Eurozone crisis live

Concerns over Portugal’s largest bank send shares down across Europe. Fears over Espirito Santo International as the shares of the troubled bank suspended after tumble. Portugal’s bond yields jump. Analyst says “it’s not a new eurocrisis”…

 


Powered by Guardian.co.ukThis article titled “European stock markets hit by Portuguese bank fears — business live” was written by Graeme Wearden, for theguardian.com on Thursday 10th July 2014 15.23 UTC

As those of you who follow the stock markets will know, analysts and traders have been suggesting for weeks (if not months) that there could soon be a ‘correction’, after a long period of steady gains.

The problems in Portugal have acted like a catalyst.

As Chris Beauchamp, market analyst at IG put its:

With Portugal looking to be in trouble once again, prudent analysis has been thrown out of the window in preference to a knee-jerk reaction.

Portuguese bond yields aren’t soaring (yet), and the contagion hasn’t spread to Spain or Italy (yet), but the combination of the news from Lisbon and more data that confirms the weakness of the eurozone has provided the excuse to finally kick start the summer volatility trade into life.

Or, in fewer characters:

Golden Dawn spokesman imprisoned ahead of trial in Greece

Elsewhere in the eurozone…. Greek authorities have highlighted their determination to crack down on the neo-nazi Golden Dawn.

Magistrates demanded that the party’s spokesman Ilias Kasidiaris be imprisoned pending trial, as our correspondent Helena Smith reports:

Ilias Kasidiaris, for many the face of Golden Dawn, was led away to the special wing of Athens’ Korydallos prison after appearing before the two magistrates assigned to investigate the alleged illegal activities of the neo-nazi organization. His imprisonment, on charges of illegal weapons possession, brings to nine the number of Golden Dawn MPs now currently in prison pending trial on charges of running a criminal organization that masqueraded as a political group.

The step illuminates what many are describing as the renewed determination of the two female judges to close the Golden Dawn file before times runs out: the magistrates have 18 months to get the trial up, running and completed before they are forced to release the MPs again.

Kasidiaris, who ran for Athens mayor and garnered 16% of the vote in local elections in May, strongly denied that he had been in possession of illegal weapons, showing reporters the permits he had for two hunter shot guns he is accused of transforming into automatic weapons,

The MP’s lawyers, who said they would be appealing the decision, repeated that the politician’s incarceration was part of a political plot orchestrated by the government to eradicate a party that has shot from being a fringe group to the country’s third biggest political force.

But judicial authorities, who had privately regretted Kasidiarias being freed on bail when he was arrested for allegedly overseeing Golden Dawn’s paramilitary activities last year, appear in no mood to compromise this time round. The former commando, who is believed to have ambitions to lead the party, had spent the last nine months reorganizing and softening the group’s image – a move that has seen it go from strength to strength on the back of the country’s worst economic crisis in living memory. In May the newly revamped Golden Dawn succeeded in sending three MEPS to the European parliament.

Kasidiaris rose to fame slapping two leftwing female politicians on live TV back in 2012 – a shocking feat that at the peak of Greece’s economic crisis only saw the party’s popularity’s ratings rise.

Updated

Today’s selloff is a blow to anyone who took part in Banco Espirito Santo’s recent rights issue.

It raised funds by selling new shares at €0.65 each. Today’s 17% tumble sent them down to just €0.51 before trading was suspended.

Banco Espirito Santo’s problems come at a tricky time for the banking sector, points out Jasper Lawler of CMC Markets:

Banks in particular are under massive scrutiny with European banks being targeted by the US regulators while banks in the US and Europe face tougher capital requirements as part of bank stress tests.

With tougher capital requirements, it means banks need to keep more money in reserve and can’t lend it out and make returns. This problem is exacerbated in Europe where weak economies are not generating demand for banks loans in the first place.

It’s a vicious circle — the weak economic growth also makes it harder for companies to risk taking out more loans, especially if they don’t see strong demand.

We’re not free of World Cup analogies yet….

Here’s a good write-up of the Portuguese situation, from AP

Bank fears reignite Portugal market tensions

Worries over the health of one of Portugal’s largest financial groups hit the country’s stock market hard on Thursday and pushed up its borrowing rates.

The tensions are centered on the Espirito Santo group of companies, which includes Portugal’s largest bank Banco Espirito Santo.

Share trading in the bank was suspended after a precipitous fall of more than 16 percent, dragging the Lisbon stock exchange down more than 4% and pushing up the yield on Portugal’s benchmark 10-year bonds by 0.13 percentage points to 3.89 percent. Sentiment was knocked across Europe, and the Stoxx 50 index of leading European shares was down 1.4%.

The market moves provided an unwelcome reminder to investors of the tensions that gripped Europe for much of the past few years, when concerns over the state of the public finances in a number of countries that use the euro were at their most acute.
Portugal became the third eurozone country after Greece and Ireland to require a financial rescue when it got a €78bn ($106bn) bailout in 2011. In return, successive governments have had to enact tough austerity measures, such as cutting spending and reforming the economy.

Portugal’s efforts in recent years to get its public finances into shape have helped it regain the trust of investors. That was manifested in the fall in the interest rates the country pays on its borrowings. As a result, Portugal concluded its three-year international bailout program in May, with the government confident it can raise money in the markets.

The government insists Banco Espirito Santo is solid, but a parliamentary committee says it intends to call the finance minister and the governor of the Bank of Portugal to answer questions about the Espirito Santo group of companies.

Banco Espirito Santo is being engulfed by a cascade of bad news from other family group companies, and investors fear it is vulnerable. It is part of a banking dynasty dating back to the 19th century, and the Espirito Santo family is the bank’s largest shareholder with around 25 percent. The other shareholders include France’s Credit Agricole, Brazil’s Banco Bradesco and Portugal Telecom.

An audit requested by Portugal’s central bank in May found “serious” accounting irregularities at Luxembourg-based Espirito Santo International, an unlisted holding company whose board of directors included Ricardo Salgado, chief executive of Banco Espirito Santo.

Investors fear the holding company’s financial problems could contaminate other parts of the Espirito Santo group, including Rioforte, the group’s non-financial holding company which manages assets in tourism and private health care among other interests, as well as the bank.

Portuguese banks recorded heavy losses during Portugal’s bailout but passed the so-called “stress tests” demanded by the European Central Bank to assess whether they were sound.

Updated

Europe’s stock markets remain deep in the red too, led by Portugal’s PSI index

Many banking shares are down by 3% or 4%:

Dow Jones falls 1% at start of trading as Portuguese bank fears hit Wall Street

Wall Street has just opened, and the main share indices have promptly dropped as US investors react to the selloff in Europe.

The Dow Jones industrial average has dropped by almost 1%, losing 159 points to 16826.

And the tech-heavy Nasdaq index shed 1.5%, as Espirito Santo International’s problems hits markets on both side of the Atlantic.

There’s no suggestion that Banco Espirito Santo customers are panicking, by the way, despite concerns over the health of its parent company. This photo of a branch in Lisbon shows a definite absence of queues….

The Wall Street Journal has pulled together more analyst reaction to the situation at Espírito Santo International (ESI) after it suspended some bond repayments on certain short-term bonds yesterday, and the knock-on impact on Portuguese lender Banco Espirito Santo (BES).

Analysts at the Royal Bank of Canada highlighted that the problems relating to ESI could have a much wider impact on the country’s economy if they persist.

“While the aforementioned case is likely to be an isolated one it clearly highlights the problems of early bailout exits whilst the economy, the banking system and the public finances are still in a shaky state,” they wrote in a note.

Alberto Gallo, a credit strategist at the Royal Bank of Scotland said that although BES is not directly responsible for the repayment of any ESI bonds, it “is subjected to reputational risks given its link to the group.”

More here: European Markets Tumble on Portuguese Bank Woes

Updated

Here’s a useful chart explaining how Banco Espirito Santo fits into the Espirito Santo Group structure.

Shares on Wall Street are also expected to fall when trading begins in around 30 minutes:

Another reason not to panic too much — as Aurelija Augulyte of Nordea Markets points out, Portuguese government bond yields are still near their lowest point in four years:

Here’s an interesting chart – it shows how the cost of insuring Portuguese bank debt, using a credit default swap, has risen in the last month.

A CDS of 344 means that it costs €344,000 to insure €10m of bank debt for a year.

Megan Greene: Portugal won’t create new eurozone crisis on its own

So, do the problems in Portugal mean the eurozone crisis has reared back into life?

I don’t think so. We’ve not suddenly been transported to the mad days of 2011 and 2012 again.

Espírito Santo International’s problems are a reminder that southern Europe’s economy is fragile, and that undeclared problems are still lurking in the banking sector

But as analyst Megan Greene points out, Portugal simply isn’t big enough to derail the eurozone.

Concerns over Espírito Santo have also been building for a while. Last December, the Wall Street Journal flagged up that the company raised funds during 2011 by selling debt to its own investment fund.

The money was repaid, but the deal shows the potential clashes of interest that can arise with a major conglomerate.

Portuguese government debt has also fallen in value today, driving up the yield on its 10-year bonds to around 4%, from 3.8% yesterday. That’s a three-month high.

Updated

Background on the Portuguese selloff

The Portuguese worries flared up yesterday afternoon, when it emerged that conglomerate Espírito Santo International was looking to restructure some of its debt.

That sparked fears over the health of its businesses, triggering the 17% tumble in Banco Espirito Santo’s shares today.

European markets slide as euro fears return

European stock markets are in retreat today, with losses across the board sparked by fears over Portugal’s largest bank.

The main Portuguese stock market, the PSI 20, has tumbled by 4.5% so far today, driven down by their biggest bank, Banco Espirito Santo (BES).

Disappointingly weak manufacturing data from France, Italy and the Netherlands this morning (details here) has helped drive shares down, as investors worry that Europe’s recovery is faltering.

The main European markets have all been hit, pushing shares across the region to their lowest level in two months.

Greece’s underwhelming bond sale this morning has added to the jitters (and also suffered from them), wiping out the optimism created by the Federal Reserve last night.

Concern is growing in Lisbon that BIS will be hit by financial problems at its parent company — Espirito Santo Financial Group, which suspended trading in its own shares this morning.

And in the last few minutes, trading in BES has also been suspended after tumbling 17%.

As Jamie McGeever of Reuters shows, European banking shares have been falling for a while:

More details and reaction to follow….

Updated

Allie Renison, head of Europe and Trade Policy at the Institute of Directors, reckons we shouldn’t panic about Britain’s widening trade gap.

“While first impressions are indeed worrying, it should be pointed out that that the widening gap is down to a rise in imports, which grew by 1.7% and are a sign of robust domestic demand”.

She also argues that exports are coping with the strong pound:

“Contrary to expectations that the appreciation in sterling would lead to a reduction in the export of goods, there has been an increase of 0.6%. Indeed, when compared with the previous three months, export prices decreased by 0.8% for the three months ending in May.

The Bank of England was right to leave interest rate unchanged today, reckons Dr Gerard Lyons, economic advisor to London mayor Boris Johnson.

Updated

Greek borrowing costs rise after lacklustre auction

Investors are a little edgier about Greece today, after a much-anticipated bond sale drew modest demand.

The interest rate, or yield, on Greek 10-year bonds has jumped to 6.3%, from 6.1% last night. That’s quite a hefty move, but it still leaves yields away from the ‘danger zone’ of 7%.

The selloff was triggered by a Greek bond sale, which hasn’t proved as popular as its blockbuster auction three months ago.

And lacklustre demand means buyers were able to secure a more lucrative rate of return on the bonds.

Reuters and RANsquawk have more details:

Order books for the bond have topped 3 billion euros, according to IFR, a Thomson Reuters service. When Greece sold a five-year bond back in April orders reached over 20 billion euros.

Bailed-out Greece is aiming to raise up to 3 billion euros from the new bond, its second bond sale after it defaulted in 2012.

The Bank of England has also made no change to its quantitative easing programme, and there’s no accompanying statement.

Bank of England leaves interest rates unchanged

To no-one’s surprise, the Bank of England has left UK interest rates unchanged at 0.5%.

M&S finance officer quits to join Tesco

It’s official. M&S’s finance chief is off to Tesco.

Here’s the statement:

MARKS AND SPENCER GROUP PLC ANNOUNCES THE DEPARTURE OF ALAN STEWART

Marks and Spencer Group plc today announces the departure of Alan Stewart, Chief Finance Officer.

Alan has stepped down from Board and will leave M&S on a date and on terms to be agreed. The search for his successor is already underway.

And Tesco has announced that Stewart will receive a basic annual salary of £750,000 per year, plus replacement share awards worth £1.737m.

Those shares are being granted “in lieu of his deferred share awards from Marks & Spencer plc that will be forfeit when he joins Tesco”.

Those share awards are meant to tie senior executives to a company, by linking pay to long-term performance — that link is broken if you can simply get your new employer to offer the same terms….

Updated

Summary

Marks & Spencer’s troubles continue…. the word in the City is that Tesco has just poached M&S’s finance director, Alan Stewart.

• 11:18 – TESCO CLOSE TO NAMING MARKS & SPENCER CFO ALAN STEWART AS NEW FINANCE DIRECTOR – SOURCE FAMILIAR WITH THE SITUATION

At least he waited until after M&S’s AGM (on Tuesday)…

Updated

Britain’s widening trade deficit is a concern, says the British Chambers of Commerce (BCC).

Chief economist David Kern is worried that the progress made narrowing the deficit earlier this year has halted:

Today’s figures confirm that the pace of the UK’s rebalancing towards net exports is far too slow, and if this continues we risk missing out on the Prime Minister’s target of increasing exports to £1tn by 2020.

Therefore narrowing the trade deficit by providing additional support to UK exporters must remain a national priority for both the government and the MPC. On its part, the MPC must restore clarity to its forward guidance and resist calls for premature interest rate rises.

UK exports to the EU have fallen by 0.9% in the last three months (if you strip out erratic items), but are up by 4.6% to the rest of the world.

That’s via Christian Schulz, economist at Berenberg, who explains:

Trade growth has been more buoyant vis-à-vis the rest of the world than with Britain’s EU partners.

And is the strong pound hitting exporters? Schulz reckons not….

British exports are relatively price insensitive, sterling is still below pre-crisis levels vis-à-vis major trading partners’ currencies and global demand growth matters more than the exchange rate.

UK recovery remains a ‘domestic affair’

Britain’s widening trade gap illustrates how the UK’s recovery has been driven by the domestic economy, rather than strong global demand.

And with Europe’s economy still weak, it’s hard to see that changing quickly.

As Martin Beck, senior economic advisor to the EY ITEM Club, flags up:

“The shortfall of exports relative to imports is the largest since January. Exports picked up slightly in the month, while imports rose at their fastest pace for almost a year.

“Looking forward, we doubt that the export picture will brighten significantly, at least in the near-term. The recovery in the Eurozone economy, the UK’s largest single export market, is running at only a very modest pace.

And here’s another chart showing how Britain’s trade gap with Germany, the Netherlands and China widened in May:

The full data is online here.

Weaker European exports pushes UK trade gap wider, to £2.41bn in May

Britain’s trade gap with the rest of the world has swelled in May, as the UK was hit by weak demand from Europe.

Exports of goods to the European Union fell by 0.2% during the month, while exports of goods to countries outside the EU increased by 1.5%.

Exports to Germany and the Netherlands both fell during the month, as this chart shows:

The goods balance (physical exports minus imports) widened to -£9.2bn in May, from -£8.8bn in April. That’s a worse result than expected.

Total imports jumped 2% during the month, while exports rose by 1.1%.

The Office for National Statistics said this was partly due to an increase in imports of aircraft.

Britain’s traditional surplus in services was little changed at £6.78bn.

The total trade balance thus widened, to -£2.418bn, from -£2.05bn in April.

Despite the strong recovery, Britain has struggled to improve its trading position with the rest of the world, as this chart shows:

Imports have also outstripped exports over the last three months. The ONS reports:

In the three months ending May 2014, exports of goods increased by 0.1% to £72.6 billion and imports of goods increased by 0.5% to £98.9 billion….The export of goods excluding oil and erratics increased by 0.9% to £60.6 billion; reflecting a £0.4 billion increase in exports of cars.

Imports of goods excluding oil and erratics increased by 0.2% to £83.8 billion for the same period.

Italy and the Netherlands also suffer manufacturing declines in May

Wham! Two more European countries have reported that their industrial output fell in May, adding to worries about the European economy sparked by France this morning.

Italian industrial output slid by 1.2% during the month, the steepest monthly fall since November 2012. That’s much worse than expected — economists had predicted a rise of 0.2%.

That means that Italian industrial production is down by -0.4% over the last quarter, compared to the previous three months.

And over the last 12 months, Italian industrial production has decreased by 1.8% compared with May 2013.

A spokeswoman for national statistics institute ISTAT described the data as “very negative” (via Reuters).

The Dutch manufacturing sector also struggled in May, with output slumping by 1.9% during the month. It’s up just 0.5% over the last year, and the recent trend is downwards….

It’s a worrying echo of France’s troubles — as covered earlier this morning, French manufacturing output tumbled by 2.3% in May.

But everyone seems to have suffered – yesterday, we learned UK manufacturing output fell by 1.3%, while the German powerhouse suffered its biggest fall in two years, down 1.8%.

What went wrong in May? Can it really just be the May bank holidays?

More worrying signs for France — its annual inflation rate has dropped to just 0.6% (on a harmonised basis)

INSEE reported that food prices were down 1.4% year-on-year, and manufactured products down 1.2%, underlining the weakness of parts of the French economy. Inflation in the service sector, though, was up 1.8%.

Updated

In other corporate news, Mothercare’s interim CEO has been given the job fulltime.

Mark Newton-Jones, who was parachuted into the company in March, is quite a retail veteran — at just 25, he was a regional manager at Next covering 100+ stores, and he ran Shop Direct (including littlewoods.com), for nearly 10 years.

Newton-Jones will get a basic salary of £600,000 per year for running Mothercare, which has rejected a takeover approach from US rival Destination Maternity. That’s around £100k more than his predecessor.

Barratt boosted by housing demand

The upturn in Britain’s property sector has boosted housebuilder Barratt Developments. It posted a 8.6% jump in sales this morning, and have shareholders the welcome news that profits will hit the top end of expectations.

Burberry isn’t the only company fretting about the strong pound.

Associated British Foods (owner of Primark), has warned that sterling’s strength will have “a negative impact” on its sales and profits from overseas businesses, particularly in Grocery and Ingredients.

And that is on track to knock £50m of ABF’s profits, it suggests.

Burberry sales jump, but strong pound is a worry

Shares in UK fashion chain Burberry jumped 4% in early trading, despite warning that the strong pound is still eating into its profits.

Burberry is topping the FTSE 100 after reporting a 12% surge in comparable sales in the last three months.

That helped calm investors’ worries over the “increasing currency headwinds” which the company is suffering, due to the strong pound.

Burberry is on track to lose £10m in licensing revenue in Japan, and the impact on overall profits this year “will be material”, if rates remain at present levels.

Company boss Christopher Bailey (chief creative and chief executive officer), reckoned the sales jump:

…demonstrates our teams’ success in unlocking the benefits of these investments, as we continue to concentrate on the things we can control in an uncertain external environment.

Updated

French manufacturing output tumbled 2.3% in May

France’s economy has taken another blow – with manufacturing output slumping by an alarming 2.3% in May.

Statistics body INSEE said manufacturing output fell “dramatically” during the month.

The wider measure of industrial output also fell, by 1.7%, which will fuel concerns over the eurozone’s second largest economy.

The survey suggests France’s industrial sector struggled badly in May, with almost all industries reporting a drop in output.

Electrical and electronic equipment production fell by 4.9%, and transport manufacturing fell 3.5%.

And output in the manufacture of coke and refined petroleum products “plummeted” by 8.4%, INSEE reported.

So what happened?

French public holidays may have exacerbated the downturn. INSEE says three holidays fell on Thursdays, meaning firms may have shut down on the Friday too.

But as this graph shows, French manufacturing output has fallen by 0.9% over the last three months, as its economy struggles.

France isn’t alone, though. Recent data has shown that German and UK industrial output also fell in May, making some analysts wonder if the European economy hit trouble during the month….

Updated

Dovish Fed minutes supports markets

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

After a few shaky days, European stock markets are set for a calm open after the Federal Reserve showed last night that it’s in no rush to raise interest rates.

The minutes of the Fed’s last monetary policy meeting did show that its quantitative-easing programme is on track to end in October. So, less new money flowing into the markets.

Federal Reserve likely to end QE stimulus program in October

But that is tempered by signs that the Fed is too worried about America’s labour markets to start raising interest rates soon.

The minutes showed that many Fed policymakers are worried about the amount of spare capacity, or “slack”, in the economy.

Here’s the key line:

“A number of them thought [the spare capacity] was greater than measured by the official unemployment rate….citing, in particular, the still-high level of workers employed part time for economic reasons or the depressed labour force participation rate.”

Several Fed committee members also welcomed the prospect of US real wages rising, rather than fretting about the impact on inflation.

And that’s being taken as a sigh that the Fed’s still pretty dovish about economic prospects.

As Stan Shamu of IG explains:

The market seems to have been positioned for a hawkish shift in sentiment. In fact, the minutes showed the Fed continues to show concern about growth rather than inflation.

Which may be enough to stop the FTSE 100 falling for the fourth day running…

Here’s IG’s opening calls:

  • FTSE: 6720 +2
  • German DAX: 9816 +8
  • French CAC: 4362 +2
  • Spanish IBEX: 10765 +18
  • Italian MIB: 20900 +15

What else is afoot?

The Bank of England’s monetary policy committee ends its monthly meeting. It’s not expected to make any changes to interest rates or its asset purchase scheme (QE) though.

On the economic front, there’s the latest UK trade data (9.30am BST) and US weekly jobless numbers (1.30pm BST).

Plenty of corporate news around too — including another warning from Burberry that it’s suffering from the strong pound, and strong-looking numbers from housebuilder Barratt (of which more shortly….)

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USA 

The British economy expanded by 1.9% in 2013– the fastest GDP growth since the first quarter of 2008, after 0.7% q/q growth in final three months of last year. But the UK economy still remains 1.3% smaller than the pre-crisis peak…

 


Powered by Guardian.co.ukThis article titled “UK economy grows by fastest rate since financial crisis – live” was written by Graeme Wearden, for theguardian.com on Tuesday 28th January 2014 14.55 UTC

UK economy posts best annual growth since 2008

Time for a very brief catch-up.

Britain’s economy has posted its fastest annual growth since before the Great Recession, expanding by 1.9% during 2013.

The Office for National Statistics reported at 9.30am that GDP rose by 0.7% in the final three months of 2013.

Chief economist Joe Grice said that, after a long haul, there are signs that the recovery is more broad-based.

We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

The growth was, predictably, welcomed by Conservative ministers as a sign that the government’s economic plan is working.

George Osborne said:

“These numbers are a boost for the economic security of hardworking people.

Growth is broadly based, with manufacturing growing fastest of all.

It is more evidence that our long term economic plan is working. But the job is not done, and it is clear that the biggest risk now to the recovery would be abandoning the plan that’s delivering jobs and a brighter economic future.”

But shadow chancellor Ed Balls said Britain’s cost-of-living crisis wasn’t resolved, and backed business secretary Vince Cable’s warning last night that the shape of the recovery was wrong.

Deputy PM, the Liberal Democrat’s Nick Clegg, welcomed the GDP news but also cautioned that deficit-reduction plans need to “fairly” share the burden.

• City economists broadly welcomed the data — Berenberg Bank’s Rob Wood reckons we could see growth rise to 3% this year.

Britain’s Services sector grew by 0.8% in the last quarter. Industrial production was up 0.7% (with manufacturing output jumping by 0.9%), but construction output fell by 0.3%.

 

Some economists warned that this shows Britain has failed to rebalance its economy since the financial crisis began. The best-performing part of the services sector was the “Business services and finance” section.

The IPPR said that the recovery could stumble unless firms use their cash piles on business investment.

Productivity remains a concern, too, with Duncan Weldon of the TUC flagging up that the number of extra hours worked is rising faster than GDP.

An opinion poll from ITV News and ComRes found that many people fear inequality is rising. It also found that just 22% of people believe George Osborne should get the credit for the recovery.

And with that, Nick Fletcher is taking over for the rest of the day. Cheers all. GW

ITV News/ComRes poll on the economy

Three quarters of Britons believe that the gap in wealth between rich and poor is widening in the UK, and barely a fifth reckon George Osborne should get the credit for the recovery.

Just two findings from an opinion poll published by ITV News and ComRes this lunchtime, which showed that many people say they haven’t felt the benefits of the upturn..

It found that a majority saw inequality rising as the UK recovery picks up pace — with 61% agreeing that “economic growth has only really benefitted wealthy individuals” so far.

2,052 British adults were interviewed, online, between Friday 24th and Sunday 26th January 2014.

 

While 40% said the economy had got better over the last three months, 34% reported no change and 25% said it had got worse.

Here’s another highlight:

There is a degree of optimism moving forward, with three in ten (31%) British adults agreeing that they are confident that if the UK economy grows they will be personally better off, despite 38% disagreeing.

However, only one in ten (11%) agree that they have benefitted from the growth in the UK economy over the past six months and seven in ten (71%) disagree.

There are more details over on ITV News’s website.

Updated

Duncan Weldon: The productivity problem

Back to UK GDP, and I just chatted with TUC senior economist Duncan Weldon about growth and productivity.

He explained that while the 0.7% growth in Q4 2013 is clearly welcome, the balance of the UK economy still doesn’t look great.

Indeed, it appears to have become less balanced since the financial crisis – with the Service sector now above its pre-crisis peak but the Manufacturing and Construction sectors around 10% smaller.

Unless those parts of the economy grow faster than services, you’re not going to get a better balance.

But his main concern is about productivity — recent labour market stats show that the total hours worked rose by 1.1% in the three months to November. Today’s data shows 0.7% growth in the three months to December — so either there was a big drop in output in December (unlikely) or output per hour fell in Q4.

Britain’s falling productivity is one of the big economic mysteries of recent years — why is it taking more and more hours to produce the same amount of output since the crisis began?

Weldon reckons there are clues in the unemployment data. It shows a large rise in people employed in healthcare and human services (up over 4000,000 since the start of 2008) and real estate (+100k), but significant falls in construction (-200k) and manufacturing (->300k) over the same period.

 

The pattern, he concludes, is that Britain has created more lower-paid, lower-productivity jobs since the crisis began – which is very bad news in the long term for growth potential and living standards.

He’s just launched a longer blog post of his own about it. Worth a read:

The Changing Shape of the British Economy in Recession & Recovery

Updated

Switching to the US briefly, a slab of bad American economic news just hit the wires.

Orders for durable goods slumped by 4.3% in December — the biggest monthly fall since last July. Economists had expected that orders grew by 1.8% .

December was a grim month weather-wise in the US (ice storms gripped the country, and has already been blamed for recent poor employment data). So perhaps it’s all the snow’s fault…

GDP: more reaction

Our economics correspondent Phillip Inman writes that George Osborne cannot, and shouldn’t, crow too loudly about the UK growth:

Vince Cable and his supporters are well aware there are key components of the recovery that are still Awol. Business investment kept falling last year when it was supposed to take over from consumer spending as one of the main drivers of growth. Export growth has stuttered to a halt, leaving us with a persistent balance of payments problem before the country really starts to spend and suck in huge amounts of imports.

Then there is the London factor. Along with the south-east, the capital is bounding along while many regions are still propped up by the public sector.

But concerns about the nature and sustainability of the recovery are only one restraint on triumphalism.

The other is the need to continue selling austerity as a key election message. How can the government cheer while it tries to convince a weary electorate they must vote for more cuts?

Why George Osborne won’t be cheering too loudly about the latest GDP figures

 

Over on the Telegraph, Jeremy Warner recognises that the service sector growth, while welcome, shows how the recovery is still unbalanced:

In the end, the only route to sustainable, balanced growth is via gains in productivity and incomes, and regrettably, we are not yet there.

The economy has been juiced to give Coalition parties a boost ahead of the election, but with the deficit not yet tackled, glaring gaps in industrial competitiveness, severe supply side constraints, and a runaway housing market, we are still a million miles away from economic salvation.

Britain’s economic recovery: unbalanced and unsustainable

Looking through the reaction to the UK GDP, Ian Brinkley, chief economist at The Work Foundation, makes an important point — that Britain still has a productivity problem.

“The latest preliminary GDP figures confirm a firmly based, if not spectacular, recovery is underway. However, with employment growing faster than GDP the productivity figures for the final quarter of 2013 are likely to be very poor.

Preliminary GDP figures in recoveries are often revised upwards, so the underlying position may be a bit better than we think. Either way, however, we have a jobs rich and productivity poor recovery and that may not be sustainable over the medium term.”

Updated

Sticking with parliament, Ed Balls (amid much noise from the Conservative benches) is trying to ask about the economy. 

Speaker Bercow shushes them,  ’punning’ about how in tennis you get new balls after seven games (?)

Balls asks why Osborne won’t admit that living standards aren’t going up.

Osborne replies that Balls had claimed that a recovery couldn’t happen under the government’s plan, that the deficit would go up, that we’d never get growth without extra government spending.

On the other side of the house they need new crystal balls, Osborne concludes.

Very good, Chancellor, a joke about my name, responds the shadow chancellor.

They then clash about fiscal policy – Balls asks Osborne to rule out cutting the top rate of tax. The chancellor replies by attacking Balls’ plan to raise the rate to 50p, saying it’s anti-business and has been refuted by the IFS already.

Updated

Over in Parliament, MPs are holding Treasury questions — they’re discussing important issues like infrastructure spending (Danny Alexander is denying that the government is moving too slowly).

One opposition MP, Sammy Wilson, DUP member for East Antrim, just welcomed the news that the economy was growing, but asked what is happening to stimulate growth beyond London.

David Gauke, exchequer secretary, replies that employment has gone up in every region of the UK since the election.

The quarterly GDP data has become increasingly charged with political implications as the next election draws nearer (scheduled for May 2015).

Faisal Islam of Channel 4 comments:

Britain’s businesses need to stop sitting on their cash piles and crank up their investment, argues IPPR’s chief economist Tony Dolphin:

“The news that manufacturing is growing is welcome. But businesses have been sitting on a lot of cash, and the economy is still smaller than before the crisis. We need more business investment and a pick up in exports before we can truly see this economic growth as sustainable.

“Much of the recovery is based in London in the finance and business sectors but we need to see growth across the whole country. We need more sectors like the car industry taking up the baton of recovery, investing in plant and machinery to drive an increase in productivity. The jobs market held up better than expected but unless we see investment by companies in their capabilities we won’t see the growth in living standards that we want.

Dolphin is also concerned that few lessons have been learned since the crisis ripped through the financial markets and the global economy:

“Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the ‘Great Recession’ have been eliminated. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished.”

Updated

TUC: danger of unsustainable recovery

And here’s TUC general secretary Frances O’Grady’s take:

“Any return to growth is welcome, but this is the wrong kind of recovery and is two years late.

“The recovery is yet to reach whole swathes of the country or feed into people’s pay packets. This must change if the benefits of recovery are to be felt by both businesses and workers.

Unless the short-term boost provided by house prices and consumer debt is transformed into investment, rebalancing and higher living standards, the danger is that it will prove unsustainable.”

Nick Clegg: Recovery plan must be fair

Interesting comments from deputy prime minister Nick Clegg — he’s said that the task of repairing the country’s finances must be completed “fairly”.

I’ve taken the comments from PA:

“Our economy is moving in the right direction – unemployment is down and growth is up.

“The coalition Government has set Britain on the right course by repairing the country’s finances and helping to create over 1.6 million jobs in the private sector.

“But we must finish the job fairly, with further investment in jobs outside London and by cutting taxes for working people.”

The reference to fairness comes a day after the Liberal Democrats appeared to break away from the post-2015 deficit reduction plan laid out by George Osborne. Business secretary Vince Cable said further welfare cuts to save an additional £30bn in the next parliament were political and ideological commitment.

Service sector, the details…

The strongest performing part of Britain’s services sector was “Business services and finance”, which posted 1.2% growth in the last quarter.

That covers banks, insurers, technology companies, other financial firms, estate agents, and goods rental companies.

Sky’s Ed Conway just had an entertaining exchange of views with the Treasury after he argued that this showed the UK was NOT rebalancing:

Andrew Goodwin, senior economic adviser to the EY ITEM Club, reckons growth rates will slip back during 2014 because of the financial pressure on households:

The challenge now is to broaden out the recovery beyond the consumer and housing market. The enduring squeeze on real wages will limit the consumers’ ability to continue to drive the recovery forwards.

Investment and exports are likely to have improved in Q4, but not enough to drive growth forward at the pace we’ve become accustomed to. So the chances are that the pace of growth will slow a little through 2014.

Rob Wood of Berenberg Bank isn’t worried by the 0.3% drop in construction output in the last quarter, and

With all construction surveys red hot right now, construction should bounce back quickly and economy wide growth should accelerate further. There are absolutely no signs of growth slowing anytime soon. If anything, the risks are towards an acceleration.

He predicts strong growth both this year and next year, as the Bank of England’s exceptionally loose monetary policy reaps dividends:

The 2013 data show that low interest rates and a massive housing stimulus can be a very powerful tailwind indeed, offsetting headwinds to growth from factors like deleveraging. With every chance that some of the headwinds will fade this year, the monetary policy tailwind should drive UK growth higher over the next two years.

The recovery will snowball. We expect the economy to expand by 3.0% in 2014 and then 3.3% in 2015.

Stronger growth will put more pressure on the Bank to raise interest rates — although governor Mark Carney spent a lot of his time at Davos last week insisting that the UK economy isn’t strong enough yet.

Ed Balls: Vince Cable is right to express concerns

Shadow chancellor Ed Balls says he’s happy that the economy is “finally” growing. 

But, speaking on BBC News 24, he warned many people are suffering from a cost-of-living crisis with real wages still falling.

There is more to do to get a balanced strong economy, Balls says.

That’s exactly what George Osborne says, replies the BBC’s Simon McCoy. You’re in agreement with him?

No, Balls replies, He says he’s frustrated that George Osborne spent three years getting things wrong, and “choked off” the recovery.

He argues business don’t trust the chancellor, if they did they’d be investing more.

McCoy asks about Vince Cable’s comments last night about the shape of the UK economy.

Balls replies that Cable is right, and he’s reflecting the same concerns I’m expressing.

Have you spoke to each other about this?

No, he’s a grown-up politician who looks at these figures and sees a big difference between the government’s complacency and the reality, the shadow chancellor replies.

Balls adds that the risks in the global economy mean Britain needs a stronger recovery.

These are fragile times, and he’s [Cable] saying, as I’m saying, that this is not the strong sustained economy that we need.

Here’s our full news story about today’s GDP data:

UK economy grew 1.9% in 2013 – the fastest growth since 2007

The British economy grew at the strongest rate in six years in 2013, having ended the year on a strong note as the recovery became more entrenched.

The UK’s services and manufacturing sectors were the drivers of 0.7% growth in the fourth quarter, taking the annual growth rate to 1.9%, the strongest since 2007 before the financial crisis took hold.

The economy grew in every quarter last year according to the Office for National Statistics, providing a significant boost for the chancellor who has persistently argued that a burgeoning recovery is proof that his economic plan is working.

Updated

The CBI are also upbeat about prospects this year. CBI director-general John Cridland says:

The economy is growing and the recovery gathering momentum. This is good news, and we’re seeing improvement across many different sectors.

While I chew through the GDP data, our senior political correspondent Andrew Sparrow is liveblogging from parliament where top executives from Atos and G4S are being questioned by MPs over public sector reform.

Atos and G4S questioned by MPs: Politics live blog

 

Jeremy Cook, chief economist of World First, the currency exchange firm, reckons the UK ended the year in ‘fine fettle’, even though the service sector provided much of the growth, again….

“The 0.3% fall in construction output will be a concern, but I would hope that an increased level of investment throughout 2014 should reverse this.”

The government needs to do more to sustain the recovery, warns John Longworth, Director General of the British Chambers of Commerce.

Longworth said the rise in GDP confirms anecdotal evidence that UK firms are “ever more bullish”, but rising confidence isn’t enough:

 “It is of course heartening that Britain is now amongst the fastest-growing advanced economies. But more must be done to shore up the foundations of this recovery if it is to be a lasting one.

Unless we do much better on the three ‘T’s – training, transport infrastructure and trade support – our aspirations for investment at home and success around the globe cannot be achieved.

 

Updated

GDP: the key charts

This chart shows how Britain has, finally, posted four quarters of growth in a calendar year for the first time since 2007:

And this chart shows how Britain’s dominant services sector (in green) bounced back much more strongly from the crisis than industrial production (black), construction (yellow) or agriculture (blue):

 

ING: UK could achieve 3% growth in 2014

Reaction is flooding in:

ING’s James Knightley reckons that the UK could grow by up to 3% in 2014:

With business surveys, such as the purchasing managers’ indices and the British Chambers of Commerce reports indicating very strong activity across the economy it looks as though there is significant momentum at the beginning of 2014.

Employment continues to rise robustly, housing activity is very firm, confidence is on the rise, credit growth is improving and the UK’s key export market – the Eurozone – is showing some encouraging signs.

Here’s ONS chief economist Joe Grice’s official comment on today’s growth data:

“We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

“Today’s estimate suggests over four fifths of the fall in GDP during the recession has been recovered, although it still remains 1.3 per cent below the pre-recession peak.”

Osborne: Broadly-based growth

The manufacturing part of the UK economy grew by 0.9% in the last quarter, slightly faster than the wider industrial sector, which grew by 0.7%.

George Osborne has seized on that as a stick to smite critics (such as Vince Cable?)  who claim that he’s failing to rebalance the economy and should change his plans:

Don’t forget that construction output fell by 0.3% during the quarter – unlike in Q3 when all sections of the economy expanded.

David Cameron tweets that today’s growth figures shows that the government’s plans are working:

Today’s data  also means that the UK has grown for all four quarters in a calendar year — that’s not happened since 2008  (although the double dip was revised away, there have been occasional quarters of negative or flat growth)

Joe Grice repeated that that there is now a “rather better tone” to the UK economy, after four quarters of growth.

Grice declined to say when UK workers might finally see wages rising in real terms, but did point out that inflation has recently fallen.

 

Updated

Joe Grice explains that the 0.3% drop in construction output may be down to seasonal factors (worth remembering, though that the building sector had seen growing strongly early in the year).

Asked about the wider state of the UK economy, Grice says that “in the last year we have had more balanced growth than previously, but over the longer period we have had a divergence in the recovery.”

That’s shown by the fact that that the Service sector is now bigger than before the financial markets were convulsed by the collapse of Lehman Brothers, but construction and manufacturing are someway shy.

 

The recovery has been somewhat erratic, says Joe Grice, but it “feels like the economy now has a better tone”.

However the UK economy is still 1.3% smaller than before the financial crisis began.

 

 

Updated

The UK service sector grew by 0.8% in the fourth quarter, and Industrial output racked up 0.7% growth.

But Construction output fell by 0.3% in the October-December period.

That means the services sector is higher than in 2008.

But both industrial production and construction are around 11% smaller than before the crisis, Grice adds

 

 

Updated

On an annual basis, GDP for 2013 was 1.9% higher than in 2012, says the ONS’s Joe Grice.

That, I believe, means Britain has recorded its strongest growth for any year since 2007.

 

UK GDP DATE RELEASED

BREAKING: The UK economy grew by 0.7%  in the final three months of 2013, the ONS just announced.

 

Key event

Just a few minutes until the Office for National Statistics reveals the preliminary estimate of UK GDP for the final three months of 2013.

ONS chief economist Joe Grice will announce the data at 9.30am sharp, and then take questions from the press.

It should be broadcast live on the BBC and Sky News in the UK.

Fact for the morning, via Sky News’s Ed Conway – Poland is the fastest-growing member of the EU since the financial crisis began in 2008:

Key event

And here’s another graph reinforcing how the UK’s economy has lagged behind major rivals since the great recession - with particularly weak growth from mid-2010 to mid-2012:

 

 

What the analysts are predicting

Here’s a couple of analyst predictions about today’s GDP data (due in under 30 minutes):

Howard Archer of IHS Global Insight:

Our best bet is that GDP growth edged back to a still very decent 0.7% quarter-on-quarter in the fourth quarter of 2013 after accelerating to 0.8% quarter-on-quarter in both the third and second quarters from 0.5% quarter-on-quarter in the first quarter. This would still result in year-on-year GDP growth accelerating to 2.8% in the fourth quarter of 2013 from 1.9% in the third quarter, thereby giving the best annual growth rate since the first quarter of 2008. 

It would also result in overall GDP growth in 2013 coming in at 1.9%, which would be the best performance since 2007 and up from growth of just 0.3% in 2012. Even so, GDP in the fourth quarter of 2013 would still be 1.3% below the peak level seen in the first quarter of 2008.

Kit Juckes of Societe Generale [SG]:

The market looks for a 0.7% gain, SG for a 0.8% increase that takes the annual growth rate up to 2.9%, the fastest since Q4 2007. Sterling is a little stronger again today. Positive economic surprises have supported the currency and triggered a sharp re-pricing of the interest rate outlook, despite Mr Carney’s best efforts to keep that in check.

The pound has risen slightly this morning, touching $1.66 against the US dollar.

James Ramsbottom, chief executive of the North East Chamber of Commerce, just put his finger on the underlying issue with the British recovery – it doesn’t feel like a recovery for most of us, yet anyway.

Speaking on the BBC’s Today Programme, Ramsbottom said that manufacturing had “sustained” his region’s economy (Nissan have a big plant in Sunderland) while construction has only recently picked up.

“But for many people on the street, it doesn’t feel like it’s changed,” Ramsbottom added.

Rob Marshall, who runs a web design firm, also cautioned that he didn’t feel any better about business conditions than a year ago. But he has hired more staff since founding his firm in 2009, growing from four staff to 13.

Duncan Weldon, the TUC’s senior economist, makes four important points about today’s data (in this blog):

It’s provisional data, it won’t tell us much about  living standards, UK productivity may still be falling, and Britain has lost a lot of ground against most comparable countries since the crisis began:

 

Another point to watch will be which sectors of the UK economy did best – services, construction or manufacturing.

Weldon says:

Whilst the top line figure will tell us something about the overall pace of the recovery, the sector breakdown will tell us about its balance.

Updated

Back to UK GDP. It’s worth remembering that, despite the decent growth seen so far this year, Britain’s economy has still not reached its pre-crisis peak. Three months ago it was still 2.5% smaller than its peak in 2008.

 

 

The ONS reported last month that the UK grew by 0.5% in the first quarter of 2013, then 0.8% in the second and third quarters.

 

An important development in emerging economies this morning – India surprised the markets by announcing a surprise rise in interest rates, from 7.75% to 8%

The move is designed to underpin the rupee, and also to target India’s inflation rate. Central Bank chief Raghuram Rajam said he might be able to cut rates again in future once inflation has been pegged back. 

The unexpected move comes hours before the central bank of Turkey (also under pressure in the recent emerging market turmoil) meets to discuss monetary policy. Many analysts expect a rate hike, or other measures, to prevent the Turkish lira being further routed.

A reminder that while Britain’s recovery continues, there’s the potential for upheaval elsewhere….

CBI sees “real upsurge” in output

The CBI has fuelled confidence in Britain’s economy by declaring this morning that business output in the private sector is rising at the fastest pace since the collapse of Northern Rock.

Ahead of this morning’s GDP data, the employers body said the economic outlook looked bright. The proportion of firms reporting higher output over the last quarter has hit its highest level since Autumn 2007.

Katja Hall, the CBI’s chief policy director, said:

A picture is unfolding of a real upsurge in output across much of the UK economy.

Many firms in many sectors are feeling brighter about their prospects than they have for a long time, showing the recovery is gaining traction.

UK GDP data to show recovery continued

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

Britain’s economic recovery is centre-stage today, with new data likely to show that the UK has recorded its strongest year since being rocked by the financial crisis six years ago.

Preliminary GDP data for the final three months of 2013 will be unveiled with a flourish by the Office for National Statistics at 9.30am GMT. Economists expect another decent quarterly growth, with the economy growing by around 0.7%-0.8% (estimates vary, as usual).

That would mean annual growth of around 1.9% — which would be the best performance since 2007. 

Caveats abound, of course. Many experts fear that Britain has failed to rebalance its economy over recent years, with the current recovery based on the rickety framework of consumer spending and the housing recovery. A very British recovery, in other words.

The business secretary Vince Cable even threw his weight behind this argument last night, warning that the “shape” of the recovery was less than ideal.

Cable said:

A real recovery is taking place

The big question now is whether and how recent growth and optimism can be translated into long-term sustainable, balanced recovery without repeating the mistakes of the past.  We cannot risk another property-linked boom-bust cycle which has done so much damage before, notably in the financial crash in 2008.

Cable also appeared to be moving the Liberal Democrats away from George Osborne’s plan of further cuts beyond the election to eliminate the deficit — more here:

Vince Cable undermines chancellor with ‘wrong sort of recovery’ message

But there are signs that the chancellor’s March of the Makers hasn’t come to an abrupt halt, such as rising orders in the manufacturing sector.

Britain is among the first countries to report GDP data for the last quarter, so today’s preliminary reading could give some clues to how the global economy fared at the end of 2014.

I’ll be tracking the UK GDP data, and economic reaction to it, along with other news through the  day.

 

Updated

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Shanghai stock market closes at lowest level since last July, after China’s economy grows by joint-slowest rate since 1999. Chinese GDP data- what the analysts say about the world’s second-largest economy. Irish bonds rally after Moody’s upgrade…

 


Powered by Guardian.co.ukThis article titled “Chinese growth rate slows to 14-year low of 7.7% – business live” was written by Graeme Wearden, for theguardian.com on Monday 20th January 2014 14.41 UTC

Speaking of Greece, the Kathimerini newspaper flagged up yesterday that more households and companies are falling behind with their electricity bills as wage cuts and record unemployment bites.

Public Power Corporation (PPC) data illustrate that Greek households and corporations are finding it increasingly difficult to pay their electricity bills. Total debts to the power utility from unpaid bills currently total some 1.3 billion euros, an amount which is growing at an average rate of 4 million euros per day.

The lion’s share of that debt is owed by low- and medium-voltage consumers – households and very small enterprises. The total arrears of these categories amount to an estimated 600 million euros, of which some 65 percent concerns households. The debts of the broader public sector amount to 190 million euros. The arrears of corporations connected to the medium-voltage network total some 130 million euros, while mining company Larco alone has run up debts of more than 135 million euros.

Around 35,000 households are thought to have illegally reconnected their power supply after being cut off, according to official figures. The Athens government recently agreed to keep supplying power to the poorest households, so around 7,500 have been officially reconnected.

Over in Athens, protests took place this morning against layoffs across the Greek public sector, and also against cuts to healthcare spending.

Here’s a few photos.

Speculation is rife that the International Monetary Fund will hike its estimate for UK growth when it publishes its new forecasts on Tuesday.

Sky News is reporting that the IMF will predict that the British economy expands by 2.4% this year, up from the 1.9% rate predicted three months ago.

That would match last month’s forecast from Britain’s fiscal watchdog, the OBR.

My colleague Katie Allen reports:

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

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

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

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

More here: IMF upgrades UK economic growth as forecasts for global economy expands 

Back on China, and Saxo Bank has provided a handy graph showing how its growth rate has slowed as Beijing wound in its stimulus spending.

As explained in the opening post, China’s GDP rose by 7.7% annually in the last three months of 2013, a slight slowdown on the 7.8% recorded in the third quarter of the year.

Mads Koefoed, head of macro strategy at Saxo Bank, warns that a ‘prolonged slowdown’ would be a problem for Beijing, but also reckons that the slow pace of the government’s rebalancing means growth shouldn’t falter.

Koefoed said:

Should the slowdown in the economy continue over the coming quarters, the (relatively) new leadership will be tested, but the GDP report actually revealed that some of the necessary adjustments needed in the Chinese economy are starting to take place, albeit only very gradually. The credit-fuelled investment binge in China continues, but did slow down slightly in the fourth quarter to 20.3 percent year-on-year from 20.5 percent in Q3 and even more in the first half of 2013.

The very modest slowdown in investment and credit — new yuan loans rose 8.% in 2013 vs. 11.9% in 2012 — is not enough to either quickly rebalance the economy or send growth substantially lower. Furthermore, some smallish public-sector stimulus programmes will aid economic growth in the shorter term, which is why I only expect a slight slowdown overall this year to somewhere in the range of 7 to 7.5% from 7.7% in 2013.

Oxfam warning on wealth inequality

Development charity Oxfam has raised the pressure on world leaders as they prepare for Davos this week by reporting that the richest 85 people now control as much wealth as the poorest half of the world population.

Staggeringly, that means you could cram £1tn of wealth into a single double-decker bus — a reminder of how concentrated income and assets have become.

Winnie Byanyima, the Oxfam executive director who will attend the Davos meetings, said:

“It is staggering that in the 21st Century, half of the world’s population – that’s three and a half billion people – own no more than a tiny elite whose numbers could all fit comfortably on a double-decker bus.”

Oxfam’s report also flags up that almost 50% of the world’s wealth is now owned by the richest 1%.

Here’s the full story: Oxfam: 85 richest people as wealthy as poorest half of the world

More twists and turns at the Co-op over its troubled banking arm this morning.

Its auditors, KPMG, is to be investigated over its performance in checking and approving its accounts by the Financial Reporting Council.

KPMG has audited Co-op’s financial arm for three decades, but is under scrutiny after the discovery of a £1.5bn black hole in its accounts which sunk its bid to take over 600 Lloyds branches.

Co-op Group has also decided not to sell its general insurance business, which had been on the auction block to raise funds to patch up that capital hole. Co-op is now keeping it, as the revised capital-raising plan (under which it loses majority control of its Bank) requires it to contribute less funding.

Updated

David Madden, market analyst at IG, says the Chinese GDP data has left the City a little flummoxed:

Mixed reports from China overnight have left traders perplexed; the headline GDP figures exceeded expectations, but this was offset by the lower-than-expected industrial production and fixed asset investment numbers.

The mining sector had a good run last week on the back of bargain hunting and broker upgrades, and after the Chinese numbers today it doesn’t know which way to turn .

Updated

Back in the UK, the group treasurer and head of tax at supermarket chain Morrisons is under investigation by the Financial Conduct Authority over allegations relating to the trading of Ocado shares before the two firms announced a tie-up.

Paul Coyle was arrested in December in Harrogate, Yorkshire, and was taken in for questioning in connection with alleged insider dealing and market abuse.

Here’s my colleague Sean Farrell’s take:

Morrisons’ executive arrested in insider trading investigation

And a hat-tip to the Daily Telegraph’s Graham Ruddick for breaking the story overnight:

Telegraph: Morrisons treasurer held over alleged Ocado ‘insider deal’ (paywalled)

Updated

Encouraging economic news out of Italy this morning — seasonally adjusted industrial orders rose by 2.3% month-on-month in November, reversing October’s 2.3% slide.

Domestic orders jumped 4.1%, compared to a 0.4% drop in foreign business, suggesting internal demand picked up as the long Italian recession eased.

Market update

European stock markets dipped this morning as investors took stock of China’s GDP data, showing growth came in at the joint-slowest rate in 14 years.

Mining stocks are down, following those predictions that growth could be slower this year. Copper producer Antofagasta has dropped 1.5%, while Rio Tinto has shed 0.75%.

Germany’s DAX is the worst performer, dragged down by Deutsche Bank’s profit warning last night.

Earlier, the Shanghai composite index of leading Chinese shares had closed below the 2,000 mark for the first time since last July — continuing a recent trend, as this graph shows.

Alastair Winter, chief economist at Daniel Stewart & Co, said the markets remain concerned by the consequences of the clampdown on China’s shadow banking sector, adding:

It is not surprising that share prices on the mainland remain generally depressed and those in Hong Kong subdued.

Here’s the European prices:

  • German DAX: down 40 points at 9701, -0.4%
  • FTSE 100: down 5 points at 6824, – 0.06%
  • French CAC: down 5 points at 4321, -0.13%
  • Italian FTSE MIB: down 43 points at 19,924, -0.24%
  • Spanish IBEX: down 22 points at 10,442, -0.2%

Updated

Irish five-year debt is also rallying after Moody’s raised Ireland’s credit rating back to investment grade.

That has pushed the yield on five-year bonds down below 1.62% — meaning Dublin can borrow money until 2019 at a slightly cheaper rate than Washington (US five-year Treasury bills are yielding just over 1.62%).

Deutsche Bank drops 4% after profit warning

No surprise that Deutsche Bank shares have tumbled in the opening moments of trading in Frankfurt, dropping over 4% after last night’s profit warning (details here).

Other bank shares are suffering too, following fears that Deutsche’s shock announcement heralds wider problems in the sector.

In London, Royal Bank of Scotland is leading the FTSE 100 fallers, down 1.2%, and Barclays down almost 1%.

Much of DB’s €1.2bn loss was blamed on legal woes and restructuring, but the bank also reported a drop in revenues from bond trading by its fixed income arm. That dragged it down to a net loss of €965m in the final quarter of 2013, compared to forecasts of a €700m net profit.

Traders say Deutche’s announcement has cast a pall over the City, especially as this month’s corporate results have been rather unimpressive:

As Michael Hewson of CMC Market explains:

 European markets appeared to stall towards the end of last week, as more and more earnings announcements started to come out on the weaker side of estimates.

The early release of Deutsche Bank’s earnings late last night, which showed a €1.2bn Q4 loss, could well reinforce this negative tone today, particularly in the absence of US markets today, due to Martin Luther King Day.

Updated

Irish bond yields slide after investment grade rating boost

Ireland’s sovereign debt has jumped in value this morning, after Moody’s removed the stigma of a ‘Junk’ credit rating.

An early morning rally has send the yield, or interest rate, on Irish 10-year bonds sliding to just over 3.3%. That’s sharply down on Friday night’s reading of 3.45%, before Moody’s announced its move.

For comparison, UK 10-year bonds are yielding 2.82% this morning, while Spain’s are changing hands for 3.7% (a lower yield = a higher priced bond, ie a more safer investment)

Over in Japan, Nintendo’s share price took a kicking as Tokyo investors gave their verdict on last Friday’s profit warning.

The stock didn’t even trade when the Tokyo bourse opened, as traders flooded the market with sell orders.

Eventually some buyers emerged, sending Nintendo’s share price plunging by almost a fifth. It later clawed back some losses, ending the day down 6%.

 On Friday, Nintendo admitted it would probably make an operating loss of 35 billion yen, and slashed its global sales forecasts for the Wii U console this year, from 9m to just 2.8m.

Let’s not be too gloomy, though. Louis Kuijs, chief China economist at RBS, reckons the Chinese economy will spring back in 2014 with a growth rate of 8.2%.

Kuijs told clients:

“We expect China to benefit from improved global growth this year. Faster world trade growth should support China’s growth via stronger exports and corporate investment.”

(that’s via CNBC)

Chinese GDP: What the analysts say

Several economists are warning that China’s growth rate will slow further in 2014, from the 7.7% expansion racked up in 2013.

Ian Williams of Peel Hunt pointed to the detail of today’s GDP data:

Investment growth is slowing, to +19.6% YoY in December, while industrial output growth also moderated to +9.7% YoY as overseas demand cooled. Retail sales grew by +13.6% YoY.

A rebalancing economy and a neutral policy stance point to the deceleration continuing through 2014.

Nomura economists agreed, warning:

The data reinforce our view that growth is on a downtrend and we continue to expect GDP growth to slow [this year].

Ditto Dariusz Kowalczyk of Credit Agricole CIB, who said:

The economy is slowing quite rapidly. The slowdown has accelerated during the quarter,”

Updated

Chinese economic growth rate at joint-slowest since 1999

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

China has kicked off the week by reporting growth figures that beat forecasts, but also showed the joint-weakest expansion rate since 1999.

Gross domestic product across the Chinese economy increased by 7.7% year-on-year in the final three months of 2013, slightly down on the 7.8% growth seen in the third quarter.

Growth for 2013 as a whole was also recorded at 7.7% –matching 2012′s annual growth reading.

The data confirms that China’s economic boom has cooled somewhat as Beijing strive to implement economic reforms, rein back the shadow banking sector, and nurture more domestic demand to replace the investment-driven growth of the last decade.

Chinese officials warned that the task of rebalancing the country’s economy wasn’t over. Commissioner of the government statistics bureau, Ma Jiantang, told reporters that:

“A long-term accumulation of problems has yet to ease and the foundation for economic stabilisation and recovery is still consolidating.”

Here’s AP’s early take: China’s economy grows by 7.7%, equalling worst year since 1999

Industrial production growth over the last year also dipped, to 9.7% from 10% previously.

At 7.7%, annual growth did beat the Chinese government’s official target of 7.5%. But there was no rally in the Shanghai stock market, where shares dropped to their lowest level since last July

Economists cautioned that the data showed the Chinese economy was cooling, and unlikely to post stronger growth in 2014 (I’ll pull together some reaction next).

Also coming up today, Deutsche Bank is under scrutiny after rushing out a profit warning last night. The German bank made a shock pre-tax loss of €1.153bn, which it blamed on legal expenses and restructuring costs.

And I’ll have an eye on the snowy heights of Davos as world leaders prepare to jet in for the World Economic Forum (which starts officially on Wednesday).

Updated

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The pound rallies against the U.S. dollar and the euro after U.K. Retail sales rise by 2.6% m/m in December, smashing the forecasts of 0.5% increase and much stronger that the 0.1% reading in November. U.S. consumer confidence drops…

 


Powered by Guardian.co.ukThis article titled “Retail sales grow at fastest rate for nine years – business live” was written by Jennifer Rankin and Nick Fletcher, for theguardian.com on Friday 17th January 2014 15.14 UTC

More US data has just come out, with an unexpected drop in consumer confidence.

Worries about employment and income growth sent the Thomson Reuter/University of Michigan’s consumer sentiment index down from 82.5 in December to 80.4 so far this month. This compares to forecasts of an increase to 83.5. Rob Carnell at ING said:

There is no compelling explanation for this, unless perhaps respondents have been influenced by weakness in some other surveys – payrolls for example – though most observers believe that these are anomalous and weather affected.

With the labour market probably in far better shape than the latest labour report suggested, the stock market remaining robust, house prices rising strongly and gasoline prices relatively low, there is no good reason for the dip, which may turn out to be nothing more than noise. At any rate, 80.4 is not a bad level, and consistent with spending growth remaining at the sort of levels seen in recent quarters.

Updated

A lacklustre opening for US markets this morning, following industrial data and housing starts broadly in line with expectations.

There is plenty else for investors to chew on. Morgan Stanley reported a 72% decline in income for Q4, partly related to legal costs related to the credit crunch. General Electric, another corporate bellwether, posted a 4.8% rise in revenue.

  • The Dow Jones Industrial average dipped slightly, falling 0.1% to 16,397.16 points.
  • The S&P500 lost a similar amount leaving it at 1843.50 points.
  • The Nasdaq composite fell 0.34% to 4203.428.

On that note I am handing over to Nick Fletcher. Thanks for following and all the comments so far. JR

From the US production lines, to an underwear factory in Manchester. Kinky Knickers, the label championed by retail guru Mary Portas, has seen parent firm Headen and Quarmby fall into administration, threatening 33 jobs.

It is another blow to the self-styled Queen of Shops, who is battling to rescue the British high street. Read the full story from the Guardian’s retail correspondent Sarah Butler here.

Joseph Brusuelas, an economist at Bloomberg, has some interesting first-takes on those US numbers.

Here are more details on the US industrial production data from the US Federal Reserve Board.

  • Manufacturing output rose 0.4% in December, compared to 0.6% in November
  • Mining output was up 0.8% compared to 1.9% in Nov.
  • Utilities output was down 1.4% compared to a 3% rise in Nov.
  • Industrial output excluding cars and parts was up 0.2% compared to 0.9% in Nov.

Via Reuters

Breaking news: US industrial production rose 0.3% in December, in line with economists’ forecasts.

Should the Bank of England beware of the “nasty scissor movement?” Not a an outlandish stationery cult, but what happens when growth is caught between a decline in real wages and stagnant business investment.

Ben Broadbent, external member of the Monetary Policy Committee, has been looking at whether this view holds water, in a speech at the London School of Economics today.

The full text is on the Bank of England website, but here is a flavour of his argument:

….concerns about the absence of growth have been replaced with worries about its composition: too much consumer-led spending, too little investment and trade. In particular, it is argued, the recovery will run out of steam without a rise in investment because of an ongoing contraction in real wages. The suggestion is that proceeds of growth are being diverted to unspent corporate profits. Growth is therefore caught in a nasty scissor movement between a decline in real wages, which limits the room for further growth in household spending, and perpetually stagnant business investment. As a result it is destined to subside. My aim today is to ask whether this view holds up to scrutiny.

I will make three points. The first is that real pay is weak not because firms are taking (and hoarding) the lion’s share of the proceeds of growth – in fact, the opposite is true: wages have grown faster than profits during this recovery – but because the prices we pay for consumption have risen much faster than those firms receive for their output.

The second point is about the typical sequencing of economic expansions. Business investment tends to lag, not lead, the cycle in output (the opposite is true for housing investment). One of the reasons firms’ capital spending has stagnated is that the recovery has so far been too weak to allow their profits to recover. But history, and a variety of indicators, suggests it is likely to accelerate through this year. Indeed, allowing for measurement error, it may already have started to do so.

The final and more general point is to caution against inferring too much about future growth from its current composition. Of course there’s a risk the recovery could falter. But, if it does, it will probably be because of more fundamental problems – a failure of productivity to respond to stronger demand, for example, or continuing stagnation in the euro area – not any imbalance in expenditure or income per se. These are outcomes, not determinants, of the economic cycle. As we shall see, they are poor predictors of future growth.

Shell’s profit warning wiped £6.5bn from the FTSE100 index this morning. But this could be small change compared to the trillions of overvalued assets oil and gas companies are sitting on – the so-called “carbon bubble”. Several commentators, including readers of this blog, argue that the “carbon bubble” and risks to the environment of runaway climate change, put a different perspective on today’s statement from Shell.

It is worth revisiting a warning from Lord (Nicholas) Stern, the author of the landmark 2006 report on climate change. Last May, Stern said the world risks a major economic crisis, because oil and gas companies are sitting on huge fossil fuel reserves that will have to remain underground, if the world has any hope of avoiding the threshold for ‘dangerous’ climate change. Essentially, major energy companies are seriously overvalued…

Smart investors can already see that most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with [a climate change] global agreement. They can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision.

… much of the embedded risk from these potentially toxic carbon assets is not openly recognised through current reporting requirements. The financial crisis has shown what happens when risks accumulate unnoticed. So it is important that companies and regulators work together to openly declare and quantify these valuation risks associated
with carbon, allowing investors and shareholders to consider how best to manage them.

Updated

Breaking: US housing starts fell by 9.8% in December, the US Commerce Department has said. The figure is the largest percentage drop since April, but not quite the steep drop economists had been predicting.

Groundbreaking for single-family homes, the largest segment of the market fell by 7%.

Just in… the owner of the New York stock exchange and Euronext is taking over the running of Libor, the interest rate benchmark at the centre of a rigging scandal involving many major banks.

Intercontinental Exchange will take over running Libor from 1 February, having received the formal ok from the Financial Conduct Authority.

In his 2012 review, Martin Wheatley, now chief executive of the FCA, had recommended handing Libor to an independent organisation chosen via competitive tender. The British Bankers’ Association was stripped of its responsibility for Libor in the wake of the scandal.

The London Stock Exchange has removed itself from the dwindling club of companies with all male boards.

The LSE announced this morning that it had appointed two women to its board - one day after it was exposed by BoardWatch as being one of three FTSE100 companies with all make boards.

Sherry Coutu, who serves on Cambridge University finance board, and Joanna Shields, chairman of Tech City UK, become non-executive directors with immediate effect, the LSE said this morning.

This means the only companies in the FTSE100 left with all-male boards are Chilean copper mining company Antofagasta and commodities trader Glencore Xstrata.

Capital Economics has issued a cautionary note on this morning’s bumper retail sales figures.

 December’s strength does not translate into a strong Q4. Because of weakness in previous months, over the fourth quarter as a whole, retail sales were a mere 0.3% higher than in Q3. So spending on the high street will provide only a modest boost to economic growth in the final three months of the year.

 Nonetheless, with non-retail spending strong, December’s sales data provided further hope that Q4 should sustain the strong rate of GDP growth seen in Q2 and Q3. But it also points to a recovery that continues to display a distinct lack of balance.

In other words, whatever happened to ‘the march of the makers’?

Tough times in Spain continue, with another sign that households and small companies are struggling to repay debts. Spanish banks’ bad loans as a percentage of total lending hit a record high of 13.08% in November, up from 12.99 % the previous month, according to Bank of Spain figures.

Here are the figures from the Bank of Spain:

And here is Reuters’ take on the data:

The [bad loans] ratio has been steadily climbing as households and small companies struggle with debts and as banks, fighting to improve their own capital quality ahead of Europe-wide stress tests, rein in lending. Bad debts rose month on month by €1.5 billion ($2.04 bn) to €192.5 bn euros in November. Total credit, meanwhile, rose slightly by €2.6 bn to €1.47 trillion euros, the data showed.

Updated

The Guardian’s politics live blog is covering Ed Miliband’s speech on breaking up the banks. Check out the sentiment tracker, where you can have your say on the speech minute by minute.

Back to Shell, which has seen its share price recover from this morning’s sell off. Shares are down 2.1%, an improvement on an earlier 4% fall.

Ishaq Siddiqi at ETX Capital, blames the management, but thinks that Shell is not alone in its problems

Worrying news from the oil major which is clearly suffering from management’s inability to get on top concerns regarding capital discipline. Shell warned of disappointing results from its upstream, downstream and corporate business divisions; higher exploration costs and softer oil prices are blamed for the poor numbers – this is unlikely to change this year leaving markets worried about the group’s outlook.

Shell is not an isolated case however, as weak industry conditions for downstream oil is likely to hit sector peers too. For Shell itself, management must now implement more aggressive targets for group strategy in order to turn a page and improve capital efficiency which would go some way in improving operational performance.

Louise Rouse at ShareAction wants Shell’s shareholders to challenge the company on its costly Arctic drilling plans.

A quick recap – last year Shell filed formal plans to drill in the Arctic above Alaska, raising environmental concerns about the potentially devastating impacts of a spill.

ShareAction is not convinced about the economics of the plans.

 There are huge question marks over the economic viability of Shell’s Arctic plans given the high costs involved. The fact that Shell’s profits are tumbling, in part because of high exploration costs, highlights further the need for investors to make sure that the sums add up in the case of the Arctic.

Oil companies’ approach to capital expenditure is almost Shakespearean – ‘there is money, spend it, spend it, spend more’. With flat share prices and falling profits shareholders should challenge this lack of capital discipline.

Updated

A snapshot of consumer behaviour in charts…

Consumers hit the shops in force in December, splashing out in the run-up to Christmas. Pundits are less convinced the spending splurge will continue in 2014. Here is a round-up of reaction on the UK’s retail sales data and what it means for the economy.

Alan Clarke, director of fixed income strategy, said the growth in sales was not the result of slashing prices.

Its a boom!! UK retail sales surged by 2.6% m/m in December – massively higher than expected. The breakdown showed strength in non-store, no surprise given we know the internet side of spending is booming. That saw a near 5% jump on the month. Meanwhile department stores flew. They had seen a 3.3% drop the prior month, so some payback was likely, but this was massive.

I would have expected to see a corresponding slashing in prices to have induced such strength but it didn’t show up – the deflator was fairly stable.

Jeremy Cook, chief economist at World First, thinks these figures could be “a last hurrah for retail” as consumers show more restraint in 2014.

Well, that was unexpected. Pre-Christmas discounting, combined with strong consumer confidence and a strengthening jobs market has driven sales through the tills at a rate that hasn’t been seen since May 2008.

This stands against the anecdotal evidence we’ve been getting from the high street, in what seemed to have been a very lacklustre Christmas trading period. Companies have issued profit warnings and retailers have been eager to warn shareholders that as long as wage growth remains subdued, in both nominal and real terms, that a positive outlook could be guaranteed. I’ll be eager to see just how much discounting is to blame for this number; revenue and profit are very different beasts.

Sterling has driven higher on the number with yields on UK debt moving upwards as well, as the market factors in further pressure on the Bank of England’s forward guidance plan. We still believe that the UK consumer will remain pressurised through 2014 and this number could easily be a ‘last hurrah’ for retail as move forward into 2014.

James Knightley at ING Bank thinks the chances for an interest-rate rise have gone up.

UK retail sales jumped a massive 2.6%MoM in December, way beyond any expectation in the market, leaving sales 5.3% higher than a year ago. Given that this figure is measured in volumes rather than values it adds weight to the view that GDP growth will be very strong in 4Q13 (close to 1%QoQ) with 1Q14 GDP likely to be robust too thanks to base effects….
Overall, a very strong set of numbers that suggest the UK economy is gaining speed with spare capacity really starting to be eaten into. As such, the chances of an interest rate hike this year are rising, but we suspect the [Bank of England] will start with macroprudential tools to cool certain hot spots first.

Howard Archer, chief UK and Europe economist at IHS, thinks consumers could “take a breather” after splashing out at Christmas.

December’s strong retail sales performance provides a major boost to hopes that GDP growth in the fourth quarter of 2013 remained up around the 0.8% quarter-on-quarter rate achieved in both the third and second quarters.

Even so, it should be noted that because of lacklustre overall sales in November and October, retail sales volumes growth in the fourth quarter of 2013 was limited to 0.4%, which was down substantially from growth of 1.6% quarter-on-quarter in the third quarter.

Looking ahead, there is some uncertainty as to how robust consumer spending will be in the early months of 2014. It is very possible that consumers could take a breather after finally splashing out for Christmas and in the sales, given that inflation is currently still running at double the rate of earnings growth. It is also notable that consumer confidence edged back for a third month running in December, although these small dips were from a near six-year high in September.

The good news for growth prospects is that the squeeze on purchasing power now seems to be progressively if gradually easing with consumer price inflation falling to a four-year low of 2.0% in December. Average earnings growth is also showing signs of edging up although it was still only up by 1.1% year-on-year in October itself and by 0.9% year-on-year in the three months to October.

In addition, markedly rising employment is supportive to consumer spending, as is the improving housing market.

Here is a flavour of the insta-reaction on Twitter to those surprising retail sales figures.

Here are the highlights from the Office for National Statistics data on retail sales.

  • The UK retail industry grew by 5.3% in December 2013 compared with December 2012. Retail sales were up 2.6% in December, compared to the previous month, far outstripping economists’ calls for growth of just 0.3% or 0.4%.
  • Department stores – the likes of John Lewis and House of Fraser – did especially well in December, with a month-on-month increase of 8.7%.
  • Internet sales increased by 11.8% in December 2013 compared with December 2012 and by 1.8% compared with November 2013.
  •  But it wasn’t just big bricks and clicks. Small stores (<100 employees) saw the amount of spending go up by 8.1% compared with 2.6% in large stores.
  • Growth was in non-food stores, helping to offset declines in sales in food stores and petrol stations.

Just in…UK retail sales rose 2.6% in December compared to November, the fastest growth in 9 years and smashing expectations.

A smidgen of good news for Portugal, which is hoping to leave its €78bn euro bailout programme later this year. Ratings agency Standard & Poors has removed Portugal from its “Creditwatch” list. Being on Creditwatch is the precursor to an imminent downgrade, so this is a an improvement, albeit a very small one.

Portugal’s BB credit rating and negative outlook was reaffirmed, leaving it stuck just two notches above “junk” status.

S&P said the move reflects its expectation that Portugal will achieve its 5.5% of GDP budget deficit target in 2013 and approach its 4.0% target in 2014.

We base this expectation partly on indications that the economy has been showing signs of stabilisation since mid-2013.

Stronger-than-expected export performance, and an expected bottoming out of private consumption, amid a modest decline in unemployment should support Portugal’s fiscal performance in 2014.

S&P said a key risk was the possibility the Constitutional Court may reject more austerity measures, although the ratings agency expects the government to muddle through find alternatives, as it has in the past.

The negative outlook reflects our opinion that there is at least a one-in-three possibility that we could lower our ratings on Portugal during 2014.

Even Super Mario has his work cut out.

Nintendo has issued a profits warning, after its Wii U console failed to capture the public imagination. The Japanese games maker expects to sell just 2.8m consoles in the 12 months to the end of March, down from previous expectations of 9m. It also halved the number of games that it expects to sell for the Wii U, from 38m to 19m.

Nintendo blamed disappointing sales of its consoles over Christmas:

Software sales with a relatively high margins were significantly lower than our original forecasts, mainly due to the fact that hardware sales did not reach their expected level.

Charles Arthur, the Guardian’s technology editor, has the story here.

Updated

Labour’s shadow business secretary Chuka Umunna has been defending the party’s bank reform plans on BBC Radio 4′s Today programme.

He suggested that a short-term fall in the share price of Lloyds and RBS, both partly state-owned, was a price worth paying to create a more stable economy.

 I’m not denying in the short term that you may see a hit on the share price of these banks – it’s probably happening as we speak now. But the reason we are doing this is so that we can grow our small businesses, which not only create in and of themselves more middle-income jobs – so we actually get people earning more – but also are very important feeders in the supply chain for our larger businesses.
“If we solve that problem – because our economy is too low-wage and too low-skill – and we get more people earning more money, then we will see higher income tax receipts coming into the Exchequer, our businesses will do better because people will be spending more, so we will see higher corporation tax receipts, and therefore we will actually have a better economy.

Overall, the banking crisis caused by the banks cost our country about £1.2 to £1.3 trillion in the wake of 2008/09. In that context, actually, we believe that the costs involved of the reform that we are proposing will in the longer term be in the public interest.
“The reason we are doing this is essentially because we’ve got the biggest cost-of-living crisis in a generation.”

Mr Umunna declined to estimate the level of the cap which Labour would place on banks’ market share.

The quotes are from the Press Association.

Things could have been worse for Shell, suggests Bloomberg correspondent Jonathan Ferro.

Shell has seen 3.9% wiped off its share price since markets opened a few minutes ago.

This hasn’t done much for the FTSE 100, although it hasn’t harmed it either. The overall index is up 0.1%.

Shell is the largest company on the FTSE 100, worth around 7.5% – number courtesy of Mike van Dulken, head of research at Accendo Markets.

On European markets, it’s a pretty unexciting start to the day: Germany’s DAX is up 0.1%, France’s CAC 40 up 0.2% and Spain’s IBEX up 0.1%. Italy’s FTSE MIB is flat.

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

To start the day, we have a surprise profits warning from the world’s second largest oil company, Royal Dutch Shell. The company has said that its fourth quarter 2013 results are likely to be “significantly lower” than recent levels of profitability.

Earnings for the fourth quarter of 2013 are expected to be $2.9 billion (£1.8bn), compared to analysts’ expectations of $4bn.

Shell is blaming “weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes”.

‘Not good enough’ is the message from Ben van Beurden, Shell’s chief executive who took over two weeks ago.

Our 2013 performance was not what I expect from Shell. Our focus will be on improving Shell’s financial results, achieving better capital efficiency and on continuing to strengthen
our operational performance and project delivery.

Although analysts are expecting UK markets to open up, Shell is the largest company on the FTSE 100, so could weigh the rest down.

Elsewhere, we have Labour leader Ed Miliband’s speech calling for the UK’s five largest banks to sell off branches – covered in the Guardian here and here.

At 9.30 we are expecting UK retail sales figures. Although shoppers might have been spending big on tablet computers and Christmas jumpers, market watchers are braced for some disappointing numbers. The consensus is for a rise of 0.3% for Q4 2013, which would be a significant drop on the rest of the year.

From the US, we are also expecting industrial and manufacturing production data for December.

I’ll be tracking that and the rest of the economic and financial news throughout the day…

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Published via the Guardian News Feed plugin for WordPress.

US factory output grows at fastest rate since January 2013. Markets cautious after the release of China, France and Germany’s PMI reports. UK factory output growth near to three-year high. France’s manufacturers struggle in December…

 


Powered by Guardian.co.ukThis article titled “UK and US maintain strong manufacturing growth as France stumbles – business live” was written by Graeme Wearden, for theguardian.com on Thursday 2nd January 2014 15.17 UTC

ISM’s PMI survey released

Confirmation that America’s factory sector posted decent growth in December, from the US Institute of Supply Management.

The ISM’s index of purchasing managers from across the US came in at 57.0 — slightly down on November’s 57.3, but some distance above the 50-point mark that divides expansion from contraction.

That suggests the US factory sector finished the year pretty strongly.

The report (which is distinct from Markit’s own PMI survey), showed the new orders grew at the fastest pace since April 2010, while the manufacturing employment index was the highest since June 2011.

  • ISM U.S. MANUFACTURING NEW ORDERS INDEX 64.2 IN DECEMBER VS 63.6 IN NOV
  • ISM U.S. MANUFACTURING EMPLOYMENT INDEX 56.9 IN DECEMBER VS 56.5 IN NOV

Encouraging news, but not enough to change the mood on Wall Street where the Dow Jones is still down around 0.5%.

Updated

Twenty minutes into the trading year, and the Dow Jones industrial average has dropped 75 points, or 0.45%, to 16500.

US stock market opens

Wall Street has just opened for the first time this year, and shares are dropping a little.

DOW JONES DOWN 35.58 POINTS, OR 0.21 PERCENT, AT 16,541.08 AFTER MARKET OPEN 

 NASDAQ DOWN 17.33 POINTS, OR 0.42 PERCENT, AT 4,159.26 AFTER MARKET OPEN 

 S&P 500 DOWN 4.40 POINTS, OR 0.24 PERCENT, AT 1,843.96 AFTER MARKET OPEN

In the European markets, the main indices are also in the red – led by France after its poor factory data:

• FTSE 100: down 11 points at 6737, – 0.18%

• German DAX: down 61 points at 9490, – 0.6%

• French CAC: down 42 points at 4253, -1%

Last month’s jump rise in US factory activity will encourage America’s central bank to keep winding back its stimulus programme.

So argues Chris Williamson, Chief Economist at Markit, anyway:

“The upturn in the PMI in December rounds off one of the strongest quarters for manufacturing since the economy pulled out of recession. The goods producing sector is therefore on course to provide a firm boost to the economy in the fourth quarter, which we expect to see growing at an annualised pace of at least 3%.

“Most encouraging is the fact that growth is being led by rising demand for investment goods such as plant and machinery. This tells us that business spending is picking up on the back of rising confidence, which adds to the sense that the recovery is being more self-sustaining.

“This improvement in confidence is translating into increased hiring, with the PMI Employment Index running at a level consistent with around 20,000 jobs being added in manufacturing each month.

“The buoyancy of these survey data supports the view that the Fed will continue to taper its asset purchases at its January meeting.”

Graph: US manufacturing growth at 11-month high

US manufacturing PMI at 11-month high

Growth in America’s manufacturing sector has hit an eleven-month high, according to Markit’s latest survey.

The data, just released, shows Market’s US PMI jumped to 55.0 in December, up from 54.7 in November.

That’s the highest reading since January 2013, and suggests the US economy ended last year in pretty good health.

Here’s Markit’s key points:

  •  PMI rises to 11-month high, indicating solid improvement in business conditions
  •  Output supported by strong increase in new orders (the output index hit a 21 month high of 57.5, from 57.4)
  •  Employment growth quickens to nine-month high
  •  Input price pressures intensifies 

More to follow….

The first US economic news of 2014 is in…. and the number of people filing new claims for unemployment benefit fell last week, for the second week running.

A total of 339,000 new initial jobless claims were filed in the seven days to 28 December, down from 341,000 the previous week.

The number of people filing ‘continued claims’ for jobless benefit also fell, by around 100,000 people to 2.833m.

Updated

The Athens stock market is outperforming the rest of Europe today, with the main index up around 4%.

Bank stocks are leading the way, after Greek manufacturing activity almost stopped shrinking in December.

(reminder, Greece’s manufacturing PMI hit a four-year high this morning, with thesub-index of factory output actually rising a little in December).

But while today’s data is encouraging, it doesn’t solve Greece’s wider problems — the damage caused by its long recession, the political instability, the public despair after years of austerity…

Nick Malkoutzis, Greek journalist, has blogged about the challenges facing Greece in 2014 here. Here’s a flavour:

When it comes to assessing the state of Greek society, it is true to say that there were some remarkable achievements in 2013 despite the adverse circumstances, such as the mobile app designers who are bringing in more revenues than olive oil exporters and the wine makers who are tapping into new markets.

However, exceptional accomplishments cannot disguise that reality for a growing number of Greeks is laced with doubt, disappointment and despair. The desire among local and European decision makers for a “success story” has made them blind to the fact that many Greeks are in torment and losing faith that the country will recover its economy and, most important of all, its dignity.

There are people in Greece and Europe that have come to accept that it’s okay for a developed country to have a jobless rate that’s nearing 30 percent. They accept, without much fuss, that Greece has lost a quarter of its gross domestic product in five years, and that its citizens have seen their disposable household income plummet by a third during the same period.

This blinkered approach means they do not see the other Greek narrative: The story of those who live with the daily effects of an economy in deep decline and a state that is struggling.

Greece in 2014: Where are we?

France’s ‘sickly economy’ is the biggest threat to growth in the eurozone this year, argues Stephen Lewis of Monument Securities.

Lewis writes (on the back of today’s poor factory data):

The most significant brake on global growth in 2014 is likely still to be the euro zone.

Much has been made of last year’s recovery in the zone’s economy but, still, forecasts for German GDP growth in 2014 are unexciting. The Bundesbank last month projected a rise of 1.7% while the German economic institutes’ forecasts are strung out between 1.8% and 2.0%. That, apparently, is what counts as a banner year nowadays.

Evidence has suggested the peripheral euro zone states at least stopped contracting in the course of 2013 but, for most series, reliable data is only available up to the third quarter. It remains to be seen whether these countries benefited primarily from strong summer tourist activity. The most serious threat to euro zone growth, as even the optimists acknowledge, is the sickly French economy.

The December PMIs for manufacturing, published today, illustrated the degree to which French economic performance is falling short even of the tepid growth elsewhere in the euro zone. France’s headline PMI index fell from 48.4 in November to 47.0, even as the euro zone measure rose from 51.6 to 52.7 and Germany’s index pushed higher from 52.7 to 54.3.

It seems the divergence between French and German economic fortunes will be one of the major factors influencing euro zone politics and investment in the year ahead. It will not help that the euro zone political leaders, under the cloak of establishing banking union, last month agreed a banking resolution mechanism that will, if anything, reinforce the ‘doom loop’ inextricably binding together banking and sovereign debt problems.

The WSJ has a nice piece explaining how Spanish and Italian bonds rose in value today, pushing down yields below the 4% level, as traders seek higher returns on their money:

Yes, yields are low, and the gap between yields on problem-child bonds and German debt is skinnier than it has been in a long time. But it’s still a gap. And if you assume that the euro-zone crisis is unlikely to rear up again, and that the European Central Bank still looks prepared to ease policy to help further, in contrast to the Fed, then it makes sense to jump in.

“We’re still in a low-rate environment and for many investors, Spanish and Italian bonds remain attractive as 10-year bonds in these countries still yield around 2 percentage points more than German Bunds,” said Lyn Graham-Taylor, interest rate strategist at Rabobank.

No Ugly Hangover for Spanish and Italian Bonds

Lunchtime summary

Britain’s manufacturing sector has begun 2014 on the front foot, after the latest survey of factory output showed solid growth last month.

On a busy morning for economic data, UK factories reported solid rise in output, job creation and exports.

The UK manufacturing PMI, which measures activity across the sector, fell slightly to 57.3 (from a three-year high of 58.1).

The figures suggest the UK should manage healthy growth in the next few months.

• Across the eurozone, manufacturing output rose at the fastest rate in 31 months. There was good news in Italy, where growth hit a 32-month high, and Spain, where November’s contraction was reversed.

But France’s growing reputation as the ailing man of Europe was reinforced, with its manufacturing PMI hitting a seven-month low of 47.0 - showing a significant drop in activity. There was no sign of a turnaround in the eurozone’s second-biggest economy.

Markit’s Chris Williamson commented:

France is seeing a steepening downturn, in part the result of widening export losses.

This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”

Most European stock markets have fallen in the first few hours of new year trading. They were hit by disappointing manufacturing data from China and India – which hit the newswires before European traders had reached their desks after the new year break.

Both countries saw their PMIs falling closer to the 50-point mark that splits expansion from contraction (China’s fell to 50.5, from 50.8; India’s to 50.7 from 51.3).

Elsewhere in Europe…

Fiat’s shares surged after it agreed a deal to take full control of Chrysler. Analysts, though, have fretted about the amount of extra debt it will take on.

• And Latvians have been getting to grips with the euro, having joined the single currency at the start of the year. Here’s some photos.

• In the UK, Debenham’s chief financial officer has quit after the retailer announced a profit warning.

Updated

Brazil’s factory sector returned to growth last month, according to the latest survey of its manufacturing sector.

Markit reported that Brazil’s manufacturing PMI rose to 50.5 in December from 49.7 in November – showing ‘marginal improvement’ in its economy.

Firms reported stronger production growth and a rise in new work, while input and output price inflation cooled.

Markit’s chief economist, Chris Williamson, tweets:

Fiat’s agreement to take full control of Chrysler Group looks like the most interesting European business story of the day.

As flagged up earlier, the Italian carmaker has cheered investors with the deal, which reduces its dependence on European consumers . However, analysts are worried that Fiat is taking on even more debt.

Here’s Reuters full take

Fiat shares jumped on Thursday after it struck a $4.35 billion deal to gain full control of Chrysler Group LLC, but doubts remained over whether the Italian carmaker can use the merger to cut losses in Europe.

Investors welcomed the deal struck by Chief Executive Sergio Marchionne under which Fiat will buy the 41.46 percent of the No. 3 U.S. automaker it does not already own, without raising funds from the stock market.

Marchionne, who has run both companies since Chrysler’s 2009 U.S. government-funded bankruptcy restructuring, aims to merge the two into the world’s seventh-largest auto group.However, analysts worried about how the deal will increase Fiat’s already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.

Fiat shares rose as much as 16% to levels last seen in August 2011 after the agreement, announced late on Wednesday, which aims to combine the two automakers’ resources and rejuvenate Fiat’s product lineup.

A Milan-based trader said:

“They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying.

“While it’s still to be seen how this will bode for Fiat’s future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe.”

Fiat will buy the stake in the profitable U.S. group from a retiree healthcare trust affiliated to the United Auto Workers union. The trust will receive $3.65 billion in cash for the stake, $1.9 billion of which will come from Chrysler and $1.75 billion from Fiat.

After the deal closes, Chrysler has committed to giving the UAW trust another $700 million over three years.

However, Citigroup analysts said Fiat’s debt would become the highest for any European motor manufacturer.

“Group net debt will rise to around 10 billion euros ($13.8 billion) upon completion of this transaction … leaving it the most indebted OEM (original equipment manufacturer) in Europe,” they said in a note. “We continue to have concerns about the sustainability of this heavy debt burden.”

Photos: Latvia joining the euro

The eurozone now has 18 members, after Latvia joined the single currency at midnight yesterday.

Here’s a few photos, for the record.

In the bond markets, Spanish and Italian debt has strengthened in value. This has pushed down the yield, or interest rate, on both country’s bonds.

Italian 10-year debt is now changing hands at yields below 4% for the first time in eight months.

Market update

Back in the financial markets, this morning’s disappointing factory data from China (see opening post) has sent most European stock markets into retreat.

The news that French manufacturing output has fallen at the fastest rate in seven months (see here) has also hit sentiment — particularly in Paris, where the CAC has dropped almost 1%.

In London the FTSE 100 is down 32 points, or almost 0.5%.

And the German DAX didn’t cling onto its latest record high for long – it’s also down around 0.5%.

Brenda Kelly, chief market strategist at IG, says it’s not a great start to the year:

Factory activity growth in China has blighted sentiment….. Both the official Chinese PMI number and the HSBC metric showed a slowing in the country’s manufacturing sector in December.
Over in Europe, PMI manufacturing readings continue to show a general improvement, with Spain and Italy both exceeding analyst expectations. France is starting to become a concern: factory output there posted a seven-month low, which tends to indicate that any recovery in 2014 will be weak-to-moderate at best.
The attraction of mining stocks seen over the past couple of weeks has worn off. Anglo American, Vedanta Resources and BHP Billiton have all registered losses amid fears that 2014 will bring weakening demand for basic materials. The UK’s manufacturing output missed expectations slightly but has still succeeded in printing its ninth consecutive month of expansion.

Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, is also confident that Britain’s factories can expand this year — as long as firms invest for the long term.

She explains:

Manufacturers ended the year on a strong note and rising production, new orders and increased employment in December provided a springboard for growth going into 2014.

Surer signs of a manufacturing recovery in Europe together with steady growth both at home, in the US and emerging markets should align to support solid expansion of UK manufacturing in the year ahead.

However, while we can hope to see more of the ground lost during the recession made up this year, we must also start to see new investments coming on stream if the sector is to secure a sustainable, long-term recovery.

ING: UK could grow by almost 3% this year

And here’s James Knightley of ING on the UK factory data (see 9.42am):

The UK manufacturing purchasing managers’ index for December has fallen to 57.3 from a downwardly revised 58.1 figure for November. This is a slight disappointment given the consensus reading was 58.4, but remains consistent with very strong growth rates. New orders dipped to 60.4 from a 19 year high of 63.9, but again still suggests that the economy will expand robustly in early 2014.

Indeed, we are of the view that the UK can grow by close to 3% this year and with unemployment falling more swiftly than the Bank of England was predicting and tomorrow’s bank lending data set to show an acceleration in credit growth, the probability of an interest rate rise before year-end is growing.

Nonetheless for now we still predict the first rate rise won’t happen until early 2015, but this will depend on the implementation of macro prudential tools to try and cool particularly “hot” parts of the economy.

Jeremy Cook, chief economist of World First, says there’s still “a lot to be happy with” in the latest survey of UK manufacturing.

December’s number was still the 2nd strongest since February 2011 with the production and new orders components hitting fresh record highs.

Jobs growth remained strong on the back of stronger demand from both domestic and export markets and should continue the belief that the UK’s employment picture should improve over the course of 2014. Some concern may be raised from the increase in input prices that came as a result of supply difficulties and the likely cessation of downward pressure on energy prices.

All in all, this report confirms what we knew for a long time; the UK economy has entered at 2014 at a very decent clip.

UK factory output growth slows, but still strong

Britain’s manufacturing sector didn’t perform quite as well as expected last month, but has still posted healthy growth, according to Markit’s latest survey of the sector.

The UK manufacturing PMI, based on interviews with firms across the sector, slipped back to 57.3 in December, from a three-year high of 58.1 in November.

The City had pencilled in a reading of 58.0. Still, it’s a stronger reading than the eurozone (details here) and much, much better than France.

Manufacturing output rose for the ninth month in a row….

…as did exports, but the rate of export growth eased to the weakest since September. UK manufacturers reported improved demand from Brazil, China, Ireland, Russia and the USA.

Markit said Britain’s manufacturing sector ended 2013 on a positive footing.

December saw rates of expansion in production and new orders both remain among the highest in the 22-year survey history, leading to a pace of job creation close to November’s two- and-a-half year record.

Companies benefited from strengthening domestic market conditions and a solid bounce in incoming new export orders.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said the data was encouraging, declaring that:

UK manufacturing ended 2013 on a high and with all signs of powering ahead into 2014.

Updated

Howard Archer of IHS Global Insight says today’s data suggests the eurozone grew modestly in the final quarter of 2013:

December’s improvement in Eurozone manufacturing activity reported by the purchasing managers is welcome and it supports hopes that the Eurozone regained modest upward momentum in the fourth quarter of 2013 after GDP growth slowed to just 0.1% quarter-on-quarter in the third quarter of 2013.

We expect Eurozone GDP growth to have improved modestly to 0.2-0.3% quarter-on-quarter in the fourth quarter.

Archer also agrees that the falling French factory output “fuels concerns over the underlying health of the French economy”

And this graph shows how France’s manufacturing sector (in grey) has deteriorated while most peers have improved (you can see a larger version here).

Eurozone manufacturing output growth at 31-month high, despite French woes….

It’s official – the eurozone’s factory sector grew at the fastest pace in 31 months, suggesting that the region’s manufacturing sector is strengthening..

Data firm Markit reports that the final eurozone manufacturing PMI rose to 52.7, which indicates a pick-up in growth — it’s a improvement on November’s 51.6.

The industrial powerhouse of Germany the way, and there were very encouraging signs in Italy (where growth hit a 32-month high) and Spain (where output returned to growth)

France’s weak performance, though, is a real worry — it’s PMI reading of just 47 suggests a nasty stumble in December (although other surveys of the French economy have been more positive…).

Here’s Markit’s key points:

  •  Final Eurozone Manufacturing PMI at 52.7 in December (31-month high)
  •  Rising output and fuller order books encourage manufacturers to hold off from further job cuts
  •  New export orders continue to rise at solid pace 

This chart shows how France clearly under-performed at the back end of 2013:

Chris Williamson, chief economist at Markit said France is suffering a “steepening downturn”.

“A strengthening upturn in the manufacturing sector is helping the euro area recovery become firmly established. The latest numbers are consistent with production growing at a quarterly rate of approximately 1% at the end of the year. It’s also encouraging to see prices rising slightly, suggesting firms are seeing some improvement in pricing power.

“With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014, during which it seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy.

“France, however, remains a concern. While Germany, Italy and Spain are seeing the strongest output growth since early-2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses.

This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”

Updated

And there may be a glimmer of light in Greece.

The Greek manufacturing PMI has hit its highest level in four years, up to 49.6 in December from 49.2 in November.

That still shows a small contraction, but might indicate the recession is finally bottoming out. New orders rose, but employment kept falling.

German factory output keeps rising

Much better news, as expected, from Germany — where manufacturing output grew at a faster pace in December.

That only underlines how badly France is doing….

French factories suffering

But there’s dire news for France — its factory downturn has intensified with the worst monthly manufacturing report since May 2013.

The French manufacturing PMI dropped to just 47 for December, a seven-month low, and well below the 50-point level that splits expansion from contraction.

That shows a sharper downturn in the manufacturing sector of Europe’s second-largest economy.

Market warned that output, new orders, employment and stocks of purchases all decreased at sharper rates in December.

New orders declined for the third month in a row, with exports dropping at the fastest rate since June.

Jack Kennedy, Senior Economist at Markit warned there was no sign of a turnaround yet.

Anecdotal evidence suggested that lingering uncertainties continue to hold back the spending and investment that are necessary to support a recovery in the sector.

Instead, most key variables in the latest PMI survey showed deteriorating trends to suggest that no such turnaround is in sight.”

Here’s some instant reaction to the news that Italy’s factory output grew at the fastest rate in 32 months.

Italian manufacturing output growth at 32-month high

Italy’s manufacturing output has risen at the fastest rate in 32 months — suggesting welcome signs of recovery in the Italian economy.

Markit just reported that the Italian PMI jumped to 53.3 for December, from 51.4 in November, which shows a rise in growth.

It was driven by an increase in new orders — and, crucially, a rise in employment.

Here’s the key points:

  •  Faster increases in output and new orders
  •  Job creation continues
  •  Sharpest rise in purchase prices since March 2012 

Phil Smith, economist at Markit, said Italy’s manufacturing sector goes from strength to strength, with its best growth in more than two-and-a-half years in December.

There were numerous positives to be taken from the latest data, not least further job creation. And with backlogs accumulating at an almost unprecedented rate for the survey, this looks set to continue.

“As is expected during an upturn, input price inflation has begun to accelerate as higher demand for materials gives suppliers greater pricing power. It’s running slightly faster than the average recorded over the series history, but remains well below the highs observed in the rebound following the 2008/9 global financial crisis.”

It comes hot on the heels of decent data from Spain this morning – and may suggest conditions improving in the eurozone’s weaker nations

Updated

Fiat’s shares are <ahem> motoring this morning – jumping 14% after agreeing to pay $3.65bn to buy the 41.5% of Chrysler it does not already own.

The deal gives Fiat more opportunity to profit from the US car sector, and making it less reliant on Europe.

Spanish manufacturing returns to growth

This should cheer the Madrid government – Spanish manufacturers reported a welcome, and much-needed return to growth in December. That reverses a worrying dip in the previous month.

However — firms are still laying off staff.

The Spanish manufacturing PMI hit 50.8, jumping from November’s 48.6 — over the 50-point mark that indicates whether the sector grew or shrank.

The employment PMI rose to 48.8, from 45.1 (showing that workforce’s still shrank, but at a slower rate).

Andrew Harker, a senior economist at Markit, commented:

The return to growth of the Spanish manufacturing sector at the end of 2013 was a positive sign, largely as it allayed fears that the decline seen in November heralded the start of a new downturn.

Rises in output and new orders lay a platform that firms will hope to build on during the new year should tentative improvements in client demand strengthen.

Updated

German DAX hits new record high

The German index of leading shares has hit yet another record high as Europe’s stock markets open for 2014.

The DAX jumped 0.5% at the start of trading, showing no loss of confidence in Frankfurt after a bumper 2013.

This sent the FTSEurofirst300 index, which tracks major shares in the region, up 0.3% to a five and a half-year high.

But it’s a more cautious start in London, as news of slowing factory growth in China (see opening post) weights on the City.

The FTSE 100 is down 15 points at 6733, partly pushed down by mining companies (Anglo American has lost 1.2%). And the French CAC is up just 0.3%.

Mike van Dulken, head of research at Accendo Markets, says that “positive New Year sentiment” is being held back by fears that China will struggle to deliver strong economic growth while also implementing reforms.

Germany’s DAX had hit a series of new record highs last year – no wonder brokers were knocking back the fizz on Monday, the final German trading day of the year.

(worth noting, though, that the DAX also includes dividends, so it’s actually worth less than in 2000 – see the FT for more)

Dutch manufacturing output growth at 32-month high

More economic data flooding in, including upbeat news from the Netherlands.

The Dutch manufacturing PMI has risen to a 32-month high of 57.0 for last month, from 56.8 in November.

That’s a strong performance in December, showing that factory growth accelerated. Markit, which compiled the data, said Dutch factories reported growth in new orders and rising confidence.

The Polish manufacturing PMI has dropped for the first time in eight months, to 53.2 from 54.4 — but that still indicates the sector expanded.

Updated

12 months pay for Debs’s departing CFO

Debenham’s chief financial officer will still receive 12 month’s pay and benefits after resigning today following Tuesday’s profit warning (unless he gets another job).

From the statement:

Simon Herrick’s current service agreement has a notice period of 12 months. He receives an annual salary of £410,000, a flexible benefits payment of £18,375 per annum and an annual pension contribution of £61,500; a total of £489,875 per annum.

He is also provided with life assurance cover. He will continue to receive these amounts and benefits in 12 monthly instalments commencing 2 January 2014.

However, should he receive any payments as a result of alternative employment or provision of services during this period, other than in respect of one non-executive position, subsequent instalments would be reduced by the amount of such payments.

Updated

Elsewhere in British retail, House of Fraser is celebrating its “best Christmas trading ever”.

Like-for-like sales in the three weeks to Christmas jumped by 7.3%.

Sounds good, but we’ll be looking to see whether it cut profit margins to keep stock moving…..

Debenhams finance director quits

In the UK, the chief finance officer of Debenhams has fallen on his sword, just two days after the retail chain disappointed investors with a New Year’s Eve profits warning.

Simon Herrick is stepping down with immediate effect, the company announced this morning. He’s been under pressure after it emerged that Debenhams has asked its suppliers for discounts earlier this month.

On Tuesday, Debenhams admitted that Christmas trading had not met expectations (covered in detail in Tuesday’s liveblog). The news sent its shares tumbling by 12, and added to concerns that other retailers may have struggled…..

Updated

Growth in Sweden’s factory output fell back last month — with the PMI dropping to 52.2 from 56.0 in November. That still shows growth, but it’s quite a slowdown.

Irish factory output jumps

Better news from Ireland — its factory output has grown for the seventh month in a row, and picked up pace in December. That’s encouraging, as it leaves its bailout behind.

Markit’s Irish manufacturing PMI rose to 53.5, from 52.4 – the second highest reading of output in 18 months.

Coming up: the final reading for France’s manufacturing sector at 8.50am GMT. That could be the one to watch – the ‘flash’ estimate of 47.1 two weeks ago was pretty poor, suggesting the French economy could be sliding into recession.

The overall eurozone reading comes at 9am, with the UK at 9.30am.

Updated

China weighs on the markets

Patrick Latchford at Monex Capital Markets agrees that the Chinese data has weighed on markets:

The majority of equity markets across Asia have been under pressure with the start of 2014′s trade being defined by that worse than expected manufacturing PMI reading from China.

Critically the number remains above 50 which means the sector is still expanding but the slowing pace of growth does underline just how the market is now maturing.

Indian factory growth falls back

It’s not just China. India’s factories also lost momentum last month, with firms cutting production as domestic demand fell.

Reuters has more details:

The HSBC Manufacturing Purchasing Managers’ Index compiled by Markit, fell to 50.7 in December from 51.3 in the previous month.

The index, which gauges business activity in Indian factories but not its utilities, spent three months below the 50 mark that separates growth from contraction before rising above it in November.

“Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth,” said Leif Eskesen, a chief economist at HSBC.

“Today’s numbers show that growth remains moderate and struggles to take off due to lingering structural constraints.”

Happy New Year!

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

And a very happy new year to you all too.

There’s a back to school feel about this morning, with a splurge of economic data from across the globe. It’s the day when Markit publishes its surveys of manufacturing output — and we’ve already had confirmation that China’s factory growth slowed in December.

Growth in new orders also fell, while foreign sales contracted slightly for the first time in four months and staffing levels fell for the second month in a row.

This pushed the headline Chinese PMI down to 50.5 in December, from 50.8 in November — close to the 50-point mark that separates expansion from contraction.

It all suggests that China’s huge manufacturing sector finished 2013 on a lull (as the ‘flash’ data two weeks ago suggested too).

Société Générale economist Wei Yao said Beijing’s efforts to tighten credit was hampering factory output — a trend that could continue this year.

“Overall, the report suggests weakening growth momentum of China’s manufacturing sector, as we have anticipated

We expect the impact of tight liquidity conditions to become more pronounced entering [the first half of] 2014.”

This was enough to send the main Chinese stock indices down around 0.35%, with the Hong Kong index dipping too.

The big fall came in South Korea, where the index has slumped by 2.5% after some weak car sales figures (and despite a glitzy ceremony to mark the start of trading in Seoul):

Lots more data to come — including PMIs for most European countries.

I’ll track the key points, and other developments through the day…..

Updated

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European stock markets jump 1% after Fed Chairman Ben Bernanke announces stimulus program will be slowed, and Nikkei hits a six-year high. Why tapering hasn’t caused alarm? Banking union breakthroughs- analysis from Brussels…

 


Powered by Guardian.co.ukThis article titled “European and Asian markets rally after Fed’s dovish taper — business live” was written by Graeme Wearden, for theguardian.com on Thursday 19th December 2013 15.37 UTC

Time for some afternoon fun, or head-scratching: our Bumper Christmas quiz.

It’s packed with witty, taxing brain-teasers from the news in the last 12 months.

Updated

Afternoon summary

Time for a catch-up. European markets have risen sharply today as the Federal Reserve’s historic move to start winding back on its huge stimulus programme was greeted calmly by investors around the globe.

With Japan’s Nikkei hitting a six-year high overnight, the initial reaction to the winding back of America’s quantitative easing programme is positive — particularly as the Fed was more upbeat about the US recovery.

Expectations that EU member states will sign off on a new banking union deal at a two-day summit in Brussels starting today has also reassured European traders.

By cutting its bond programme by just $10bn (starting in January), and reiterating that interest rates won’t rise, the Fed maintained a dovish stance despite finally deciding to slow the pace of money printing.

If the US economy avoids a shock, the Fed might not cut its bond-buying programme to zero until next October, or even 12 months time. Should new problems arise, it could slow or stop tapering.

The benchmark indices are all up over 1% in afternoon trading, while the bond and currency markets remain calm.

Mike van Dulken of Accendo Markets coined it:

The bearded one has delivered his pre-Christmas rally! However, it wasn’t the bringer of children’s toys but the US Fed chairman with his economic optimism-driven taper of QE3.

The FTSE 100 is up around 60 points at 6557. Premier Asset Management fund manager Chris White reckons it will now end the year strongly:

I think the momentum is likely to continue into the year-end. The FTSE should end 50-100 points higher from here.

The Fed’s decision to reinforce its pledge not to raise interest rates before the recovery is entrenched also cheered the City — and reminded us that the Bank of England might need to tweak its own forward guidance.

Ashraf Laidi, chief global strategist at City Index in London, explains:

The Federal Reserve has successfully integrated the price stability component of its dual forward guidance into traders’ psyche by further delinking tapering of asset purchases from tightening conditions in the bond market.

The US dollar has strengthened through the day, helping to drive down the gold price. The pound has dropped to $1.635, a fall of 0.2%.

…..

Elsewhere, our Europe editor Ian Traynor has warned that EU leaders face a tricky Summit in Brussels, given Germany’s ongoing demands for tighter controls on weaker members of the eurozone.

There are also austerity protests in Brussels, with farmers blocking roads and erecting fires.

The Chinese central bank has launched an emergency liquidity programme to avert fears of a cash crunch.

Greece’s jobless rate has dropped slightly….

…and Ireland’s economy has posted rollicking growth in the last quarter.

Updated

Hats off to Alex Barker of the Financial Times for this graph explaining why Europe’s new rules for closing a failing bank might be a little, er, convoluted.

Calm start on Wall Street

Over on Wall Street, the opening bell has just been rung and trading is under way….

…and there’s a ‘Now what?” feeling on the trading floors. The main indices have all dropped slightly, with the Dow Jones index shedding 0.1%.

Not a surprise, really, as the Dow and S&P 500 both surged to record highs last night as Wall Street gave a thumbs-up to the Fed. The surprise rise in weekly jobless benefit claims is also weighing on shares…

Hmmm, this wasn’t in the plan. The weekly US jobs data this lunchtime showed that the number of Americans filing new claims for unemployment benefit has hit a near-nine month high.

The number of initial claims rose by 10,000 last week to 379,000. Now, this weekly data is volatile (affected by seasonal factors and the weather) but it’s not exactly a peachy sign – especially as claims also rose last week.

Economists had expected the weekly total to fall by around 35,000 to 334,000.

Updated

Economics editor Larry Elliott reckons that Ben Bernanke had one eye on the history books when he announced that the Fed would taper its bond buying next month, at his final press conference as chair.

The outgoing chairman of the Fed, an expert on the economic policy blunders of the 1930s, has pursued an ultra-stimulative approach in his determination to avoid a second Great Depression. But he does not want to be blamed, as Alan Greenspan was, for creating bubbles by leaving too much stimulus in place for too long. He can now say that he initiated the winding down of QE before handing the reins over to Janet Yellen.

Does the Fed’s decision have ramifications for other central banks? Not really, because all the major economies are at different stages of the economic cycle and have their own particular challenges to address. The one common factor is that central banks are winging it. Zero interest rates and QE were the response to a sluggish recovery, a broken financial system, heavily indebted consumers and the threat of deflation. But having created a world of stimulus junkies, central bankers are faced with the tricky decision of how to reduce the dosage. The answer from the Fed is plain: slowly and with great caution.

More here: Federal Reserve starts taper – and avoids Wall Street bloodbath

Updated

Photos: EU Summit

Over in Brussels, EU leaders arriving for their final summit of 2013 will be greeted by a large banner reminding them that Latvia joins the eurozone fold in two week….

Meanwhile, those anti-austerity demonstrators have been getting the attention. Two protesters wearing Angela Merkel and Jose Manuel Barroso masks have been displaying a banner wishing the leaders a “Merry crisis and a happy new war”.

As explained earlier, the summit is meant to finalise new banking rules to prevent a new crisis….

The Bank of England (BoE) may be watching today’s market reaction with particular interest.

The Federal Reserve has managed to ‘sugarcoat’ the tapering by hardening its forward guidance on interest rates – saying they could remain untouched “well past the time” that the US jobless rate hits its 6.5% threshold, especially if inflation remains low.

In the UK, the jobless rate (7.4%) is likely to hit the BoE’s 7% threshold much earlier than its original estimate of 2016. Governor Mark Carney regularly states that the 7% is not a trigger — might the BoE eventually toughen up his own language?

Jane Foley, top currency strategist at Rabobank, reckons it might. She says:

Just as the Fed has altered its forward guidance this week, there is speculation that the BoE may have to follow suit….

We currently anticipate the first BoE rate hike in May 2015. Give the buoyancy of most UK data releases, the market will start to bring forward its expectations for a hike unless the Bank acts to contain speculation.

Updated

All quiet in the emerging markets…..

Updated

Intriguing moves in China today, where the central bank conducted an emergency short-term injections of funding into the country’s financial system.

The People’s Bank of China also gave banks more time to apply for funds, in a bid to calm fears that cash could run short in the run-up to Christmas.

Those concerns had been fuelled by PBOC itself, which has been withholding new liquidity in recent days in a bid to tighten credit. That drove up the rates at which banks were prepared to lend to each other.

My colleague Heather Stewart has been looking into it, and reports:

Echoing similar measures it took in June, the People’s Bank of China took the unusual step of announcing, via Weibo, the Chinese equivalent of Twitter, that it had carried out a short-term liquidity operation, or SLO. Trading was also extended by an extra half an hour, to allow banks to benefit from the measure.

No details were published about the scale of the SLO, or which banks had been involved; but the liquidity injection evoked memories of the crisis measures taken by central banks in Europe and the US in the wake of the collapse of Lehman Brothers, as markets threatened to dry up.

Mark Williams, of consultancy Capital Economics, said: “The story of the past few months has been that the PBoC wants to tighten monetary conditions to slow credit growth, and that’s been happening in fits and starts.”

 More here: China’s central bank acts to avert short-term credit crunch

There’s a good take on the FT too: Central bank acts to ease China cash crunch fears

Over to our Springfield correspondent

This cartoon is doing the rounds again — highlighting the difference between merely buying fewer bonds with newly made money, and actually selling them or raising interest rates.

Updated

The Wall Street Journal has a good round-up of City reaction to the Fed’s tapering.

It confirms that the modest pace of the move (just $10bn in January), and the new commitments to keep interest rates low, have calmed investors’ fears

‘Clear Message Received’: European Investors React to Fed Tapering

Here’s a flavour:

Sandra Holdsworth, portfolio manager at Kames Capital, which manages £53 billion of assets:

“It’s only a small reduction in the pace of purchases, which is why risky assets haven’t reacted negatively. The FOMC statement also reflects the market’s view on the outlook for the U.S. economy more closely, which is a big relief. We remain positive on peripheral markets while we expect Treasury yields to rise over the next 6-9 months but only modestly, as a rise in medium and long-term yields will encourage some investors to move further out the yield curve.”

Neil Wilkinson, a senior fund manager at Royal London Asset Management, which oversees more than $73.5 billion of assets:

“It’s a clever move from the Fed. On balance it is a surprise that tapering occurred now, but emphasising the data-dependency of future tapering, and reiterating that it is not just the headline unemployment figure that they are focusing on but a number of measures, allows them to anchor expectations that rates will remain lower for longer, and that tapering will not be aggressively applied.”

In Greece, meanwhile, the unemployment rate fell slightly in the third quarter of this year, but remains depressingly high.

The jobless rate inched down to 27%, from 27.1% in April-June. It was still higher than a year ago (24.8%), and more than twice the eurozone average (12.1%).

The unemployment rate for women remains considerably higher than for males (31,3% versus 23.8%), Elstat reported.

And the youth unemployment rate was 57.2%

Irish economic growth picks up

Just in: Ireland’s economy posted surprisingly strong growth in the third quarter of the year.

It’s good news for Dublin in its first few days since exiting its eurozone bailout.

The central statistics office reports that Irish gross domestic product increased by 1.5% in the July-September quarter. GNP (which strips out the impact of multinationals) jumped by 1.6%.

Consumer spending picked up by 0.9%, but exports shrank by 0.8% — perhaps due to weak demand from euro neighbours.

Growth in the second quarter was also revised upwards (Q2 GDP up to +1.0%, from +0.4%; Q2 GNP up to -0.1% from -0.4%).

The CSO reported strong growth in many industries, saying:

Distribution,transport,software and communication increased by 2.1 per cent in volume terms between the second and third quarters of 2013.

Industry (including Building and construction) increased by 2.2 per cent and Other services increased by 1.2 per cent in volume terms on a seasonally adjusted basis over the same period.

On the other hand Public administration and defence decreased by 1.0 per cent and Agriculture, forestry and fishing declined by 2.9 per cent between the second and third quarters of 2013.

Here’s the full details.

Photos: protests in Brussels ahead of Summit

Hundreds of protesters have blocked traffic around the site of the European Union summit in Brussels, in an anti-austerity protests.

Farmers are leading the protests. Tractors and bales of hays obstructed entry to the main road leading up to the EU headquarters in Brussels during morning rush hour on Thursday, only hours before the leaders open their summit.

Wooden pallets were set ablaze at one road to block traffic.

Bruno Dujardin of the CNE union said the demonstrators are seeking:

A Europe for the people, which respects the workers and allows all European workers to have decent working conditions.

(Via AP).

Updated

Ian Traynor: EU leaders look to strengthen the euro

Back to the EU leaders summit in Brussels which kicks off shortly.

Europe editor Ian Traynor explains that leaders will attempt to finalise crucial measures on banking reform to strengthen the single currency. At the heart of the issue is Germany’s insistence that weaker nations should commit to make structural reforms, and that the cost of bank rescues should not be shared too widely.

Here’s a flavour:

European leaders gather in Brussels on Thursday for a two-day summit aimed at shoring up the euro, pooling economic reform efforts and entrenching a radical new regime for controlling most of the eurozone banking sector.

The summit begins after late-night negotiations in Brussels saw finance ministers thrash out a complicated compromise deal that left national governments ultimately responsible for bailing out their banks.

Taken together, the policies amount to the biggest moves attempted by the 17 governments of the single currency since the euro and sovereign debt crisis exploded four years ago. The action being plotted is highly contentious, the policies are divisive. The main issue is what chancellor Angela Merkel of Germany wants, what she does not want, and what she might get in the end.

“They are trying to solve a German problem,” said a senior EU official.

Here’s the full analysis:

European leaders gather for summit after complicated banking compromise

And Rob Wood of Berenberg is concerned that UK retail sales volumes have risen by just 0.7% since July:

Retail sales are the one data reading not signalling runaway growth in the UK.

Indeed, they point to a notable cooling since the summer, in contrast to all the business surveys.

That 0.3% rise in UK retail sales in November suggests shoppers were handing back for bargains as Christmas gets closer, says economics editor Larry Elliott 

And with real wages still falling, households have a good reason to approach the festive season cautiously.

Howard Archer, UK economist at IHS Global Insight, reckons:

With purchasing power being limited by consumer price inflation running well above earnings growth for a prolonged period, it is likely that many people have felt the need to control their spending after spending at a rapid rate in the third quarter.

While shares rise, bonds are calm. The Fed appears (at pixel time) to have begun the process of slowing its purchases of US government debt without driving down prices (and thus pushing up borrowing costs).

British gilts (debt issued by the UK) have dropped a little in value, pushing up the effective interest rate on 10-year UK bonds to 2.94% from 2.92% yesterday. But such a small move shouldn’t cause any alarm.

European stocks at two-week high

Back in the markets, the index of major European companies has climbed to a two-week high.

The rally is still being driven by last night’s Fed decision and its commitment to hold borrowing costs down until well into 2015 (see opening post onwards for details).

The FTSEurofirst 100 is up 1.4% this morning to its highest level since early December, led by blue chip companies like Axa, IG and Deutsche Telecom (all up over 2.75%).

Daniel McCormack, strategist with Macquarie, explains that investors are reassured by the Fed:

The overall announcement is not as hawkish as it first appeared. As the Fed announced the taper, it also pushed out expectations for when it is going to lift the policy rate.

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, agreed:

By tapering now, Bernanke has taken away quite a bit of the short-term market risk. He took away with one hand some of the stimulus, but gave it back by the other by stressing that short-term rates won’t go up for a longer period.

A small gobbet of UK economic news — retail sales rose by 0.3% in November, boosted by increased sales of warm clothes as the weather turned more wintery. That’s in line with forecasts.

The big question is whether December is proceeding as well as hoped. Some analysts are worried, sending Marks & Spencer and Debenham’s shares sliding yesterday.

EU ministers reach agreement on banking union

While attention was on the Fed last night, European finance ministers were hamming out a crucial deal on banking union, ahead of a European summit today and tomorrow.

Important breakthroughs were made in the early hours of this morning. EU ministers agreed a broad agreement for an an agency and a €55bn fund to shut troubled banks as soon as the European Central Bank starts to police them next year.

As Reuters explains:

European leaders, who will gather in Brussels later in the day, will sign off on it and the final touches will be made in negotiations with the European Parliament next year.

“The final pillar for the banking union has been achieved,” Germany’s Finance Minister Wolfgang Schäuble told journalists.

But…. there are concerns that the new framework may not be nimble enough to deal with a failed bank (18 member countries need to be consulted).

And Germany also refused to allow the Eurozone’s bailout fund to be used to rescue a failing bank directly. Instead, if funds aren’t available elsewhere (either via the €55bn fund or the taxpayer), a country would have to make the request itself.

Our Europe editor Ian Traynor explains that ministers were under pressure to raise a deal before EU leaders start their own two-day summit today.

He writes:

There will be big problems with getting the deals agreed with the European parliament, and with national ratifications of a new treaty between participating governments on the funding of banking resolution.

The French-led group of southern countries, the European commission and the ECB opposed this.

“It’s a choice between a banking union that’s not perfect, or nothing,” said a senior EU official.

Leaders are heading to Brussels now — David Cameron and Enda Kenny have paid an important visit to Flanders first.

The gold price just dropped to a new five-month low of $1,200/ounce, pushed down by the stronger dollar and renewed optimism over economic prospects

Updated

Mike van Dulken of Accendo Markets, agrees that the Fed’s upbeat view of the US economy, and its renewed commitment to record low interest rates, is calming fears in the markets.

Finally, he adds, investors see tapering as an positive sign that conditions are improving, rather than fretting about less easy money next year.

The Fed’s move has been driven by improved US data (jobs, growth, spending, investment) and political progress (note the senate passed the bipartisan budget overnight), and balanced by a reinforcement of forward guidance that interest rates will stay very low for a ‘considerable time after QE ends’ and until unemployment falls below 6.5%’.

The dovish boost to forward guidance has served to reassure markets (as the Fed will have hoped) that stimulus-tapering does not equate to true policy-tightening, with emphasis that sub-target inflation remains a concern, that future decisions will remain data-dependent and that it can adjust to changing conditions [ie,by pausing the taper].

Full round-up of the European markets

Definitely a rally across Europe:

  • FTSE 100: up 72 at 6564, + 1.1%
  • German DAX: up 127 points at 9309, +1.39%
  • French CAC: up 60 points at 4170, +1.5%
  • Spanish IBEX: up 209 points at 9,650, +2.2%
  • Italian FTSE MIB: up 267 points at 18,398, + 1.4%

Robin Bew of the Economist Intelligence unit predicts that the Fed’s move could cause some alarm in emerging markets (EMs) next year…..

While Société Générale analysts reckons there will be fewer jitters than last summer, when the prospect of tapering hit markets hard (although predictions of EMageddon proved wide of the mark)

FTSE early risers

Here’s the full list of top risers on the FTSE 100, which has settled around 1% higher as European markets join the Fed-inspired rally. No sign of taper trepidation yet….

The Santa rally?

Ishaq Siddiqi of ETC Capital reckons the “Santa rally”* has finally begun, and welcomes the news that the Fed is finally slowing its stimulus plan:

The Fed made the right call to start tapering, removing much of the uncertainty in the market of the timeline in which it will consider taking action.

This should in turn remove much of the volatility that we have seen in the final quarter of 2013, gearing us up for a delayed but eagerly anticipated “Santa Rally” to finish this year in a bang and kick of the next year in an upbeat fashion.

The US economy is improving… the euro zone is in a better shape than it has been in over 3 years, Japan’s economic policies are taking effect, China has a long term growth plan in place and the UK’s economy is performing better than policymakers even anticipated – the world is not in a bad shape at all so there’s much to cheer about.

* – markets traditionally romp ahead in the final days of the year

Shares rise…..

Europe’s stock markets are open, and shares are indeed rising.

The FTSE 100 is up 60 points in 6552, a gain of 0.9%, led by Prudential (up 2.5%) and BAE Systems (2%).

The other main markets are also up at least 1%, as European traders take the taper in their stride.

Why shares aren’t tumbling

For months, we’ve spoken about QE being a punchbowl that central bankers were reluctant to take away. So why didn’t markets tumble last night on the news that the Fed was finally tapering?

Three reasons:

1) at $10bn, this is a relatively gentle taper. If the Fed continued cutting at that rate, it wouldn’t stop buying bonds until beyond next summer (October) or even December (updated)

2) the Fed has said it would change the rate if conditions deteriorate;

3) and it has also indicated that interest rates will remain at record lows for more than another year.

Stan Shamu of IG fleshes this out:

Firstly, the Fed reinforced its low Fed funds rate outlook with the key line being ‘it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%’. With inflation remaining benign, the majority of Fed members expect the first rate hike in 2015.

Secondly the tapering amount has been deemed by many analysts as a ‘token taper’ and essentially just allows the Fed to test the waters and assess conditions further.

Thirdly, the taper has been on the back of rapidly improving conditions while the Fed reinforced that asset purchases are not on a pre-set course and will be adjusted accordingly. On this notion we can only assume that if conditions worsen, the situation will be adjusted accordingly. All things considered, a solid economic improvement for the US will help the global recovery along and ultimately company earnings along with equities.

Updated

Here’s the details of the rally in Japan overnight, from Reuters:

Japan’s Nikkei share average rose to its highest close in six years on Thursday on the back of a big drop in the yen after the U.S. Federal Reserve announced it would start unwinding its historic stimulus.

Japanese equities were bolstered by a surge in the dollar/yen to over five-year highs in the wake of the Fed decision, underscoring the benefits of a weak currency for Japan’s export-reliant economy.The Nikkei added 1.7% to close at 15,859.22, its highest close since Dec. 2007.

During trade, it rose as high as 15,891.82, a hair’s breath away from its May high of 15,942.60. It was a third day of gains for the Nikkei.The Topix gained 1.0% to 1,263.07, with all of its 33 subsectors in positive territory.

Volume was high, with 2.9 billion shares changing hands.The Fed said it would reduce its monthly asset purchases by $10 billion to $75 billion, and indicated that its key interest rate would stay at rock-bottom even longer than previously promised.

Updated

Fed gives markets the Christmas spirit

Good morning. World stock markets are set to rally today today after last night’s historic decision by the Federal Reserve to begin scaling back its huge stimulus programme.

The move to begin tapering the Fed’s $85bn per month bond-buying programme by $10bn in January, alongside a new pledge to keep interest rates low for an extended period, is being taken as a sign of renewed confidence in the US economy.

After five years of unprecedented stimulus measures on both side of the Atlantic, the Fed’s move is a landmark moment in the financial crisis. The $10bn cut is being seen as a modest start to tapering, lighting the blue touchpaper under market optimism.

Japan’s stock market has hit a new six-year high overnight, and the Australian market jumped 2% (as mining stocks rose on the back of economic optimism).

We’re expecting a strong start to trading in Europe — with the main indices tipped to rise almost 1% — after Wall Street hit a record high last night.

Although the Fed is starting cautiously, it sees signs of underlying strength in the US economy – and believes it can cope without such huge monthly injections of fresh money. We’ll find out over time if it’s right, and what the implications for the world economy will be.

As Wall Street correspondent Dominic Rushe explained last night:

Ben Bernanke, entering his final days as chairman of the US central bank, surprised many economists who had expected the Fed to wait until the new year to “taper” the so-called quantitative easing (QE) stimulus program.

But following a series of strong jobs growth numbers the Fed’s open markets committee said “cumulative progress” had been made in the US’s economic recovery and it was scaling back its $85bn a month bond-buying programme to $75bn.

“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases,” the Fed said in a statement.

At a press conference Bernanke said he expected the Fed to take “similar moderate steps” throughout 2014, suggesting the programme could end by late next year. However he cautioned that the Fed would halt the cutbacks if the economic indicators worsened.

More here: Federal Reserve to taper economic stimulus on heels of strong jobs growth

Emerging economics could still be watching nervously, as the recent inward flow of capital could reverse, and their currencies could weaken. But there’s been no panic in emerging markets yet…..

And with UK unemployment falling so much yesterday, and European ministers hammering out the details of banking union overnight (of which more shortly), 2014 looks a little less daunting….

Here’s the opening calls from IG:

  • FTSE: 6555, +63 points
  • Germany’s DAX: 9267, +85
  • France’s CAC : 4150, +40
  • Spanish IBEX: 9536, +92
  • Italian MIB: 18272, +141

I’ll be tracking reaction to the Fed’s move, and other key developments, through the day….

Updated

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Published via the Guardian News Feed plugin for WordPress.

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

 


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

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

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

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

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

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

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

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

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

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

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

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

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

Back with Draghi:

Updated

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

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

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

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

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

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

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

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

Full report here.

Updated

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

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

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

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

Markets jump as Fed fears ease and US deals enthuse investors

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

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

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

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

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

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

More here:

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

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

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

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

Draghi warned:

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

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

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

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

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

On interest rates and other measures, Draghi said:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

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

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

Updated

Lloyd’s of London appoints first female CEO

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

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

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

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

John Nelson, Chairman of Lloyd’s, said:

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

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

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

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

Updated

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

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

RSA Insurance drops another 3% on credit rating fears

Updated

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

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

Aggreko wins World Cup and Commonwealth Games power contracts

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

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

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

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

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

European market: morning update

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

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

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

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

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

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

… and the bad:

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

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

France lags behind as eurozone recovery picks up

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

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

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

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

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

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

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

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

Williamson explained:

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

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

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

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

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

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

Tim Moore, senior economist at Markit:

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

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

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

Now over to Germany…..

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

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

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

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

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

That suggests Germany’s economy will grow this quarter.

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

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

Updated

French PMI: Instant reaction

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

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

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

Williamson added:

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

French private sector keeps shrinking

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

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

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

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

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

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

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

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

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

Details to follow….

Chinese factory growth slows

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

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

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

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

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

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

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

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

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

Updated

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Published via the Guardian News Feed plugin for WordPress.

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

 


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

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

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

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

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

Market update

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

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

Liberum Capital analysts:

This is progress and will allow budget prioritisation.

Economists say the US economy will benefit too:

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

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

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

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

Updated

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

Here’s a flavour:

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

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

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

Updated

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

Dominic Hook, Unite national officer, said:

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

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

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

Magginas said (via Reuters):

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

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

Updated

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

Lloyds mis-selling scandal: Q&A

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

Italian PM promises reforms

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

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

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

Reuters has the details:

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

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

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

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

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

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

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

Updated

Greek unemployment rate rises

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

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

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

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

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

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

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

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

Here’s the official release.

And here’s some reaction:

Updated

Fog update: it’s not cleared yet:

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

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

Updated

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

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

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

Updated

Champagne bonus, anyone?

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

· Variable base salaries

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

· Bonus thresholds

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

Updated

Lloyds responds

And here’s the full statement from Lloyds:

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

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

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

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

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

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

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

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

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

Updated

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

She wrote:

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

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

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

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

Updated

FCA: Lloyds investigation does not make pleasant reading

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

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

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

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

Record fine for Lloyds over mis-selling failings

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

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

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

Budget deal: what the media say

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

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

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

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

FT: US Congress strikes budget deal

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

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

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

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

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

Business Insider breaks down the numbers;

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

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

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

And here’s the Guardian’s take:

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

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

US congressional leaders unveil two-year budget deal

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

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

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

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

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

Updated

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

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

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

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

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

He told CNBC the deal was good for stocks:

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

US budget deal could avert another crisis

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

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

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

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

Ryan declared:

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

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

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

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

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

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

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

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

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

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

As Murray put it:

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

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

Updated

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

 


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

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

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

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

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

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

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

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

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

Updated

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

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

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

Risk markets won’t be too upset by this.

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

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

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

Updated

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

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

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

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

Quotes courtesy Reuters.

Updated

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

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

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

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

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

Cyprus to lift capital controls

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

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

Updated

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

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

EU disinflation is for the long term

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

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

The Rock blockade is lawful, says EU

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

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

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

Updated

China takes reform leap

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

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

Updated

Early repayments to ECB’s LTRO below expectations

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

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

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

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

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

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

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

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

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

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

Oil bonanza in the North Sea

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

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

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

Britain has the highest inflation among EU 28…

Along with Estonia.

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

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

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

Updated

Obamacare is not going so well….

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

Eurozone inflation falls

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

EU down to 0.9%

Updated

Nestle promotes jobs for young people

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

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

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

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

Updated

Japan stocks rise as greenhouse emission curbs slashed

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

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

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

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

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

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

Updated

Guy Hands forced to accept low price for Infinis

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

Updated

Nationwide says Help to Buy needs to be watched closely

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

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

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

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

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

Good morning, it’s Friday

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

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

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

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

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Eurozone third-quarter growth slows. Analysts: the recovery is faltering. French GDP unexpectedly contracted by 0.1% in Q3. Germany growth slows – GDP up by 0.3%. Japan’s GDP expands less in Q3. UK retail sales unexpectedly drop by 0.7% m/m…

 


Powered by Guardian.co.ukThis article titled “Eurozone grows by just 0.1% as French economy shrinks – live” was written by Graeme Wearden, for theguardian.com on Thursday 14th November 2013 13.39 UTC

Here’s Dublin correspondent Henry McDonald on the news that Ireland won’t ask for a safety net when its bailout programme ends next month:

Ireland to exit EU-IMF bailout without precautionary line of credit

Updated

Some relief for French president Francois Hollande — France’s football clubs have suspended a strike planned for the end of this month to protest at his 75% super-tax on salaries above €1,000,000. AFP has more details.

Summary

On the eurozone GDP figures, my colleague Phillip Inman writes:

The eurozone’s economic woes persisted in the third quarter as Italy’s longest recession continued and a contraction in French output dragged growth down to 0.1%.

In the summer, hopes of a strong recovery were boosted by a second quarter rise in GDP of 0.3%, but the momentum in the first half of the year appears to have fizzled out.

Here’s the full story: Eurozone economic recovery falters in third quarter

Alessandro Leipold, chief economist at the Lisbon Council think tank, challenges the suggestion that Ireland is making a ‘clean’ break with its bailout by deciding not to take a credit line.

He reckon’s it’s a risky decision.

Enda Kenny’s decision not to ask for a credit line will have one intriguing consequence — Ireland won’t able to sign up for the European Central Bank’s OMT programme (in which the ECB would buy a country’s bonds to drive down its borrowing costs).

Ryan McGrath, a Dublin-based bond dealer with Cantor Fitzgerald, told Reuters:

Not taking a credit line is a statement of confidence by the government. It bolsters the sense that Ireland is detaching itself from the peripheral countries

“I don’t think the government is being rash. The big question is what are the implications for OMT access.

Back to the eurozone’s (scrappy) growth figures, and our economics editor Larry Elliott highlights the weak performance from the two biggest players in the single currency:

Europe’s fledgling recovery did not stall in the third quarter of 2013 but it was a close run thing.

Mainly due to a weaker performance by the Big Two – Germany and France – the growth rate in the euro area slipped back from 0.3% to 0.1%.

Few in the financial markets expect the 17-nation single currency zone to enter a triple-dip recession, but nor is anybody predicting anything other than a prolonged period of sub-par activity in which unemployment remains at one in eight of the workforce and deflationary pressures intensify.

And that, Larry concludes, means that the eurozone’s ‘lost decade’ will drag on.

Here’s his full analysis: Germany and France hold back eurozone’s fledgling recovery

fastFT have published more quotes from Irish prime minister Enda Kenny, outlining the decision to make a clean break from its financial assistance programme without the protection of a credit line:

We will exit the bailout in a strong position

The government has been preparing for return to normal market funding for three years….

There are still demanding times ahead. It does not mean any windfall of cash. It does not mean our economic challenges are over.

Ireland to exit bailout without precautionary credit line

Irish prime minister Enda Kenny has confirmed that his government will exit its bailout programme without the protection of a precautionary credit line.

It’s quite a moment. Kenny is addressed the Irish parliament now, declaring that:

This is the right decision for Ireland.

It means that Ireland will make a clean exit from its €85bn financial assistance programme, which ends on 15th December.

It has hit the targets set by its troika of lenders, and Kenny’s government must be confident that it can walk alone.

A precautionary credit line could have been sought from the European bailout mechanism. It would have given Dublin a guaranteed source of funding if it couldn’t borrow at affordable rates in the wholesale money market in future.

The full statement is online here.

Here’s the Irish government’s reasoning for going it alone: 

  • The market and sovereign conditions are favourable towards Ireland with the country returning to the markets in 2012, holding over €20 billion in cash reserves at year end which we can use to ensure that we can meet our maturing commitments and funding costs till early 2015 and Irish sovereign bond yields at historically low levels;
  • The public finances are under control in Ireland comfortably in line with EDP targets. Ireland is targeting a deficit of 4.8% in 2014 which is within the 5.1% EDP target and will deliver a primary balance or small surplus. The Government is committed to reducing the deficit to less than 3% in 2015 and putting the debt ratio on a downward path.
  • The two pack, the six pack and the stability treaty, the introduction of the ESM, and the major efforts by the ECB to do whatever it takes to safeguard the currency, further support our efforts to make a sustainable and durable return to the markets.
  • Domestic and international economic conditions are improving, monetary policy decisions are conducive to exit and confidence and sentiment towards Ireland has improved considerably in recent months.

Meanwhile in Ireland, the government has been meeting to discuss the process of exiting its bailout programme.

An announcement is expected very soon – with rumours flying that the cabinet will decide that it will not take a ‘precautionary credit line’ (which would have acted as a safety net in case Dublin struggled to borrow in the financial money markets).

Markit: eurozone economy still 3% below pre-crisis peak

Here’s another sobering fact — the Italian economy is more than 9% smaller than before the crisis began.

And Germany is the only one of the Big Four eurozone members to have clawed back all its lost growth (although France isn’t far away).

That’s via Chris Williamson of Markit, the data provider, who comments:

In terms of GDP levels, the Eurozone economy is still 3.0% smaller than its pre-crisis peak.

Of the largest member states, only Germany has exceeded its prior peak, with GDP up 2.6%. The French economy remains 0.3% smaller, while Spain and Italy are also 7.4% and 9.1% smaller respectively.

By comparison, the UK economy is still 2.5% smaller than its pre-crisis peak while the US is 5.3% larger. Japan has edged 0.1% up on its prior peak.

Euro GDP: more details

Romania posted the strongest growth across the European Union in the last quarter, with a 1.6% jump in GDP.

Cyprus suffered the biggest quarterly decline, shrinking by 0.8% (with the proviso that we only have annual data for Greece, where the economy is 3% smaller than a year ago).

The biggest reversal was suffered by the Czech Republic, contracting by 0.5% after growth of 0.6% in Q2.

Here’s the full table (sorry if it’s a bit small, the original is here):

Here’s a handy graph showing how the economic performance of major countries has diverged since the financial crisis struck in 2008.

Updated

Nancy Curtin, chief investment officer of Close Brothers Asset Management, takes an optimistic view.

The worst of the economic crisis is over, she argues, despite today’s disappointing growth figures:

Growth may have slowed but the Eurozone is finding its feet. It has taken a considerably longer time than the likes of the US but we are seeing signs of economic improvement. Let’s not forget the journey the 17 country bloc has made since the financial crisis, given that we haven’t seen the dreaded defaults in countries like Greece and Spain materialise.

However, there is still a long way to go. Unemployment continues to be a fly in the ointment and the recovery won’t pick up the pace overnight. More needs to be done to support the labour market from the bottom up. For months we have been calling for an extension to bank lending to SMEs across the Eurozone who are desperate for finance, and are the engine room of the Eurozone’s economy. As things stand, we expect the ECB to continue to boost liquidity through another LTRO.

Growth figures may be lower than expected but five years on from disaster we may have seen the worst of the economic turbulence and we are seeing signs of a global synchronised economic growth.

Eurozone growth slows: what the experts say

The slowdown in eurozone growth to a near-standstill must send a chill through Brussels this morning.

Analysts are warning that the recovery is even more fragile than we thought – with the weaknesses in France and Italy threatening to derail efforts to reform their economies.

Nicholas Spiro of Spiro Sovereign Strategy has an uncompromising view of the meagre 0.1% rise in GDP. The “much-trumpeted economic recovery” has already faltered.

Spiro writes:

The chronic phase of the crisis in Europe’s ill-managed single currency area is clear for all to see.

While the slowdown extends to Germany, it’s the dire state of the French and Italian economies that looms large. Outright contractions in GDP in Italy and, more worryingly, France throw the protracted nature of Europe’s downturn into sharp relief – particularly at a time when Spain’s economy is at least showing some signs of life.

The eurozone’s second and third-largest economies, which together account for nearly 40% of the bloc’s output, have become the “sick men” of Europe, mired in economic crises of varying degrees of severity and politically unable to carry out meaningful structural reforms.

What’s particularly troubling is that the economic fortunes of France and Italy haven’t improved since the end of the third quarter: the contraction in France’s manufacturing sector deepened in October while Italian retail sales dropped at their fastest pace in three months.

While Howard Archer of IHS Global Insight warns that the recovery will remain “gradual and vulnerable”:

It was particularly disappointing to see France suffer a renewed dip of 0.1% quarter-on-quarter in GDP which highlights concern about its underlying competitiveness. There was also a more than halving in the German growth rate to 0.3% quarter-on-quarter in the third quarter from 0.7% in the first, although the economy still looks to be in relatively decent shape.

Better news saw Spain eke out marginal growth of 0.1% while the Italian economy essentially stabilized following extended contraction, although concerns persist about the ability of both countries to develop and sustain genuine recove

Greece’s recession may be easing, but there’s no end to its unemployment crisis.

Greek GDP fell by 3% in the July-September quarter compared to a year ago, which is a softer decline than the 3.7% annual contraction reported in Q2.

Reuters says it’s the smallest annual drop in Greek GDP in three years. Quarter-on-quarter data isn’t available.

The jobless rate, though, was 27.3% in August, according to separate data, matching July’s rate (which was revised down from 27.6%).

After six years of recession and austerity, Greece’s unemployment rate remains twice the eurozone average (a record high of 12.2%).

Updated

Confirmation that Cyprus’s economy continues to suffer from the trauma of its bailout programme.

Cypriot GDP shrank by 0.8% in Q3, which means that that 5.7% of national output has been lost over the last year.

Not a surprise, as Cyprus’s once-dominant banking industry has been brought to its knees this year. Capital controls still restrict how much money people can withdraw at the bank, and large depositors with over €100,000 have seen their accounts frozen, and hefty haircuts imposed.

The euro has weakened this morning, dropping 0.3% against the US dollar to $1.3444.

Eurozone economic growth has been lagging behind America’s for most of the last two years, as this graph shows:

GDP in America (where the Federal Reserve is operating much looser monetary policy than the European Central Bank) rose by around 0.7% in the third quarter.

Eurozone GDP up just 0.1%

So, it’s official, the eurozone’s recovery from recession stumbled over the summer and early autumn with GDP rising by just 0.1% in the third quarter of the year.

That’s a slowdown compared to the growth of 0.3% achieved in the second quarter of the year, when the euroarea exited recession.

If you’ve been with us all morning, you’ll know that France’s economy was a drag on growth, contracting by 0.1%. Germany’s growth of 0.3% was in line with forecasts. But both countries reported weak exports.

The official release from Eurostat is here.

On a year-on-year basis, the eurozone economy remains 0.4% smaller than in the third quarter of 2012.

Updated

Eurostat also reports the GDP across the wider European Union rose by 0.2% in July to September.

Eurozone GDP up just 0 .1%

JUST IN: The eurozone grew by 0.1% in the third quarter of 2013.

Nearly time for the big number…. GDP for the eurozone as a whole. Economists expected a 0.2% rise in output across the region.

Portugal GDP up 0.2%

Portugal’s economy is still growing, but it’s also suffered a sharp slowdown.

Portuguese GDP rose by 0.2% in the last quarter, compared to the strong 1.1% expansion reported in Q2.

Still, there should be relief in Lisbon that it remains out of recession, as its austerity programme continues.

On a year-on-year basis, Portugal’s economy is 1.0% smaller than a year ago.

German GDP: What the analysts say

Back to the eurozone, and many analysts are pointing out that Germany’s 0.3% rise in GDP was due to domestic demand.

As flagged up 7.28am, Germany’s statistics body reported that the balance of exports and imports had a downward effect on GDP growth.

Interesting timing, given the EC yesterday announced an in-depth probe into whether Germany’s large, persistent trade surplus harms the rest of the eurozone.

 Marc Ostwald of Monument Securities writes:

The [eurozone] core and semi-core is seen slowing as per the as expected German 0.3% q/q (paced exclusively by domestic demand, for those idiots at the EU wasting money on investigating Germany’s Current Account surplus) and France’s very unsurprising, but lower than forecast -0.1% q/q GDP.

ING analyst Carsten Brzeski said Germany “remains the stronghold of the Eurozone,” adding:

there is little reason to doubt the stability of the German economy

Oliver Kolodseike of Markit reckon the German economy remains on course:

Although the pace of expansion eased from the second quarter, survey data for Q4 so far suggest the German economy is on track to meet the governments’ expectation of an annual 0.6% rise in 2013.

UK retail sales drop

Just in, a surprise fall in UK retail sales.

Retail sale volumes fell by 0.7% in October, surprising analysts who’d expected that sales would have been flat compared with September.

Stripping out fuel, sales were down by 0.6%, according to the Office for National Statistics.

Clothing sales dropped by 2.1% during the month – suggesting the decent autumn weather deterred people from buying winter coats and the like.

On the upside, sales were still 1.8% higher than a year ago.

Italian GDP falls 0.1%

Italy’s recession continues for a ninth quarter, but the end may be in sight.

Italian GDP fell by 0.1% in the three months to September, in line with expectations. That means the pace of contraction slowed, following a 0.3% drop in GDP between April and June.

It’s the smallest quarterly drop in Italian GDP since its recession began in the third quarter of 2011 as this table shows (more details here)

Italian GDP is down by 1.9% over the last year, INSEE reported. It also revised down its data for the second quarter, to show a 2.2% annual decline (from a first estimate of 2.1%).

Dutch GDP up 0.1%

The Netherlands has emerged from recession.

Dutch GDP grew by 0.1% in the third quarter of the year, according to Statistics Netherlands which also revised up its estimate for Q2 to show that GDP was flat, rather than contracting by 0.1% as first thought.

The Netherlands benefited from rising exports in the last quarter, which grew 2.1% year-on-year. Household consumption was down 2.3%.

On an annual basis, though, the Netherlands economy remains 0.6% smaller than a year ago.

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French GDP falls 0.1%: What the economists say

Diego Iscaro of consultancy IHS:

The new contraction in activity will definitely not help President Hollande to improve his popularity among the electorate – which currently stands at a record low.

Moscovici: France isn’t going back into recession

Back to France. Finance minister Pierre Moscovici has insisted that the French economy is not sliding back into recession.

He’s sticking to his forecast of 0.1-0.2% growth this year, despite the disappointing news that GDP fell by 0.1% in July-September.

Speaking on RTL Radio, Moscovici blamed one-off factors such as slowing aircraft orders (the Paris Air Show, in June, typically delivers a boost to industry), saying:

The productive forces are starting up again, production is recovering

We knew the third quarter would mark a pause, it’s not a surprise, it’s not an indicator of decline, it’s not a recession.

Moscovici was pretty bullish three months ago when France officially exited recession, hailing the ‘encouraging signs of recovery’.

To avoid a double-dip recession, France now has to grow its GDP in the current quarter.

Key event

Europe’s stock markets have opened strongly.

Instead of fretting about the eurozone’s woes, traders are taking comfort from testimony released by the next head of America’s central bank overnight.

In prepared remarks for the Senate Banking Committee, Janet Yellen said the US labour market and the wider economy were “far short” of their potential. She warned:

We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession.

And that’s being taken as a sign that the Federal Reserve is in no hurry to slow its stimulus programme, which is pumping $85bn of new money into the US economy every month.

Cue a stock market rally, sending the FTSE 100 up 1% or 66 points to 6693. Yesterday it fell on speculation that the Bank of England is closer to tightening monetary policy, because Britain’s economic recovery is gathering pace.

  • German DAX: up 0.8%
  • French CAC: up 1.06%
  • Italian FTSE MIB: up 0.7%
  • Spanish IBEX: up 1%

Yellen testifies before the committee at 10am local time, or 3pm GMT.

Decent GDP data from Hungary — its economy grew by 0.8% in Q3, twice as fast as expected.

On an annual basis Hungarian GDP was 1.7% higher. That’s the fastest rate since the first quarter of 2011 says Reuters.

Austrian GDP: up by 0.2%

Austria’s economy grew by 0.2% in the third quarter of the year, helped by a small rise in exports.

Its WIFO statistics body also revised down Austrian GDP growth in the second quarter to 0.0%, from 0.1%.

WIFO also reported that exports rose 0.2% in the last quarter, while imports were up 0.1%.

That 0.1% contraction means France’s economy has been outperformed by Spain for the first time since early 2009.

Spain’s economy grew by 0.1% in the last quarter, according to official data release on October 30.

The small contraction in France, and the slowing growth in Germany, shows that the euro area economy remains weak despite dragging itself out of recession in the summer.

Other countries are doing better. Overnight, Japan reported that its GDP rose by 0.5% during Q3, beating forecasts of 0.4% growth (but slower than the 0.9% in Q2).

Britain grew by 0.8% in the third quarter of 2013, while America posted quarterly growth of around 0.7%.

Here’s AP’s early take on the news that French GDP shrank by 0.1% in the third quarter, dashing hopes of a small expansion:

French economy shrinks after surprise rebound 

The French economy is shrinking again, statistics showed Thursday, underscoring that it is still in trouble despite a rebound last quarter.

The French national statistics agency, Insee, said that gross domestic product fell 0.1 percent in the July-to-September quarter. That comes after an unexpectedly large rebound of 0.5 percent in the second quarter that pulled France out of recession. Economists had said that rebound was partially due to technical effects and that France would likely not sustain that kind of growth in the near term.

The latest figures showed that exports, which had been a big factor in France’s rebound, fell sharply. Some corporate investment was also down and household spending slowed.

Last quarter, the French government hailed the growth figure as a proof that its reforms were beginning to bear fruit, although it cautioned that more time was needed. But many economists said that the rebound was artificially pumped up by such things as high energy use during a particularly cold winter and spring. They contended that France still needs to make significant changes to make its economy more competitive.

For example, economists say that France’s cost of labor, even after a tax credit, is still too high. State spending also needs to be cut, so France doesn’t rely so heavily on taxes to meet its deficit obligations. That leaves France in a tight spot, since it’s difficult to cut spending while the economy is still floundering.

[end]

The full statement from INSEE is online here, including this chart:

Germany’s statistics body warned that trade was weak in the last quarter, pulling GDP growth down to +0.3%.

Instead, “positive impulses exclusively from inside Germany” drove growth, the Statistics Office said. It reported that spending by private households and the state rose during the quarter, as did business investment.

By contrast, the contribution from abroad (exports minus imports) put a brake on GDP growth.

France’s economy also suffered from weak trade, with exports dropping by 1.5%.

German GDP released

The German GDP data is out, and it’s more positive than the news from France.

Germany’s economy grew by 0.3% in the third quarter of 2013. That’s in line with expectations, but is slower than the 0.7% growth achieved in the second quarter of this year.

On an annual basis, the German economy is 1.1% bigger than a year ago.

French GDP data shows economy contracted

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

Is Europe’s economy healing, or is the nascent recovery that began in the summer already petering out? We’ll find out this morning, with the publication of new growth data for the third quarter of 2013.

And the early news is not encouraging. France’s economy shrank by 0.1% in the three months to September, according to provisional data from its statistics body.

That’s worse than expected, following the 0.5% growth reported in Q2.

The small drop in GDP was due to a sharper decline in trade, with French exports falling by 1.5%. Business investment dropped by 0.6%.

It’s another blow to embattled French PM Francois Hollande, just a week after S&P downgraded France’s credit rating.

Lots more data still to come, including the first estimate of German and Italian economic growth.

The full reading for the eurozone is due at 10am GMT. Economists had predicted that euro area GDP would have have risen by 0.2% – the news from France, though, may have sent them scrabbling to rework their sums….

I’ll be tracking all the GDP data, reaction, and other news through the day.

Updated

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