Eurozone crisis

PLEASE NOTE: Add your own commentary here above the horizontal line, but do not make any changes below the line. (Of course, you should also delete this text before you publish this post.)


Powered by Guardian.co.ukThis article titled “Greece debt crisis: ECB tightens screw ahead of emergency eurozone summit – as it happened” was written by Graeme Wearden (now), Nick Fletcher, Paul Farrell and Helen Davidson (all earlier), for theguardian.com on Monday 6th July 2015 20.50 UTC

And here’s Tuesday’s Guardian — complete with Yanis Varoufakis leaving the building…

Just one more thing… the front pages of the UK newspapers. And tomorrow’s crunch summit makes the front of the Financial Times:

While Angela Merkel’s hard-ish line on Greece is the splash in the Daily Telegraph:

I wonder what’s on the front page of Tuesday’s Guardian. Stay tuned….

Updated

Closing summary: Last chance for Greek deal looms

We’re been live-blogging the reaction to Sunday’s Greek referendum for around 21 hours now. It’s time to wrap up and give the Guardian web servers a rest.

So, a final recap.

Greece and the eurozone will make one last, desperate attempt to make progress towards an urgently needed bailout deal on Tuesday.

Leaders, and finance ministers, will both hold crucial meetings in Brussels, after Sunday’s referendum result raised the risks of Grexit to new heights. It’s a final chance for Greece to propose a new reform plan that could start the ball rolling towards a new aid package, but the journey looks perilous.

The leaders of France and Germany are scrambling to reach a consensus tonight in Paris, at a top-level meeting about Greece (photos here).

Greece’s prime minister has held telephone calls with the heads of the International Monetary Fund and also the European Central Bank. Alexis Tsipras told Mario Draghi that the capital controls in Greece need to be lifted, but was told by Christine Lagarde that the IMF cannot released more funds now Athens is in arrears.

Earlier, Francois Hollande insisted that there was time to reach a deal. Angela Merkel sounded less optimistic, though, warning that there was currently no basis for an agreement. Press conference highlights start here.

German Chancellor Angela Merkel makes a statement with French President Francois Hollande during a press conference after their meeting at the Elysee Palace on July 06, 2015 in Paris, France. Angela Merkel met Francois Hollande to discuss Greece’s situation in the European Union in a post-referendum environment.

Spain’s PM warned that time was now very short, while Dutch leader Mark Rutte said Greece must accept deep reforms to keep its place in the eurozone.

Analysts aren’t convinced that progress will be made tomorrow….

The European Central Bank has tightened the rules for giving emergency funding to Greek banks tonight. It is now imposing tougher haircuts on the assets they hand over, restricting their ability to access the funding.

The ECB also reportedly rejected a request for €3bn in extra ELA support:

This means Greek banks will remain shut for at least two more days, after capital controls were extended until the end of Wednesday.

Over in Greece, Alexis Tsipras has mobilised the leaders of the main opposition parties to support him. They signed a joint statement, saying Sunday’s referendum showed Greece’s desire for a “socially just and economically sustainable agreement”.

There’s talk of a new mood of national unity, but it could be swiftly shattered.

Tsipras has also passed the honour/poisoned chalice of being Greece’s finance minister to Euclid Tsakalotos, following Yanis Varoufakis’s resignation this morning.

Tsakalotos was sworn in tonight, and will represent Greece at Tuesday’s eurogroup meeting. He’s unlikely to don a tie for the occasion, though. Here’s our profile of Euclid.

Varoufakis has denied tonight that he was a sacrifical lamb, having exited the finance ministry in classic style today:

Outgoing Greek Finance minister Yanis Varoufakis leaves onto his motorcycle with his wife Danai after his resignation at the ministry of Finance in downtown Athens on July 6 2015. Varoufakis resigned in what appeared to be a concession by Prime Minister Alexis Tsipras to international creditors after his resounding victory in a historic bailout referendum. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images

In the UK, George Osborne has warned that the risks to the UK are rising. Britain is already providing more consular support in Greece for expats and holidaymakers, and help for businesses struggling to trade with Greek firms.


Video: George Osborne in parliament

And Fitch has warned that the risks of Greece leaving the eurozone are much higher, after last night’s resounding No.

I’ll pop back into the blog if there are any major developments — otherwise, please tune in tomorrow morning for more. Thanks, and goodnight. GW

Updated

Alexis Tsipras has discussed the Greek banking sector’s liquidity issues with ECB president Mario Draghi tonight.

Tsipras also raised the “immediate need” to lift capital controls during the phone call, according to a government spokesman quoted on Reuters.

Our europe editor, Ian Traynor, sums up the situation tonight:

Germany and France scrambled to avoid a major split over Greece on Monday evening as the eurozone delivered a damning verdict on Alexis Tsipras’s landslide referendum victory on Sunday and Angela Merkel demanded that the Greek prime minister put down new proposals to break the deadlock.

As concerns mount that Greek banks will run out of cash and about the damage being inflicted on the country’s economy, hopes for a breakthrough faded. EU leaders voiced despair and descended into recrimination over how to respond to Sunday’s overwhelming rejection of eurozone austerity terms as the price for keeping Greece in the currency.

Tsipras, meanwhile, moved to insure himself against purported eurozone plots to topple him and force regime change by engineering a national consensus of the country’s five mainstream parties behind his negotiating strategy, focused on securing debt relief.

Tsipras also sacrificed his controversial finance minister Yanis Varoufakis, in what was seen as a conciliatory signal towards Greece’s creditors.

In Paris, Chancellor Angela Merkel and President François Hollande tried to plot a common strategy after Greeks returned a resounding no to five years of eurozone-scripted austerity. The two leaders were trying to find a joint approach to the growing crisis ahead of an emergency eurozone summit on Tuesday to deal with the fallout.

But Merkel said there was no current basis for negotiating with the Greek side and called on Tsipras to make the next move.

As eurozone leaders prepared for today’s emergency summit in Brussels , the heads of government were at odds. France, Italy and Spain are impatient for a deal while Germany, the European commission and northern Europe seem content to let Greece stew andallow the euphoria following Sunday’s vote give way to the sobering realities of bank closures, cash shortages and isolation…..

Here’s the full story.

The logo of the International Monetary Fund.

Christine Lagarde spoke to Alexis Tsipras today, and explained that the International Monetary Fund can no longer provide money to Greece after it failed to repay €1.6bn last week.

Under IMF rules, once a country is in arrears, fresh funds cannot be supplied, a spokesman explained (via Reuters)

Hat-tip to Sky News’s Ed Conway for getting into Yanis Varoufakis’s leaving bash tonight and grabbing a quick interview.

Greece’s finance minister denied that he’d sacrificed himself, declaring:

“No, no, this is politics, mate. There are no sacrificial lambs.

Varoufakis added that he’ll rest on Tuesday, but is bound to offer advice from the sidelines.

Tuesday’s edition of the Guardian will carry many letters from readers about the Greek crisis, expressing support for Greece at this time.

Guardian Letters: Athens has reinvented our vision of democracy

Italy’s finance minister has suggested that the eurozone is willing to consider a new aid programme for Greece:

Pier Carlo Padoan told Canale 5 television.

“The 18 (other countries in the euro) are open to re-considering a Greek request which can only be a request for a new programme, not a continuation of the old one,”

Spain’s prime minister Mariano Rajoy has echoed Angela Merkel and Francois Hollande tonight, by warning that time is very short:

Dutch prime minister Mark Rutte has warned Greece it must decide whether it wants to remain in the eurozone, and accept the ‘deep reforms’ needed.

He told MPs tonight that Athens must deliver acceptable proposals to its creditors.

If things stay the way they are, then we’re at an impasse. There is no other choice, they must be ready to accept deep reforms.”

A Greek insider has told Reuters that the European Central Bank hiked the haircut on Greek assets by around 10%, but the impact will be ‘minimal’.

So the ECB hasn’t pulled the plug, yet…..

Updated

Greece Facing Uncertain Future After Rejecting EU Proposals<br />ATHENS, GREECE – JULY 6: People line up at an ATM machine outside a bank on July 6, 2015 in Athens Greece. Politicians in Europe and Greece are planning emergency talks after Greek voters rejected EU proposals to pay back it’s creditors creating an uncertain future for Greece. Finance minister Yanis Varoufakis resigned hours after the vote saying that it was felt his departure would be helpful in finding a solution.. ( Photo by Milos Bicanski/Getty Images)” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=People line up at an ATM machine outside a bank in Athens today. Photograph: Milos Bicanski/Getty Images

AFP has a good summary of the situation in Greece’s banking sector:

Greek banks to stay closed Tuesday and Wednesday

Greek banks will remain closed on Tuesday and Wednesday with limits on daily withdrawals unchanged, officials said on Monday as the European Central Bank maintained its liquidity assistance to the nation’s beleaguered lenders.

“Until Wednesday evening we continue as things stand today,” said Louka Katseli, chairwoman of the National Bank of Greece.

Speaking on behalf of the association of Greek banks, she added:

“If there is a decision by the European Central Bank in the meantime enabling us to modify this decision, there will be a new decision.”

The European Central Bank’s governing council decided to maintain the emergency liquidity assistance keeping Greek banks afloat at the level set on June 26, the Frankfurt-based bank said in a statement.

But the ECB said it had also “adjusted” the collateral demanded from Greek banks in return for the assistance.

“The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets…

“In this context, the governing council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA,” the ECB added, without specifying the level.

Capital controls were enacted on June 28, limiting ATM withdrawals by Greeks to €60 per account daily after a referendum on bailout terms sparked a run on deposits.

The Bank of Greece had requested an increase in emergency liquidity assistance (ELA) and that request was the subject of the ECB meeting, held a day after 61% of Greeks voted against further austerity measures in Sunday’s plebiscite.

ELA is currently the only source of financing for Greek banks, and therefore the Greek economy. But with Greece’s bailout programme now officially expired and in the absence of any new programme, the conditions for its continuation are no longer met.

But analysts believe the ECB will not want to be the one to pull the plug on Greece and force the country out of the single currency.

Updated

The Euro symbol in Willy Brandt Square, Frankfurt, on the first day of its restoration. The euro symbol will go through a four days restoration, starting on the day after Greece have voted ‘No’ to the EU, the ECB and the IMF policies, generating uncertainties on the monetary sign future. --- Image by © Horacio Villalobos/Corbis
The Euro symbol in Willy Brandt Square, Frankfurt, on the first day of its four-day restoration. Photograph: Horacio Villalobos/Corbis
Euro symbol in Willy Brandt Square, on the first day of its restoration.<br />06 Jul 2015, Frankfurt, Germany — Workers toil on the euro symbol in Willy Brandt Square, Frankfurt, Germany, 06 July 2015, during the first day of its restoration. The euro symbol will go through a four days restoration, starting on the day after Greece have voted ‘No’ to the EU, the ECB and the IMF policies, generating uncertainties on the monetary sign future. — Image by © Horacio Villalobos/Corbis” width=”1000″ height=”667″ class=”gu-image” /> </figure>
</p></div>
<p class=Updated

Two members of the ECB’s governing council pushed for Greece’s banking sector to be hit with even tougher measures, according to Claire Jones of the Financial Times.

She writes:

The ECB refused to disclose the size of the new haircuts, but all four of Greece’s main banks are thought still to have enough collateral available to roll over their emergency loans.

Two people on the governing council objected to the decision, according to Eurosystem sources. Both of the objectors wanted the ECB to take stronger measures.

That implies either an even higher haircut (putting Greek banks in greater peril), lowering the ELA cap (ditto), or terminating ELA off (which would be game over for Greek banks).

The ECB may not have pulled the trigger on Greek banks tonight, but it is reserving the right to take a shot if Tuesday’s emergency summit doesn’t deliver any progress.

Updated

Confused? Try this….

This graph is crucial to understanding what the ECB did tonight.

By raising the haircut applied on assets from Greek banks, it cuts the amount of emergency liquidity that can be handed back in return. Every time the haircut goes up, the ‘value’ of the assets that can be used to access ELA falls.

So, to simplify the issue, each €1bn of Greek assets might have yielded €520m of emergency cash yesterday, but tomorrow it might only be good for €480m, for example (figures plucked out of the air).

Raise the haircut high enough, and Greek banks simply can’t qualify for extra assistance at all.

Updated

The European Central Bank has just raised the risk of a Greek bank going under, argues George Hay, European Financial Editor at Reuters Breakingviews.

ECB hits Greek banks with tougher haircuts

Finally, the European Central Bank has announced its decision on the emergency support it provides to Greek banks.

And the ECB has maintained the cap on emergency liquidity assistance (ELA) at €89bn, but crucially it has “adjusted” the haircuts it applies to the assets which Greek banks hand over in return for funds.

In simple terms, that probably means the ECB is treating Greek government bonds as riskier, and valuing them as such when it calculates how much liquidity it can provide.

It’s another tightening of the screw on Greece – meaning some banks may find it even tougher to qualify for emergency liquidity assistance.

Here’s the full statement:

ELA to Greek banks maintained

The Governing Council of the European Central Bank decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece.

ELA can only be provided against sufficient collateral.

The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets.

In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA.

The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area. The Governing Council is determined to use all the instruments available within its mandate.

More reaction to follow…

Updated

Crisis meeting in Paris between French President and German Chancellor<br />epa04834368 French President Francois Hollande and German Chancellor Angela Merkel deliver a speech to the press following a crisis meeting at the Elysee Palace regarding Greece, in Paris, France, 06 July 2015. Speaking after a bilateral meeting in Paris, Hollande drew attention to the fact that ‘time is running out,’ while Merkel said it was up to Greek Prime Minister Alexis Tsipras to come up with proposals on the way forward at the eurozone summit. EPA/ETIENNE LAURENT” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Merkel and Hollande tonight. Photograph: Etienne Laurent/EPA

Merkel returns to her favourite theme – that European solidarity and responsibility are linked.

Europe can only hold itself together if each country takes responsibility for itself, she says, insisting that Greece got a generous offer in the past.

Merkel: No basis for negotiations yet

Angela Merkel agrees that the door to talks with Greece is still open, despite yesterday’s No vote.

But Greece must put its proposals on the table this week. As things stand, there is no basis for talks on a new programme under the European Stability Mechanism (ie, a new aid programme)

Hollande also speaks of the values that hold Europe together. It is not just a monetary and finance construction.

Hollande: the door is still open to Greece

Francois Hollande sounds quite conciliatory, telling the audience in Paris that France and Germany respect the vote of the Greek people yesterday.

The door is still open to talks for Alexis Tsipras to make serious proposals.

Tomorrow’s eurozone crisis summit will allow Europe to define its position, based on the Greek proposals, he says, adding that time is running very short.

Updated

Merkel-Hollande press conference

Angela Merkel and Francois Hollande are speaking to the press now, following their talks on the Greek crisis.

Here’s some photos of Euclid Tsakalotos being sworn in as finance minister tonight:

Swearing in of new Greek Finance Minister Euclid Tsakalotos<br />epa04834322 Greek President Prokopis Pavlopoulos (C) and Greek Prime Minister Alexis Tsipras (L) during the swearing-in ceremony of new Greek Finance Minister Euclides Tsakalotos (R) at the Presidential Palace in Athens, Greece, 06 July 2015. Greek voters resoundingly rejected bailout terms in a referendum on 05 July. Athens said it was willing to resume talks with international creditors, and eurozone leaders were planning an emergency summit on 07 July to tackle the crisis. EPA/ARMANDO BABANI” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Greek President Prokopis Pavlopoulos (centre) and Greek Prime Minister Alexis Tsipras (left) during the swearing-in ceremony of new Greek Finance Minister Euclides Tsakalotos (right). Photograph: Armando Babani/EPA
Swearing in of new Greek Finance Minister Euclid Tsakalotos<br />epa04834287 New Greek Finance Minister Euclides Tsakalotos during his swearing-in ceremony at the Presidential Palace in Athens, Greece, 06 July 2015. Greek voters resoundingly rejected bailout terms in a referendum on 05 July. Athens said it was willing to resume talks with international creditors, and eurozone leaders were planning an emergency summit on 07 July to tackle the crisis. EPA/ARMANDO BABANI” width=”831″ height=”1000″ class=”gu-image” /> </figure>
<figure class= Prokopis Pavlopoulos, Euclid Tsakalotos<br />Greek President Prokopis Pavlopoulos, left, shakes hands with the new Greek Finance Minister Euclid Tsakalotos during the swearing in ceremony at Presidential Palace in Athens, Monday, July 6, 2015. Following Sunday’s referendum the Greece and its membership in Europe’s joint currency faced an uncertain future Monday, with the country under pressure to restart bailout talks with creditors as soon as possible after Greeks resoundingly rejected the notion of more austerity in exchange for aid. (AP Photo/Petros Karadjias)” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class= Photograph: Petros Karadjias/AP

Tsakalotos has an engagingly dressed-down style, even for a member of the current Greek government (frankly, he could pass for a eurocrisis liveblogger).

But he did make one concession to the majesty of the occasion…..

The US government has urged Europe and Greece to seek a compromise that will avoid Grexit.

White House spokesman Josh Earnest said it was in the best interests of America, and Europe, that the Greek crisis is solved. It is a “European challenge to solve”, he added.

Here’s a video clip of UK finance minister George Osborne updating the British parliament on the Greek crisis today:


Video: Greece referendum: government will protect UK economy, says George Osborne

Osborne has been criticised for not backing calls for Greece to be given debt relief.

Jonathan Stevenson, campaigns officer at the Jubilee Debt Campaign, said:

“The Chancellor was today given several opportunities by MPs from all parties to add his voice to calls for Greek debt cancellation, but he refused to take it. By sitting on the fence, rather than making the case for debt cancellation, he is failing to use his influence to help resolve this crisis, and thereby selling the people of Britain short.

The French stock market suffered from the Greek crisis today, with the CAC index shedding 2%.

Germany’s DAX fell by 1.5%, while in London the FTSE 100 index fell 50 points of 0.7%.

So, electronic red ink everywhere – but not a really serious selloff, given the scale of the shock last night when the referendum results came through.

Tsakalotos sworn in as finance minister

The deed is done. Euclid Tsakalotos has just been sworn in as the new Greek finance minister, by president Prokopis Pavlopoulos.

Updated

This Google Trends data shows how Greeks have been searching for information on leaving the eurozone, and on the implication of yesterday’s referendum:

Google Trends
Photograph: Google
Google Trends
Photograph: Google

Updated

Photos: Merkel and Hollande begin Greek talks

Over in Paris, Francois Hollande has welcomed Angela Merkel to the Elysee Palace for crisis talks about Greece, following yesterday’s referendum.

After a brief smile for the camera, they swiftly got down to business. We’re expecting a joint statement from the two leaders before dinner.

French President Francois Hollande welcomes German Chancellor Angela Merkel before talks and a dinner at the Elysee Palace in Paris
French President Francois Hollande welcomes German Chancellor Angela Merkel before talks and a dinner at the Elysee Palace in Paris Photograph: Philippe Wojazer/Reuters
Crisis meeting in Paris between French President and German Chancellor<br />epa04834201 German Chancellor Angela Merkel (2-L) attends a crisis meeting with French President Francois Hollande (unseen) at the Elysee Palace regarding Greece, in Paris, France, 06 July 2015. The leaders met for talks on Greece in the aftermath of the referendum. EPA/ETIENNE LAURENT / POOL MAXPPP OUT” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class= Photograph: ETIENNE LAURENT / POOL/EPA
Crisis meeting in Paris between French President and German Chancellor
Photograph: ETIENNE LAURENT / POOL/EPA

German finance minister Wolfgang Schäuble has insisted that it didn’t have any “personal problems” with Yanis Varoufakis, Greece’s former finance minister.

But it is true that the other euro finance ministers didn’t share Varoufakis’s opinion on many points, Schäuble added.

(that’s via Associated Press)

Here’s Reuters first take on the news that Greek banks won’t reopen tomorrow:

Greek banks will remain closed on Tuesday and Wednesday and a daily limit on cash withdrawals will stay at €60, the head of the Greek banking association said.

Greek banks were shuttered all last week after the collapse of negotiations on an aid deal and had officially been due to reopen on Tuesday, before Greeks voted resoundingly to reject bailout terms sought by creditors in a referendum on Sunday.

“We decided to extend the bank holiday by two days – Tuesday and Wednesday,” Louka Katseli said after a meeting with finance ministry and banking representatives.

GREECE-ATHENS-BAILOUT<br />06 Jul 2015, Athens, Attica, Greece — (150706) — ATHENS, July 6, 2015 (Xinhua) — Greek pensioners without bank cards line up outside bank to withdraw up to 120 euros for the week, in Athens, July 6, 2015. Greek President Prokopis Pavlopoulos convened political leaders for a meeting to design new strategy after the no victory in the July 5 referendum on bailout terms. (Xinhua/Marios Lolos) (dzl) — Image by © Marios Lolos/Xinhua Press/Corbis” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Greek pensioners without bank cards line up outside bank to withdraw up to 120 euros for the week, in Athens today. Photograph: Marios Lolos/Xinhua Press/Corbis

Who is Euclid Tsakalotos anyway?

File photo of Varoufakis and Tsakalotos leaving the Maximos Mansion after a meeting with PM Tsipras in Athens<br />Greek Finance Minister Yanis Varoufakis (front) and deputy minister for international economic relations Euclid Tsakalotos leave the Maximos Mansion after a meeting with Prime Minister Alexis Tsipras (not pictured) in Athens in this April 3, 2015 file photo. Tsakalotos will be sworn in as finance minister on July 6, 2015 after the resignation of Varoufakis, a Greek presidency source said. REUTERS/Alkis Konstantinidis/Files” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Euclid Tsakalotos isn’t in the back seat any more…. Photograph: Alkis Konstantinidis / Reuter/Reuters

Last month, our Athens correspondent Helena Smith explained how the “Phlegmatic, professorial, mild-mannered” Euclid Tsakalotos could be the key to reaching a breakthrough in the Greek crisis.

And as Tsakalotos is Greece’s new finance minister, this theory is about to be tested…..

Here’s a flavour:

The son of a civil engineer who worked in the well-heeled world of Greek shipping, Tsakalotos was born in Rotterdam in 1960. When his family relocated to London, he was immediately enrolled at the exclusive London private school St Paul’s. A place at Oxford, where he studied PPE, ensued. The hurly burly world of radical left politics could not have been further away.

“My grandfather’s cousin was general Thrasyvoulos Tsakalotos who led the other side, the wrong side, in the Greek civil war,” he said of the bloody conflict that pitted communists against rightists between 1946-49.

“He expressed the fear that I might end up as a liberal, certainly not anything further to the left”…

Perish the thought…

Here’s the full piece:

The risk of Greece sliding towards a disorderly exit from the eurozone has “dramatically” increased following the No vote in last night’s referendum.

So warns rating agency Fitch tonight:

An agreement between Greece and its official creditors remains possible, but time is short and the risk of policy missteps, or that the two sides simply cannot agree a deal, is high.

Fitch adds that it will be “difficult” to reaching a deal before 20 July, when Greece must repay €3.5bn to the ECB.

New finance minister to be sworn in tonight.

(FILES) In this file picture taken on June 15, 2015 Greek minister of International Economic Relations Euclidis Tsakalotos arrives for a meeting at the Prime minister’s office in Athens. Greece on July 6, 2015 named economist Euclid Tsakalotos, its top negotiator in the stalled EU-IMF talks, as the country’s new finance minister, the president’s office said. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Photograph: Aris Messinis/AFP/Getty Images

The Greek government has announced that the new finance minister, Euclid Tsakalotos, will be sworn in by the Greek president at 8pm this evening (6pm BST).

This will allow the Oxford-educated economist to attend tomorrow’s eurogroup meeting and present Greece’s case.

And his first task will be to approve a two-day extension to Greece’s capital controls, meaning banks stay shut until Thursday:

Updated

Greek banks to stay shut

Newsflash: Greece’s banks will not reopen on Tuesday, or indeed on Wednesday, according to the head of the Greek bank association.

The daily withdrawal limit remains at €60.

A couple more lines from George Osborne’s statement to parliament on Greece.

He tells MPs that Britain has sent tax officials out on secondment in recent years, to assist with revenue collection.

Unfortunately, tax collection has “almost dried up” since the crisis escalated.

And the chancellor says Britain can’t suspend pension payments to expats in Greece, to protect them from capital controls. That would risk triggering financial problems, if people had set up rent payments, and suchlike.

And the worst thing for Britain, and the world, would be a completely disorderly situation in the next few weeks. That’s why we are urging all sides to reach a solution.

(FILES) In this file picture taken on March 7, 2015 guest speaker Euclid Tsakalotos of Greek Syriza party addresses the Republican party Sinn Fein annual conference in Londonderry, Northern Ireland. Greece on July 6, 2015 named economist Euclid Tsakalotos, its top negotiator in the stalled EU-IMF talks, as the country’s new finance minister, the president’s office said. AFP PHOTO / PAUL FAITHPAUL FAITH/AFP/Getty Images
Back in March, Euclid Tsakalotos addressed the Republican party Sinn Fein annual conference in Londonderry, Northern Ireland. Photograph: Paul Faith/AFP/Getty Images

Back in Greece, Euclid Tsakalotos is being appointed as Greece’s new finance minister to replace Yanis Varoufakis, as had been rumoured.

One official told Reuters:

“Tsakalotos will be sworn in with the political oath as finance minister,”

As mentioned earlier, Tsakalotos is known as the brain behind Syriza’s economics policies, and has been handling the day-to-day negotiations with creditors for the last couple of months.

Updated

Labour MP Gisela Stuart asks:

Does Britain have any plans to fly euros into Greece to pay our pensioners, if they cannot get money out of the cash machines?

Osborne says that Britain has “a number of contingency plans, and we just hope we don’t have to put them into operation.”

Two years ago, when Cyprus imposed capital controls, Britain flew out large quantities of euros in military planes to pay soldiers based in the country.

Andrew Tyrie, a senior MP who chairs Britain’s influential Treasury Committee, asks George Osborne if he agrees that Greece can never repay all its debt, or return to sustainable growth at the current eurozone exchange rate.

Shouldn’t Greece issue its own currency?

Osborne won’t be tempted to give an opinion. We don’t like it when other counties tell Britain what currency to use, so it’s up to Greece to decide its own currency.

But, the challenge is balancing Greece’s desire to stay in the euro with the conditions that other eurozone members wish to put on it, he adds.

Osborne sums up the challenge facing Greece rather neatly.

There are two different timetables, the chancellor says — the political one, of meetings and negotiations to reach a possible deal, which proceeds quite slowly.

And there is the situation in the Greek banking sector, which is moving at a much faster pace.

The challenge for the eurozone and the challenge for greece is to bring those timetables together.

George Osborne says that tomorrow’s eurogroup and eurozone leaders meetings are crucial for Greece, although tonight’s Franco-German meeting (between Merkel and Hollande) is also important.

Chris Leslie, the shadow chancellor, warns that the European Union faces its most “fundamental test” in a generation.

George Osborne
George Osborne in parliament today Photograph: BBC Parliament

Osborne: Risks to Britain from Greece are growing

George Osborne, Britain’s chancellor of the Exchequer, is speaking in parliament now.

He met with prime minister David Cameron and Bank of England governor Mark Carney earlier today.

Osborne warns MPs that the prospects of a happy ending in Greece are diminishing, while the risks to Britain from Greece are growing, so it’s right to remain vigilant.

The financial situation in Greece will “deteriorate rapidly” if there is no sign of agreement at tomorrow’s talks.

Osborne says:

This is a critical moment in the economic crisis in Greece. No-one should be under any illusions. The situation risks going from bad to worse…

Osborne tells MPs that the UK government will continue to pay state pensions to expats in Greece “in the normal way” , but also warns that tourists should take sufficient money, and medicines, to cover their stay.

The government has already been in touch with 2,000 pensioners to help them switch to UK bank accounts.

The Department for Business is providing advice to firms having problems dealing with companies in Greece, he adds.

And Britain is boosting its consular operations in Greece.

Updated

With his duties at the finance ministry over, Yanis Yaroufakis can now turn his attention to more mundane issues – like his new book.

Greek Prime Minister Alexis Tsipras (C) Minister of State Nikos Pappas (L) and Government spokesman Gavriil Sakellaridis (2-R) leave the Presidential Palace after a meeting with party leaders in Athens on July 6, 2015. Germany dismissed Greece’s bid to clinch a quick, new debt deal after the country delivered a resounding ‘No’ to more austerity measures, appearing little moved by the surprise resignation of the Greek finance minister.IAKOVOS HATZISTAVROU/AFP/Getty Images
Greek Prime Minister Alexis Tsipras (C) Minister of State Nikos Pappas (left) and Government spokesman Gabriel Sakellaridis (second right) leaving the Presidential Palace after a meeting with party leaders in Athens today. Photograph: Iakovos Hatzistavrou/AFP/Getty Images

What does yesterday’s No vote mean for Europe? How can Angela Merkel respond? Will the departure of Yanis Varoufakis help?

Guardian columnist Jonathan Freedland and economics editor Larry Elliott explain all, in barely 180 seconds…..


Video: Three-minute update: the Greeks have spoken. What now for the rest of Europe?

German media are reporting that Alexis Tsipras and Angela Merkel have telephoned (as we flagged earlier), with both leaders agreeing that Greece will bring new proposals with him to the Euro group meeting which may help to overcome the crisis.

Further details of what they discussed have yet to emerge.

Also, a Spiegel correspondent in Greece, Giorgis Christides, is reporting that paper supplies are running out in Greece, with newspaper publishers saying they had enough paper left to print only up until next Sunday.

One publishing manager has even proposed halting the printing of books, until the shortage eases.

IMF "stands ready to assist Greece"

Lagarde sits for an interview at IMF headquarters in Washington.
Photograph: Jonathan Ernst/Reuters

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), has just issued a short statement on Greece:

“The IMF has taken note of yesterday’s referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so.”

Snap reaction: Greece heading towards national unity?

The fact that the leaders of three Greek opposition parties have agreed to back prime minister Alexis Tsipras in the debt negotiations is an important development.

The strong No vote in Sunday’s referendum has strengthened Tsipras’s position, as he heads to Brussels tomorrow.

As well as representing his Syriza-ANEL administration, Tsipras now has the backing of New Democracy, To Potami and Pasok.

That only leaves the KKE communist party on the sidelines, and the extreme right-wing Golden Dawn.

Commentators reckon it could be the first step towards a new ‘national unity’ administration to tackle the crisis.

UK chancellor George Osborne due to address the UK parliament on the Greek situation shortly. My colleague Andrew Sparrow is covering it all in his politics liveblog.

The centre-left Pasok party has also agreed to back Alexis Tsipras in the looming debt negotiations.

Fofi Genimata, Pasok’s leader, did criticise the PM for only rallying support “at the eleventh hour”.

New Democracy, the centre-right opposition party, will also sign the common statement expressing support for Alexis Tsipras in negotiations with lenders.

ND was represented by Vangelis Meimaraki at today’s meeting, following the resignation of leader Antonis Samaras last night.

Meimaraki criticised Tsipras for calling today’s meeting so late, and said the PM bears responsibility for the crisis. But crucially, he did still sign the statement:

Ah, it appears that the communist KKE party will not support this joint statement from Greece’s political leaders:

(that’s Kammenos in the middle)

Greek political leaders to release joint statement

The meeting of Greece’s political leaders is breaking up in Athens, after more than six hours.

And Panos Kammenos, the head of the right-wing ANEL party which is coalition with Alexis Tsiprass’ Syriza, is telling reporters that the leaders will release a “joint statement”.

That will be a written assurance that the opposition leaders support Tsipras in his negotiations with creditors, Kammenos says – along with a reference to debt relief.

Stavros Theodorakis of the centrist To Potami party is also speaking. He confirms that a common statement will be drawn up. ahead of Tuesday’s emergency eurozone summit.

Updated

US stock markets have opened after the July 4 holiday long weekend and so far reaction to the Greek crisis is muted.

The Dow, S&P 500 and Nasdaq are all down around 0.5% in early trading.

So far US investors have largely shrugged off the Greek crisis and it looks like they same mood will prevail today. But anything can happen. During the last Euro-crisis US markets went on a roller coaster ride as investors worried about “contagion” and Greek woes spreading across Europe.

Yanis, we’re going to miss you

Alexis Tsipras must bring serious proposals to Brussels tomorrow to tackle the crisis created by his referendum, says German MEP Manfred Weber.

Weber, who chairs the centre-right EPP Group in the European Parliament, has also tweeted his concern that the “No” victory will drive nationalism in Europe.

The heads of Greece’s political parties are still meeting with president Pavlopoulos, as they discuss their response to Sunday’s referendum.

Simon Marks of MNI is tweeting from outside the talks:

Yanis Varoufakis does know how to make an exit (if not a Grexit)…..

Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danai on the back of a motorbike in downtown Athens, on July 6 2015. Germany dismissed Greece’s bid to clinch a quick new debt deal after the country delivered a resounding ‘No’ to more austerity, appearing little moved by the surprise resignation of the Greek finance minister. AFP PHOTO / ANDREAS SOLAROANDREAS SOLARO/AFP/Getty Images
Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danae on the back of a motorbike in downtown Athens. Photograph: Andreas Solaro/AFP/Getty Images
Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danai on the back of a motorbike in downtown Athens, on July 6 2015.
Photograph: Andreas Solaro/AFP/Getty Images

Updated

Bank closures could continue for a few more days – report

BREAKING:

Greece will issue a new decree today to extend the bank holiday for a few more days, bankers are telling Reuters.

Greece to present new proposals on Tuesday

Sigmar Gabriel’s warning that Greece faces insolvency came as Alexis Tsipras and Angela Merkel ended their telephone call.

Greek officials say that Tsipras agreed to present a “comprehensive” Greek proposal for an aid deal at Tuesday’s emergency leaders summit.

Updated

Germany’s vice chancellor is warning that a third Greek bailout would include taxing conditions, as it would be issued under the European Stability Mechanism:

Gabriel is also worried that other bailed-out eurozone nations will demand help, if they see Greece getting relief:

Greece threatened with insolvency, says Germany’s Gabriel

The hard line from Germany continues.

Deputy chancellor and economy minister Sigmar Gabriel has said Greece is now threatened with insolvency. And if it wants to stay in the eurozone it has to present proposals that go beyond what it has offered before.

Yanis Varoufakis says he hopes Euclid Tsakalotos gets the hot seat in the finance ministry.

Euclid does have decent credentials; a PhD in economics from Oxford, followed by academic postings, and a reputation as the “big brain” of Syriza’s economic policy making.

Standard Chartered has already said his appointment would make a positive outcome more likely (see here)

And he’ll have lots to talk to the UK chancellor about, too:

Updated

The Kremlin has issued a brief statement on the telephone call between Greek prime minister Alexis Tsipras and Russian President Vladimir Putin:

On Greece’s initiative, Vladimir Putin had a telephone conversation with Prime Minister of Greece Alexis Tsipras.

Mr Putin and Mr Tsipras discussed the results of the Greek referendum on international creditors’ conditions for providing financial aid to Athens, and discussed several matters concerning further development of bilateral cooperation.

Mr Putin expressed his support for the Greek people in overcoming the country’s current difficulties.

Was it the Daily Telegraph that did it?

The Wall Street Journal has an intriguing theory to explain Yanis Varoufakis’s shock resignation this morning.

They say that Alexis Tsipras decided to jettison his finance minister after he told the Telegraph that Greece could start issuing its own IOU notes to run alongside the euro, if the liquidity squeeze choking Greece isn’t lifted.

Here’s that interview:

Daily Telegraph: Defiant Greeks reject EU demands as Syriza readies IOU currency

Lunchtime summary

Greek Prime Minister Alexis Tsipras, second from right, arrives for a Greek political leaders meeting in Athens this morning.
Greek Prime Minister Alexis Tsipras, second from right, arrives for a Greek political leaders meeting in Athens this morning. Photograph: Petros Giannakouris/AP

Time for a recap.

Yanis Varoufakis has ended a dramatic five-month stint as Greece’s finance minister, resigning just hours after Greece delivered a resounding No to the bailout conditions pushed by the country’s creditors.

Varoufakis said he fell on his sword after being:

made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings.

And he remained resolute to the end, declaring:

I shall wear the creditors’ loathing with pride.

He also hailed last night’s referendum results as “a unique moment when a small European nation rose up against debt-bondage.”

His successor hasn’t been announced yet; Euclid Tsakalotos, who took over day-to-day management of negotiations, is one frontrunner.

Greek leaders have been locked in talks for hours this morning, discussing their next move.

Prime minister Alexis Tsipras has been busy – he’s speaking with German chancellor Angela Merkel right now.

Earlier, he held a phone call with Russian president Vladimir Putin.

The scale of yesterday’s No vote has stunned Europe this morning, as leaders prepare for Tuesday’s emergency summit.

Italy’s Matteo Renzi has just posted on Facebook that Europe must find permanent solution to the Greek crisis and go beyond austerity.

But European Commission vice-president Valdis Dombrovskis has warned that the No vote makes the situation even more complicated.

Angela Merkel and Francois Hollande are due to meet tonight in Paris to discuss the crisis. UK prime minister David Cameron has already held a meeting in London to discuss the impact on Britain response.

The Greek banking system continues to creak after a week of capital controls; some ATM machines are now only dispensing €50 per day, rather than the €60 limit.

The European Central Bank will hold a conference call later to discuss the emergency liquidity assistance it provides to Greece, which was capped eight days ago.

In the European markets, shares have fallen as the threat of a disorderly Grexit rises.

Here’s the situation at lunchtime in the City:

  • FTSE 100: down 40 points at 6545, -0.6%
  • German DAX: down 170 points at 10890, -1.5%
  • French CAC: down 89 points at 4718, -1.9%

The yields (interest rates) on Spanish and Italian government bonds have risen today, as investors view them as riskier. But it’s not a massive sell-off (the yield on Spanish 10-year debt has risen from 2.22% to 2.35% this morning)

Jens Nordvig of Japanese bank Nomura argues:

Those betting on run-away contagion as a result of Greece getting on an exit path will have to re-think….

The so-called domino theory is looking increasingly old-fashioned.

Meanwhile Rosie Scammell has helpfully done a translation of the comments from Italian prime minister Matteo Renzi on his Facebook page.

There are two areas…to confront quickly in European capitals and Brussels. The first regards Greece, a country that is in a very difficult economic and social situation. The meetings tomorrow must indicate a definitive road to resolve this emergency.

The second – even more fascinating and complex, but no longer postponable – is that of Europe. For months we have been insisting on discussing not only austerity and budgets, but growth, infrastructure, common policies on migration, innovation, the environment. In one word: politics, not only parameters. Values, not only numbers.

If we stay at a standstill, prisoners of rules and bureaucracy, Europe is finished.

Rebuilding a different Europe will not be easy, after what has happened in recent years. But this is the right moment to try and do it, all together. Italy will do its part.

The downbeat comments about the prospects of a new deal with Greece, notably from Germany and the European Commission’s Valdis Dombrovskis, have seen the euro lose nearly all the gains it made after news came in of Yanis Varoufakis’ resignation as Greek finance minister.

Euro midday
Euro loses early gains against the dollar. Photograph: Reuters/Reuters

And here’s AP’s summary of the earlier comments from Angela Merkel’s spokesman about the conditions not being there for new negotiations with Greece:

Chancellor Angela Merkel’s spokesman says Germany sees no basis at present for entering negotiations on a new bailout program for Greece, but that the door remains open.

Steffen Seibert said Monday that Germany respects the “clear ‘no’ vote” by Greeks against austerity measures demanded by creditors and that “the door for talks always remains open.”

However, he said the conditions are “not there at present to enter negotiations on a new program.” He said the “no” vote is a vote against the principle still supported by Germany that solidarity requires countries to take responsibility.

Seibert says Europe will explore what possibilities there are to help Greek citizens and “a lot will depend on what proposals the Greek government now puts on the table.”

Merkel arrives at the chancellery in Berlin this morning.
Merkel arrives at the chancellery in Berlin this morning. Photograph: Fabrizio Bensch/REUTERS

Greek debt reduction not on Germany’s agenda

Following the downbeat comments earlier from German government spokesman Steffen Seibert, the country’s finance ministry has now said a reduction in Greece’s debt mountain is not on Germany’s agenda. Associated Press reports:

Ministry spokesman Martin Jaeger said “our position is well-known … a debt cut is not an issue for us.”

He said there were no grounds for a debt restructuring given that Greece has yet to set out fresh proposals for financial aid.

Last week, the International Monetary Fund, which has been a major creditor of Greece over the past five years, suggested that debt relief for Greece is necessary.

Jaeger says Europe decided that economic reforms coupled with aid was a better route to a sustainable future for Greece, adding that it was working well in the country, until the end of last year.

Jaeger said he didn’t see much need to change this approach, noting the success of other bailed-out countries.

Italy’s Renzi says permanent solution must be found

Another sign we’re in the age of social media dominance: Italian prime minister Matteo Renzi has said Europe must find a permanent solution to the Greek crisis – via a Facebook post.

(Greek finance minister Yanis Varoufakis earlier announced his resignation by Twitter/blog)

Speaking of Russia, the country has said Greece and its creditors should reach a compromise as soon as possible. Bloomberg reports it is watching developments “closely” following the referendum:

“We treat with respect the voice raised during the plebiscite,” Kremlin spokesman Dmitry Peskov told reporters on a conference call on Monday. Russia would like Greece to take decisions that contribute to “social and economical stability in the country,” he said.

Greece has never asked Russia for financial aid in dealing with the debt crisis, Peskov said. Greek issues might be discussed on the sidelines of a BRICS summit in Ufa this week of leaders from Brazil, Russia, India, China and South Africa, though they are not on the official agenda, he said.

Full story here.

And this meeting of Greek party leaders may never end….

Helena Smith adds:

Reports now coming through that Tsipras has broken away from meeting with other party leaders to talk with German chancellor Angela Merkel.

Greek television channels have been breaking into scheduled programmes to announce that prime minister Alexis Tsipras will cut short the meeting currently taking place of political party leaders at the presidential palace to speak with Russia’s Vladimir Putin, reports Helena Smith. (We mentioned this possiblity earlier). Helena writes:

The two men will speak by phone. The cross party meeting of political leaders will then resume.

Interestingly, says, Helena, the Greek energy minister, Panagiotis Lafazanis, who has close ties with Moscow and heads the militant wing of Tsipras’ Syriza party, has also rushed to the presidential palace.

Tsipras and Putin in June
Tsipras and Putin in June Photograph: TASS / Barcroft Media/TASS / Barcroft Media

Meanwhile in Thessaloniki, people are hoping the no vote will prompt a resolution, finally, to the financial crisis. Angelique Chrisafis reports:

Stefanos Dimos was standing at his Thessaloniki flower shop, which for 62 years has been arranging bouquets to mark the births, deaths and weddings of locals in Greece’s second city. He had been weathering the crisis for five years, but this morning, after Greece’s resounding no vote, he said he felt optimistic.

In five years of austerity, Dimos had seen his trade fall by 50% and had to lay off two staff. Since last week the capital controls and bank closures that are still in place have seen his trade drop 90%, despite the summer wedding season. “The economy has virtually stopped,” he said. But like many “No” voters, Dimos, 52, held the prime minisiter Alexis Tsipiras to his word that there would be a new negotiation and a better deal for Greece. “We’re optimistic that there will be an agreement that is good for Greece and good for Europe. The “No” vote was a good result because it sent a clear message that we can’t have any more austerity. I see people foraging in bins here every day for food, something that didn’t happen before the crisis.”

He added: “We’re hoping that the deal will be improved, that debt will be eased, allowing business activity to start up again. Things have ground to a halt.”

Another florist in the city centre said he was happy with last night’s strong “No” result, even though he himself had tentatively voted “Yes”. He said: “I voted yes because I wanted Greece to stay in Europe. But I’m still pleased today because — like everyone else — I don’t want more austerity. I’m happy with the outcome as it voiced our feeling that we can’t take it any more. Austerity has been a dead-end for growth and for our economy.”

Outside a nearby bank, a small queue of pensioners gathered early to access limited amounts to their pensions, and a small line of others waited to withdraw their daily €60. One lawyer who had voted yes said: “There’s an urgency in getting a new deal as fast as possible because banks are facing a real liquidity problem, they can’t last much longer. Any new deal now has to satisfy all the other eurozone members, it’s not going to be easy. In fact, it’s going to be very difficult here.”

Constantin Petropoulous, 88, and his wife Georgia, 80, were standing at the back of the queue, waiting to access a portion of their monthly pensions that had shrunk to €600. Like many in the city, they had spent decades as labourers in Germany, where Constantin had worked for Bosch in Stuttgart, returing to Thessaloniki to later work in a shop. “The real challenge for Greece this week is this feeling of the unknown, the uncertainty,” he said. “Whether the vote had been yes or no, things would have been difficult. We know it will be a very hard week. We just have to be patient.”

The European Central Bank’s governing council is due to discuss emergency funding to Greek banks in a telephone call later this afternoon, sources have told Reuters.

In Athens, cash machines are increasingly failing to dispense the full amount allowed under the current capital controls. John Hooper reports:

A tour of banks in the capital this morning showed that, while depositors are notionally allowed €60 a day under the capital controls, increasingly €50 is the norm. That could help explain why the government is reportedly confident that Greece’s ATMs can continue to dole out cash till Friday.

Of seven cash machines visited, only two were dispensing the full amount, ostensibly because the banks are running out of €20 notes. At Alpha Bank on Alexandras Avenue, Irene Abatzi said: “I don’t care if it’s fifty or sixty, just so long as the machine carries on giving out cash.”

A woman withdraws money from an ATM machine while others speak to an official of the bank in Athens.
A woman withdraws money from an ATM machine while others speak to an official of the bank in Athens. Photograph: Louisa Gouliamaki/AFP/Getty Images

Elsewhere, customers were less phlegmatic. A man in the up-market quarter of Kolonaki exploded with rage when he found out that a payment had not been made to his account, and that he could not withdraw anything.

The banks were opening their doors to pensioners, but in at least two parts of the city the pensioners were being told that only those who failed to get their pensions last week could be served. The deputy finance minister, Nadia Valavani, highlighted the intensity of the cash squeeze in a statement on Sunday, telling safe deposit owners they could retrieve valuables – but only with a bank employee standing over them to ensure they did not take out cash as well.

In Spain Pablo Iglesias, leader of the anti-austerity party Podemos, welcomed the results of the Greek referendum but cautioned those who sought to draw parallels between Spain and Greece. Ashifa Kassam in Madrid reports:

“It’s a very clear message,” Iglesias told Spanish radio Cadena Ser. “The citizens of Greece have said that austerity isn’t the way to end the economic crisis.”

He called on Europe’s leaders to reach an agreement with Greece, pointing to the resignation of Greek finance minister Yanis Varoufakis. “Now there is no excuse. The time has come for sensibility and to find a reasonable agreement.”

On Varoufakis’ resignation he said: “It hurt me a lot because I think he’s an excellent economist….but I think the act of resigning is honorable as it will help the push for the agreement that his country needs.”

With a general election due in Spain by the end of the year, Iglesias carefully chose his words, knowing that the situation in Greece could drive moderate voters away from his party. “We have a great friendship with Syriza, but luckily, Spain is not Greece. We’re an economy with much more weight in the eurozone, we’re a country with a stronger administration and with a better economic situation,” he said, taking aim at the many comparisons being drawn between Spain and Greece. “The circumstances are different and I think it makes no sense to draw these parallels.”

Podemos leader Pablo Iglesias.
Podemos leader Pablo Iglesias. Photograph: Susana Vera/Reuters

The situation in Greece has been used by the governing People’s Party to justify the austerity measures imposed during the height of the economic crisis. “Fortunately Spain has a prime minister who said no to the bailout and instead undertook reforms,” PP vice-president Fernando Martínez-Maillo told broadcaster Radio Nacional de España on Monday. “Thanks to those reforms…we’re in a situation of economic growth and job creation.”

Spain’s finance minister, Luis de Guindos said on Monday that although the No vote made the situation more complex, everyone wants Greece to “stay in the euro.” His government is ready to talk about a third bailout, he added, but only if Greece was willing to play by the rules.

Eleni Varvitsiotis of Greek newspaper Kathimerini is not very upbeat about Dombrovskis:

More from Dombrovskis:

EC’s Dombrovskis says no vote complicates things

European Commissioner vice president Valdis Dombrovskis has said the no vote complicates the situation, but Greece’s place remains in the eurozone.

My colleague Jennifer Rankin notes:

Updated

Britain has called on Greece and its eurozone partners to sit down together and find a sustainable solution, Reuters reports.

Prime minister David Cameron’ spokeswoman said finding a solution was clearly in Britain’s best interests, and Britain supports a 28 member EU.

Meanwhile the ECB’s Ewald Nowotny, also president of the National Bank of Austria, said any new Greek deal needs time. To expect an agreement within two days – as Greece had suggested – is “illusionary.”

And regarding the emergency liquidity assistance for Greek banks:

Greek prime minister Alexis Tsipras has reportedly already been on the phone to European Central Bank president Mario Draghi – not surprising when the ECB has to decide its next move with regard to Greek banks.

Meanwhile Tsipras will apparently also speak to Russian president Putin on the phone before the end of the day.

And here’s a bit of a dampener on things, from Austria’s Finance Minister Hans Joerg Schelling:

But he did say he hopes talks would be easier now Varoufakis has gone.

Updated

What happens next?

So what happens next, for Greece’s bailout negotiations, the country’s banks, its future in the eurozone? Here is our updated assessment of where we stand:

And as a tribute to Yanis Varoufakis brief but colourful period as Greek finance minister, here is a piece of video from 1993. As an economics professor he was discussing government policies and, topically, austerity.

Varoufakis
Varoufakis in 1993 Photograph: Greek TV via Youtube

Spain’s economy minister Luis de Guindos has echoed that Greece should remain part of the eurozone and the euro is irreversible.

He said the Spanish government was open to negotiating a third bailout, and any new Greek package should include a comprehensive analysis of Greek needs.

(Quotes courtesy Reuters).

Luis de Guindos.
Luis de Guindos. Photograph: Andrea Comas/Reuters

Angela Merkel’s spokesman say conditions for Greek talks not in place

Conditions for talks with Greece are not in place, German government spokesman Steffen Seibert has said.

But Greece is part of the eurozone and the government must act to make sure this remains the case. Germany is now waiting for the new proposals from Greece:

Updated

Donald Tusk, President of the European Council, has confirmed this morning’s conference call and its participants:

George Osborne to make Commons statement on Greece

UK chancellor George Osborne is set to make a statement about Greece in the Commons at around 3.30 today. Earlier Osborne met prime minister David Cameron and Bank of England governor Mark Carney to discuss the crisis:

Greek banks can keep allowing withdrawals until Friday, depending on what happens with the ECB, the BBC’s Robert Peston has reported:

Meanwhile, earlier:

The Eurogroup – which as we said earlier is to meet on Tuesday – has said it expects new proposals from Greece. In a statement it said:

The Eurogroup will discuss the situation following the referendum in Greece that was held on 5 July 2015. Ministers expect new proposals from the Greek authorities.

The referendum was held after the Greek government unilaterally withdrew from ongoing negotiations with the institutions (the European Commission, the European Central Bank and the International Monetary Fund) on Greece’s comprehensive reform plan, foreseen under the agreement of February 2015.

Greece likely to be on BRICS summit agenda

There has been no official reaction from the Kremlin yet about the Greek vote, writes Shaun Walker, but Russia has been watching the drama unfold between Athens and Brussels with some interest, and Greek prime minister Alexis Tsipras has made two visits to Moscow in recent months to make the point that Greece could seek alternative creditors. He has left with little in the way of concrete commitments, however.

A summit of the BRICS group of nations (Brazil, Russia, India, China, South Africa) will be held in the Russian city of Ufa later this week and Greece is likely to be on the agenda. Various ideas have been floated in recent weeks, including making Greece a member of the club, which would give it access to loans from the newly founded BRICS development bank.

However, while Moscow might be keen on the idea for political reasons, Russia is also still in a difficult financial situation, and the other BRICS members may well be less keen.

The Eurogroup will be meeting tomorrow ahead of the eurozone leaders’ summit, its president Jeroen Dijsselbloem has just said:

As the European Central Bank decides about liquidity for Greek banks – ahead of the July 20 date for the country to repay €3.5bn on a bond held by the ECB – economist Dario Perkins at Lombard Street Research points to one possible outcome:

Updated

UK papers have reflected the uncertainty over the what comes next for the eurozone, as Roy Greenslade reports:

Crisis, chaos, turmoil. Today’s British national newspaper headlines reflect the seriousness of the situation facing the European Union and the eurozone after the referendum vote in Greece.

Several of the newspapers also convey the sense of bafflement at what happens next: “Europe faces crisis after gambling Greeks say No” (The Times); “Europe in turmoil as Greeks vote No” (Daily Telegraph); “Greek ‘no’ plunges Europe into crisis” (The Independent); “Greeks vote ‘no’ – Europe shudders (i); and “Greece’s eurozone future hangs in balance as No vote set to triumph” (Financial Times).

The Daily Mail and Daily Express engage in some prediction: “Meltdown: EU in crisis as Greece votes ‘no’ to crippling cuts and heads for eurozone exit” and “Greece ready to leave the Euro after day of chaos”.

Two prefer to state the bald fact: “Greek voters defy Europe” (The Guardian) and “Greeks vote no” (Metro). And the red-tops, being the red-tops, indulge in puns: “Greeky bum time” (The Sun); “Rhodes to ruin?” (Daily Mirror); and “It’s Greece frightenin’.” (Daily Star).

But there is nothing to smile about in the editorials, several of which refer to it, predictably, as a “Greek tragedy.” Newspapers opposed to the EU or, at the least, to the euro, barely conceal their delight at the possible unravelling of the eurozone.

Full story here:

Here’s Alexis Tsipras and his colleagues at their meeting this morning to discuss their next move after the no victory in the referendum:

Tsipras arrives for the meeting.
Tsipras arrives for the meeting. Photograph: Louisa Gouliamaki/AFP/Getty Images
Meeting begins.
Meeting begins. Photograph: Petros Giannakouris/AP

Earlier Tsipras met Greek president Prokopis Pavlopoulos:

Tsipras visits Pavlopoulos.
Tsipras visits Pavlopoulos. Photograph: Imago / Barcroft Media/imago/Wassilis Aswestopoulos

ECB member and Bank of France governor Christian Noyer has been commenting on Greek finances:

This refers to Greek debt held by the ECB, which he says cannot be restructured because it would be monetary financing of a state.

According to the bookies, Greece will not leave the eurozone this year but Britain is likely to vote to leave the EU in a referendum:

European Commission president Jean-Claude Juncker will hold a conference call with the Eurogroup and European Central Bank (among others) this morning.

In a statement the commission said it “takes note of and respects the result of the referendum in Greece,” and added:

President Juncker is consulting (…) with the democratically elected leaders of the other 18 Eurozone members as well as with the Heads of the EU institutions. He will have a conference call among the “Euro-Institutionals” (with the President of the Euro Summit, the President of the Euro Group and the President of the European Central Bank) on Monday morning. He intends to address the European Parliament in Strasbourg on Tuesday.

On Tuesday 7 July at 18h a special Euro Summit will take place to discuss the situation after the referendum in Greece.

Updated

Fabio Sdogati, professor of International Economics at Politecnico di Milano, the largest technical university in Italy, is clearly a Varoufakis fan:

More from Simon Goodley on IG’s trading floor:

Despite Greece being the world’s biggest financial story since, er, the last time Greece was the world’s biggest financial story, there is surprisingly little activity in the equity markets, where volumes are low. According to Alastair McCaig, market analyst at IG, this is because investors don’t like uncertainty and nobody knows what is going to happen next.

He said: “Ask politicians what is happening with Greece and they say ‘I don’t know’. Markets are the same. Greece has surprised at every opportunity. Last week they surprised by calling a referendum. This week they surprised by voting ‘no’. They have the propensity to surprise again”.

Added to that, there is also the wobbly Chinese stock market, which is causing further nervousness (and which here they suspect is a bigger markets story) plus the fact that we are currently inhabiting a month between May and September – a section of the year the City tends to like to take off.

European markets down, Greek bond yields higher

European markets remain in the red, but are not in freefall:

European markets
European markets Photograph: Reuters/Reuters

The bond markets are more volatile.

Greek 10 year bond yields are back above 17% at 17.3% while two year yields are up 13 percentage points at a hefty 48% (although Reuters is reporting no trading is going on.)

Meanwhile Spanish 10-year yields are up marginally at 2.3%, Italy’s are at 2.32% and Portugal at 3%.

Updated

So, is Grexit more or less likely now given the developments of the last few hours:

However:

Euclid Tsakalotos, the Oxford-educated chief spokesman of the economics ministry, has been tipped as the most likely replacement for Yanis Varoufakis, writes Jennifer Rankin.

“He is one of the most sensible/moderate figures in Syriza and his appointment, if confirmed, would increase the chances for a sensible negotiation and a positive outcome,” Demetrios Efstathiou of Standard Chartered bank said.

Euclid Tsakalotos (left) with Yanis Varoufakis.
Euclid Tsakalotos (left) with Yanis Varoufakis. Photograph: Alkis Konstantinidis/REUTERS

Back in the bond markets and UK 10-year gilt yields have hit their lowest level since mid-June, with investors seeing the UK as something of a haven.

The no vote raises the risk of Greece leaving the eurozone, but the basis for a dialogue between the two sides still exists, according to French finance minister Michel Sapin.

He also said discussions of possible debt relief were “not taboo” and said France had put this proposal on the table. MNI reports:

“The ‘no’ carries a considerable risk for Greece,” Sapin told Europe 1 radio. “In this risk for Greece is the risk of an exit from the euro. But there is nothing automatic.”

Sapin said that “there is on the table a basis for dialogue but it is up to Greece to show that it will take this dialogue seriously.” He said it was “up to the Greek government and Mr. Tsipras to make new proposals as quickly as possible.”

Sapin declined to comment on the possible reaction of the European Central Bank to the Greek vote, other than to say that “there is a level today of liquidity. This level of liquidity cannot be reduced.”

Michel Sapin.
Michel Sapin. Photograph: CHAMUSSY/SIPA/REX Shutterstock/CHAMUSSY/SIPA/REX Shutterstock

Greek bond yields are currently up 139 basis points at 16.24% but they have been higher this morning:

View from the trading room floor

“The Greek bloke’s resigned. He’s run rings round ‘em.”

That was how one IG trader was overheard explaining the news of the resignation of Greek finance minister Yanis Varoufakis following Sunday’s referendum, as he chatted on the phone in early trading this morning, writes Simon Goodley.

To say the City is surprised by the news coming out of Greece is an understatement. Like eurozone officials it had expected that last week’s trailer of capital controls would be enough to get the country to vote yes, and IG priced a yes vote as a 60% chance last week.

So what now? Chris Beauchamp, senior market analyst at IG, said: “[German stock market] the Dax has opened down but is surging back – much like it did last Monday and much like the euro is doing. It is coming back on Varoufakis’s resignation – possibly more hope than expectation, but if you take out the most irritating man in the room then you might get a more reasonable response from Germany and France”.

Updated

And here’s a (typical) reaction from London mayor Boris Johnson:

Some timings for German comments on the Greece situation, courtesy Reuters:

German chancellor Merkel arrives at the Chancellery in Berlin this morning
German chancellor Merkel arrives at the Chancellery in Berlin this morning Photograph: Fabrizio Bensch/Reuters

Elsewhere German industrial orders fell by just 0.2% in May, better than an expected 0.4% decline, despite the current eurozone crisis.

Economist Dr. Andreas Rees at UniCredit said:

After two consecutive and strong rises, German new orders in the manufacturing sector declined a moderate 0.2% month on month. The latest decrease is neither driven by a fundamental deterioration nor by the events in Greece.

The direct macro impact is limited, as only 0.4% of all German exports are shipped to Greece. The same is true for other eurozone countries. The most likely scenario going forward is that German companies (and their peers in the eurozone) will resume momentum in the next few months.

Italian Prime Minister Matteo Renzi is due to meet his finance minister, Pier Carlo Padoan, at 9.30am (8.30am BST) today to discuss the Greek referendum, writes Rosie Scammell. As the result came in last night, Padoan took to Twitter to share his views on the vote:

(Italy has always worked for a solid and more integrated Europe. It was true yesterday and it will still be true tomorrow.)

(Shared rules by European peoples serve to guarantee the same objectives: affluence through economic growth and employment )

(Reforms and investments are in all countries the key to regain sustainable growth)

The Greek government spokesman has just said Varoufakis’ replacement will be announced after the meeting of party political leaders. That would suggest the leftist-led government is attempting to find consensus over the issue, Helena Smith reports.

The spokesman said.

As finance minister Yanis Varoufakis placed a leading role in negotiations from the government’s first day. The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances. After the meeting of political leaders, his replacement will be announced.

Updated

Tsipras to decide on Varoufakis replacement

Over in Athens our correspondent Helena Smith says prime minister Alexis Tsipras is now debating who to replace his finance minister with. She writes:

Talks are being held between deputy prime minister Yannis Dragasakis and Tsipras as I write with the sole purpose of deciding who should replace Yanis Varoufakis.

Dragasakis, a former Marxist who is also an economist, is himself one of the contenders. The low-profile politician has had broad oversight of Greece’s economic policy over the last five months – and had expressed growing displeasure with Varoufakis’ tactics. But the 67-year-old may well wish to remain behind the scenes where he has a particularly powerful role.

That leaves the economics professor Giorgos Stathakis, currently the economics minister and the Oxford-educated economist Euclid Tsakalotos, who has had a lead role coordinating negotiations.

George Chouliarakis, the Manchester University academic heading the Greek government’s negotiating team – whose moderate views and comportment has been particularly well received by creditors – is reportedly also being considered.

Banking shares are among the major fallers, given the prospect of contagion from the struggling Greek banking system.

Deutsche Bank is down 2.7%, Santander 2.6% and Italy’s Monte Dei Paschi is 3.5% lower. In the UK Barclays and HSBC have both fallen around 1.2%.

But generally the reaction so far has been fairly subdued – at least compared to the expected falls.

Of course, the surprise resignation of Yanis Varoufakis has probably helped limit the damage, since it could well make negotiations easier when leaders meet on Tuesday.

European markets open lower

After shares fell sharply in Asia after the no vote in the Greek referendum, European markets are following suit.

The FTSE 100 is currently down just over 1% or 70 points but this is less than the 130 originally expected. Early days yet, of course.

Germany’s Dax is down around 2%, Spain’s Ibex is off 2.2%, Italy’s FTSE MIB is 2.8% lower and France’s Cac has fallen 2%.

Other events to watch out for today:

  • The UK government and the Bank of England are to review continency plans
  • Germany’s Angela Merkel and France’s Francois Hollande are to meet tonight ahead of a leaders’ summit on Tuesday
  • Greek prime minister Alexis Tsipras is putting together his new negotiating team

More reaction, this time from Italy. Rosie Scammell writes:

Italy’s newspapers are today awash with Greek flags, with most leading on the impact the no vote will have on Europe. “Greece, a slap in Brussels’ face” reads the front page of left-leaning daily La Repubblica, while Italy’s leading daily, Corriere della Sera, writes “The Greek NO scares Europe”.

In covering the resignation of the Greek finance minister, Yanis Varoufakis, Italian media have honed in on his fashion choice. Varoufakis appeared at a press conference in a grey t-shirt on Sunday night, before today announcing his decision to quit. Italians themselves are still getting used to the casual clothing choices of their own prime minister, Matteo Renzi, who often makes public appearances in jeans.

Corriere Della Sera
Corriere Della Sera Photograph: Corriera Della Sera
La Repubblica
La Repubblica Photograph: La Republbica

Bond yields rise after referendum result

Yields on government bonds in Spain, Italy and Portugal are moving higher after the no vote, not surprising given the implications of Greece moving closer to a eurozone exit on these countries:

Updated

European Central Bank to meet on Greece

One of the key decisions of the day will be made by the European Central Bank when it looks at whether to continue providing liquidity to Greek banks. If not, they will struggle to reopen on Tuesday, as Greek politicians (notably the now departed Yanis Varoufakis) had promised. Michael Hewson, chief market analyst at CMC Markets UK, said:

The ball now lies firmly in the ECB’s court as the prospect of Greek banks running out of money in the coming hours is likely to increase, with the prospect that the ECB will cut off Greek banks in the process causing a collapse of the Greek banking system, and in the process highlighting the significant structural flaws of the euro.

In a proper monetary union it would be inconceivable for the US to cut off Florida or for the UK government to cut off Scotland from their lender of last resort, but if the ECB ends ELA then that is precisely what will happen to Greece, either later today, or later this week.

Updated

The surprise resignation of Yanis Varoufakis comes ahead of a meeting tomorrow between eurozone leaders to discuss their next steps following the no victory in the referendum.

That could of course make things easier for Greek prime minister Alexis Tsipras in any discussions with his peers. Varoufakis himself said as much: “I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings.” Over the weekend he had accused Greece’s European creditors of “terrorism.”

And in keeping with his tenure as finance minister he ended with a jibe at his tormentors: “I shall wear the creditors’ loathing with pride.”

His departure was not the first in the wake of the vote – yesterday Antonis Samaras, the head of the opposition rightwing New Democracy party who campaigned for the yes side, stepped down.

But the decision by the motorcycle-riding, game-playing Varoufakis has far more significance, as shown by the fact the euro recovered some of its lost ground in the wake of the announcement:

Euro July 5
Euro July 5 Photograph: Reuters/Reuters

Updated

Here’s an early call on how European markets are expected to open, courtesy IG:

Summary

I’m handing over our continuing coverage of events in Greece and across Europe to my colleague Nick Fletcher. Here’s a short summary of how events stand at the moment:

  • The Greek finance minister Yanis Varoufakis has resigned, despite a no vote in the referendum. In a blog post on his website Varoufakis flagged that his decision was prompted in part by “some European participants” expressing a desire for his role to end in any further negotiations.
  • Alexis Tsipras has called for a key political meeting to take place in Greece on Monday morning at 10:00am to discuss the outcome of the referendum.
  • Greeks voted overwhelmingly for a no vote in the referendum, with over 61% casting a no vote in the groundbreaking political decision.

Here’s our report on the dramatic referendum result:

European leaders were scrambling for a response on Monday after a resounding no from Greek voters in a momentous referendum on austerity which could send the country crashing out of the eurozone.

With Europe’s financial markets set to follow Asia’s overnight lead by going sharply into the red, German chancellor Angela Merkel was to meet with French leader François Hollande in Paris after Greece overwhelmingly rejected international creditors’ tough bailout terms.

The pair spoke by telephone late Sunday, declaring the referendum decision must “be respected” and calling for an emergency eurozone summit which European Union president Donald Tusk said would be held on Tuesday.

A flurry of other meetings will also be held Monday as European leaders sized up the implications of the vote, a victory for Greece’s radical prime minister Alexis Tsipras, who insisted it did not mean a “rupture” with Europe.

Here’s the full story:

Updated

Here’s the very immediate response from some of the financial markets.

A short time before the post announcing his resignation, Varoufakis posted a much more jubilant note about the referendum decision:

On the 25th of January, dignity was restored to the people of Greece.

In the five months that intervened since then, we became the first government that dared raise its voice, speaking on behalf of the people, saying no to the damaging irrationality of our extend-and-pretend ‘Bailout Program’.

We

    • spread the word that the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers
    • articulated, for the first time in the Eurogroup, an economic argument to which there was no credible response
    • put forward moderate, technically feasible proposals that would remove the need for further ‘bailouts’
    • confined the troika to its Brussels’ lair
    • internationalised Greece’s humanitarian crisis and its roots in intentionally recessionary policies
    • spread hope beyond Greece’s borders that democracy can breathe within a monetary union hitherto dominated by fear.

Ending interminable, self-defeating, austerity and restructuring Greece’s public debt were our two targets. But these two were also our creditors’ targets. From the moment our election seemed likely, last December, the powers-that-be started a bank run and planned, eventually, to shut Greece’s banks down. Their purpose?

Updated

Here’s our latest report on Varoufakis’ resignation. More details to be added shortly:

The Greek finance minister Yanis Varoufakis has resigned in the wake of the country’s resounding no vote rejecting the eurozone’s austerity terms.

Writing on his blog on Monday morning he said that he would be standing down immediately after pressure from Greece’s European partners.

“Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings,” he wrote.

The prime minister Alexis Tsipras judged this to be “potentially helpful to him in reaching an agreement. For this reason I am leaving the ministry of finance today”.

He added: “The referendum of 5 July will stay in history as a unique moment when a small European nation rose up against debt-bondage.

“Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25 June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Updated

Varoufakis’ presence in further negotiations was always going to be difficult after his public rhetoric about the role of European leaders.

In one interview published on Saturday, he accused the country’s creditors of terrorism:

“What they’re doing with Greece has a name: terrorism,” Varoufakis told Spain’s El Mundo. “What Brussels and the troika want today is for the yes [vote] to win so they could humiliate the Greeks. Why did they force us to close the banks? To instil fear in people. And spreading fear is called terrorism.”

On Sunday night he promised to resign in the event a yes vote was recorded. Despite the outcome of a no vote, he has still followed through on that decision to resign.

Updated

"Minister no more": Greek finance minister Yanis Varoufakis resigns

In another extraordinary development the Greek finance minister has just announced his resignation.

In a move likely to spark further concerns about the role of other European leaders in Greece’s internal politics, Varoufakis said he was made aware of a preference by “some European participants” of his absence throughout the continuing negotiations.

The post was made on Varoufakis’ blog and there is nothing to suggest it is not authentic. It has also been cross-posted on his Twitter account.

Here’s the post in full:

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage.

Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

And I shall wear the creditors’ loathing with pride.

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.

The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

Peter Kazimir, the Slovakian finance minister, has also made some rather colourful observations of the current situation overnight:

The UK government is also prepared to do whatever necessary to protect the country from the impact of a possible exit from the Eurozone for Greece. This from AFP is the latest update:

Britain will do “whatever is necessary to protect its economic security”, a government spokesman said Monday after Greeks voted overwhelmingly against austerity in a referendum that could send them crashing out of the eurozone with unknown consequences.

“This is a critical moment in the economic crisis in Greece,” a Downing Street spokesman said. “We will continue to do whatever is necessary to protect our economic security at this uncertain time. We have already got contingency plans in place and later this morning the Prime Minister will chair a further meeting to review those plans in light of yesterday’s result.”

The front pages of newspapers across Europe are a combination of fear, hope and (on occasion) somewhat comical absurdity.

Here’s a short sample of a few of them, starting off with a rather extraordinary one from Efsyn featuring Dutch politician Jeroen Dijsselbloem:

Here’s the Guardian’s view on the current impasse now facing Europe following the Greek referendum:

Kicking the can down the road has been the cliche of choice over a slow euro crisis that has steadily strangled the life out of the Greek economy. But at some point Europe was bound to run out of road. That happened on Sunday night, when it emerged that the Greek people had said no to continuing to engage with their creditors on the same suffocating terms.

Just over a week ago, Alexis Tsipras staked his future on forcing this denouement. The eight days that followed his midnight declaration of a plebiscite, to accept or reject the creditors’ terms for the latest slug of overdraft, have witnessed many extraordinary things. The Greek parliament licensed a hasty referendum on a question that had already been overtaken by events. A ballot paper written in jargon posed a ludicrously technical question, opening up a void for emotion to fill. Mixing talk of “terror” from their partners with haze about what would happen after a no, Mr Tsipras and his finance minister, Yanis Varoufakis, aimed squarely for the heart rather than the head. Meanwhile, Greeks faced the fiercest financial controls ever seen in modern Europe: bank doors were shut, supplies disrupted, and citizens queued at every cashpoint for their ration of notes. In countries such as Germany, where history engenders suspicion of referendums, it may have looked like a paradigm case of how not to do democracy.

As the sun begins to rise now in Greece on “the morning after” Syntagma Square appears empty. That may well change as another highly politically charged day is set to get underway across Europe

John Cassidy in the New Yorker has outlined some useful analysis on the implications of the no vote:

Whether they will be offered one within the eurozone remains to be seen. Although the result was a great political triumph for Tsipras and Syriza, it doesn’t automatically translate into a victory in the showdown with the European Union and the International Monetary Fund. Greece is still broke, and its banks are still closed. If the Europeans want to force the Greeks out of their currency club, they have the means to do it at any moment. All they have to do is turn off the credit that the European Central Bank has been providing to Greece’s banks. Indeed, the ECB’s governing council will decide on Monday what to do next.

With Angela Merkel, the German chancellor, and François Hollande, the French president, due to meet in Paris on Monday afternoon, and an emergency summit of all European Union leaders scheduled for Tuesday, it seems highly unlikely that the ECB. will render these deliberations pointless by immediately torpedoing the Greek financial system. In all likelihood, there will be at least one more round of talks between the two sides, and, quite possibly, more than one. Greece’s next big payment to its creditors isn’t due until 23 July, which is more than two weeks away. If the country’s banks can somehow be propped up until then, there is time for more deliberation.

Updated

We’ve written a lot about the market reaction to events in Europe, but the political fallout in Greece is still likely to unfold rapidly over the next few days.

Prime minister Alexis Tsipras is convening a meeting of key political leaders at 10am on Monday in Athens, according to Enikos. Overnight the Greek opposition leader Antonis Samaras resigned following the referendum decision.

How Tsipras proceeds throughout this week will continue to shape how events unfold across Europe.

China’s response to the Greek referendum and the market uncertainty has been to engage in a series of complex manoeuvres aimed at stimulating the market.

It’s not yet clear how successful the measures – which involve a variety of investments and buyouts aided by the central bank – will be in preventing setbacks for their markets.

Reuters have a good take on the different measures that have been employed here:

Chinese stocks jumped on Monday after Beijing unleashed an unprecedented series of support measures over the weekend to stave off the prospect of a full-blown crash that was threatening to destabilize the world’s second-biggest economy.

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

Investors, who had ignored official measures to prop up the market as equity indexes slid around 12% last week, finally reacted, with the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen jumping 4%, while the Shanghai Composite Index .SSEC gained 3 percent. [.SS]

Blue chips, the explicit target of the stabilization fund, outperformed stocks on the small-cap ChiNext indexes.

The rapid decline of China’s previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for President Xi Jinping and China’s top leaders, who were already struggling to avert a sharper economic slowdown.

In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Updated

My colleague Justin McCurry has filed a more comprehensive take on the Asian market reaction to the Greek referendum, which largely recorded falls across the board but with limited losses.

China is the exception – it saw a boost on open this morning – but that is attributed to the enormous and unprecedented government measures implemented over the weekend to try and stop a market crash.

This from Justin:

Analysts said that regional market panic was unlikely, even after Athens appeared to take a step closer to a “Grexit” by roundly rejecting the bailout terms set by its international creditors But they added that negotiations this week would be critical.

“The Greece ‘no’ vote is a surprise,” Shoji Hirakawa, chief equity strategist at Okasan Securities, told Bloomberg News. “But the key is that the direction is going toward more talks after this.”

Other analysts said markets had not expected Greek voters to reject the terms of the bailout so emphatically – a move that could see further losses on Monday and trigger an investor rush to US Treasuries or other government bonds that are seen as largely immune to market turbulence.

In one of the day’s more colourful commentaries, analysts at Japan’s Mizuho Bank said the Sunday’s “Greferendum” had turned out to be a “Grief-erendum”.

On what most had expected to be a tricky day for markets around the world, dealers stressed that uncertainty over Greece’s future had not rocked markets as badly as some might have expected.

Read his report in full here.

Updated

“The fightback for a Europe of dignity starts here.”

Another short documentary from John Domokos and Phoebe Greenwood.

As Syriza supporters flock to Athens’ Syntagma square to celebrate, Phoebe Greenwood talks to those who are celebrating a historic referendum outcome. ‘They thought they could intimidate us,’ one man says. Despite jitters on the financial markets, others happy with the historic oxi (no) vote say they hope it will be the moment that Greeks can come together.

Crisis will be "appropriately resolved" China minister says

Deputy Chinese foreign minister Cheng Guoping believes the Greek crisis will be “appropriately resolved” and the economy will turn around, Reuters reports.

However he would not say if Alexis Tsipras could attend an emerging powers summit later in the week in Russia.

“I believe that with the hard efforts of all sides, Greece’s economic situation will turn around. The economic crisis will be appropriately handled,” he told reporters, in China’s first official comment since the Greek vote.

“Whether or not it can be appropriately handled will not only have an important impact on Greece and its people, but will have an important impact on … the world too.”

Asked whether Greek Prime Minister Alexis Tsipras might come to this week’s summit of the BRICS group of five major emerging nations – Brazil, Russia, India, China and South Africa – Cheng said that as Russia was the host it was its decision on whether to invite other countries.

Russia’s finance minister said last week that Russia had not offered Greece the chance to become a member of the New Development Bank that is being created by the BRICS group.

Updated

Result is very regrettable – Eurogroup president

Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, has released a statement on the referendum results.

It is a short statement, but needless to say, Dijsselbloem is disappointed.

I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece. For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities. The Eurogroup will discuss the state of play on Tuesday 7 July.

Argentinian president Cristina Fernández de Kirchner, who is never shy of enthusiastically tweeting her opinions, has welcomed the referendum results.

In a series of tweets written in English, Fernández labeled the No vote an “outright victory of democracy and dignity.”

The Greek people have said NO to the impossible and humiliating conditions imposed upon them for the restructuring of their foreign debt. We Argentines understand what this is about. We hope Europe and its leaders understand the message of the polls. Nobody can be asked to sign their own death certificate. The words of President Kirchner still resound at the UN General Assembly in 2003 he said: “The dead do not pay their debts.”

Some background on the link between Argentina and Greece in this current crisis, from Reuters:

There are stark similarities between Argentina’s 2002 financial meltdown and the turmoil in Greece: rigid monetary regimes, creditors battling domestic politics to fix the problem and banking systems at breaking point.

The South American grains behemoth defaulted on $100 billion in bonds in a 2002 crisis that thrust millions of middle-class Argentines into poverty. By the next year, helped by a massive soy crop, Argentina started growing again.

But the 2002 crisis continues to plague its finances.

Fernandez regularly blasts bondholders who have sued the country over the debt it failed to pay 13 years ago.

Most holders agreed to restructurings that paid about 30 cents on the dollar, while a group of hedge funds sued for full repayment.

The country defaulted again last year when a U.S. judge barred it from honouring its restructured debt without reaching a deal with the funds, which Fernandez denounces as “vultures.”

Argentina became one of the world’s fastest expanding economies after its default, growing at an averaging above 8.5 percent between 2003 and 2007, when Fernandez was first elected.

Since then she has ordered trade and currency controls that have slowed investment while government fiscal accounts deteriorate due to high state spending.

Updated

Greek finance minister, Yanis Varoufakis, has claimed the successful No campaign is a “majestic, big YES to a democratic, rational Europe.”

Varoufakis accuses Greece’s creditors of attempting to “humiliate” the leftwing government by forcing stringent austerity, and dragging them into an agreement which “offers no firm commitment to a sensible, well-defined debt restructure.”

He further writes:

Today’s referendum delivered a resounding call for a mutually beneficial agreement between Greece and our European partners. We shall respond to the Greek voters’ call with a positive approach to:

  • The IMF, which only recently released a helpful report confirming that Greek public debt was unsustainable
  • The ECB, the Governing Council of which, over the past week, refused to countenance some of the more aggressive voices within
  • The European Commission, whose leadership kept throwing bridges over the chasm separating Greece from some of our partners.

Updated

‘We’re going to hit the iceberg’

A great short film here from John Domokos.

From the Syriza faithful to the run-down docks of Piraeus and the middle-class district of Faliro, Greeks spent the day of the referendum locked in debate, suspense and catharsis.

For some it was a day they sent a message to Europe that they will ‘not be intimidated’. But many Greeks fear trouble lies ahead. As one voter said, both a yes and no outcome would result in calamity: ‘We’re three metres from the iceberg and we’re here to be asked if we’re going to go right or left.’ Either way, he said, ‘we’re going to hit the iceberg’.

Updated

Shanghai stocks have jumped almost 8%. The government boosts AFP refers to are emergency measures taken to prevent a possible stock market crash in the world’s second-largest economy. It’s not directly related to Greece, but could still have an effect on world markets.

From Reuters: In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.

China has also orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Europe dodged a bullet with the No result, and its supporters should be breathing a sigh of relief, Paul Krugman writes for the New York Times.

Krugman’s colourful take on the events of the last day is well worth a read, but here is a snippet. He continues:

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding.

Ouch.

Updated

As we continue our watch of the Asian/Pacific markets, the Malaysian ringgit has been given the unenviable title of “worst currency” this morning, according to the FT.

Japan’s Nikkei stock index has mounted a slight recovery after dropping 1.5% in early trading Monday, as Asian markets were jolted by the uncertainty created by Greece’s “no” vote in Sunday’s austerity referendum.

The Nikkei 225 was trading down 1.4% at 20256.69, having earlier fallen 339.64 points to 20,200.15, a day after Greece voted to rejected the eurozone’s terms for the country remaining in the single currency.

South Korea’s Kospi was down 0.9% at 2,085.67.

Nils Pratley, the Guardian’s financial editor, says the current crisis has pushed the financial world back to the wild markets of the 2008 financial crisis.

You can read Nils’ analysis in full here, but below is a snippet on bond markets, which he says will take centre stage.

That is where Grexit worries will be keenest. If Greece could be on the way out of the single currency, will investors be less willing to hold the debt of other eurozone states carrying heavy debt loads? The sovereign debt of Spain, Italy, Portugal and Ireland will be closely watched for knock-on effects. Will there be contagion?

All eyes will turn to the European Central Bank. First, to see if it cuts off support for Greek banks. Second, to learn if it is prepared to intervene to protect the bonds of other eurozone stragglers. Last Sunday, when Greek prime minister Alexis Tsipras called the referendum, the ECB and the eurogroup ministers pledged to react, if needed, to avoid a dangerous fall-out in debt markets.

Pratley also makes an interesting point that while the euro will “almost certainly fall in value initially” there is another school of though which says “the single currency would be strengthened in the long run by the departure of its weakest member.”

The Australian stock exchange fell sharply on Monday’s open, not long after the final vote was counted (not that 100% was needed to see the overwhelming response). Below is a graph from the ASX website.

The Australian stock market fell sharply on open on Monday 6 July, following Greece's rejection of bailout terms by creditors.
The Australian stock market fell sharply on open on Monday 6 July, following Greece’s rejection of bailout terms by creditors. Photograph: ASX

The Australian dollar dipped to a six-year low of US$0.7484 in early trading but has recovered to 0.7509.

The euro, not surprisingly, was down 0.8% at $1.1015 but off an early low of $1.0967. It had initially dropped around 1.5% against the yen – which is seen as a safe haven.

The US dollar also recouped its early drop to be only a touch softer at 122.48 yen.

Updated

In a delightfully headlined post, the Financial Times says early moves don’t suggest a panic in the Asian markets. It also notes:

“The hope for Alexis Tsipras, prime minister, is that the vote galvanises support for his anti-austerity agenda and forces Athens’ creditors to make concessions.

But it’s questionable whether banks will re-open on Tuesday (after a holiday today), as planned. If they don’t, the “no” vote could fast-track a Grexit and see Greece revive its only currency.”

Read more from ‘Fast Asia Open: Oxi oxi oxi, oi oi oi’ here.

Summary

While we await further market news, let’s have a look back at the extraordinary last few hours. My colleague Graeme Wearden, and before him Julia Kollewe, drove live coverage of the vote count and reaction in the streets of Greece and around the world.

You can relive the night blow by blow here, or Graeme’s summary is below.

Greece has delivered a resounding No to its creditors, in a move that has stunned the eurozone tonight and may shake the financial markets.

In the last few minutes, the last ballot papers were counted. And No campaign has exceeded all expectations by securing 61.31% of the vote [here’s the official count].

As our interactive shows, every area of Greece has voted to reject the proposals of Greece’s creditors and seek a better deal.

Prime minister Alexis Tsipras has declared that it’s a historic day for Greece, which shows that democracy cannot be blackmailed.

In a TV address, Tsipras has also vowed to begin negotiations with creditors to reach a sustainable deal to tackle Greece’s debt crisis.

“You made a very brave choice.

“The mandate you gave me is not the mandate of a rupture with Europe, but a mandate to strengthen our negotiating position to seek a viable solution.”

“No” supporte”No” supporters wave Greek national flags during celebrations in Athens, Greece<br />“No” supporters wave Greek national flags during celebrations in Athens, Greece July 5, 2015. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. REUTERS/Dimitris Michalakis” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=“No” supporte”No” supporters wave Greek national flags during celebrations in Athens, Greece
“No” supporters wave Greek national flags during celebrations in Athens, Greece July 5, 2015. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. REUTERS/Dimitris Michalakis Photograph: STRINGER/Reuters

Greece’s future in the eurozone looks more perilous than ever, and the next 48 hours could be critical.

German chancellor Angela Merkel and French president Francois Hollande will meet in Paris on Monday night.

Then on Tuesday, eurozone leaders will debate the crisis at an emergency summit. Eurozone finance ministers will hold a Eurogroup meeting that afternoon.

Eurogroup president Jeroen Dijssebloem has already criticised the result of the referendum, warning:

“I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece.”

But democratic senator Bernie Sanders has hailed the result as a decisive vote against austerity.

A series of financial analysts have warned tonight that Greece is likely to exit the eurozone. As Barclays warned:

“While Chancellor Merkel and President Hollande are scheduled to meet tomorrow, we argue that EMU exit now is the most likely scenario….”

Finance minister Yanis Varoufakis, though, has denied this is an option:

Updated

Japan, S Korea, Australia markets open down

  • Japan Nikkei index down 1.46% to 20239.0
  • Australia’s ASX 200 is down 1.57% to 5451.4
  • South Korea’s Kospi index is down 1.23% at 2078.47

Futures trading

  • UK FTSE 6431.4 (-1.84%)
  • US S&P 500 2044.15 (-1.11%)
  • German DAX 10808.5 (-2.78%)

The Guardian’s Tokyo correspondent, Justin McCurry, has just filed the below update on Japan’s market today.

Japan’s Nikkei stock index opened down more than 300 points on Monday, a day after Greece voted to rejected the eurozone’s terms for the country remaining in the single currency.

The Nikkei mounted a recovery last week after after posting its second-biggest daily drop this year after Greece and its international creditors failed to make a breakthrough in bailout talks.

Japan’s finance minister, Taro Aso, said last week he did not expect dramatic falls in Japanese share prices or a sudden surge in the yen if Greece defaulted but stayed in the eurozone.

He warned, however, that the impact on Japanese and other markets could be big if Athens left the single currency.

Mohamed El-Erian, the former boss of the world’s biggest bond trader Pimco and now chief economic adviser at insurance giant Allianz, said investors should brace for a major global equity selloff.

“Yes, you will see one. With the extent and duration a function of whether the ECB steps in with new anti-contagion measures,” he writes for Bloomberg.

“Without huge emergency assistance from the European Central Bank – a decision that faces long odds – the government will find it hard to get money to the country’s automated teller machines, let alone re-open the banks.”

Over to you Mario Draghi.

Updated

All votes counted – Greece votes no

All referendum votes have now been counted, with a final result of 61.31% voting no, to 38.69% yes.

Eyes are now moving towards the world markets, particularly those in Asia set to open in the next few hours. Tokyo and Korea will be first in the next few minutes and along with Shanghai and Hong Kong later today, are ones to watch.

Unsurprisingly the euro fell sharply in Asia, Reuters has already reported.

The Japanese government said it was ready to respond as needed in markets and was in close touch with other nations.

The euro was down 0.9 percent at $1.1012 but off an early low of $1.0967. It had initially dropped around 1.5 percent on the safe-haven yen only to find a big buy order waiting, which pared its losses to 134.53.

Likewise, the dollar recouped its early drop to be only a touch softer at 122.34 yen. The dollar index added 0.3 percent to 96.434.

Prime minister Alexis Tsipras has addressed the Greek nation, telling voters they made a “brave choice” and that “democracy can not be blackmailed.”

However he added: “I am fully aware that the mandate here is not one to break with Europe by a mandate to strengthen our negotiating position to seek a viable solution.”

Greek voters have overwhelmingly rejected the extra austerity measures demanded by creditors in return for bailout funds. In a referendum held with just eight days notice, more than 60% have voted no, or oxi.

No supporters have taken to the streets in celebration, while Antonis Samaras, the head of the New Democracy party who campaigned for a Yes vote, has resigned.

Shocked EU finance ministers have called an emergency meeting for Tuesday, as analysts fear collapse of the Greek banking system.

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

Published via the Guardian News Feed plugin for WordPress.


USA 

PLEASE NOTE: Add your own commentary here above the horizontal line, but do not make any changes below the line. (Of course, you should also delete this text before you publish this post.)


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

Closing summary: Protests in the heart of the ECB

It’s time for a closing summary.

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

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

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

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

And there’s a video clip here.

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

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

For example:

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

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

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

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

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

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

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

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

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

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

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

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

Thanks for reading and commenting, as ever. GW

Updated

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

The economics correspondent Pete Spence explains her motives:

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

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

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

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

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

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

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

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

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

S&P downgrades Greece

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

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

Video: That protest in full

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


.

Updated

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

ECB: Protester registered as a journalist

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

The European Central Bank has now issued a formal response:

Statement on incident at ECB press conference

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

Security staff took immediate and effective action.

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

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

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

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

Updated

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

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

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

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

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

Updated

Police: 21-year-old arrested

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

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

Updated

The FEMEN activist group have claimed responsibility for the protest.

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

Updated

Confirmation from Reuters:

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

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

After the drama:

ECB press conference, April 15 2015
. Photograph: ECB

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

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

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

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

Best question of the day, Draghi replies.

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

Bloomberg have uploaded a video clip too.

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

Updated

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

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

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

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

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

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

Photos: Protester disrupts ECB press conference

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

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

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

Updated

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

Updated

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

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

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

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

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

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

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

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

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

Updated

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

ECB press conference disrupted

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

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

Updated

Press conference begins

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

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

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

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

Draghi
. Photograph: ECB

Angst breaking out across finance Twitter

Umm no sign of Mario yet….

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

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

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

Updated

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

A quick recap.

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

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

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

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

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

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

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

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

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

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

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

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

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

“Greece is moving ever closer to the abyss.”

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

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

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

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

ECB leaves interest rates at record lows

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

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

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

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

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

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

Slovakia: Greece is close to the abyss

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

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

Reuters has the details:

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

“Greece is moving ever closer to the abyss.”

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

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

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

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

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

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

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

Greek fiscal report
Greek fiscal report Photograph: Elstat

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

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

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

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

Brussels hits Google with antitrust charge

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

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

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

Competition chief Margrethe Vestager says:

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

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

More to follow…

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

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

The German government is declining to comment…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ilya Spivak of DailyFX explains:

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

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

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

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

Updated

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

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

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

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

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

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

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

Updated

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

Here’s his list of five key points:

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

European markets calm after Chinese growth slows

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

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

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

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

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

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

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

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

Updated

Greek bond yields spike on default fears

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

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

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

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

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

The Agenda: It’s ECB Wednesday

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

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

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

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

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

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

Stan Shamu of IG suspects Draghi will sound upbeat:

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

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

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

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

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

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

Or occasionally, right over the brink…..

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

BoE has slashed its forecast for wage growth this year, warned that geopolitical risks are rising, and said contingency plans for financial upheaval over Scottish independence are ready. Here are key points from the Bank’s Quarterly Inflation Report…

 


Powered by Guardian.co.ukThis article titled “Business Liveblog: Bank of England cuts wage growth forecast, and reveals Scottish contingency plans” was written by Graeme Wearden, for theguardian.com on Wednesday 13th August 2014 12.51 UTC

US retail sales miss forecasts, with no growth in July

Over in America, a disappointing set of retail sales figures have just raises concerns over the strength of its recovery.

Retail sales were flat in July, the worst performance in six months, having only risen by 0.2% in June.

Car sales fell, and demand for electronics and home appliances was weak — not a great sign of consumer confidence.

Core retail sales, which strips out cars, gasoline, food services and building materials, rose by just 0.1% in July, and June’s figure was revised down from 0.6% to 0.5%.

Ahha! On page 29 of the BoE’s Inflation report is a bar chart, showing how most new jobs created in the last six months have been in ‘low skill’ professions.

This may help explain the low growth in average earnings in recent months, if more new hirers are taking lower paid positions.

Hat-tip to Jeremy Warner of the Telegraph for flagging it up:

Labour: Weak wage growth shows economy isn’t fixed

Chris Leslie MP, Labour’s Shadow Chief Secretary to the Treasury, has seized on the news that the Bank of England has slashed its forecast for wage growth this year, to just 1.25%.

He says:

“The inflation report shows why this is no time for complacent and out-of-touch claims from Ministers that the economy is fixed and people are better off.

“While the economy is finally growing again and unemployment is falling, working people are still seeing their living standards squeezed. Pay growth is at a record low and lagging behind inflation and the Bank of England has halved its forecasts for wage growth this year.”

As covered earlier this morning, the latest unemployment data showed earnings growth faltering,

Total wages (including bonuses) have shrunk for the first time since 2009. And stripping out bonuses, average earnings rose by the lowest since records began in 2001, up just 0.6%.

Michael Izza, chief executive of ICAEW (which represents accountants) says the Bank of England’s new, lower wage growth forecasts are a concern:

The numbers of self-employed and part-time workers, together with those on zero-hours contracts are contributing to a flexible labour market that is keeping wages down. In addition, auto-enrolment means that employers are having to fund pensions from somewhere, and wages are suffering as a result.

David Kern, chief economist at the British Chambers of Commerce, says the Bank of England is giving out “mixed messages” on the outlook for interest rates.

The higher growth forecast for 2014 and the lower estimate for the amount of slack in the economy may be seen as a signal to bring forward interest rate rises.

However, Governor Carney’s comments will reassure businesses that the MPC will not rush any increases in rates. He also acknowledged that the rising supply of labour in the economy may provide new sources of economic capacity.

An early UK interest rate rise looks a little less likely, reckons Neil Lovatt, director of financial products at Scottish Friendly.

He says:

“To read between the lines, the message today is that rates are still destined to rise, but when that will be is still up for debate. The fickle nature of the UK economy seems to keep everyone guessing.”

“Any rate rises will be small, but even very small rises in interest rates will have a significant effect on what is still a fragile economy. That said, savers thinking that the ‘good old days’ of high interest rates will return are going to be sorely disappointed and the sooner we adapt to this environment the better.”

Those new BoE forecasts

Berenberg Bank have kindly wrapped up the changes to the Bank of England’s forecasts:

  • Growth up. The BoE raised its growth forecasts to 3.5% in 2014 and 3.0% in 2015, both up by 0.1ppts from their previous forecast. Although they cut their 2016 forecast to 2.6% from 2.8%
  • Inflation up in 2014 but down in 2015 and 2016. The BoE now forecasts 1.9%, 1.7% and 1.8% inflation for 2014, 2015 and 2016, compared to 1.8%, 1.8% and 1.9% in their previous forecast.
  • Unemployment down. To 5.9%, 5.6% and 5.4% in 2014, 2015 and 2016, from 6.3%, 6.0% and 5.9% in the previous forecasts.
  • Pay growth cut in the near term but raised later in the forecast. Specifically, the BoE now forecasts wage growth of 1.25%, 3.25% and 4% in 2014, 2015 and 2016 from 2.5%, 3.5% and 3.75%.
  • Slack now estimated at 1% of GDP, compared to 1-1.5% in the second quarter.

So, good news on growth and unemployment, but bad news on pay.

As Berenberg’s UK economist, Rob Wood, puts it, there’s “something for everyone”.

This fan chart shows the new growth forecasts:

One more key point — the Bank of England flagged up that geopolitical dangers (think Ukraine or the Middle East) are a growing threat to Britain’s recovery.

Carney said:

“Markets have been remarkably resilient to some of these geopolitical events and we’re only beginning to see the first advance signs of the middle through some of our major export markets such as Germany and the movements of some of the confidence indicators.”

(thanks to Reuters for the quote)

Bank of England’s quarterly inflation report – the key points

Quick recap.

1) The Bank of England has slashed its forecasts for wage growth, conceding that the recovery has still not fed through to people’s pockets.

The BoE now expects earnings to rise by just 1.25% this year, down from 2.5% previously. It admitted that there appears to be more slack in the economy than it realised, although it is also being eaten up at a faster rate.

Governor Mark Carney said the UK was experiencing “strong output growth”, but this has not been matched by a material pickup in productivity, or wages.

2) The prospects of an early rise in UK interest rates appear to have faded.

The pound tumbled on the news, shedding one cent against the US dollar to $1.6714 as investors calculated that an early rate rise is less likely than before.

The Bank also hammered home that interest rate rises will be gradual and limited, when the time comes to end Britain’s long period of record-low borrowing costs.

3) “Contingency plans” have been drawn up in case Scotland votes for independence.

Carney said:

”Uncertainty about the currency arrangements could raise financial stability issues….We have contingency plans.”

4) During an occasionally barbed press conference, Carney denied that the Bank was increasingly clueless about the UK economy.

He argued that rising geopolitical risks mean there is naturally more uncertainty about the situation, and denied that his precious forward guidance policy has been a muddle.

5) Europe remains a big worry. The BoE says that:

Eurozone growth continued to disappoint, net lending has been falling and inflation has stayed low.

And deputy governor Minouche Shafik warned that the UK can’t rely on the eurozone to drive its recovery.

Eurozone industrial production hits recovery hopes

Incidentally, we had further confirmation this morning that the eurozone is struggling — a poor set of industrial production numbers.

My colleague Jo Moulds reports:

Factory output in the eurozone contracted unexpectedly in June, further damaging hopes of a strong recovery.

Industrial production dropped 0.3% on the month following a 1.1% drop in May, hit by the ongoing conflicts in the Ukraine, Iraq and Gaza.

Production was flat compared to the same time last year. Economists had been targetting a 0.1% rise on the year. The annual reading was the lowest since August 2013.

Bank of England: we can’t rely on the Eurozone for our recovery

Britain can’t rely on the eurozone economy to drive our recovery, warns the Bank of England’s new deputy governor, Minouche Shafik.

Asked about the impact of the European Central Bank’s new stimulus measures (including hundreds of billions of cheap loans for banks), Shafik urged caution, saying the new impact of this LTRO programme will become clear over time.

The eurozone still faces low growth and low inflation, Shafik says, and we need to see whether the ECB’s measures lead to stronger credit growth and a stronger recovery.

The UK can’t rely on a eurozone recovery to lift our recovery. It would be good if the eurozone could drive us forwards, as it’s such an important export market, that’s not very likely, she concludes.

And that was the end of the press conference. Summary and reaction to follow…

Updated

Asked about the rise in self-employed workers (as covered earlier in the blog) deputy governor Ben Broadbent plays down the suggestion that it’s a risk. This isn’t necessarily a bad thing for productivity, he claims.

The Bank of England is tweeting some of the key points from today’s briefing, including a rather dashing (and slightly menacing?) photo of the governor:

Carney treats a question about his ‘muddled’ forward guidance policy with some distain.

Asa Bennett of the Huffington Post points out that the initial pledge (no rate rise until unemployment has fallen below 7%), has evolved into a broader measure based on slack, wage growth, and the like. Was it a muddle, or a learning process?

Not an unfair question, frankly, if a little mischievous.

But Carney doesn’t look pleased, claiming that Bennett is the muddled one, and that his guidance has been entirely consistent across many inflation reports and MPC minutes.

It’s consistent, it’s boring, but what’s what you get, he smiles.

The audience aren’t smiling, though:

Mark Carney: Bank of England has contingency plans for Scottish independence

Mark Carney has revealed that the Bank of England has drawn up contingency plans in case Scotland votes for independence next month.

Asked for his views on the prospect of ‘sterlingisation’ (that Scotland would use the pound without a formal currency union), Carney reveals that that BoE is preparing for all eventualities, as “uncertainty” over Scotland’s currency arrangements could hit financial stability.

He concedes that

He says:

We have contingency plans…. but it’s never a good idea to talk about them in public apart from to say that you have them.

Carney says that in terms of the Bank’s responsibilities for financial stability, we have “a wide range of tools and plans”. And the BoE isn’t the only body with responsibilities here — some are shared with the Treasury.

Updated

Back on the markets…. Carney says he is “encouraged” that the financial markets are more responsive to the latest data.

James Macintosh of the Financial Times takes up Larry’s point, that the Bank is looking increasingly clueless (on a spectrum between certainty and cluelessness).

Mark Carney replies; if we can agree that the range is between perfect certainty and perfect uncertainty, it’s fair that there is more uncertainty, mainly around the issue of productivity.

Here’s a link to the inflation report (sorry for the delay #hectic)

Ah, the Scotland question — is it time for Alex Salmond to produce a Plan B on an independent Scotland’s currency?

Mark Carney takes a cautious line; the Bank will implement whatever policymakers decide, but it has “noted” the statements from the three main UK political parties that they would not enter a formal currency union with iScotland.

He also points out that the Bank has a responsibility for financial stability across the UK, and will keep discharging those duties until circumstances change.

Updated

Could the Bank of England raise interest rates by as little as 0.125%, or would that be the equivalent of ‘boiling the frog’, asks Szu Ping Chan of the Telegraph.

Carney chuckles at the analogy, but doesn’t suggest such a small rise is on the agenda.

Ed Conway of Sky invites Mark Carney to comment on the financial markets’ expectations for UK interest rate rises (harking back to his Mansion House speech in June, when he suggested they were too dovish).

Carney plays the ball deftly, saying that the overall shape of market expectations are consistent with an adjustment that is both gradual and limited.

Deputy governor Ben Broadbent chips in, saying that it’s a “false dichotomy” to suggest the Bank should either be completely certain about everything, or completely clueless.

Larry Elliott, the Guardian’s economics editor, isn’t impressed by today’s report:

Doesn’t today report show that the Bank “really hasn’t got a clue, the MPC is divided, and that anyone taking out a mortgage or an overdraft would be ill-advised, as anything you say must be taken with a very large pinch of salt?”, Larry politely suggests.

Governor Carney defends his record, suggesting rather archly that Larry should try speaking to a lot of firms around the country*. The firms I speak to insist that business have understood the Bank’s ‘forward guidance’, he adds.

Interest rates will go up as the economy improves, they will go up to a limited extent, ands gradually, Carney says. But there are geopolitical dangers, and we may need to react to them.

* – Like in Rochdale, perhaps, Governor?

How much spare capacity is left to be absorbed in the UK economy?

Carney says there is “tremendous uncertainty” about the degree of slack, among policymakers on the Bank’s monetary policy committee (the overall view is that there’s 1% of capacity to mop up).

That’s not hugely reassuring, given the importance that the Bank now puts on the issue when setting monetary policy.

Updated

Alex Brummer of the Daily Mail wants more details about the Bank’s worries about geopolitics.

Carney replies that there is a “slight downturn skew” to today’s growth forecasts.

Bank of England press conference – Q&A session begins

Onto questions — Ben Chu of the Independent asks why the Bank has lowered its forecasts for productivity growth.

Mark Carney explains that firms have been taking on workers rather than investing in new equipment, as labour is cheaper than capital.

That process should end once cheap labour has been mopped up, meaning workers demand higher wages, and encouraging firms to invest in new equipment that will boost productivity. That process is taking longer than thought.

Pound hits 10-week low against the US dollar

The pound has hit its lowest level against the US dollar since last May, as the markets digest the inflation report (and the jobless data).

Sterling is down by 0.45% today, at $1.6732.

Updated

On interest rates, Mark Carney again reiterated that borrowing costs will rise in a “small, slow” manner, when the appropriate moment comes.

The economy is returning to a semblance of normality, Carney concludes.

Carney says that the amount of spare capacity in the economy has fallen somewhat in the last quarter, but the Bank also reckons there was more slack in the UK than before.

Updated

Bank of England slashes forecast for wage growth.

Over at the Bank of England, governor Mark Carney is unveiling the Quarterly Inflation Report.

He is declaring that the Uk recovery is “on track”…. “Robust growth” has taken output above the pre-crisis peak, and the Bank has revised its near-term forecast for growth up.

But the Bank has also slashed its forecast for wage growth in the UK.

  • It now expects wages to rise by just 1.25% in 2014, down from 2.5% previously.
  • It sees growth picking up to 3.25% in 2015, down from 3.5% before.
  • And in 2016, it reckons wages will rise by 4%, up from 3.75% previously.

Carney is also warning that Britain faces rising geopolitical risks, while the eurozone economy remains weak.

And the persistent strength of sterling is also a worry.

You can watch the press conference live here (right-click to open in a new tab).

Updated

So much for the year of the pay rise

Today’s report have cast a shadow over hopes that 2014 will be “the year of the pay rise.”, says the Resolution Foundation.

Adam Corlett, their economic analyst, comments:

“Once again a strong employment performance is to be welcomed but concerns remain over wages. There is still good reason to expect that real pay will start increasing during 2014 but today’s disappointing performance pushes the wages recovery further down the road.

It’s now almost impossible for average real pay in 2014 as a whole to exceed last year’s unless we see an unprecedented surge in wages during the rest of the year.

The number of people receiving the Jobseekers Allowance could soon fall below the one million mark:

The Press Assocation reports:

The claimant count fell for the 21st month in a row in June, by 33,600 to 1.01 million, according to today’s data from the Office for National Statistics.

If the trend continues, the number of Jobseeker’s Allowance claimants will fall below a million next month for the first time since September 2008.

See the report yourself

Nearly forgot… you can see the full labour market report here (as a pdf).

Iain Duncan Smith: Long-term plan is working

Work and Pensions Secretary Iain Duncan Smith has claimed that his changes to the welfare system have helped heal the labour market.

Here’s his official response to the jobless figures:

“In the past, many people in our society were written off and trapped in unemployment and welfare dependency. But through our welfare reforms, we are helping people to break that cycle and get back into work.

“The Government’s long-term economic plan to build a stronger economy and a fairer society is working – with employment going up, record drops in youth unemployment and hundreds of thousands of people replacing their signing-on book with a wage packet.

“This is transformative, not only for these individuals and their families, but for society as a whole. That is why we have set full employment as one of our key targets – bringing security and hope to families who have lost their jobs and others who never had jobs, we put people at the heart of the plan.

“The best way to help even more people into work is to go on delivering a plan that’s creating growth and jobs.”

However….critics, such as our own Polly Toynbee, are less impressed with Duncan Smith’s performance, given the stuttering start to his universal credit project:

Iain Duncan Smith’s delusional world of welfare reform

Today’s slump in real wages are a blow to hopes that the cost of living squeeze was easing — readers may remember that four months ago there was chatter that the squeeze was over, after pay rises (briefly) burst above inflation.

Could Britain’s falling real wages be partly due to changes in the composition of the labour market, with more people taking lower-paid jobs?

Newsnight’s economics correspondent, Duncan Weldon, reckons so:

Britain’s youth unemployment total has fallen:

The ONS reports that there were 767,000 unemployed people aged from 16 to 24 in April-June 2014; 102,000 fewer than for January to March 2014 and 206,000 fewer than for a year earlier.

These were the largest quarterly and annual falls in youth unemployment since comparable records began in 1992.

Updated

The recovery in the labour market has partly been driven by Britain’s army of self-employed people, which swelled by almost 10% over the last year.

The ONS reports that, since April-June 2013,

  • The number of employees increased by 447,000 to reach 25.77 million.
  • The number of self-employed people increased by 408,000 to reach 4.59 million.

UK unemployment, the key charts:

These two charts show what a bizarre jobs recovery the UK is experencing.

On the one hand, the employment rate is close to its highest level on record, as jobless falls and more people find work (820,000 in the last year).

But yet, real wages are shrinking – with the gap between earnings and inflation widening alarmingly (whether you include volatile bonuses or not)

One reason for caution — pay packets were boosted a year ago, because many bonuses were held back until after the UK top tax rate fell to 45%, in April 2013.

The ONS points out that “some employers who usually paid bonuses in March paid them in April last year.”

But if you strip out bonuses, pay is still up a measly 0.6% year-on-year, the lowest on record.

Updated

This chart from Bloomberg confirms that UK wages have suffered their first fall since the depths of the financial crisis:

Here are the key points on today’s unemployment data, from the ONS:

  • For April to June 2014, there were 30.60 million people in work, 167,000 more than for January to March 2014 and 820,000 more than a year earlier.
  • For April to June 2014, there were 2.08 million unemployed people, 132,000 fewer than for January to March 2014 and 437,000 fewer than a year earlier.
  • For April to June 2014, there were 8.86 million economically inactive people (those out of work but not seeking or available to work) aged from 16 to 64. This was 15,000 more than for January to March 2014 but 130,000 fewer than a year earlier.
  • For April to June 2014, pay including bonuses for employees in Great Britain was 0.2% lower than a year earlier, but pay excluding bonuses was 0.6% higher.

UK unemployment rate drops to 6.4%, but wages fall

Breaking News: Wage growth in the UK has hit its lowest level on record, and actually contracted if bonuses are included.

The Office for National Statistics reports that average earnings, excluding bonuses, rose by a mere 0.6% in the three months to June.

That means pay packets lagged well behind inflation — which hit 1.9% in June.

Including bonuses, total pay packets actually contracted by 0.2% during the quarter, the first fall since 2009.

In brighter news, the overall unemployment rate fell to 6.4% in April-June, which is the lowest since the end of 2008. And the claimant count fell by 33,000, showing that the labour market continues to recover.

But that recovery still isn’t reaching people’s pockets.

More details and reaction to follow

Updated

Nearly time for the UK unemployment data to hit the wires….

Reminder — economists expect another rise in employment, and a drop in the number of people claiming benefits.

But a crucial issue is whether earnings are picking up, after years of low pay rises.

As my colleague Katie Allen reports, many employees have been hit hard:

Angela Chicken was still in hospital with her newborn son when she was made redundant. She had been earning £11 an hour as a graphic designer. Ten years on, the 52-year-old single mother makes around £8 an hour working part-time at her local Sure Start children’s centre in Southampton.

With the cost of living rising faster than her pay, Chicken’s wages have fallen even further in real terms, a pattern likely to be reflected across the country in the latest official labour market figures today. After bills and housing costs, Chicken is left with £108 a week to feed herself and her son, buy clothes and anything else they need. They eat well, she said, but there is little left for treats or outings.

“We don’t really have enough money to go on holiday … I don’t get haircuts, I very rarely buy any clothes,” she said. “What I have had to do is pull myself back over the last 10 years to a position that isn’t as good as it was because I got knocked off my perch.”

More here:

In low-wage economy employers paying well make sound investment

Updated

Most of Europe’s stock markets have risen this morning, despite the worrying economic news from Asia overnight (details).

Germany’s DAX is leading the way, up 77 points or 0.86% at 9147.

Insurance group Swiss Re has cheered investors by posting a 3.5% jump in profits.

In London the FTSE 100 is flat (dragged back by a few companies going ‘ex-dividend’).

The Bank of England may admit this morning that it was too optimistic about wage growth, reckons Bloomberg’s Emma Charlton:

We also have confirmation that the eurozone has slipped worryingly close to deflation last month.

Fresh data this morning showed that Spain’s consumer prices index fell by 0.3% year-on-year in July, the biggest drop in almost five years. Month-on-month they slipped by 0.9%.

In France, prices were up by a meagre 0.5% last month compared with July 2013, and also fell on a monthly basis, down 0.3%.

Japan’s GDP shrinks by 6.8%; Chinese new lending slumps

Global economy watchers have two big pieces of economic data from Asia to digest today.

1) Japan has suffered its biggest contraction since the 2011 tsunami, in a blow to efforts to revitalise its economy.

Japanese GDP fell at an annualised rate of 6.8% between April and June (meaning it shrank by 1.7% during the quarter). The slump is being blamed on the recent hike in Japan’s sales tax, from 5% to 8%, which encouraged firms and households to bring forward their spending to January-March.

The government remains relaxed, saying the economy is recovering. But critics of prime minister Abe’s stimulus plan suggest he may have to postpone plans to raise the sales tax again in December.

2) The news from China isn’t too rosy either. The broadest measure of new credit has dropped to the lowest since the global financial crisis, suggesting many banks are cutting back on new lending.

Economists are concerned, as Chinese banks also face the impact of the property market downturn. Beijing may need to unleash further stimulus measures to avoid growth weakening. fastFT has a round-up of analyst comments.

Updated

Analysts at ING will be combing the inflation report for signs that the Bank of England’s monetary policy committee was divided last week, when it voted to leave interest rates unchanged.

They say:

The Bank will release new forecasts and update its forward guidance which will leave the door open for a rates rise this year. Any hints of dissent at the August meeting will boost the case for a November hike.

Inflation report: what to watch for

The Bank of England inflation report will be scrutinised for hints over interest rate rises, the latest assessment of ‘slack’ in the economy, wage growth (or lack thereof), and the outlook for growth (could possibly be revised up) and inflation (might be revised down).

Mark Carney can also expect a few questions about the UK housing market.

Here’s Angela Monaghan’s preview:

Bank of England inflation report – what to watch for

City analyst Michael Hewson of CMC Markets predicts that today’s data will show another welcome drop in the jobless rate, but an unwelcome drop in wage growth.

He writes:

The latest ILO unemployment numbers for June are expected to see a drop from 6.5% to 6.4%, while jobless claims in July are expected to show another drop of 30k, slightly lower than the 36.3k drop seen in June.

Wages growth continues to be the economic head scratcher and is the Bank of England’s biggest problem when it comes to deciding when to raise rates. If we continue to see the gap with inflation widen out then it becomes increasingly difficult to see how the Bank could even contemplate a rate rise this year.

Expectations are for flat wage growth for the 3 months to June, down from the 0.3% rise in May.

* – The wages figures are skewed by the cut in Britain’s top rate of income tax back in April 2013. That prompted some firms to hold back bonus payments until then, making comparisons trickier.

UK unemployment and Bank of England inflation report in focus

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

We’re tracking two big events in the UK this morning. First, the latest unemployment figures, due at 9.30am BST. They are expected to show another drop in the number of people out of work.

But that labour market recovery has come at a price — low wage growth, and today’s figures are likely to show pay rises lagging behind inflation again.

That would mean real wages are still falling; taking the shine off Britain’s economy recovery.

That data will set the scene for the Bank of England’s latest quarterly Inflation Report, released at 10.30am.

This is the Bank’s latest health-check on the UK economy, including forecasts for growth and inflation.

But the big issue is whether the BoE has moved closer to hiking interest rates — Governor Mark Carney will probably be quizzed on this during the press conference.

The key issue is whether the Bank thinks most of the spare capacity, or ‘slack’, in the economy has now been mopped up. Carney will probably reiterate that the Bank is watching wage growth closely – showing whether employers are having to pay more for talent, and whether households could cope with higher borrowing costs.

As Ian Williams of Peel Hunt explains:

Formal changes to the forecasts are likely to be minimal; the overall assessment of the degree of slack, especially regarding the labour market, will be the focus of investor interest.

Elsewhere, European stock markets are expected to rise modestly, despite ongoing geopolitical tensions [the Russian aid convoy chugging towards the Ukraine border could be the next flashpoint].

And in the euro area, investors are digesting yesterday’s slump in German investor confidence, and fretting about how bad tomorrow’s growth figures for the April-June quarter could be.

I’ll be tracking the key events though the day….

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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….)

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

Published via the Guardian News Feed plugin for WordPress.

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

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

Published via the Guardian News Feed plugin for WordPress.

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

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

Published via the Guardian News Feed plugin for WordPress.

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…

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

Published via the Guardian News Feed plugin for WordPress.

The U.S. ISM Non-Manufacturing Index slowed last month to 53 from 53.9. Services PMI in the eurozone stays in line at 51 in December compared with 51.2 in November. UK service growth dips to six-month low, but still in expansion territory…

 


Powered by Guardian.co.ukThis article titled “Service sector data shows mixed picture; Angela Merkel hurt in skiing accident – business live” was written by Graeme Wearden, for theguardian.com on Monday 6th January 2014 14.42 UTC

PRA begins enforcement investigation into Co-op Bank

The Bank of England has just announced that its Prudential Regulation Authority (PRA) is conducting a formal “enforcement investigation” into the Co-op Bank.

The probe will examine the role of ‘former senior managers’ at the troubled organisation.

Here’s the full statement:

The Prudential Regulation Authority (PRA) confirms it is undertaking an enforcement investigation in relation to the Co-operative Bank and as part of that investigation will consider the role of former senior managers.

No further information will be provided on the investigation until the legal process has concluded and an outcome has been reached.

The Treasury has previously indicated that the independent review announced by the Chancellor will not start until it is clear that it will not prejudice any actions that the regulators may take.

The PRA will work with the Treasury to ensure that the enforcement investigation and the independent review are sequenced appropriately.

The Co-op Bank was hit by a series of blows last year, including the discovery of a £1.5bn black hole and the scandal over its former chairman, the reverend Paul Flowers.

Updated

And we’re off….

14:30 – DOW JONES UP 28.00 POINTS, OR 0.17 PERCENT, AT 16,497.99 AFTER MARKET OPEN

14:30 – NASDAQ UP 5.47 POINTS, OR 0.13 PERCENT, AT 4,137.38 AFTER MARKET OPEN 

14:30 – S&P 500 UP 3.42 POINTS, OR 0.19 PERCENT, AT 1,834.79 AFTER MARKET OPEN

Updated

Nearly time for Wall Street to open, and the Dow Jones industrial average is expected to rise modestly…

US service sector PMI shows slight slowdown

Growth in America’s service sector slowed a little in December, but remained comfortably in ‘expansion’ territory, according to Markit’s latest report.

The US Service sector PMI fell to 55.7, down from November’s 55.9, suggesting the sector expanded at a very slightly slower rate.

Encouragingly, firms reported a pick-up in new orders – rising at the fastest rate since April 2012.

Employment at US service firms also rose strongly and at one of the fastest rates since Markit started reporting the US PMI four years ago. And there was a rise in confidence, as this graph shows:

When last week’s US manufacturing data is included, the overall US composite PMI came in at 56.1, down very slightly on November’s 56.2. That suggests steady growth across the US private sector last month.

Britain’s headline borrowing costs have dropped today, after this morning’s service sector survey showed that activity grew at the slowest rate since June.

The yield (or interest rate) on 10-year gilts has fallen to 2.98%, from 3.03% on Friday night.

Bond traders may be calculating that the Service sector PMI suggests less chance of an early tightening of monetary policy. They’re also digesting speculation that the Bank of England might tweak its forward guidance, to dampen the prospect of interest rates being raised soon.

Britain’s bosses are much more confident about the economy than a year ago, according to a survey from the Institute of Directors which just landed in my inbox.

87% of IoD members expect UK GDP growth to be higher in 2014 than in 2013, and many also expect higher revenues and profitability this year within their own firms:

IoD’s Chief Economist, James Sproule, said the survey is the latest evidence that the UK economy is recovering:

 “Our survey is another sign that the economy is indeed recovering.

While the view of the IoD is that economic expansion remains too dependent upon consumer spending, funded in large part by a shrinkage in the savings rate, the fact that 74 per cent of businesses are anticipating higher revenue does point to a welcome broadening of economic growth.

Hopefully, this optimism can also translate into higher wages – ending the long squeeze on real incomes.

Mixed picture of global service sector

Here’s a handy round-up of today’s economic data, from Reuters (with links to the liveblog for more details):

Service industry growth slowed sharply in China as 2013 drew to a close but picked up across most of Europe, suggesting still very uneven global economic performance even as most signs point to a strengthening U.S. revival.

Taken together with business surveys on manufacturing published late last week, the data suggest that an onslaught of global central bank stimulus has had some impact but is not likely to halt any time soon.

Indeed, while business has picked up in many places, particularly in the euro zone which only recently escaped recession, inflation has been on a downward trend in most industrialised countries.

Asian shares fell to a three-week low after news the HSBC/Markit China services purchasing managers’ index (PMI) fell to a two-year low of 50.9 from 52.5, underscoring nervousness about how the world’s second largest economy is performing.

The equivalent Markit survey for the euro zone went the opposite way, rising to 52.1 from 51.7, with new orders coming in at their fastest pace in more than two years. Any number above 50 denotes expansion.

“That just goes to confirm everyone’s suspicions that the Chinese economy is shifting down onto a lower growth path, and that we will see a more balanced growth pattern across the world this year,” said Peter Dixon, economist at Commerzbank.

He expects improved growth in Europe and the United States.

We get the US Service sector PMI data this afternoon…..

Updated

Video: George Osborne’s economy speech

Back on Angela Merkel’s accident briefly, Reuters reports that the German chancellor will not be at Davos later this month (something I mentioned earlier):

Merkel will not attend the World Economic Forum later this month but not because of her skiing accident, Seibert said, adding that the meeting in Davos at the end of January clashed with a scheduled German government meeting.

Market update

In the financial markets, Spain’s IBEX is the best-performing share index in Europe following the news that activity across the Spanish private sector has risen at the fastest pace in six years.

It’s a pretty calm picture otherwise — Angela Merkel’s accident hasn’t caused any anxiety on the Frankfurt trading floor.

  • FTSE 100: up 1 point at 6731, + 0.01%
  • German DAX: up 27 points at 9462, + 0.3%
  • French CAC: up 6 points at 4253, + 0.14%
  • Spanish IBEX: up 80 points at 9878, +0.8%
  • Italian FTSE MIB: up 140 points at 19,252, + 0.7%

Toby Morris, senior sales trader at CMC Markets, says markets lack ‘clear direction’ today, after the flurry of economic data:

Most of Europe has posted modest gains amidst mixed PMI data at the start of the first full trading week of the New Year.

Spain’s recovery continues to gain momentum, with the service sector notching up its strongest growth rate in 6&frac12; years and helping the IBEX top the main Euro benchmarks.

Carl Astorri, senior economic advisor to the EY ITEM Club, says George Osborne has put welfare benefits in the firing line for the next parliament:

We already knew that the Government was planning further deep cuts in spending in the next Parliament but until today we had heard very little about how those cuts were likely to be distributed beyond the first year.

“Today’s speech continues the narrative that the Chancellor set out in his Autumn Statement by suggesting that there will be a much greater focus on welfare going forwards. This would be a big change compared with the current Parliament where Government departments have borne the brunt of the cuts.

“There are obvious political factors behind this change of tack, but it is also a pragmatic decision. These cuts are due to be even deeper than those already allocated but the departmental cuts have been so great that they would struggle to achieve any further savings – particularly if they continue to protect health and large parts of education. Therefore it was inevitable that the Chancellor would have to look at these other areas of spending which, thus far, have seen very little action.”

While the TUC’s Duncan Weldon tweets that the economic debate will change this year:

Returning to the UK’s chancellor…and the Treasury have uploaded the full text of George Osborne’s speech on the economy:

New Year economy speech by the Chancellor of the Exchequer

It includes a warning from George Osborne that the eurozone remains “weak”, and a declaration that both the UK government and the welfare bill must be “permanently smaller”.

I can tell you today that on the Treasury’s current forecasts, £12 billion of further welfare cuts are needed in the first two years of next Parliament.

That’s how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.

Here’s more, from our political correspondent Rowena Mason:

George Osborne warns of more cuts and austerity in ‘year of hard truths’

Osborne’s speech has been criticised by Labour’s Ed Balls, who said the chancellor’s austerity cutbacks are to blame for Britain’s deficit being too high:

“This failure means Labour will have to make cuts and in 2015/16 there will be no more borrowing for day-to-day spending. But we will get the deficit down in a fair way, not give tax cuts to millionaires.

And we know that the way to mitigate the scale of the cuts needed is to earn and grow our way to higher living standards for all.

“The social security bill is rising under George Osborne, but the best way to get it down for the long-term is to get people into work and build more homes. The Tories should back our compulsory jobs guarantee for young people and the long-term unemployed.

And in tough times it cannot be a priority to continue paying the winter fuel allowance to the richest five per cent of pensioners.

Updated

Key event

Our World News desk has an early take on Angela Merkel’s skiing injury, which has forced the chancellor to cancel a trip to Poland this week.

German Chancellor Angela Merkel has fractured her pelvis in a skiing holiday in Switzerland, forcing her to cancel meetings for the next three weeks.

Merkel’s spokesman Steffen Seibert said on Monday that the chancellor suffered what she first thought was just a bruise to her left rear pelvic area while cross-country skiing.

Doctors told her on Friday that the injury was in fact an “incomplete” bone fracture that will require her to rest for three weeks.

Seibert told reporters that Merkel is walking with the help of crutches and would need to cancel a number of official appointments in the coming weeks but would continue to lead the government and hold cabinet meetings.

Merkel will lead a cabinet meeting on Wednesday, which will be the first gathering of all the ministers in the new “grand coalition” government of her conservatives and the centre-left Social Democrats, which was formalised last month.

Seibert said Merkel’s fall occurred “at low speeds” but was unable to say if another person was involved.

Keep watching for updates:

Angela Merkel injured in skiing accident 

Reuters reports that Angela Merkel is using crutches to get around:

German Chancellor Angela Merkel has fractured her pelvis in a cross-country skiing accident and is walking with the help of crutches, forcing her to call off some foreign visits and official appointments, her spokesman said on Monday.

Merkel fell while skiing over the Christmas vacation. What she first thought was heavy bruising turned out to be a partial fracture, meaning she must take it easy for three weeks and work from home where possible, said her spokesman Steffen Seibert.”The chancellor is of course able to work and is in full communication,” said Seibert.

He added that Merkel’s accident occurred “at low speed” but he declined to give further details.

The chancellor is no stranger to crutches — as this photo from 2011 shows, she took to them almost three years ago after a knee operation, to keep working while she recovered.

Angela Merkel’s injury could potentially prevent her attending the World Economic Forum in Davos, which begins in a little over a fortnight’s time.

Davos’s icy pavements are notoriously perilous, so the chancellor would certainly be wise to keep away.

However, that would mean missing out on the chance to hobnob with other world leaders, and top economists and business leaders.

Updated

And here’s the Financial Times’ s early take on Angela Merkel’s accident. (via fastFT):

Angela Merkel, the German chancellor, has been injured in a cross country skiing accident and is under doctor’s orders to rest for three weeks.

Ms Merkel’s spokesman said on Monday she has been told to rest for three weeks after the mishap, reports the FT’s Stefan Wagstyl.

She has postponed a trip to Poland as well as meetings in Berlin, he said, However she is working and is in full contact with her officials, he said.

A bit more detail…

Angela Merkel bed-bound after skiing accident – WSJ

Angela Merkel will be stuck in bed for most of the next three weeks after injuring herself skiing, her spokesman has confirmed.

Here’s the WSJ’s early take:

BERLIN—German Chancellor Angela Merkel has injured her pelvis in a cross-country skiing trip during her Christmas vacation and will have to be mostly bound to bed for the next three weeks, her spokesman said Monday.

As a result, the chancellor has canceled her visit to Warsaw that was scheduled for Wednesday and canceled a meeting with Luxembourg’s Prime Minister Xavier Bettel, said Ms. Merkel’s spokesman Steffen Seibert.

Updated

Twitter is buzzing with reports that German chancellor Angela Merkel has been injured while skiing.

According to AFP, Mrs Merkel has been forced to cancel meetings and won’t be able to travel for several weeks.

Our correspondents in Germany are on the case….

PMI data: the summary

Time to round up this morning’s data, so we can move onto other matters:

• Growth in Britain’s dominant service sector has slowed to its weakest rate in six months, according to the latest survey of purchasing managers across the sector. Details and charts here.

Economists say the drop in the UK service PMI, from 60 to 58.8 in December, is disappointing, but that service sector firms are still pretty healthy.

Indeed, UK service sector growth for the October-December period was the strongest on record, despite last month’s dip.

Markit, which compiles the data, reckons the UK may have grown by as much as 1% in the final three months of 2013.

• In the eurozone, private sector activity picked up for the second month in a row — at the second-highest rate recorded in two and a half years. The data suggests the eurozone economy picked up at the end of last year

But France was a poor performer, again, adding to fears that the eurozone’s second largest member is falling back into recession. Its Service sector PMI fell to 47.8, from 48, showing a deeper downturn.

The latest data from Italy was also disappointing — its service sector shrank again last month. Like France, it suffered from declining new orders.

There was much better news from Spain, though, where the private sector grew at the fastest rate in 77 months after a surge in service sector activity.

And it was another solid month for Germany, with firms reporting an increase in activity and hiring.

It’s disappointing that UK service sector growth fell to a six-month low in December, says Howard Archer of IHS Global Insight. Still, the sector is growing faster than we imagined a year ago:

Services activity was always highly unlikely to sustain the very strong growth rates recently indicated by the survey (the October reading was a 16-year high) and this is still a very strong report overall showing healthy expansion, robust incoming business, markedly rising employment and confidence in the sector at a near four-year high.

In short, this is still a survey that would have been killed for at the beginning of 2013!

Head’s up, George Osborne’s in a factory in Birmingham, giving his speech on the economy in 2014

As flagged up, the chancellor is warning of more cuts to come.

Andy Sparrow is tracking every word in his Politics liveblog: 

Markit: UK growth could hit 1% for Q4 2013

Today’s service sector survey, and last week’s data from the UK’s manufacturing and construction firms, suggest Britain’s economy may have expanded by as much as 1% in the last three months.

That would mean faster growth, as UK GDP rose by 0.8% between July and September. But it might also mark the high point in the recovery, given that service sector growth hit a six-month low last month…..

Jeremy Cook, chief economist at World First, the currency brokers, says today’s data shows the “hot streak” in Britain’s service sector is over.

And while 2013 was a strong year, 2014 could be tougher unless workers finally see real wages rising, he added:

“Despite this slight disappointment in December, the services industry expanded every single month in 2013 and, alongside the expansion in both manufacturing and construction sectors, should see Q4 GDP running at around 0.9%.

“Encouragement can be found within the release from the new orders and employment components, which both expanded at close to record levels and point to a continued level of service sector expansion.

“It’s important to note that the majority of this growth is from business-to-business activity. All companies that rely on the UK consumer will remain wary moving into 2014, as a lack of real wage increases continues to hit the man-in-the-street’s pockets…”

UK service sector growth dips, but still decent

Growth in Britain’s service sector slowed unexpectedly in December to a six month low, according to Markit’s latest data.

But December was still a pretty decent month for the sector, suggesting the UK economy will grow by more than 0.8% in the final quarter of 2013.

Markit’s monthly Service sector PMI fell to 58.8, down from 60.0, surprising City analysts who had expected it to rise slightly to 60.3. It’s the weakest reading since June.

But while the pace of growth eased, firms were still upbeat. Markit found that:

The UK service sector continued to expand strongly as 2013 came to an end, with activity, new business and employment all again rising at marked rates.

Crucially, firms grew more confident in December as new business rose:

Market confidence was reportedly high, according to panellists, with clients enjoying access to larger funds and, perhaps more importantly, willing to commit these to new contracts. Increased marketing and the release of new products also bolstered sales with both new and existing customers.

And at 58.8, Britain’s service sector outpaced its major European rivals.

Here’s the key graphs:

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

“The UK services sector continues to hit the high notes as business confidence surged to its highest level in nearly 4 years.

The average new business growth rate in the final quarter of 2013 was the best in the survey’s history, suggesting a very bright outlook for 2014.

The stronger positive outlook also offers a platform for investment and expansion in new products and marketing, sustaining the continued broad based recovery in the New Year.

And economist Shaun Richards tweets the the sector is still achieving strong growth.

Updated

Chris Williamson, chief economist at Markit, reckons today’s data suggests Europe’s economy should continue to recover in 2014, although France may have fallen back into recession:

He said:

“The PMI surveys indicate that the eurozone recovery gained further traction at the end of last year. December saw the second-largest increase in business activity since June 2011 and rounded off the best quarter for two-and-a-half years.

“Although consistent with a mere 0.2% expansion of GDP during the final quarter, the PMI signalled a strong turnaround in the health of the economy during the course of 2013, and stronger growth looks likely for the first quarter of 2014.

“Most importantly, the labour market stabilised in December, ending a period of falling employment that lasted nearly two years. With inflows of new work accelerating, a return to jobs growth should be seen in 2014. The revival in consumer confidence that should result from the labour market improvement should provide an all-important boost to the economy in 2014.

“However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year. The upturn in the rest of the region may help bring about a return to growth in France, but the data are highlighting the need for structural reforms to bring about a more sustainable and robust recovery in the region’s second-largest economy.”

Updated

Eurozone recovery picks up pace

The Eurozone’s private sector continued to recover in December, but France and Italy’s service sectors stumbled as weak domestic demand held back their recovery.

And there was no improvement (yet) in the region’s labour market, where unemployment remains around record levels. But at least firms appear to have stopped laying off staff.

That’s the main message from Markit, whose composite survey of activity across the region rose to 52.1 in December, up from 51.7 in November, to the second- highest level since the middle of 2011.

In a report titled” Eurozone economic recovery accelerates at end of 2013″, Markit said that “manufacturing continued to lead the recovery in December”, with production growth at its fastest since May 2011.

Service sector business activity grew too, but at the slowest pace in four-months — dragged back by France (see 9.03am for details) and Italy (see 8.55am).

  • Final Eurozone Composite Output Index: 52.1 (Flash 52.1, November 51.7)
  • Final Eurozone Services Business Activity Index: 51.0 (Flash 51.0, November 51.2) 

Nations ranked by all-sector output growth (Dec.)

  • Ireland 58.6 – 2-month high
  • Germany 55.0 – 2-month low
  • Spain 53.9 – 77-month high
  • Italy 50.0 – 2-month high
  • France 47.3 – 7-month low

Reaction to follow….

Updated

But German service sector grows again

Once again, Germany proves immune to problems in other parts of the eurozone.

German service sector firms reported that December was a pretty decent month, with activity rising at a robust pace again.

And while the pace of expansion did slow compared with November, firms hired new staff at the fastest rate in two years,

The German Service sector PMI was 53.5, down on November’s 55.7, but still showing a solid rise in activity (anything over 50=growth).

German services firms said they saw a “continued rebound in new work during December”.

Overall, Germany’s private sector recorded its eighth consecutive month of rising activity, with December being the second-strongest rate of output expansion since June 2011.

Tim Moore, senior economist at Markit, said the eurozone’s largest economy ended last year in pretty decent shape.

“Germany’s private sector finished 2013 with a further strong expansion of business activity, despite service providers indicating a moderation in growth from the near two-and-a-half year peak seen during November.

The improving underlying business climate in Germany led to a rebound in job creation during December, with manufacturing employment returning to growth while service sector companies added to their workforce numbers at the fastest rate for two years.

French private sector contracts at faster rate

And there’s bad news for France too – its service sector activity fell at the sharpest rate since June last month as the country’s firms suffered a drop in new business.

The French service sector PMI fell to 47.8 in December, down from 48.0 in November, showing the sector entered a deeper contraction in the final weeks of 2013.

New business at French service providers fell for the third month running, and firms cut jobs at a faster rate, underlining the troubled nature of the French economy.]

The ‘composite’ measure of private sector activity in France (including its manufacturing sector), fell to a seven-month low, as the graph above shows.

Jack Kennedy, Senior Economist at Markit, said French firms remain optimistic, despite facing a tough struggle in December:

“The French service sector lost further ground in December, with business activity falling at the sharpest rate in six months.

Persistently weak demand continues to impact on the sector’s performance, with firms reporting continued declines in both new business and backlogs of work.

However, firms hold some positivity that the situation will improve in 2014, with business expectations holding at a level better those seen over much of the past year-and-a-half.”

Italian service sector activity shrinks again

Oh dear – Italian service sector companies have reported that activity continued to decline in December as new work dried up, forcing many to cut jobs again.

The Italian Service PMI fell to 47.9 last month, up slightly on 47.2 in November. That shows that the sector contracted again, but at a slightly slower pace (anything below 50 shows falling activity)

Markit warned that Italian service sector firms suffered from “ a weakening of demand….which in turn contributed to further job losses and output price reductions across the sector.”

Here’s the key points:

  •  Second straight monthly decrease in business activity
  •  Further solid drop in employment levels
  •  Input price inflation lowest in three months 

Phil Smith, economist at Markit, commented:

“Recent data have disappointed following the successive increases in business activity through September and October. The service sector looks to have weighed on GDP in the final quarter but, thanks to a robust expansion in manufacturing output, the overall trend in economic activity is broadly flat.

Further notable job shedding at services firms however places upward pressure on an already high unemployment rate, which will do nothing to ease social tensions.”

Osborne: £25bn extra cuts needed

UK chancellor George Osborne has warned that Britain faces another £25bn of spending cuts after the next election, and put welfare spending firmly in the firing line.

Ahead of a big speech on the economy in 2014, Osborne told the Today Programme that further cutbacks are needed to lower Britain’s deficit.

He said:

“We need to find a further 25 billion pounds of cuts after the election. We have to make decisions about where those cuts are to be found

This enormous welfare budget, that ultimately is where you can find substantial savings.”

Our politics liveblogger, Andy Sparrow, will be covering Osborne’s speech and all the ensuing reaction in his liveblog:

George Osborne calls for £25bn spending cuts: Politics live blog

Meanwhile in Switzerland, last year’s slump in the gold price has left the country’s central bank looking at a hefty loss.

The Swiss National Bank reported this morning that it made a loss of 9bn Swiss francs in 2013 (around £6bn), after the value of its gold reserves tumbled by 15bn Swiss francs.

As Reuters explains, the loss could cause some ructions in Switzerland:

The SNB said a 15 billion franc loss on its gold holdings, which lost 28 percent of its value last year, could not entirely be offset by a gain of roughly 3 billion francs from foreign currency and profits of more than 3 billion francs from selling a stabilisation fund set up five years ago to bail out UBS during the financial crisis.

The loss is likely to be politically charged as its means the central bank cannot distribute dividends to its biggest shareholders, Switzerland’s 26 cantons, or states, or to the federal government.

And here’s the key graph showing how Spain’s service sector has enjoyed its strongest growth in over six years.

Spanish service sector growth hits six-year high

Boom. Spain’s service sector has reported the sharpest rise in activity since July 2007 — the month before the credit crunch struck the global economy — indicating a turnaround in the Spanish economy after several years of gloom.

Markit’s survey of purchasing managers across Spain found the firms reported a rise in new orders, improved business conditions and an increase in client demand.

This sent Markit’s Spanish Service Sector PMI jumping to 54.2 in December from 51.5 in November.

This was the second successive reading above the 50.0 no-change mark and signalled the sharpest rise in activity since July 2007, it said.

Staffing levels still fell, but the rate of job cuts eased for the second month running and was the slowest since the current sequence of falling employment began in March 2008.

Here’s the key points:

  • Activity and new orders expand at sharpest pace for over six years
  • Slowest fall in employment since March 2008
  • Further marked reduction in output prices

Andrew Harker, senior economist at Markit, is pretty upbeat:

“The latest services PMI data provide real optimism that in 2014 we could finally see the start of a meaningful economic recovery in Spain.

Activity and new business each rose at rates not seen since prior to the economic crisis, although the extent to which companies are relying on discounting to support growth of orders remains a worry.

There even look to be signs of positive movement in the labour market, with the sector coming close to seeing a stabilisation in employment in December.”

Frederik Ducrozet of Credit Agricole also suggests the report shows the eurozone’s periphery is recovering:

The slowdown in Chinese service sector helped to wipe almost 2.4% off Japan’s Nikkei on the first day of trading in Tokyo this year.

It fell 382 points to 15908, having ended 2013 at a six-year high.

Guy Stear, Asian credit and equity strategist at Societe Generale in Hong Kong, told Reuters that:

“The focal point of the Asian markets is more on Chinese growth and on Chinese political situation and how it’s going to pan out this year, rather than worrying about how tapering will affect Asia specifically,”

(tapering = US Federal Reserve ending its bond-buying stimulus plan)

Updated

Hong Kong’s private sector (manufacturing and services firms) also reported that activity grew at a slower rate last month:

India’s economy continued to deteriorate last month, according to the latest survey of its services companies.

The Indian service sector PMI fell to 46.7 in December, from 47.2, signalling a deeper contraction.

Firms reported that new orders fell at the quickest pace since September, due to an “increasingly fragile economy and competitive pressures”, according to the report (from Markit and HSBC)

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said:

“The service sector continues to face headwinds, with weakening new business dragging down activity. On a positive note, inflation pressures are easing and optimism about the coming year is rising.”

Chinese service sector PMI hits lowest since August 2011

Asian stock markets have fallen to three week lows after China’s service sector posted the slowest growth in over two years.

The closely watched China Services PMI, which measures activity across the country’s service sector firms, dropped to 50.9 last month, sharply own from 52.5 in November. That’s the weakest reading since August 2011, and shows only modest growth.

The data, published by HSBC and Markit, is further evidence that China’s economy is losing some oomph as Beijing tries to rein in excessive credit and rebalance towards growth.

Here’s the key points from the report:

• Output and new orders increase at weaker rates at both manufacturers and service providers

• Manufacturers reduce their payroll numbers, while service providers hire additional staff

• Inflationary pressures ease to five-month low at the composite level 

Hongbin Qu, HSBC’s chief economist for China, said that new business growth had slowed in December to a six-month low, but that firms remained optimistic, adding that:

The implementation of reforms such as lowering the entry barriers for private business in service sectors and the expanded VAT reforms should help to revitalise service sectors in the year ahead.

But Asian stock markets took the news badly, with China’s CSI300 index sliding over 2.2%.

And Japan’s Nikkei is down 2.5%, as Tokyo traders begin the year with a bout of selling (catching up with last week’s losses in Europe and on Wall Street).

A flurry of service sector data awaits us

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

Plenty of economic news coming up this morning, at the start of the first full trading week of 2014.

Surveys of service sector companies from across the globe will be released over the coming hours, giving an insight into how countries performed in December.

The readings from the eurozone should show whether the region’s weaker members are recovering:

Data from China and India has already been released, and neither was very encouraging .

The Chinese Purchasing Managers Index (PMI) showed a sharp drop in growth, while India’s service sector has now been shrinking for six months in a row (more details to follow).

The UK, though, is expected to post another strong reading.

Also coming up today…. chancellor George Osborne is expected to warn that the UK faces “a year of hard truths”, with more cuts on the way. Here’s our preview:

George Osborne says more cuts on way in ‘year of hard truths’

And the US Senate is expected to confirm Janet Yellen as the next chair of the Federal Reserve, succeeding Ben Bernanke, this afternoon.

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

Updated

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

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

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

Published via the Guardian News Feed plugin for WordPress.

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

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

Published via the Guardian News Feed plugin for WordPress.