external environment in the guise of weak demand from the Euro Area and slowing emerging markets will likely limit the rate of the UK’s economic expansion.

And even after such a good August, Britain’s GDP is still 2.7% below its pre-crisis peak, with this recovery still the slowest on record.

Updated

First it was Germany’s banks (8.07am) now it’s America’s car industry which is feeling the love from the ratings agencies…

Back in Europe, and the Open Europe thinktank has published an interesting theorette today – about how Germany’s far left Die Linke party could hold the balance of power after the general elections on 22 September:

This is how Merkel could flunk the elections: enter the Far Left

It all relies on the fact that parties need to win 5% of the vote to win seats in the Bundestag, and Angela Merkel’s coalition partners, the Free Democrats, are hovering close to the cliff-edge. Should FPD drop below 5%, Merkel’s CDU would (probably) not win a majority on their own, so Die Linke could prop up a left-leaning coalition instead.

One problem with this theory is that the Social Democrat’s have ruled out a deal with their left-wing friends (or ‘nutters’, as Open Europe puts it). But election results can lead to funny alliances….

Updated

Mohamed El-Erian, chief executive of bond trading giant Pimco, reckons the Fed could well begin tapering this month despite the weaker-than-expected jobs data.

He told Reuters:

The market is taking this morning’s somewhat disappointing data as suggesting that the Fed will not taper in September. I am not so sure that is the case. The detailed numbers also illustrate the problem of growing inequality in American society.

That’s an interesting line for El-Erian to take, given Pimco’s exposure to the US bond market (where bond prices fall when tapering looks more likely).

Updated

Capital Economics says today’s US jobs data is a “mixed bag”. The Fed could take it as a green light to start tapering its QE programme (as the unemployment rate fell), or as a warning (as June and July’s data was revised down).

Our best guess is that the cumulative evidence of improvement over the past year will convince a majority of officials that the tapering should begin at the next FOMC meeting later this month, but we’re not going to pretend this is a certainty.

That didn’t last long. The Dow is now off by 120 points, and European markets are also in the red.

I don’t think US unemployment is the reason, though. World leaders are speaking to the press in St Petersburg following the G20 summit, and there’s no breakthrough over Syria. Instead, president Putin has declared that he and president Obama are still at odds.

As our G20 live blog explains:

“We stuck to our guns,” Putin said according to a live translation.

The Wall Street opening bell has been rung, and shares are inching higher in New York.

The Dow Jones industrial average is up 47 points at 14985, +0.3%, with the S&P 500 and the Nasdaq rising by similar amounts.

Updated

Our Wall Street correspondent Dominic Rushe writes:

Unemployment in the US fell slightly to 7.3% in July, its lowest level in over four years, but the sluggish pace of recovery continued as the economy added just 169,000 new jobs.

The latest nonfarm payroll figures come at a crucial moment for the Federal Reserve, which is weighing when and whether to cut its $85bn-a-month economic stimulus programme, known as quantitative easing (QE). Fed chairman Ben Bernanke has tied cuts in QE to the health of the job market. The federal reserve open markets committee (FOMC), which is split on when to pull back on the QE programme, meets on September 17-18.

The jobless rate has now fallen from 8.1% a year ago but the pace of job creation remains slow and the Labor Department revised down its numbers for the previous two months after concluding job growth was less than expected.

The US added jobs in retail, healthcare, food services and drinking places, professional and business services, and wholesale trade in August, said the bureau of labor statistics.

Here’s his full story: US unemployment rate drops to 7.3% amid sluggish economic recovery

Another ace graph from Bloomberg’s Michael McDonough, showing how participation by young people in the jobs market has fallen steadily over the last 23 years, while it has risen among the over 65s:

And here’s another line from the Non-Farm Payroll report, looking behind that headline unemployment rate of 7.3%:

Among the major worker groups, the unemployment rates for adult men (7.1%), adult women (6.3%), teenagers (22.7%), whites (6.4%), blacks (13.0%), and Hispanics (9.3%) showed little change in August.

The jobless rate for Asians was 5.1% (not seasonally adjusted), little changed from a year earlier.

Ishaq Siddiqi, market strategist at ETX Capital, says it’s “unwise to say tapering is off the cards in September but it definitely has given the Fed and the market food for thought.

In the bond markets, government borrowing costs have dropped — another sign that the Federal Reserve is now less likely to start aggressively tapering its QE programme.

Traders are rushing to buy sovereign debt, which pushes down the yield (interest rate).

US 10-year Treasury yield: 2.88%, down from 2.97% overnight

UK 10-year gilt yield: 2.93%, down from 3% overnight

German 10-year bund yield: 1.94%, down from 2.04% overnight

Updated

Economics professor Nouriel Roubini insists today’s jobs data means the US Fed should not slow its stimulus programme yet:

Taper off?

Traders in the City and on Wall Street are calculating that today’s Non-Farm Payroll report makes it less likely that the Federal Reserve will begin slowing its stimulus package this month. And when tapering begins, it could be at a slower rate than previously expected.

With fewer jobs created in August than expected (169k vs 184k), and 74,000 fewer people hired in the previous too months, America’s labour market does not look as strong as expected.

And with the turmoil in the Middle East continuing, the Fed has other reasons to be cautious.

The Fed is currently buying $85bn of bonds each month through its quantitative easing bond-buying programme every month. So the longer it runs, and the slower it tapers, the more money will be pumped into the system.

Market reaction

Shares are rallying, gold is up, and the dollar is down since the US jobs data was released.

Most currencies are strengthening against the US dollar — sterling has gained half a cent to $1.564. Emerging market currencies are bouncing, with the Brazilian real up 1% against the dollar. The euro has gained 0.2%.

In London the FTSE 100 is up 20 points. And gold is up $20 per ounce at $1,388/oz.

Some instant reaction:

Americans are working a little longer – the average working week increased by 6 minutes (or “0.1 hour”) in August.

Average earnings rose by 5 cents to $24.05. Over the year, average hourly earnings have risen by 52 cents, or 2.2%.

At 7.3%, America’s jobless rate is its lowest since December 2008 (down from 7,4% last month).

But that may not be a good sign, because the US Labour department has also reported that the labour force participation rate has dropped to 63.2%, the lowest since August 1978. That means more people have simply dropped out of America’s potential workforce.

July’s non-farm payroll has been revised lower, to +104,000 new jobs — that’s sharply lower than the 162,000 that was reported a month ago.

And fewer new jobs were created in June as well — 172,000, not the 188,000 that was expected.

That means 74,000 fewer American jobs were created in June and July than we thought.

US Non Farm Payroll released

Breaking: The US economy created 169,000 new jobs in August.

That’s below the consensus forecast that the US non-farm payroll rose by 180,000 last month.

And the jobless rate has fallen to 7.3%. However, previous data for June and July has been revised down….

More to follow!

06-Sep-2013 13:28 – G20 SAYS ADVANCED ECONOMIES COMMIT TO CREDIBLE AND AMBITIOUS MEDIUM-TERM FISCAL STRATEGIES

G20 statement released

Over to St Petersburg very briefly — the G20 communique is just hitting the wires.

  • 06-Sep-2013 13:22 – G20 COMMUNIQUE SAYS WORK ON PUTTING WORLD ECONOMY ON PATH TO RECOVERY IS NOT YET COMPLETE
  • 06-Sep-2013 13:23 – G20 SAYS URGENT NEED IS TO INCREASE THE MOMENTUM OF THE GLOBAL RECOVERY – COMMUNIQUE
  • 06-Sep-2013 13:24 – G20 SAYS CHALLENGES TO GLOBAL ECONOMY ARE UNEMPLOYMENT, WEAK GROWTH, FINANCIAL MARKET FRAGMENTATION IN EUROPE
  • 06-Sep-2013 13:25 – G20 SAYS SLOWER GROWTH IN EMERGING MARKET ECONOMIES CAUSED IN SOME CASES BY VOLATILE CAPITAL FLOWS
  • 06-Sep-2013 13:26 – G20 REMAINS MINDFUL OF RISKS, UNINTENDED NEGATIVE SIDE EFFECTS OF EXTENDED PERIODS OF MONETARY EASING

Updated

Other key things to watch out for in the Non-Farm statement (coming in 8 minutes…) include …. the headline US unemployment rate (7.4% last month), the measures of average earnings (is pay going up?), and the labour force participation rate (measuring the percentage of the population available for work).

Analysts will also be watching to see if the US Labour Department revises its previous data.

This Bloomberg graph shows how the borrowing costs of major economies such as the UK and Germany, and emerging markets, have risen since the prospect of the Fed slowing, or ‘tapering’, its bond-buying programme emerged

It’s via Bloomberg’s global head of economics, Michael McDonough.

Updated

What happens if August’s US non-farm payroll is significantly different from the consensus forecast of 180,000 new jobs?

Joe Bond of City firm Abshire Smith has some suggestions for how markets could react — based on the idea that a strong reading increases the chances that the Fed will start cutting its bond-buying stimulus programme this month.

• Above 200K jobs would see the US dollar (USD) bid across the board, further weakness for emerging market currencies and gold

• 170-200K would still be bullish (average print for the year slightly north of 180K)

• Below 170K would be a poor number, with USD offered, and Gold bid

•Anything below 120K would be a huge disappointment, providing large volatility for USD and Gold.

I mentioned earlier that the consensus forecast is that 180,000 new jobs were created in the US last month. Each analyst, though, has a different guesstimate — and they range from just 79,000 to as much as 220,000, as market analysts RANsquawk explains:

Non-farm payroll coming soon…

Just 45 minutes to go until the US jobs data for August is released (at 1.30pm BST, or 8.30am EDT), and European markets are jittery. Most indices are lower, as traders wait for the big number of the day.

Chris Beauchamp of IG Index says it’s been a nervous morning after some busy days:

It’s been a busy week really; economic news, geopolitical concerns and tapering worries have all have been thrown at investors in one form or another…the overall impression is one of extreme caution.

With non-farm payrolls out today, this caution has only been heightened.

One for twitter users who want to relive the dark days of Lehman Brothers:

Updated

This chart shows how Greece’s GDP slump has slowed over the last six quarters (including the 3.8% annual contraction in the last quarter reported this morning), but is still some way from ending.

Updated

Germany has reported a sharp fall in industrial production during July.

Output across German industry dropped by 1.7% on a month-on-month basis, much worse than the 0.5% drop that was expected.

The German economy ministry said the drop was due “not least” to a strong June (when output jumped by 2%), insisting that conditions are improving:

The weak phase is over… Overall, the upward trend appears to be continuing moderately in manufacturing and significantly stronger in construction.

But with exports dropping by 1.1% in July (see 8.01am), it doesn’t feel like July was a knockout month for Germany.

Speaking of Greece… security will be tight in the city of Thessaloniki tomorrow when prime minister Antonis Samaras visits its annual trade fair

Local media report that 4,000 police officers, including motorcycle patrols and two helicopters, will be on duty at the 78th Thessaloniki International Fair (TIF), which Samaras will open with a keynote speech.

Samaras is expected to argue that the Greek economy is improving (so he should be encouraged by this morning’s GDP data).

Government opponents, though, will be holding an anti-austerity rally on Saturday, from 6pm Greek time.

Greece’s Kathimerini newspaper has more details:

The premier, who is to address businessmen in the morning and not in the traditional evening speech, will reportedly try to reassure entrepreneurs, and citizens in general, that Greece’s economy is improving, slowly but surely, and that no more austerity measures are on the cards.

Samaras is also expected to stress the importance of Greece clinching a primary surplus this year, as appears likely, as this will allow the government to offer some relief to lower-income Greeks. The premier had indicated in an interview last week that 70 percent of the primary surplus, if it is achieved, will go toward support for those on low pensions.

Updated

Greece’s long, grim depression could finally be turning a corner.

Its economy is still contracting, but at a rather slower pace.

The country’s economy shrank by 3.8% on a year-on-year basis in the second quarter of this year, updated data shows. That’s a significantly smaller decline than the 5.6% annual contraction measured in the first three months.

Greece doesn’t report quarter-on-quarter data like most other countries, so it’s hard to tell exactly how the economy performed between April and June. It’s clear, though, that the contraction must have eased.

Good timing, as the eurozone faces up to the task of patching up its finances again next year.

Updated

The British public are taking Mark Carney seriously, even if the City are not.

A quarterly survey of inflation expectations found that the number of people who expect interest rates to rise in the next 12 months has fallen to its lowest level since November 2008, at just 29%.

Inflation expectations have also fallen to the lowest since August 2012.

The survey of 2,500 Brits took between August 8th and 13th. Carney announced on August 7th that rates will not rise from their record lows until the UK jobless rate has dropped to 7% from 7.8%, which the Bank doesn’t see until 2016.

Governor Carney should be reassured by this data, particularly as inflation expectations are one factor that could force him to abandon the plan.

Some City traders, though, are pricing in a rate rise by the end of 2014.

The survey also found that public confidence in the Bank of England had dropped to a nine-month low, with a net balance of +15 people believing it was doing a good job. 

The disappointing UK trade and industrial production data this morning have prompted experts to warn that economic conditions in Britain, and beyond, may not be as rosy as hoped

Britain’s widening trade gap in July (9.40am )was primarily caused by a sharp drop in exports to countries outside the EU. Exports of all commodities except fuel fell during the month, the Office for National Statistics reported, led by a decrease in exports of “finished manufactures”.

Here’s the key points from the ONS release:

  • Seasonally adjusted, the UK’s deficit on trade in goods and services was estimated to have been £3.1bn in July, compared with a deficit of £1.3bn in June.
  • There was a deficit of £9.9bn on goods, partly offset by an estimated surplus of £6.8bn on services.
  • Exports of goods fell 7.6% on the month to £24.8bn for July 2013. Imports for the same period fell 1.0% to £34.7bn
  • In July 2013, exports of goods to countries outside of the European Union (EU) decreased by £2.2bn to £11.8bn. Exports to countries within the EU increased by £0.2bn over the same period to £13bn.

On a slightly longer-term view, imports outstripped exports over the last three months:

  • The deficit on trade in goods increased £0.3bn to £26.8bn in the three months to July 2013 from £26.5bn in the three months to April 2013. Exports of goods in the three months to July 2013 increased to £77.4bn and compared to the previous year, increased by 1.6%. Imports of goods also increased over the same period to a record high of £104.2bn and compared to the previous year, increased by 3.1%.

Updated

UK trade deficit widens and industrial production stays flat

Britain’s trade deficit more than doubled in July, and industrial production failed to grow as expected.

The data, just released, is a rare reversal for the UK after recent strong economic statistics that have suggested the recovery has legs.

The UK trade deficit in goods and services widened to £3.085bn, the worst monthly reading since October 2012. Twice as wide as June’s figure, it doesn’t suggest that that UK economy has moved into a more robust, manufacturing led revival as hoped (although these monthly readings are rather volatile).

Industrial production, meanwhile, was flat month-on-month in July, dashing hopes of a 0.1% rise. Within the data, manufacturing rose by 0.2% month-on-month, compared with hopes of a 0.3% rise.

More to follow……

There was drama in the Cyprus parliament last night where MPs rejected crucial legislation related to its bailout package, before eventually falling into line. 

A vote on laws to bring its ‘co-operation banks’ under the control of the Cypriot central bank was narrowly defeated, raising the sudden threat that its aid programme could be derailed. But after meeting late into the night, the legislation was finally approved:

Reuters reports:

 In a marathon voting session, legislators agreed to a clause enabling co-op banks to receive €1.5bn ($1.97bn) in bailout money.

In an earlier vote, it had been narrowly rejected by lawmakers from the island’s opposition left-wing parties, who oppose any bailout conditions.

Parliamentary approval for restructuring co-ops, which are small commercial lenders, is crucial to Cyprus receiving the next aid installment of €1.5bn from international lenders. The money will be ploughed into the lenders to recapitalise them. In a second vote in the early hours of Friday, parliament approved the restructuring of the co-ops, finance ministry sources said.

The second vote was in the great traditions of European Union democracy, argues Michael Hewson of CMC Markets:

There was two votes in the Cypriot parliament before politicians arrived at the “right” decision with respect to the latest bailout package in what has become a very European past time. If you don’t get the result you want in the first vote, vote again until you get the right outcome.

One more gobbet of economic news — UK house prices are rising at their fastest rate since 2010.

Halifax reported that prices jumped by 5.4% in the three months to August, compared with a year ago. However, the lender argues that the trend is slowing, as prices were only up by 0.4% last month compared with 0.9% in July.

Halifax housing economist Martin Ellis reckons:

Relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market. Overall, house prices are expected to rise gradually over the remainder of the year.

But while prices keep rising, critics of George Osborne will probably keep warning that the chancellor is fueling a dangerous housing bubble with his ‘help to buy’mortgage subsidy scheme.

French consumer confidence is also up, rising from 82 in July in 84 in August.

Best reading since April, showing a recovery from the record low of 79 high in May and June. Still some way to get back to the long-term average of 100, though…

There’s good news for Germany’s banks this morning. Moody’s has raised its outlook on the sector from negative to stable, which removes the threat of a downgrade.

The ratings agency said the move reflected “ a year of reduced crisis-related losses and improved capital strength”. It cited four reasons for the upgrade:

  • prospects of a stable operating environment due to an improving economy and benign credit environment;
  • continued strengthening of the banks’ capital buffers due, in part, to more stringent capital requirements;
  • the stabilising effect of an ongoing reduction in high-risk assets and deleveraging; and
  • improved refinancing structures and ample liquidity buffers, which imply low funding risk.

Here’s the full statement.

Another encouraging signal for the eurozone. Worth noting, though, that we’re still waiting for the ECB’s next stress test, or asset quality review, of euro area banks…

This morning’s early trade data shows that Germany’s trade surplus has shrunk, and France’s trade deficit has widened.

German exports dropped by 1.1 % in July, dashing economist expectations of a 0.8% rise. And with imports up by 0.5%, the German surplus narrowed to €14.5bn, from €15.8bn in June.

Stefan Schilbe at HSBC Trinkaus told Reuters it was “a disappointment”, adding:

But we can be hopeful that the picture will change for the better in coming months. Leading indicators in industrial states – from the United States to Britain and the euro zone states – are pointing upwards.

Arguably a Germany that imports a little more, and exports a little less, is good for the rest of the eurozone as it tries to rebalance its economy.

Over in France, the trade deficit widened to €5.109bn in July, from €4.484bn in June. The French Customs Office blamed a jump in imports due to higher energy costs, and supplies for its aerospace industry.

Waiting for Non-Farm

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

Today’s big event in the financial world is the latest US jobs data, which will be unleashed on an expectant financial world after lunchtime in Europe (1.30pm BST, or 8.30am New York time).

The non-farm payroll always makes a splash, as it shows how many new jobs were created (or lost) in the world’s biggest economy the previous month. Today’s number is pretty special – it could prompt America’s Federal Reserve central bank to start slowing its stimulus package, if it judges that the US economy is finally strong enough to take it.

Economists expect around 180,000 new jobs were created in the US last month (excluding the agriculture sector), up from 162,000 in July. But non-farm is notoriously tricky to predict….

This graph from Marketwatch shows the monthly non-farm payroll since the start of last year — job creation has been generally steady, rather than spectacular…

The implications of the Fed ‘tapering’ its $85bn bond-buying programme are significant for the world economy. Taper anticipation is one factor pushing up government borrowing costs (the UK 10-year gilt yield hit 3% yesterday, while 10-year bund yields are over 2%).

Also coming up today, we have trade data from key European countries and the latest UK industrial output stats. Germany has already reported a surprise drop in exports in July (more to follow…)

I’ll also be watching the eurozone closely, as speculation mounts over a future aid package for Greece in 2014….

Updated

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Published via the Guardian News Feed plugin for WordPress.

According to the FOMC meeting minutes, “a few” officials were keen to make a move sooner and “a few” urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery…

 


Powered by Guardian.co.ukThis article titled “Fed minutes show cautious move towards end of economic stimulus” was written by Dominic Rushe in New York, for The Guardian on Wednesday 21st August 2013 19.56 UTC

The Federal Reserve inched nearer to reining in its bn-a-month economic stimulus programme last month, according to the minutes of its last meeting which were released on Wednesday. But the central bank did not give any clear indication about when that scaling back might begin.

The minutes of the Federal Open Market Committee (FOMC) meeting which took place late last month offered a mixed view on committee members’ willingness to ease back on the so-called quantitative easing (QE) programme. According to the minutes, “a few” officials were keen to make a move sooner and “a few” urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery. US stock markets were largely unchanged after the news was released.

Most FOMC members felt that growth in the economy would pick up in the second half of the year and further strengthen in 2014. According to the minutes: “A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June.” The minutes described recent economic data as “mixed”.

The Federal Reserve chairman, Ben Bernanke, indicated in June that the stimulus programme could be scaled back later this year, if economic data continued to be positive. The news sparked a sell off in the equity markets but despite some volatility they have remained close to record highs.

The QE programme, the Fed’s third round of bond buying, is intended to keep rates low and encourage investment in the economy in the hopes of driving jobs growth. Bernanke has given no clear indication when any tapering in the massive bond-buying programme could begin; economists have speculated that it could come as soon as September or be delayed until next year.

The summary of the 30-31 July meeting said that while “a few [committee] members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases”, a few others “suggested that it might soon be time to slow somewhat the pace of purchases”.

The signals from the US economy are broadly positive but there are still many concerns. Unemployment rates continue to inch down but remain relatively high. The Fed minutes said: “Private-sector employment increased further in June, but the unemployment rate was still elevated.” The US housing market appears to be on the mend but some have worried that a recent rise in interest rates could have an impact. “While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates,” the minutes said.

Bernanke is widely expected to announce his decision to resign as Fed chair. His third term comes to an end at the end of January 2014 and President Barack Obama has said that he will appoint a successor this autumn. Bernanke will hold a press conference after the FOMC’s next meeting, in mid-September.

The two most likely candidates to take over Bernanke’s job at present are the Fed vice-chair Janet Yellen and Larry Summers, a former Treasury secretary who is one of Obama’s closest economic advisers.

guardian.co.uk © Guardian News & Media Limited 2010

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Eurozone inflation hits 1.6% y/y below 2% ECB target. Trade surplus in the 17-nation single currency area up to €16.9bn. Markets remain jittery despite end of eurozone recession. China and Japan revealed as biggest sellers of US Fed bonds…

This article titled “Stock markets jittery over fears Federal Reserve set to taper stimulus – as it happened” was published by and theguardian.com,

European markets are expected to open lower this morning, as investors remain jittery that the US Federal Reserve will start to cut its massive stimulus programme from September.

Asian markets are slightly down today, after the biggest one-day selloff in the Dow Jones and S&P 500 since June.

Investors remain fretful although members of the Fed say they are still making up their minds about cutting the $85bn bond-buying programme. A voting member of the monetary-policy-setting Federal Open Market Committee, James Bullard, said yesterday that he would like to see more data before reaching a decision.

As the Wall Street Journal (paywall) reports, he said:

We don’t have to be in a hurry to taper.

But as Michael Hewson of CMC Markets observes, this is not stopping investors from selling stocks:

It would appear that the weight of expectation surrounding an imminent tapering of asset purchases, along with a host of disappointing company earnings announcements, has prompted markets into thinking that a September taper is pretty much a done deal.

What makes this conclusion all the more surprising is that apart from yesterday’s weekly jobless claims, the economic data was by and large pretty disappointing, coming in below expectations across the board.

We are also expecting European inflation data at 10am.

I’ll be following all the latest developments today …

Updated

Oil prices ease off 4-month high

Investor worries over stimulus have also helped to bring down oil prices. Bloodshed in Egypt had sent the price of a barrel of Brent Crude to a four-month high of $111 on Thursday, but it has slipped back to $110.

Egypt is not a major oil supplier, but investors are worried that the unrest could destablise oil transport throughout the Middle East.

Egypt produces 728,000 barrels if oil a day, about 0.9% of global output, and accounts for 1.8% of the world’s gas supply. BP has said their oil production in Egypt is unaffected, although Shell has closed its office for a few days.

Meanwhile Tunisia, the north African country that was the cradle of the Arab Spring, has had its credit rating cut. As Fast FT reports, Standard and Poors have downgraded Tunisia’s sovereign rating by two notches from BB to B.

The rating agency said fears of terrorist attacks threatened Tunisia’s vital tourist industry.

We view the popular legitimacy of Tunisia’s transitional institutions as increasingly contested, jeopardizing the approval of a new constitution, holding of elections, and implementation of growth-promoting economic reforms.

Quote via Fast FT (metred paywall)

Updated

European markets flat

European markets have opened flat after yesterday’s losses.

UK FTSE: +0.09% at 6489 points

France’s Cac +0.19% at 4101

German Dax: -0.03% at 8374

Italy’s FTSE MIB: – 0.01% at 17,461

Spain’s Ibex: -0.01% at 8736

Updated

Shanghai market swings

Strange goings on on the Shanghai stock market today. The Shanghai Composite index closed 0.6% down, but not before an unexpected 6% surge in value earlier in the day.

Shanghai-listed Everbright Securities suspended trading of its shares and said it was investigating a problem with its operating system.

This morning, Everbright Securities strategic investment department’s proprietary trading bureau had a problem when using its own arbitrage system. The company is investigating and dealing with the issue.

Market watchers are blaming a lone trader with a “fat finger”.

Maersk cuts shipping forecast

Maersk is a bellweather for global trade.
Maersk is a bellwether for global trade. Photograph: Soren Lund Hviid/Alamy

Another sign of slowdown in the global economy? Maersk Line, the world’s biggest container shipper, has cut its forecast in demand for containers to 2-3%, down from 2-4%.

The Danish company accounts for 15% of the world’s shipping container capacity. Maersk’s profits still look healthy: it reported a $439m (£281m) profit for the second quarter of 2013, up from $227m a year earlier.

Updated

Money flows into the eurozone

The euro area notched up a trade surplus of €16.9 bn (£26.bn) in June 2013, the European Central Bank reported this morning.

This reflected €11.8 bn surplus for goods€8.7 bn services and €6.4 bn income. This was partly offset by a €10.1 bn deficit for current transfers . Figures are seasonally adjusted.

Updated

Eurozone inflation hits 1.6%

Eurozone inflation data is in, and was in line with expectations at 1.6% for July, making it the sixth straight month the rate has been below the ECB’s 2% target.

And below is a chart showing how the trade surplus has increased to €196.1bn compared with €66.1bn last year

Eurozone foreign trade for June
The eurozone’s current account balance has steadily increased over the last 12 months as the trade surplus hit €196.1bn or 2.1% of euro area GDP. Photograph: /ECB

Today’s excitement has got a bit much for Jennifer, who had to head off.

Simon Neville will now be taking over the blog for the rest of the day and attempt to bring you the rest of the day’s events.

Updated

Imports and exports continue to fall

While the trade surplus may have widened in June from last year, imports continue to fall.

Imports to the 17 countries using the euro fell 6% on the year for a second consecutive month in June, while exports extended their fall to 3% – a second monthly drop in a row.

Consumer prices fell by 0.5% on the month in July, with prices falling in all areas except services and energy costs.

New car sales up

Another sign of the unsteady recovery in Europe comes in the form of the car market, which recorded another mixed message.

Registrations of new cars in Europe jumped 4.8% in July compared with the same month a year ago, to 1.02m vehicles.

However, registrations in the first seven months of the year fell 5.2% to 7.46m.

One reason for the slight year-on-year increase was an extra working day in Germany’s motoring sector.

More euro-denominated bonds from Asian issuers?

Suggestions of a reduction to the US Fed’s quantitative easing programme has pushed five-year yields to 1.53% today, from 0.65% in May. By comparison the yield on a five-year euro mid-swaps has gone to 1.19% from 0.61%.

Some Asian bond issuers are now suggesting more euro-denominated bonds could be issued as a result.

One banker told Reuters: “There is no talk of tapering in Europe, so interest rate volatility should be smaller than in the [US] Treasury market.”

Cross currency basis swaps from euros to dollars has also improved, meaning that funding in euros is becoming cheaper for the many Asian issuers that routinely swap back to dollars.

China and Japan lead US Treasuries exodus

China and Japan have emerged as the leaders of an exodus from US Treasuries in June following the first signals from the US central bank that it could end its stimulus packages, new data shows.

The two nations accounted for nearly all the record $40.8bn of net foreign selling.

The sales were part of a $66.9bn of net sales by foreigners of long-term US securities in June – the fifth straight month of outflows.

China, the largest foreign creditor reduced its holdings to $1.276tn and Japan reduced its holdings for the third month in a row to $1.08tn.

Merkel win good for business

An interesting piece by Public Service Europe suggesting a Merkel win in the upcoming elections on September 22 will be good for business.

The article says:

The quarterly FT/Economist Global Business Barometer revealed that 60 per cent of 1,500 top business people polled believe the re-election of the centre-right leader would improve their confidence in Europe’s economic prospects. Just 16 per cent would be less confident in the region’s financial future following a Merkel victory.

It quotes Merkel telling German television:

I believe that in Europe at the moment we have to take care to coordinate our competitiveness more closely. We don’t have to do everything in Brussels. We can also consider whether we can give something back.

US housing starts rise

US housing starts and permits for future homes rose less than expected in July, suggesting higher mortgage rates could be slowing the housing market’s momentum.

Housing starts increased 5.9% to 896,000 units in July and June’s starts were revised up to 846,000 from 836,000.

However, the rise was lower than the expected 900,000.

Permits rose 2.7% in July to 943,000, slightly below the 945,000 expected.

Mortgage rates have risen in anticipation at the Fed’s tapering of its quantatative easing, expected to start next month. Builders have also complained that there is a shortage of labour and building materials.

One US residence with no problem finding building materials is the White House, which is installing solar panels on the roof.

An official told the Wall Street Journal the panels:

will help demonstrate that historic buildings can incorporate solar energy and energy efficiency upgrades.

Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha's Vineyard.
Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha’s Vineyard. Eva Hambach/AFP/Getty Images

Germany immigration

Contributor BigBlue80 points out the graph tweeted by @russian_market is from 2011 and points out emigration in Germany has actually fallen.

Emigration in 2008 was 734k while it was only 679k in 2011. Over the last decade the amount of people leaving Germany has been relatively steady at 600-700k.
Immigration has however increased: From 682k in 2008, 960k in 2011 and 2012 it was 1.1 million (net migration 400-500k).

Updated

US markets open

  • Dow Jones down 12.6 (0.08%) at 15100
  • S&P 500 down 2.3 (0.14%) at 1659
  • Nasdaq down 2.1 (0.06%) at 3604

US markets all open down slightly, after the largest decline on Wall Street in nearly two months yesterday.

If they close down today it would be the first back-to-back weekly decline since late June.

 

Weaker-than-expected growth figures scotch fanciful hopes that Abenomics had found a magic cure for Japan’s woes. Weak growth has raised doubts about whether the government will go ahead with the increase in consumption tax next year…

 


Powered by Guardian.co.ukThis article titled “Weak Japanese GDP data highlights flaws in Shinzo Abe’s three ‘arrows’” was written by Larry Elliott, for The Guardian on Monday 12th August 2013 16.36 UTC

The honeymoon is over for Japan’s prime minister, Shinzo Abe. The financial markets loved it when Abe announced a three-arrow strategy last year for ending his country’s two decade struggle with deflation and sluggish growth. Share prices soared and the yen fell after the new government pledged large-scale quantitative easing, higher public spending and structural reform in a package dubbed Abenomics.

But markets were left distinctly underwhelmed on Monday by Japan’s latest GDP figures, which showed growth at 2.6% in the year to the second quarter of 2013, down from 3.8% in the 12 months ending in March. The rate of expansion was far weaker than expected and scotched the always rather fanciful hopes that Abe had found a magic bullet for Japan’s woes. He hasn’t.

Problems have emerged with every bit of the three-quiver policy. Firstly, driving down the value of the yen was supposed to boost the Japanese economy by making life easier for its key export sector. But it has also raised the cost of imports, particularly fuel, at a time when domestic energy production remains hampered by the Fukushima nuclear plant. Dearer energy raises business costs and eats into consumers’ real incomes. As some analysts noted, Japan is getting higher inflation as planned, but it is the wrong sort of inflation.

A second problem is that doubts are starting to surface about the government’s commitment to structural reform. Japan is an elderly and conservative country where the dynamics of an ageing population make it mightily difficult to raise participation rates in the labour market or reduce subsidies to farmers, even if ministers were prepared to make themselves unpopular.

But the biggest immediate problem for Abe is that the weak growth has raised doubts about whether he will go ahead with the increase in consumption tax next year, designed to show markets that Tokyo is serious about tackling Japan’s public debt, currently 240% of GDP. The increase in sales tax from 5% to 8% is chunky and, with a second increase to 10% planned for 2015, clearly has the capacity to derail economic recovery.

Japan has history in this respect, with tentative recoveries in the 1990s aborted due to over-hasty tightening of policy. Ideally, the increase in sales tax should take place at a slower rate over a longer period, which is what one of Abe’s advisers suggested on Monday. The question is whether this can be achieved without the government’s credibility being shredded. A final decision will be taken next month: the hesitancy adds to the sense that Abenomics is essentially smoke and mirrors.

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During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to stay the course. Interest rates are to remain low, but what does that say about economic recovery, inflation and house prices?..

 


Powered by Guardian.co.ukThis article titled “Five things we learned from the Bank of England inflation report” was written by Phillip Inman, for theguardian.com on Wednesday 7th August 2013 14.37 UTC


1. Interest rates are going to stay low for a very long time

Current predictions say the Bank will only consider raising rates in 2016, but it could be 2017 or 2018 before the economy is considered strong enough to cope with higher rates. It will not consider raising rates until unemployment declines to 7% (from 7.8%), and its own forecast puts unemployment above 7% in 2016.

2. The current economic recovery is fragile

The UK might have seen a 0.9% jump in GDP in the first six months of the year, but the Bank of England is concerned that growth remains weak. The level of GDP is below where it was in 2008 and well below where it would be if the crash hadn’t happened. High unemployment shows there is slack in the economy that can be deployed without causing inflation.

3. Fears of a house price bubble are misplaced

Governor Mark Carney argued that the level of transactions are well below the peak (about a third lower) and house prices are still below the highest point in 2008, so a bubble is a long way off. And anyway, he said, the central bank now monitors the big lenders for dodgy or risky practices, so a repeat of the crazy lending in the first half of the last decade is unlikely.

4. Inflation is not a worry

This is not something the Bank of England has explicitly declared in its quarterly inflation report. It says monetary policy committee is still watching for any signs of inflation. However, there is little pressure from rising wages and it blames the current 2.9% rate (well above the 2% target) on the rising cost of train fares and regulated monopoly suppliers such as those related to water rates and gas prices.

5. More quantitative easing could be on the way

During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to “maintain the current highly stimulative stance of monetary policy” and could even extend it. The Bank is unlikely to cut rates further, but could boost QE. It has pumped £375bn into the financial system to promote lending to little avail (it might have been even worse without it, said Carney’s predecessor Lord King). Some analysts argue it should rise to £425bn.

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This summer’s sense of normality in Europe is neither natural nor necessarily tenable in the long term. If officials do not return quickly to addressing economic challenges in a more comprehensive manner, the current calm may give way to renewed turmoil…

 


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This article titled “Eurozone crisis is just on hold for the summer” was written by Mohamed el-Erian, for theguardian.com on Monday 5th August 2013 13.28 UTC

August is traditionally Europe‘s holiday month, with many government officials taking several weeks off. In the process, important initiatives are put on hold until the “great return” at the beginning of September.

This year, there is another reason why Europe has pressed the pause button for August. With a looming election in Germany, few wish to undermine Chancellor Angela Merkel’s likely victory. After all, Germany is central to Europe’s wellbeing, and Merkel’s steady hand has allowed the continent to overcome a series of challenges over the last few years. As a result, many are eager to postpone any controversial policy decisions rather than rock the German political boat.

Some of the recent economic news has seemed to justify this approach. At the end of July, the widely watched indicator of European manufacturing activity crossed the threshold signalling expansion for only the second time in 23 months.

Adding to the sense of comforting normality, several European officials have taken to the airwaves with optimistic pronouncements. Whereas the euro and the eurozone were “under threat just nine months ago”, the European council president, Herman Van Rompuy, recently declared, “this isn’t the case anymore.”

All of this has underpinned a much-welcome calm in financial markets. Sovereign interest-rate spreads have been well-behaved, the euro has strengthened, and equity markets have risen robustly.

Yet no one should be fooled. This summer’s sense of normality is neither natural nor necessarily tenable in the long term. It is the result of temporary and – if Europe is not attentive – potentially reversible factors. If officials do not return quickly to addressing economic challenges in a more comprehensive manner, the current calm may give way to renewed turmoil.

The task for Europe is not just a matter of restarting and completing the economic and political initiatives, whether regional or domestic, that have been put on hold until after the German election. In fact, these top-down decisions, while admittedly complex and certainly consequential, may be the least of Europe’s challenges.

Europe must also counter and reverse micro-level challenges that are becoming more deeply embedded in its economic and financial structure. Each day that passes complicates the design and implementation of lasting solutions to four problems in particular.

First, joblessness continues to spread. The overall unemployment rate (12%) has yet to peak, led by an alarming lack of jobs among the young (24% joblessness in the eurozone as a whole, with highs of 59% in Greece and 56% in Spain).

Second, adjustment fatigue is widespread and becoming more acute. Long-struggling European citizens – especially the long-term unemployed – have yet to gain any sustained benefit from the austerity measures to which they have been subjected. And the result is not just general disappointment and worrisome social unrest. In the last few weeks, political stability in Greece and Portugal has been threatened as governments struggle with declining credibility and a rising popular backlash.

Third, bailout fatigue is apparent. Citizens in the stronger European economies are increasingly unwilling to provide financial support to their struggling neighbours; and their elected representatives will find it hard to ignore growing resentment of repeated diversion of national tax revenues, which has yielded only disappointing outcomes. Meanwhile, high levels of past exposure and weakening creditor coordination are undermining the availability of external funding, including from the International Monetary Fund.

Finally, little oxygen is flowing to the private sector. While Europe has succeeded in stabilising its sovereign-bond markets, financial intermediation for small and medium-size enterprises remains highly disrupted. With most credit pipelines already partly blocked, the shortage of corporate credit will become more severe as regulators finally force banks to embark on a proper mobilisation of prudential capital and shrink balance sheets to less risky levels.

All of this adds up to a sad reality for Europe. Despite hopeful blips in an economic indicator here and there, too many countries lack both immediate growth and longer-term growth engines. As a result, debt overhangs will remain problematic. Owners of private capital that could be allocated to productive investment will remain hesitant. And societies will continue to lack the jobs and capital investment that are essential for durable prosperity and general wellbeing.

Europe’s external environment is not helping, either. On the demand side, the ongoing economic slowdown in China is starting to affect companies’ orders and revenues, adding to the challenges stemming from the persistently sluggish US economy. Meanwhile, the euro’s recent appreciation (particularly against the Japanese yen) limits Europe’s ability to compensate for anaemic global demand by capturing greater market share.

These developments point to a much larger phenomenon: because of delayed awareness of the complex challenges (and the related slow and partial policy responses) facing much of the west, the low-equilibrium growth pattern that has prevailed in recent years (what has been called the “new normal”) is becoming less stable. And Europe is a leading indicator of this.

In essence, Europe (and the west more generally) owes its recent tranquillity to a series of experimental measures by central banks to offset the troubling combination of too little demand to generate sufficient job creation, inadequate structural reforms to revamp growth engines, debt overhangs that undermine productive investment and insufficient policy co-ordination. Consequently, the resulting surface calm masks still-worrisome economic and financial fundamentals.

Let us hope that European policymakers return well rested from their August break. They will need all the energy and dedication they can muster to pivot quickly from Europe’s forced normality to a more durable strategy for recovery, or at least to stop drivers of renewed prosperity from slipping farther away before they can be harnessed.

The UK service sector has posted its biggest leap in activity in over six years. Germany drags the eurozone back to growth. The head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus program…

 


Powered by Guardian.co.ukThis article titled “Eurozone private sector returns to growth, as UK service sector surges to six-year high – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 5th August 2013 13.28 UTC

6.21pm BST

Closing summary

Time to wrap up for the day.

Here’s a brief closing summary.

The UK service sector has posted its biggest leap in activity in over six years. The monthly PMI survey, conducted by Markit, jumped to 60.2 in July, showing strong growth, and suggesting the UK recovery continues to pick up pace.

Details from 9.,39am onwards.

Analyst reaction at 10.14am

There was also optimism in the eurozone that the recession is over. PMI surveys from the region indicated that its private sector had finally returned to growth. Germany led the way, and there were signs of stabilisation in Spain and Italy.

The eurozone data is covered at 9.18am

The key highlights by country begin at 8.31am

• However, other countries performed less strongly. Brazil (see 2.19pm), India and Russia (8.10am) all saw a fall in service sector activity.

Meanwhile in the eurozone…

there were fresh protests against public sector job cuts in Greece (see 1.24pm and 12.50pm)…

…as Italy remained gripped by Silvio Berlusconi’s conviction for tax fraud (see 11.12am)…

…and the IMF urged France to rein in its austerity programme in 2014 (see 4.41pm)

I’ll be back tomorrow. Thanks for the great comments, as ever, and goodnight. GW

Updated at 6.23pm BST

5.55pm BST

Markets close

After a bright opening, Europe’s stock markets have closed with losses in London, and little change elsewhere today.

The news that Britain’s service sector enjoyed a bumper July, and that the eurozone private sector returned to growth, didn’t spark much of a rally.

In London, the FTSE 100 was dragged down by HSBC — which warned of an emerging market slowdown in today’s financial results.

David Madden, market analyst at IG, commented:

In London, the banking sector dragged the market lower after HSBC’s first-half figures were good but not good enough to entice traders to go long.

The largest bank in Europe announced an increase in profit but fell below expectations, prompting traders to unload their positions in the Asian-focused bank. Natural resource stocks initially propped up the FTSE but as the day went on dealers lost their appetite for risk.

And here’s the closing prices:

• FTSE 100: down 28 points at 6619, -0.43%

• German DAX: down 8 points at 8398, -0.1%

• French CAC: up 4 points at 4049, +0.1%

• Italian FTSE MIB: down 21 points at 16757, -0.13%

• Spanish IBEX: down 13 points at 8,560, -0.15%

5.27pm BST

If the cap doesn’t fit….

In the world of banking, HSBC is considering responding to the EU’s cap on bonus payments by boosting the basic salaries paid to its staff.

Our City editor, Jill Treanor, reports:

Speaking from Hong Kong, [chairman Douglas] Flint said one of the options being considered to tackle the bonus cap was a potential pay rise for staff and he said he was confident that shareholders would support policies intended to keep the bank competitive.

"We are looking at a whole range of things," he said.

Here’s the full story: HSBC may raise banker pay to overcome bonus cap

Updated at 5.40pm BST

4.55pm BST

Fed’s Fisher: Tapering is looming

Over in America, the head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus programme.

President Richard Fisher told the National Association of State Retirement Administrators that the moment of ‘execution’ on ‘tapering’ the US bond-buying programme (currently bn per month) was close.

Here’s the key quote:

Having stated this quite clearly, and with the unemployment rate having come down to 7.4%, I would say that the (Fed’s policy-setting) committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.

Fisher also declared that the Fed must avoid ‘market havoc’ when it begins to withdraw the QE punchbowl – having already seen stock markets tumble in May when the prospect was first floated.

4.41pm BST

IMF: France is recovering

The International Monetary Fund has offered the French government some support, and urged Francois Hollande to slow the pace of austerity next year.

France has been criticised for not taking more decisive action to cut its deficit, which is forecast to be 3.9% of GDP this year. But the IMF reckons Paris’s priority must be growth next year, meaning Hollande should ease up on fiscal consolidation.

In its latest report (online here), the IMF warned:

The pace of adjustment should be eased in 2014 relative to current plans in order to support the recovery. Adjustment should also be rebalanced toward expenditure containment.

The IMF also ruled out a surge in growth later this year, predicting that French GDP would shrink by 0.2% in 2013. It also predicted meagre growth in 2014, of just 0.8%.

4.26pm BST

More from JP Morgan. Senior economist Joe Lupton says the global economy made "a positive start" to the third quarter of 2013, but warned:

Although the stronger performance signalled is pleasing in itself, the structure remains uncomfortably uneven by region, particularly with regard to job creation.

4.17pm BST

Global private sector activity hits 16-month high

JP Morgan has added up all July’s PMI data, and concluded that the global services sector posted a healthy increase in activity last month, from 51.1 to 54.9.

This meant stronger growth across the global private sector too, with a PMI of 54.1, the highest level in 16 months, up from 51.2 in June.

Here’s the details:

Updated at 4.24pm BST

4.03pm BST

Putin pays Berlusconi a visit

Back to Italy, where Silvio Berlusconi is receiving a friendly visit from none other than Russian president Vladimir Putin.

That’s according to La Stampa, which reports that "Vladimir Putin, President of Russia, arrived in Rome to meet with his great friend Silvio Berlusconi".

Berlusconi’s conviction for tax fraud clearly didn’t deter Putin from making the date to see his long-time ally.

More here: Putin in visita da Berlusconi

3.45pm BST

This handy graph from Reuters compares the service sector growth in the US (dark blue), the eurozone (light blue) and China (green) over the last five years:

Larger version here.

Updated at 3.51pm BST

3.34pm BST

Duncan Weldon: 5 thoughts on the service sector surge

Duncan Weldon, the TUC’s senior policy advisor, agrees that the jump in British service sector output in July (9.39am) is good news.

He cautions, though, that the economy is still a tough place for many people.

He’s blogged five quick thoughts on the data, including:

Third, the real measure of the recovery will be found in falling unemployment and rising real wages and living standards. We have a triple crisis of jobs, wages and investment and a very long way to go to get out of them.

Here’s the full piece:

The Service Sector PMI: 5 Quick Thoughts

Updated at 5.06pm BST

3.16pm BST

US service sector also posts strong growth

America’s services sector has followed the UK by posting forecast-smashing activity for July.

The US ISM Non-Manufacturing Composite index (which measures its service sector) jumped to 56.0 last month, up from the three-year low of 52.2 reported in June.

That’s the highest reading since February, and indicates much stronger growth. Economists had expected a reading of 53.1.

The jump in the monthly index was mainly due to a surge in new orders (the sub-index leapt to 57.7 from 50.8 in June).

2.48pm BST

2006 and all that

Last month’s surge in UK service sector activity (see 9.39am onwards) is the best monthly performance in over six years. Apart from that, though, July 2013 and December 2006 have little else in common.

The recession, and its aftermath, has pushed Britain’s jobless rate up to 7.8%, from 5.5% six and a half years ago. Interest rates were 5% – compared to 0.5% today. And Tony Blair hadn’t got round to swapping Downing Street for a new career as Middle East envoy and JP Morganite.

My colleague Angela Monaghan has more here:

UK service sector high: the last time we had it so good was 2006

Updated at 2.48pm BST

2.19pm BST

Brazil’s private sector activity falls

More economic data, this time from Brazil — where service sector activity has fallen.

Markit’s Brazilian Services PMI dropped from 51.0 in June to 50.3 in July. That’s enough to drag the wider private sector PMI down to 49.6, into contraction territory.

New orders fell and job creation was unchanged.

It’s another sign of slowing growth in emerging markets, after India’s service sector output shrank for the first time since October 2011 (see opening post).

The drop in activity was also blamed on the anti-government protests which began in cities across Brazil in June.

Updated at 2.28pm BST

1.24pm BST

Photos: Greek workers march

A few more photos from Athens of today’s protest by employees from the Greek Manpower Employment Organization and the social security offices (as mentioned at 12.50pm):

12.57pm BST

Strike watch (2): German canal workers protest

Greece isn’t the only country experiencing industrial action today. In Germany, the country’s canal workers have downed tools today in a row over job cuts.

Transport on the country’s canal network is likely to be hit, as Reuters reports:

Several canals in Germany will be partially blocked to cargo shipping this week due to renewed strikes by lock operators, German trade union Ver.di said on Monday.

The strikes, set to last the rest of the week, are in protest against government plans to restructure the German inland navigation authority WSA.

Traders said they did not expect the strikes to cause widespread disruption and that shipment delays were likely to be local and restricted to smaller canals.

12.50pm BST

Strike watch (1): Protests in Athens over public sector cuts

In Greece, workers at the country’s employment offices pension fund are holding a walk-out today in the latest protest at planned job cuts.

Despite regular protests, the Athens government continues to push on with its targets for cutting 15,000 pubilc sector positions by the end of 2014.

Administrative reform minister Kyriakos Mitsotakis told Mega TV that 12,500 workers will be transferred to the new labour pool (which can lead to redeployment or redundancy).

Mitsotakis said:

The truth is that the ministries have lived up to the commitment they made to the prime minister and we have formed a clear timeline about how we will keep to one of our main pledges to have 12,500 people in the scheme by the end of September.

More here: Mitsotakis confident Greece will meet civil service target by September

Updated at 1.17pm BST

12.06pm BST

The latest retail sales from the eurozone show that the region’s consumers are still facing hard times.

Sales across the euro area sales in the euro zone fell for the first time in three months in June, dropping 0.5% compared with May, as households continued to struggle.

The largest monthly decreases were registered in Estonia (-3.3%), Hungary (-1.9%), Austria (-1.7%) and Germany (-1.5%)

Malta (+1.8%), Luxembourg (+1.3%) and Denmark (+1.2%) bucked the trend with rising sales compared with May.

And on a year-on-year basis, recession-hit Spain showed the largest decline, falling by 6.9% compared with June 2012.

11.28am BST

Key event

Here’s our full news story on the UK service sector’s knock-out performance last month:

UK service sector hits pre-crisis levels, boosting growth hopes

11.26am BST

Alberto Nardelli: Italian government’s lifetime is shortened

Speaking of Silvio Berlusconi (11.12am), political analyst Alberto Nardelli flags up that the next key development is a vote in the Senate in September to rubberstamp his sentence:

As the odds are significantly stacked against Berlusconi (8-15 in the committee which decides on immunity, and 117-198 in the senate itself which would need to vote on the committee’s decision), he may decide to directly step down as a senator. Berlusconi will also need to decide (by mid-October) how he intends to serve his one year sentence (house arrest or community service).

Nardelli also suggests that Italy faces the real prospect of another election within the year:

In summary, I believe the lifetime of the current government has been inevitably shortened and I wouldn’t bet on it lasting a full-term, and 12 more months are probably also optimistic at this point. The earliest an election could take place is November, but a spring 2014 election is more likely.

More here: Italy – what could happen next (politically)

11.12am BST

Berlusconi conviction still grips Italy

Silvio Berlusconi continues to dominate the news in Italy following his failure to overturn a conviction and jail term for tax fraud last weekend.

Yesterday, hundreds of supporters gathered outside the former PM’s home to protest against the sentence, and were treated to a classic appearance from Berlusconi himself.

Despondent at one stage, and celebratory at another, Berlusconi insisted he was innocent, while also showing support for the country’s coalition.

He declared:

I am here. I am staying here. I won’t give up. We will continue together to fight this battle for democracy and freedom.

(full story by Lizzy Davies here)

Senior members of Berlusconi’s People of Freedom (PdL) party are due to meet President Giorgio Napolitano today to discuss his future.

The ANSA news agency reports:

PdL Senate whip Renato Schifani and House whip Renato Brunetta are expected to discuss ways to make it possible for Berlusconi to stay active in politics after the four-year prison sentence – three of which have been commuted because of an amnesty – comes into effect in October.

PdL supporters are pushing for Berlusconi to be pardoned. But, as ANSA explains, that’s a tough sell:

This could be difficult for Napolitano to do for many reasons, including the fact that Berlusconi is appealing against two other criminal convictions, a seven-year sentence for paying for sex with an underage prostitute and a one-year term for involvement in the publication of an illegally obtained wiretap.

10.49am BST

FTSE 100 rises on Lloyds sell-off rumours

Europe’s stock markets hit two month highs this morning, following the news that the eurozone private sector returned to growth last month (see 9.18am)

In London, the FTSE 100 is up 12 points at 6660, led by Lloyds Banking Group (+4% at 76/7p). That is driven by speculation that the UK government is on the brink of selling some of its 38% stake in the bank.

My colleague Jill Treanor wites:

Shares in Lloyds Banking Group have hit their highest levels in almost three years amid speculation that the government could begin to sell off its 39% stake in the bailed-out bank.

The shares were trading above 76p on Monday, higher than the 73.6p average price at which the government bought its stake in the bank in 2008 and 2009.

They have now enjoyed a sustained rise since António Horta-Osório, the Lloyds boss, said last week it was now up to the government when and how to sell the shares.

More here: Lloyds shares above 76p, fuelling sell-off expectations

10.23am BST

Pound rallies

Good news for UK readers poised for a well-earned foreign holiday – sterling is strengthening against other major currencies following today’s service sector report.

The pound is up three-quarters of a cent against the US dollar, at .5363, and has also gained half a euro cent against the euro to €1.156.

10.14am BST

UK services sector PMI: what the experts say

City economists agree that today’s strong service sector data (see 9.39am) shows Britain’s recovery is taking root.

Robert Wood of Berenberg headlined his research note "UK: WOW" – underlining the surprisingly strong surge in service sector activity last month.

Wood wrote:

From zero to hero in six months, the UK is flying as tumbling mortgage rates and rising confidence are driving a consumer led recovery. Monetary policy is working….

With continued support from the Bank of England, the quagmire of the past couple of years will recede rapidly in the rear-view mirror. We expect the recovery to move onto a firmer footing next year, supported by rising real wages and recovery in the Eurozone. The UK is certainly not facing a ‘new normal’ of weak growth.

Howard Archer of IHS Global Insight called it a:

show-stopping survey that completes a very impressive hat-trick of improved purchasing managers surveys for July.

Jeremy Cook, chief economist at currency firm World First, commented that ‘the good news keep coming". But Cook also warned that the recovery remains fragile:

The key to this, and the sustainability of the recovery, is the confidence around the employment components of these surveys – jobs will only be added if these levels of growth are sustained. Wages should also increase along the way as well further improving confidence and lessening the gap between wage settlements and price rises.

Although the improvement in the weather has helped things, I do worry about sales being dragged forward from months in the future. There could be a potential ‘deflating of the balloon’ as we move through the rest of the year, and when consumers begin to save cash for the inevitable Christmas splurge.

Economist Shaun Richards also tweeted that Britain made a strong start to the third quarter of 2013:

While Deutsche Bank flags up that the service sector’s growth poses some interesting questions for the Bank of England, which releases its next inflation report on Wednesday (with thanks to The Times’s economics editor, Sam Fleming). The BoE is expected to flesh out its new ‘forward guidance’, effectively promising to keep borowing costs low until the economy improves…..

10.10am BST

Today’s blowout reading comes after six months of steadily rising activity in the UK service sector, as this image shows: (anything above 50 = growth).

9.54am BST

Graph: Britain’s surging services sector

Services makes up around three-quarters of the UK economy, and this graph shows how the surge in activity last month could equate to a jump in GDP:

The full report is online here (pdf).

9.39am BST

UK services data smashes forecasts

Britain’s dominant services sector has recorded its best monthly performance since before the financial crisis began, smashing analyst forecasts and suggesting the recovery is gathering pace.

The UK service sector PMI index has surged to 60.2 up from June’s 56.9. That’s the strongest monthly reading since late 2006, and shows extremely strong growth.

The survey found a solid rise in new orders, driving optimism higher across the service sector. Underlying demand was reported to be stronger, with firms saying they see better conditions both at home and abroad.

Recent good weather in the UK, and a recovery in the housing market, were also credited with driving the service sector in July.

A separate survey last Thursday showed that Britain’s factory activity hit its highest level since 2011 last month.

Taken together, the two reports suggest that Britain’s economic recovery is well underway.

And with the eurozone private sector also returning to growth in July (see 9.18am), Europe’s prospects look brighter.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, commented:

The services sector stormed to a six year high in July, registering levels of performance not seen since before the financial crisis. Combined with the
manufacturing and construction figures, this is the clearest sign yet that the UK economy is experiencing a broad based economic recovery and
has the momentum to deliver continued growth. 

The seventh month of sustained, accelerated growth in services was underpinned by improved market conditions both domestically and abroad. Business confidence for UK services is now the
highest it has been for 15 months, allowing businesses to expand, develop new products and increase their fees.

The steep rise in new business and the sharpest rise in backlogs of work since 2010 have put some pressure on capacity, giving firms the conviction to take on more staff and increase wages, which have been stagnant for a long time. Taken together, these could signal a significant month in the turnaround of the fortunes of UK plc.

More to follow….

9.25am BST

Howard Archer of IHS Global Insight agrees that today’s data (see 9.18am) shows that the eurozone economy has stopped shrinking:

The near stabilization in Eurozone services activity in July fuels hope that Eurozone GDP has finally stopped contracting and is on course to eke out marginal growth over the second half of the year.

Furthermore, all countries saw an improved services performance in July compared to June.

However the recovery will be constrained by tight fiscal policy, record unemployment and "limited consumer purchasing power", Archer added.

9.18am BST

Relief for eurozone as private sector starts expanding

It’s official… the eurozone’s battered private sector has posted a rise in activity for the first time since January 2012.

Markit’s survey of thousands of firms across the eurozone showed a final private sector PMI reading of 50.5, which indicates output has risen.

The region’s service sector has almost returned to growth, while data last Thursday shows that manufacturing activity increased last month.

Markit said that the Eurozone economy has stabilised as the "German recovery accelerates and downturns ease in France, Italy and Spain" (see 9.01am for the data). Job losses slowed, and business confidence hit a 16-month high.

Here’s the key data (where 50 = the gap between expansion and contraction)

• Germany: 52.1 5-month high
• Italy: 49.7 26-month high
• France: 49.1 17-month high
• Spain: 48.6 25-month high

Rob Dobson, senior economist at Markit, said the data showed "a welcome return to growth for the Eurozone economy", boosting hopes that the recession will end this quarter.

Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around. Germany posted a return to expansion in July, while the downturns in the other big-four economies all eased.

Dobson added that export demand had driven growth in the eurozone manufacturing sector, but there are also signs of recovery in domestic markets.

However…

The labour market remains the main bugbear of the eurozone, as rising joblessness hurts growth and raises political and social tensions.

9.01am BST

Signs of recovery in Europs

Back in the eurozone.. and Italy, Germany and France are all showing signs of recovery.

Activity in Italy’s service sector has hit a two year high in July, rising to 48.7 on Markit’s index — much stronger than June’s 45.8. Still a contraction, but at a much slower pace.

In France, the service sector posted its best reading in 11 months. Its July Services PMI of 48.6 was an improvement on June’s 47.2.

And, as predicted, Germany’s service sector leads the way – with a PMI of 51.3. That indicates growth in Europe’s largest economy for the third month in a row.

8.53am BST

Egypt stands out as the worst-performing of the major Middle East economies, with firms in both Saudi Arabia and the UAE reporting an increase in activity.

Updated at 8.53am BST

8.52am BST

Egypt’s private sector in dire situation

Grim confirmation that Egypt’s economy is contracting at an alarming rate.

Its private sector deteriorated sharply in July, with the headline PMI diving to 41.7, down from June’s 47.5. That’s a very sharp drop in activity. No surprise, given the political turmoil and violence that grips the country following the overthrow of Mohamed Morsi’s presidency at the start of July.

The number of people in work fell during July, and orders from overseas also dropped.

Simon Williams, chief economist for the Middle East at HSBC, warned that Egypt’s situation was perilous.

Political order is a prerequisite for recovery, but even if that is achieved, it will prove very challenging to quickly reverse the losses of the past 10 months.

8.35am BST

Graph: Spanish PMI vs GDP

And here’s a graph comparing Spain’s service sector PMI to its GDP — showing how the worst of its recession could be over…..

Updated at 8.37am BST

8.31am BST

Spain: Services downturn slows

The long slump in Spain’s service sector has eased, but firms are still suffering a drop in activity.

That’s the message from its Services PMI, which came in at 48.5, up from 47.8 in June. The best reading in nearly a year, but still a decline.

Markit, which compiled the data, said the decline in activity was slowing, suggesting Spain’s two-year recession could finally be over by Christmas:

Andrew Harker, senior economist at Markit and author of the report, commented;

The Spanish service sector came close to a change of momentum in July, with the rate of contraction in activity easing further during the month.

Should this current trend be built upon, we could be in line to see a return to growth of GDP by the end of the year.

This remains far from assured, however, with service providers continuing to highlight the effects of the economic crisis in their responses to the latest survey.
 
 
 

8.25am BST

Sweden roars back

Sweden’s service sector has roared back into growth, with a PMI of 56.6 – up from 44.8 in June.

Encouraging news for the Swedish economy, which suffered a rare (but small) contraction in the last three months (details).

8.19am BST

What we expect from Europe

This morning’s data is expected to show that Germany is the only eurozone member whose service sector is actually growing.

Michael Hewson of CMC Markets rounds up the predictions:

Of all the countries only Germany’s PMI is expected to show any form of expansion with a reading of 52.5 expected.

All the others are expected to show an improvement but are still expected to remain firmly stuck in contraction territory. Italy is expected to improve to 46.5, Spain 48.1 and France 48.3, while the broader European measure is expected to come in at 49.6.

Meanwhile, the UK service sector is expected to show stonking growth, with a PMI of at least 57, up from 56.9 in June.

Updated at 8.19am BST

8.10am BST

Service sector data adds to India’s gloom

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

It’s a big day for economic data, with a string of surveys showing how the world’s service sectors performed in July. And it’s already begun with alarming signs from two key economies – India and Russia.

The Indian service sector has shrunk for the first time since October 2011, driven by a drop in new orders and weaker economic activity. This means India’s private sector’s output has contracted for the first time in over four years, fuelling fears that its economy is on the slide.

This graph shows how India’s once-buoyant private sector has slipped in recent months:

The Indian service sector PMI tumbled to 47.9, down from 51.7 in June. Any number below 50 shows a fall in activity.

Leif Eskesen, chief economist for India at HSBC – which compiled the data – warned that manufacturing and services companies are both seeing a drop in new work.

Activity in the service sector contracted in July led by a drop in new business, which also led to a decline in optimism among the surveyed companies.

The slump in activity comes as the Reserve Bank of India (RBI) has battled to bolster the rupee, which has hit a series of record lows against the US dollar in recent weeks. Eskesen argued that the RBI will soon need to prioritise growth:

While the RBI has to cater to the currency at the moment, it will eventually need to cater more to growth as economic activity continues to soften.

The picture isn’t too much better in Russia either, where the private sector has suffered its first drop in activity in three years, and hit a four-year low.

The Markit/HSBC Services PMI, released this morning, fell marginally to 48.7 from 48.8 in June — meaning another month of falling activity.

This followed a similar drop in Russian manufacturing output last week, so Russia’s private sector PMI has now slipped to 48.7. That’s the first reading below 50 since August 2010, and the lowest since July 2009.

Russia has been hit by recent falls in commodity prices, which helped to push down privat sector employment.

Alexander Morozov, chief economist for Russia and CIS at HSBC, warned that Russia faces both cyclical and structural problems — with many firms declining to spend more on investment.

Like a duet of synchronised springboard divers, output in services and manufacturing dove in unison at identical rates in July, the HSBC Russia Composite PMI survey revealed.

Apparently, this kind of diving is not the one that can cheer anybody. In essence, it appears that the Russian economy has lost its growth engines, with neither manufacturing nor services being able to sustain overall economic growth alone anymore.

And here’s the obligatory graph:

A bad start to the morning. Can Europe do better? We get service sector from across the eurozone (9am BST), and from the UK (9.30 BST) this morning. Last week’s manufacturing data was encouragin, suggesting that the eurozone recession was over, and Britain’s recovery was gathering pace.

On top of all this economic data, I’ll be tracking the latest political developments across the eurozone area. Italy continues to be gripped by Silvio Bersluconi’s tax fraud conviction, while in Greece prime minister Antonis Samaras is preparing for a trip to America….

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