Germany

Nov. 24, 2017 (Tempus Inc.) - The greenback has been unable to shrug off its turkey-induced malaise this morning, falling versus most of its major peers. The Bloomberg Dollar Spot Index is set for its third weekly loss, its longest losing streak since July. The Index is down 1.6% so far in the month of November.

There is no major data set for release today. We expect trading conditions to be light and likely boring, especially when European traders head out for the weekend.

EUR

The Euro looks to build on its gains from yesterday’s session. The common currency received a boost following strong German GDP yesterday which showed the economy expanded 0.8% in the third quarter.

The good news continued for Europe’s largest economy. A separate report showed that business optimism climbed to a record high. In addition, the largest German opposition party indicated it is willing to form and back an administration led by Angela Merkel.

The Euro is at its strongest level in 6 weeks versus the U.S. dollar.

GBP

The British pound was modestly stronger against the U.S. dollar, mostly on greenback weakness. News was light out of the United Kingdom, but a comment by a Bank of England official has been creating headlines. Silvano Tenreyro reiterated recent BoE sentiment by saying that two more interest rate hikes will probably be needed to get inflation back to target.

However, Brexit will be the real determinant of where policy goes next. The comments again highlight how the central bank is being hamstrung from political uncertainty.


USA 

Disappointment as Germany, France and Italy only post modest growth, while Portugal stagnates and Finland continues to slow. Eurozone GDP misses expectations. France returns to growth, but analysts aren’t impressed. Germany hit by global problems…

Powered by Guardian.co.ukThis article titled “Eurozone GDP: Growth slows to just 0.3% – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 13th November 2015 13.42 UTC

Closing summary: Weak eurozone growth puts pressure on ECB

Rather like April Fool’s Day, eurozone GDP day is best enjoyed before lunchtime. So here’s a summary:

Europe’s economic recovery has faltered, with growth in the single currency region slowing to just 0.3% in the third quarter of the year.

Weak international trade helped to drag back Germany and Italy, and limited France’s recovery too.

Only consumer spending came to Europe’s aid, with household expenditure providing much of the growth impetus.

The subdued performance raises the pressure on the European Central Bank to boost its stimulus programmes at its December meeting.

Nick Kounis, head of macro and financial markets research at ABN AMRO bank, called it the “final push” for the ECB to be decisive.

The day began with France returning to growth, with GDP up by 0.3%.

Finance minister Michel Sapin told AFP that France’s economy will grow “by at least 1.1 percent” for 2015 as a whole, adding he believed the country had “exited the period of extremely weak growth that had lasted too long”.

But analysts were less impressed, pointing out that France’s ran a large trade deficit during the quarter. Only stockpiling by companies prevented the economy shrinking.

Germany’s economy also grew by 0.3%, down from 0.4%. The economy ministry blamed weak trade; economists warned that emerging market slowdown is hurting.

Smaller nations didn’t fare well either, with Italy slowing to +0.2%, the Netherlands barely growing, and Portugal actually stagnating.

But Finland was the real shocker — living up to its reputation as the ‘sick man of Europe’ with a 0.6% contraction.

Finland GDP

Only Greece beat expectations – shrinking by a mere 0.5%, not the 1% expected. That tells you something about the accuracy of City forecasts, and the turmoil in the Greek economy this year. When a 0.5% contraction is ‘good news’, you know you’re been through the mire.

But it may mean that Greece’s economy ‘only’ stagnates during 2015.

That’s probably all for today. I’m off to fold up the Eurozone GDP Day banners, and finish up the party punch.

Thanks for reading and commenting; see you next week. GW

A double helping of halušky to Slovakia, which was the fastest-growing member of the eurozone in the last quarter.

But it’s cold potatoes for Finland, which posted the worst performance – even worse than a Greek economy gripped by capital controls:

Eurozone GDP chart

Eurozone GDP chart

Updated

Here’s our news story on today’s GDP figures (to save new readers scrolling back to 6.15am onwards):

The eurozone’s economy lost steam in the latest quarter as Portugal stalled, Germany slowed and debt-stricken Greece contracted.

Gross domestic product (GDP) across the 19 countries in the single currency bloc rose just 0.3% in the third quarter, according to Eurostat. That defied expectations for growth to hold at 0.4%, according to a Reuters poll of economists. On a year earlier, GDP was up 1.6%, lower than forecasts for 1.7%.

The July to September figures mark a slowdown from eurozone GDP growth of 0.4% in the second quarter and 0.5% in the first quarter and come as the European Central Bank (ECB) hints that it is planning to inject further funds into the eurozone economy to maintain recovery…..

Updated

Eurozone markets hit by GDP disappointment

European stock markets have been hit by the news that growth slowed across the eurozone in the last quarter.

The main indices are all in the red, adding to yesterday’s selloff:

European stock markets, November 13 2015

Conner Campbell of SpreadEX says the mood darkened as this morning’s data emerged.

Joining a decent French figure and sliding Germany growth were misses by Italy and the Netherlands. Even worse were the performances from Portugal and Finland; the former, so often pointed to as one of the region’s post-crisis success stories, saw no growth at all in the third quarter, whilst the latter, increasingly becoming one of the Eurozone’s most rotten appendages, actually saw its GDP contract by 0.6%.

Given region’s general malaise, the Eurozone as a whole was arguably lucky only to see a 0.1% decline quarter-on-quarter, with its Q3 figure coming in at a forecast-missing 0.3%. Understandably investors weren’t too pleased with these results, meaning even the spectre of more ECB QE (the likelihood of which only increased with this morning’s figures) couldn’t drag the DAX and CAC out of the red.

This chart shows how Italy, Portugal and the Netherlands all missed expectations this morning, dragging the eurozone growth rate down (via Bloomberg)

Eurozone GDP

Updated

At just 0.3%, the eurozone economy isn’t growing fast enough to pull unemployment down and drive demand, as Bloomberg economist Maxime Sbaihi explains:

The weakness of the eurozone recovery adds “to the already strong case for the ECB to step up monetary stimulus in December,” says Nick Kounis, head of macro research at ABN Amro Bank.

Kounis added that while Europe’s domestic economy is doing well, it is suffering from weak world trade and deteriorating export markets.

Cyprus has posted another quarter of growth, as its recovery from its 2013 bailout trauma continues.

Cypriot GDP rose by 0.5% in July-to-September, matching the growth in April-June.

That means Cyprus’s economy is now 2.2% larger than a year ago.

The eurozone’s recovery has “ disappointingly lost momentum for a second successive quarter”, says Howard Archer of IHS Global Insight.

The third-quarter slowdown in Eurozone GDP growth appears to have been largely the consequence of negative net trade (this was certainly true of Germany, France and Italy).

This suggests that the benefit to Eurozone exporters coming from the weak euro was offset by muted global growth. Meanwhile, relatively decent Eurozone domestic demand supported imports.

This chart shows how Greece’s economy went into reverse in the last quarter:

Greek GDP

Greek economy shrinks

Oxi Day celebrations, Athens, Greece - 28 Oct 2015<br />Mandatory Credit: Photo by Kostas Pikoulas/Pacific Pres/REX Shutterstock (5320493d) A Greek flag waves during the parade Oxi Day celebrations, Athens, Greece - 28 Oct 2015 Students parade celebrating the ‘’Oxi Day’’ during the 75th anniversary of Greece’s entering WWII, after denying the Italian ultimatum to enter Greek soil in 28th October 1940.

Today’s figures also show that Greece’s faltering recovery has been wiped out in the last three months.

Greek GDP contracted by 0.5% in the July-September quarter, Eurostat says, having risen by 0.4% in April-June.

That’s not a surprise, given the bailout drama this summer which saw banks shuttered and capital controls imposed.

And it’s actually less awful than feared — economists had forecast a 1% contraction:

Updated

Eurozone growth slows to 0.3%

Breaking: The eurozone economy grew by just 0.3% in the third quarter of the year.

That’s a slowdown on the 0.4% recorded three months earlier, showing that Europe’s recovery remains fragile and lacklustre despite the huge stimulus measures launched by the European Central Bank this year.

It’s also weaker than expected — economists had expected 0.4% growth.

Updated

Brussels officials have pointed to Portugal as an example that tough fiscal consolidation can deliver results. Today’s disappointing (no) growth figures may prompt a rethink….

Portugal’s economy stagnates

The national Portuguese flag is hoisted next to the Euro 2004 flag<br />epa000207050 The national Portuguese flag is hoisted next to the Euro 2004 flag as the England soccer squad arrives in Lisbon on Monday, 07 June 2004, for the Euro 2004 European soccer Championships. England will play their opening first round match against France on Sunday. EPA/JOAO RELVAS

More gloom. Portugal’s recovery ran out of steam in the last quarter, just as its political crisis escalates.

GDP was flat in the July-September quarter, after growing by 0.5% in the second quarter.

That’s much weaker than the 0.4% economists had expected, and looks like the weakest quarter in 18 months.

The Portuguese Stats Office says:

Comparing with the second quarter, GDP registered a null change rate in real terms in the third quarter (0.5% in the second quarter).

The contribution of domestic demand was negative, mainly due to the reduction of Investment, while net external demand contributed positively, with Imports of Goods and Services decreasing more intensely than Exports of Goods and Services.

On an annual basis, Portuguese GDP grew by 1.4%, down from 1.6% three month ago.

Portuguese GDP

This comes as Portugal’s left-wing parties vow to overturn its austerity programmes and implement more growth-friendly measures, having overturned its centre-right government this week.

Updated

We now have to wait until 10am GMT for the official eurozone-wide GDP reading for July-September.

But it’s already clear that this wasn’t a great quarter for Europe, with a weak trade performance dragging back the three largest eurozone economies.

Economist Fred Ducrozet reckons eurozone growth will fall short of the 0.4% expected, to 0.3%.

While City firm Abshire-Smith reckons the European Central Bank is under even more pressure to ease monetary policy:

Updated

Italy growth slows

Here comes Italy’s GDP report….and it’s weaker than hoped.

The Italian economy grew by just 0.2% in the third quarter of 2015, dashing expectations of a 0.3% expansion.

It suggests Italy’s recovery is running out of steam.

GDP rose by 0.4% in the first quarter of 2015, dipping to 0.3% in the second quarter – and now just 0.2% in Q3.

Finland’s economy has now been locked in a painful downturn for the last three years, as this chart from Statistics Finland shows:

Finnish GDP

That’s via fastFT, which warns:

Finland is used to cold, dark winters, and the experience could stand it in good stead as the Nordic country’s bitter economic cold snap shows no sign of a thaw.

Netherlands grows by just 0.1%

The Dutch flag flies outside the ING head office in Amsterdam, Netherlands, Monday Oct. 20, 2008.

Next up, the Netherlands…. and its economy struggled to grow in the last quarter.

GDP rose by just 0.1% in the July-September quarter, a very modest performance.

And second-quarter GDP has been revised down, to just +0.1% from +0.2% originally.

That left the economy 1.9% larger than a year ago, weaker than forecast.

Updated

‘Sick man’ Finland’s economy shrinks by 0.6%

Scandinavian Flags<br />ca. 1990s, Helsinki, Finland --- Scandinavian Flags --- Image by Joel W. Rogers/CORBIS

Finland has cemented its growing reputation as one of Europe’s most ailing members.

Finnish GDP contracted by 0.6% in the last quarter, according to new data this morning. That left Finland’s economy 0.8% smaller than a year ago.

The fall in natural resource prices, the demise of Nokia, and the knock-on impact of Russia’s economic problems are all hurting.

Having been one of the cheeleaders for eurozone austerity, Finland now finds itself in a very tough position. It is trying to cut spending to keep its deficit within the limits set by Brussels, which is hurting attempts to return to growth.

Two months ago, finance minister Alex Stubb admitted “we are the sick man of Europe.” Today’s figures don’t challenge that diagnosis.

Slovakia has outpaced its larger neighbours to the west, with growth of 0.9% in the last three months. That’s up from 0.8% in the second quarter.

The Czech Republic has beaten expectations, with growth of 0.5% in the last quarter.

City analysts have been chewing through France’s GDP figures, and they’re not too impressed.

RBC is concerned that inventory-building by companies provided much of the growth:

While Barclays says France’s economy is still vulnerable.

More data. Hungary has missed forecasts by posting annual growth of 2.3% in the last quarter, down from 2.7% three months earlier.

On a quarter-on-quarter basis, Hungary (which isn’t in the eurozone) grew by 0.5%.

Germany’s economy would be in a worse state if consumers weren’t benefiting from cheaper energy costs, points out Holger Sandte of Nordea Markets.

This morning’s figures show that Britain has outpaced its two largest European rivals in the last quarter.

UK GDP grew by 0.5% between July and September, data released last month showed.

That’s obviously better than France and Germany, and also beats America (which grew by around 0.4% in Q3).

Germany’s Statistics Office says that domestic spending was a key driver of growth, while overseas demand for German exports lagged behind:

“Private and public consumption both increased.”

“According to preliminary estimates, growth was held back by foreign trade because imports rose far more strongly than exports.”

Germany’s economy has been dented by problems overseas, says Carsten Brzeski of ING.

Here’s his quick take on today’s growth figures:

The summer weakness of the German industry seems to be more substantial than only a vacation-driven soft spell. The turmoil in emerging markets and the Chinese slowdown have finally left some marks on the German economy.

More generally, the German industry has not managed to accelerate and shift up one gear. Somehow, the weak euro and extremely favourable financing conditions have not fully deployed their full impact on the industry, yet. This is partly the result of weakening external demand but also still the structural lack of investment incentives and projects.

Consumer spending, though, is still strong. More here.

Updated

This German GDP report “isn’t overwhelming”, says Bloomberg’s Hans Nichols, but at least the its economy is still growing.

The slight slowdown in the last quarter suggests Germany has been hit by problems in emerging markets such as China.

And as these charts show, 2015 hasn’t been a vintage year for the German economy

German GDP

german Photograph: Bloomberg
german GDP

The German GDP report is online here.

Germany posts 0.3% growth

German chancellor Merkel visits China<br />30 Oct 2015, Hefei, Anhui Province, China --- German Chancellor Angela Merkel looks on under a German and a Chinese national flag as she visits the German Academy at the University of Hefei in Hefei, China, 30 October 2015. Merkel is on a two-day official visit to China. Photo: Soeren Stache/dpa --- Image by © Soeren Stache/dpa/Corbis

Here comes Germany’s GDP data…. and it shows that Europe’s largest economy grew by 0.3% in the last quarter.

That matches France’s performance, and is a slightly slowdown on the 0.4% recorded in April-June.

Germany’s stats office says that consumer and government spending both rose.

Trade had a negative impact on growth, though, with imports growing faster than exports….

Updated

French finance minister Michel Sapin has welcomed today’s GDP data.

He told AFP newswires that France has escaped a long period of very low growth.

Some reaction to the French GDP report:

French GDP: The details

France’s return to growth was driven by household spending (up 0.3%) and business investment (up 0.7%).

But the trade picture is quite ugly. Exports fell by 0.6%, while imports grew by 1.7%.

So net trade actually knocked 0.7% off GDP, but this was compensated by firms bolstering their inventories.

Without that, the figures look worse.

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The French GDP report is online here.

Updated

Bloomberg TV flags up that the French economy has generally been sluggish over the few quarters, apart from a healthy bounce at the start of this year:

French quarterly GDP

French GDP over the last five quarters Photograph: Bloomberg

France’s economy is now 1.2% larger than a year ago, slightly better than the 1.1% annual growth economists expected.

French economy growing again – GDP up 0.3%

Close-up of French flag<br />A63GGC Close-up of French flag

France has got eurozone GDP day up and running by returning to growth.

French GDP increased by 0.3% in the last quarter, the INSEE stats office reports.

That follows zero growth in the April-June quarter, which fuelled fears that the French economy was stalling.

Updated

Introduction: Eurozone growth figures released

Hang out the bunting and put on the party hats, folks. It’s eurozone GDP day!

We’re about to discover how countries across Europe performed in the third quarter of 2015, from heavyweights like Germany and France to smaller members like Slovakia and Portugal.

Actually, you shouldn’t blow up too many balloons, because we’re probably going to learn that Europe’s recovery remains jammed in second gear.

Economists predict that the eurozone expanded by just 0.4% in the July-to-September quarter. That would match the performance in the second quarter of the year. Better than a recession, but not rapid enough to deal with Europe’s persistent unemployment and debt problems.

EU, eurozone and US growth compared

EU, eurozone and US growth compared Photograph: Eurostat

A poor number today would suggest that Europe has been hit harder than we thought by problems in emerging markets over the summer. It may also show the impact of the Greek bailout crisis on the region.

But anything stronger than 0.4% would be welcome.

The data will also influence whether the European Central Bank feels forced into taking fresh action to stimulate the eurozone economy – a boost to its bond-buying QE programme is already looking likely.

Here’s how the morning should unfold:

  • France: 6.30am GMT / 7.30am CET
  • Germany: 7am GMT / 8am CET
  • Hungary: 8am GMT / 9am CET
  • Romania: 8am GMT / 9am CET
  • Czech Republic: 8am GMT / 9am CET
  • The Netherlands: 8.30am GMT / 9.30am CET
  • Italy: 9am GMT / 10am CET
  • Portugal: 9,30am GMT / 10.30am CET
  • Greece: 10am GMT / 11am CET
  • The eurozone: 10am GMT / 11am CET

Updated

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German bosses are more optimistic about future prospects but UK factories suffer as exports fall the fastest since 2012. Portuguese government bonds are coming under some pressure today as investors react to the unfolding political crisis…

 

Powered by Guardian.co.ukThis article titled “Germany shrugs off VW crisis, but UK factory orders slide – business live” was written by Graeme Wearden, for theguardian.com on Monday 26th October 2015 13.26 UTC

Portuguese bonds hit by political crisis

Portuguese government bonds are coming under some pressure today as investors react to the unfolding political crisis in Lisbon.

While most eurozone bonds have strengthened today, Portugal has gone the other way, pushing up the yield (or interest rate) on its 10-year debt from 2.37% to 2.45%.

Portuguese 10-year bond yield
Portuguese 10-year bond yield today Photograph: Thomson Reuters

The move came after opposition parties vowed to bring down Portugal’s new government in a confidence vote later this week. They’re furious that the centre-right coalition, led by former PM Pedro Passos Coelho, has been invited to form another administration despite failing to win a majority in this month’s election.

In taking this decision, Portugal’s president Cavaco Silva has enraged some certain commentators who argue that he’s “banned” the Portuguese left-wing a fair crack at power in a massive failure for democracy.

It’s a complicated situation, though. No party won an overall majority, although Passos Coelho’s group came first with 38% of the vote. The socialists came second with 32% followed by the hard left Left Bloc with 10% and the communists with 7%.

Those three left-wing parties *could* form a majority, but instead president Silva passed the mandate to Passos Coelho. Crucially, and controversially, he also warned that the far-left parties’ anti-EU views were a threat to Portugal.

Politics lecturer Chris Hanretty has written a good blogpost here, explaining why talk of a coup in Portugal is a little simplistic.

He says:

Often, there is no right or obvious answer to the question, “who won the election?”. But if Cavaco Silva’s decision is wrong, then it will be righted automatically by the actions of Parliament in less than a fortnight’s time.

If that happens, the alarmists will have been proven wrong. Unfortunately, attention will likely have moved on.

Sam Tombs of consultancy firm Pantheon Macroeconomic fears that UK factories will continue to struggle because of the strong pound.

He’s created a chart showing how exports fall after the the pound strengthens (the inverted left-hand scale, shifted forwards nine months).

And that correlation means factory orders could continue to weaken, Tombs explains:

The chart shows that the worst is not over for the manufacturing sector; sterling’s further appreciation over the last year will continue to depress export orders until mid-2016, at least.

IHS economist Howard Archer is alarmed by the drop in UK factory orders reported by the CBI:

This is a thoroughly disappointing survey through and through which indicates that manufacturers’ struggles are intensifying as a moderation in domestic demand adds to a still weakening export outlook.

Persistent and seemingly deepening manufacturing weakness is very worrying for hopes that UK growth can ultimately become more balanced and less dependent on the services sector and consumer spending.

Factory fears as UK exports fall at fastest pace since 2012

A turbine at Alstom power plant turbine refurbishment facility in Rugby.
A turbine at Alstom power plant turbine refurbishment facility in Rugby. Photograph: Bloomberg/Bloomberg via Getty Images

More signs that UK manufacturers are having a tough time as they contend with China’s downturn and a stronger pound.

The latest survey of factory bosses by business group CBI suggests orders have dropped from both within the UK and outside. The report’s key order book balance is the weakest for more than two years.

This does not bode well for official GDP figures due on Tuesday that will give the first snapshot of UK growth in the third quarter. The consensus forecast is for quarterly growth of 0.6% in the July-September period, down from 0.7% in the second quarter, according to a Reuters poll.

The CBI’s report suggests that in the three months to October new export orders fell at the fastest pace in three years. That was possibly down to the continued strength of the pound, which makes UK goods more expensive to overseas buyers, the CBI said.

Total new domestic orders fell over the quarter for the first time since April 2013.

Manufacturing production also edged downwards during the three months to October, marking the first decline in the last two years, according to the CBI Quarterly Industrial Trends Survey.

Against that backdrop, manufacturers’ optimism about both their business situation and export prospects for the year ahead fell at the fastest pace since October 2012, according to the poll of 463 companies. But they predicted that overall manufacturing conditions will stabilise in the next three months, with a small rise in output.

Rain Newton-Smith, CBI director of economics, says UK manufacturers are being buffeted at home and abroad.

“Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they’re also facing pressure back home as domestic demand is easing.”

And here are the key figures from the report:

  • 22% of businesses reported an increase in total new order books and 30% a decrease, giving a balance of -8%, the lowest since October 2012.
  • 20% of businesses reported an increase in domestic orders, with 31% noting a decrease. The balance for domestic orders (-11%) was below the long-run average (-5%), the lowest since April 2013 (-14%).
  • 15% reported an increase in export orders, with 33% signalling a decrease. The resulting balance for export orders (-17%) signalled a faster decrease in orders than the historic average (-7%). This marks the lowest rate since October 2012 (-17%).

Germany’s central bank reckons that the country’s economy remains “quite strong”, despite signs that growth slowed in the last three months.

Peterson leaves Southwark Crown Court in London<br />Magnus Peterson leaves Southwark Crown Court in London October 14, 2014. Magnus Peterson, the founder of the $600 million Weavering hedge fund that collapsed in the wake of the credit crisis in 2009, pleaded not guilty to 16 fraud-related charges at his London trial on Tuesday. REUTERS/Stefan Wermuth (BRITAIN - Tags: BUSINESS) - RTR4A646
Magnus Peterson in 2014. Photograph: Stefan Wermuth / Reuters/REUTERS

Former hedge fund boss Magnus Peterson has just been banned from the City, over one of the biggest rogue trading scandals of recent years.

Peterson’s Weavering Macro Fixed Income Fund collapsed in 2009, costing investors around £350m. It had been marketed as a safe and secure investment, which investors could easily reclaim their funds from.

But once the financial crisis struck, Peterson embarked on a series of risky wagers on financial derivatives which failed to reverse its fortunes. He was convicted of several counts of fraud, after the high court heard how he had taken out $600m of swap contracts, which turned out to be worthless, with another company under his control.

Mark Steward, director of enforcement and market oversight at the FCA, says Peterson has been banned to protect consumer and markets.

“Mr Peterson defrauded investors who should have been able to trust him. Over a prolonged period he purposely used investors’ money to prop up his business, and then lied in order to cover up his deception.”

This makes little practical difference to Peterson, aged 51, right now, as he was jailed for 13 years in January.

Updated

9% hacked off TalkTalk shares after cybercrime attack

Back in the City, UK telecoms group TalkTalk is the biggest faller on the stock market after suffering a major cybercrime attack last week.

TalkTalk shares have slumped by around 9.5% this morning. Last week, the firm admitted that customers’ personal and financial details could have been stolen by cybercriminals who breached its security systems.

TalkTalk boss Dido Harding told my colleague Josh Halliday last night that it’s too early to say if the company will compensate those affected.

She also argued that TalkTalk’s security was better than its rivals, despite the breach:

“Nobody is perfect. God knows, we’ve just demonstrated that our website security wasn’t perfect – I’m not going to pretend it is – but we take it incredibly seriously.

“On that specific vulnerability, it’s much better than it was and we are head and shoulders better than some of our competitors and some of the media bodies that were throwing those particular stones.”

And despite criticism from shareholders, Harding is determined to hold onto her job:

Updated

IFO: German car industry unfazed by VW scandal

IFO economist Klaus Wohlrabe has confirmed that Germany’s auto industry is shrugging off the revelations that VW deliberately cheated on emissions tests.

Speaking to Reuters about today’s IFO report, Wohlrabe pointed out that business expectations and the assessment of current conditions in the sector had both improved this month.

That helped to push IFO’s measure of business confidence higher this month, from 103.3 to 103.8.

Wohlrabe says:

The German automobile industry appears to be unfazed by the VW scandal.

Updated

German business leaders aren’t frightened by the crisis at Volkswagen, and the slowdown in emerging markets, explains Carsten Brzeski of ING.

Here’s his analysis on today’s IFO report:

Surprised but not frightened? German businesses showed an interesting reaction to the recent series of uncertainties and turmoil. In fact, the reaction can be summarized as impressed but not frightened.

Germany’s most prominent leading indicator, the just released Ifo index dropped to 108.2 in October, from 108.5 in September. The first drop since June this year. Interestingly, the drop was exclusively driven by a weaker assessment of the current situation. The expectation component, on the other side, increased to 103.8, from 103.3, continuing its recent positive trend and actually reaching the highest level since June last year.

Of course, one should not interpret too much in a single confidence indicator but today’s Ifo reading suggests that the German business community is filing the Volkswagen scandal as a one-off and also shrugs off the risk from a possible Chinese and emerging markets slowdown. Despite these external uncertainties and regular concerns about the real strength of the German economy, German business remain highly optimistic.

There are two possible explanations for this trend: either German businesses are naive optimists or ice-cold realists, sticking to the facts. In our view, there are many arguments in favour of the latter.

Updated

The euro is slightly higher following the IFO survey:

Updated

German IFO survey: What the experts say

Today’s German business confidence survey shows Europe’s powerhouse economy remains in decent health, say City experts.

Economist Frederik Ducrozet is encouraged by the rise in business expectation this month:

Die Welt’s Holger Zschaepitz points out that confidence in the German carmaking industry rose this month:

Bloomberg’s Maxime Sbaihi points out that demand within Germany is still robust:

Updated

German business climate worsens, but expectations rise

Business conditions in Germany have fallen this month, according to the latest survey of corporate confidence in Europe’s latest economy.

The IFO thinktank has just reported that current conditions in the German economy have deteriorated this month, for the first time in four months.

But IFO also found that business leaders are more upbeat about future prospects than in September. That suggests the VW emissions scandal has not caused major trauma.

IFO’s business climate index fell to 108.2 in October, down from 108.5 in September, but rather higher than expected.

The current conditions index fell to 112.6, from 114 a month ago. That suggests that business leaders are finding life a bit harder — after seeing exports and factory orders deteriorate over the summer.

But the expectations index rose to 103.8, from 103.3, indicating that Germany PLC expects to ride out the slowdown in China and other emerging markets, and the Volkswagen saga.

I’ll mop up some reaction now…

Updated

Speaking of carmakers…Japan’s Toyota has overtaken Germany’s Volkswagen to become the world’s largest carmaker.

Toyota has reported that it sold almost 7.5 million cars in the third quarter of 2015, while VW sold 7.43m.

Does that show that the diesel emissions scandal has hurt VW? Not really — that news only broke in mid-September, giving little opportunity for it to show up in these figures.

But it does show that VW may already have been finding life tougher, even before admitting that around 11 million vehicles were sold with software to trick emissions tests.

(FILES) - The logo of French car maker PSA Peugeot is seen on a car parked in front of French Economy minstry (left) in Paris, on September 11, 2012. French auto giant PSA Peugeot Citroen’s worldwide sales in 2012 dropped by 16.5 percent in 2012 due to contracting demand in debt-crippled southern Europe and the suspension of its activities in Iran, it said in a statement on January 9, 2013. AFP PHOTO JOEL SAGETJOEL SAGET/AFP/Getty Images

Shares in French carmaker Peugeot are down 2% this morning, after reporting a 4.4% drop in sales in China and South East Asia.

That took the shine off a 3.8% rise in sales in Europe.

WPP: business leaders remain ‘risk averse’

Sir Martin Sorrell, WPP chief executive, hides his head in his hand.

Advertising titan WPP is among the biggest fallers in London, down around 2%, despite reporting a 3.3% rise in net sales in the last six months.

Traders may be discouraged by a warning that “risk averse” business leaders are reluctant to stick their necks out too far, given the current geopolitical tensions.

WPP told shareholders that:

Country specific slowdowns in China and Brazil and geopolitical issues remain top of business leaders’ concerns. The continuing crisis in the Ukraine and consequent bilateral sanctions, principally affecting Russia, continued tensions in the Middle East and North Africa and the risk of possible exits from the European Community, driven by further political and economic trouble in Greece, top the agenda.

Corporate bosses are also facing a two-pronged squeeze — from new technology rivals on one side, and cost-cutting activists on the other, WPP added:

If you are trying to run a legacy business, at one end of the spectrum you have the disrupters like Uber and Airbnb and at the other end you have the cost-focused models like 3G in fast moving consumer goods, and Valeant and Endo in pharmaceuticals, whilst in the middle, hovering above you, you have the activists led by such as Nelson Peltz, Bill Ackman and Dan Loeb, emphasising short-term performance.

Not surprising then, that corporate leaders tend to be risk averse.

European markets in muted mood

As predicted, Europe’s stock markets have fallen into the red this morning.

The FTSE 100 has shed arounds 33 points, or 0.5%, as Tony Cross of Trustnet Direct, explains:

It has been a surprisingly muted overnight session in Asia with markets showing little reaction to Friday’s rate cut news out of China.

London’s FTSE-100 is failing to find any inspiration off the back of the news either, with the vast majority of stocks mired in red ink shortly after the open.

The other main markets are also down, apart from Germany’s DAX which is flat.

European stock markets, early trading, October 26 2015
European stock markets in early trading today. Photograph: Thomson Reuters

Mining and energy stocks are generally lower, showing that concerns over global growth haven’t gone away.

Connor Campbell of SpreadEx says:

The FTSE, falling by around 25 points soon after the bell, was weighed down by (what else?) its mining and oil stocks, with investors seemingly less sure about the Chinese rate cut than they were last Friday

Larry Elliott: Why China’s interest rate cut may be bad news for the world economy

By cutting interest rates, China’s central bank risks creating further instability in a global economy that is already hooked on ultra-cheap money and regular hits of stimulus.

As our economic editor Larry Elliott explains, such stimulus measures may already be less effective too:

Problem number one is that by deliberately weakening their exchange rates, countries are stealing growth from each other. Central banks insist that this does not represent a return to the competitive devaluations and protectionism of the 1930s, but it is starting to look awfully like it.

Problem number two is that the monetary stimulus is becoming less and less effective over time. There are two main channels through which QE operates. One is through the exchange rate, but the policy doesn’t work if all countries want a cheaper currency at once. Then, as the weakness of global trade testifies, it is simply robbing Peter to pay Paul.

The other channel is through long-term interest rates, which are linked to the price of bonds. When central banks buy bonds, they reduce the available supply and drive up the price. Interest rates (the yield) on bonds move in the opposite direction to the price, so a higher price means borrowing is cheaper for businesses, households and governments.

But when bond yields are already at historic lows, it is hard to drive them much lower even with large dollops of QE. In Keynes’s immortal words, central banks are pushing on a piece of string….

Here’s Larry’s full analysis on the rate cut:

Copper, a classic measure of the health of the global economy, hasn’t benefitted much from China’s rate cut. It’s only up by 0.2% this morning.

Chinese officials to agree next five-year plan

China is also in the spotlight today as top communist officials gather to hammer out its 13th five-year plan, setting the country’s economic programme until 2020.

Premier Li Keqiang has already indicated that slower growth is on the agenda, by declaring that Beijing will not “defend to the death” its target of 7% growth (which was narrowly missed in the third quarter of 2015).

He declared:

“We have never said that we should defend to the death any goal, but that the economy should operate within a reasonable range.”

Trade links and green issues will also be discussed, as China’s top brass try to manage the country’s economic rebalancing.

With China easing monetary policy last week, and the ECB expected to follow suit in December, it could soon be Japan’s turn to stimulate its economy again….

No jubilation in Hong Kong either, where the Hang Seng index just closed 0.2% lower.

Asian market creep higher after Chinese rate cut

Investors in Asia have given China’s interest rate cut a cautious reception overnight, but there’s no sign of euphoria.

In Shanghai, the main index of Chinese shares rose by just 0.5%, or 17 points, to 3430. Although Friday’s stimulus move has been welcomed, traders are also worrying about whether China is still going to suffer a hard landing.

Said Zhang Qi, an analyst at Haitong Securities in Shanghai, says shares got a small lift from the rate cut:

“But the market appeared to be in correction after it rose a lot in October, and some investors sold stocks on the short-lived rise from the rate cuts. So overall, the market stayed stable today.”

Japan’s Nikkei gained around 0.7%, but the Australian S&P market dipped a little despite hopes that its mining sector would benefit from Chinese stimulus moves.

Asian stock markets, October 26
Here’s the situation across Asia’s stock markets Photograph: Thomson Reuters

Updated

The agenda: Investors await German confidence figures

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

Today we’ll find out whether business confidence in Germany has been badly hit by the Volkswagen saga, and the slowdown in emerging markets.

The latest IFO survey, due at 9am GMT, is expect to show that German firms are gloomier about their prospects. That’s understandable, given the drop in German exports, factory output and orders in August.

We’ll also be mopping up the reaction to China’s interest rate cut, announced late last week.

That did give shares a boost on Friday afternoon, but European stock markets are tipped to fall back this morning, as concerns over the situation in China reemerge.

China’s rate cut came just a day after the European Central Bank hinted that it could boost its stimulus package soon, so investors have lots to ponder.

China cuts interest rates in surprise move – as it happened

In the corporate world, traders are digesting results from advertising giant WPP and French carmaker Peugeot.

And we’ll also be keeping an eye on Portugal, where the president has dramatically asked centre-right leader Pedro Passos Coelho to form another government, rather than two eurosceptic left-wing parties.

Portugal Government Fuels Debate About Democracy in Europe

We’ll be tracking all the main events through the day…..

Updated

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German factories suffer in August. VW is preparing to scrap non-essential spending as it battles with the emissions scandal. VW boss: “This won’t be painless”. Non-essential VW investment in doubt. Institute of Directors demand early EU vote…

 

Powered by Guardian.co.ukThis article titled “Volkswagen prepares for ‘painful’ changes; German factory orders slide – business live” was written by Graeme Wearden, for theguardian.com on Tuesday 6th October 2015 12.40 UTC

America’s trade gap has hit a five-month high, in another sign that global economic growth may be weakening.

US imports rose by 1.2% in August, fuelled by a 3% increased in purchases from China.

But exports shrank by 2%, to their lowest point since October 2012. That indicates weakness in key markets such as emerging nations and Europe. It could also reflect the impact of the stronger US dollar, which has gained against other currencies.

This drove the US Trade Deficit up to $48.33bn in August, up from $41.81bn a year ago.

The VW scandal hasn’t hurt the UK auto industry yet – car sales hit an all-time high in September, according to new data today.

Petrol-powered cars saw the strongest demand; suggesting some consumers might be more wary about diesel now.

Updated

Volkswagen boss: Painful changes are ahead

A VW employee enters the Volkswagen factory site through Gate 17 in Wolfsburg, Germany, Oct. 6, 2015. For Volkswagen, the cost of its cheating on emissions tests in the U.S. is likely to run into the tens of billions of dollars and prematurely end its long-sought status as the world’s biggest carmaker. (Julian Stratenschulte/dpa via AP)

A VW employee arriving at the Wolfsburg factory today. Photograph: Julian Stratenschulte/AP

Workers at Volkswagen have been warned to expect painful changes as the German carmaker tackles the emissions scandal.

New CEO Matthias Müller told staff that non-essential investments will be delayed or abandoned as it wrestles with the crisis.

Müller told today’s meeting in Wolfsburg that:

“Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear”.

“Therefore we are putting all planned investments under review. What is not urgently needed will be scrapped or delayed”.

“And therefore we will adjust our efficiency programme. I will be very open: this won’t be painless.”

Muller’s warning came after works council boss Bernd Osterloh predicted that bonus payments to workers are now at risk too.

Updated

Our Katie Allen confirms that Britain’s directors do not march on an empty stomach, or an environmentally friendly one….

Update: IoD delegates have now plonked themselves outside in the sun — making a nice photo for visiting tourists.

Updated

Delegates at the Institute of Directors’ conference are tucking into their legendary lunchboxes — a chance to refuel after a morning discussing weighty topics like Europe and migration.

There’s an astonishing amount of packaging on display too — here’s a photo of just one box:

Perhaps Britain’s new tax on plastic bags should be extended? £10 per plastic lid might cover it….

Here’s a couple of photos of Volkswagen staff arriving in Wolfsburg, where they were briefed on the emissions crisis today:

Volkswagen<br />06 Oct 2015, Wolfsburg, Germany --- VW employees enter the Volkswagen factory site through Gate 17 in Wolfsburg, Germany, 06 October 2015. Photo: JULIAN STRATENSCHULTE/dpa --- Image by © Julian Stratenschulte/dpa/Corbis

VW employees enter the Volkswagen factory site through Gate 17 in Wolfsburg, Germany. Photograph: Julian Stratenschulte/dpa/Corbis
Volkswagen<br />06 Oct 2015, Wolfsburg, Germany --- VW employee Birgit Schuettke shows off an IG Metall shirt written with ‘One Team. One Family.’ at the end of the works assembly at Gate 17 at the Volkswagen factory in Wolfsburg, Germany, 06 October 2015. Photo: JULIAN STRATENSCHULTE/dpa --- Image by © Julian Stratenschulte/dpa/Corbis

Volkswagen employee Birgit Schuettke shows off an IG Metall shirt written with ‘One Team. One Family.’ at the end of the works assembly at Gate 17. Photograph: Julian Stratenschulte/dpa/Corbis

Brewing firm SABMiller has turned down an ‘informal offer’ from rival Anheuser-Busch InBev, according to a Bloomberg newsflash.

That’s sent SAB’s shares down 3%, to the bottom of the FTSE 100 (budge up, Glencore!).

This come three weeks after AB INBev, which brews Stella Artois and Budweiser, approached SAB, whose brands including Grolsch and Peroni.

Any deal would be huge, creating a new company worth perhaps $250bn (£160bn).

AB InBev has just a week to make a firm bid or walk away, so it’s not Last Orders in this story, yet.

The works council boss at Volkswagen, Bernd Osterloh, has told staff that the company will have to review all its investments following the emissions crisis.

He also predicted that their pay packets will suffer too.

Osterloh gave the warning at today’s staff meeting in Wolfsburg (see earlier post)

Reuters has the story:

All investments at Volkswagen will be placed under review, the carmaker’s top labour representative said on Tuesday, as the embattled German group grapples with the fallout of its diesel emissions scandal.

“We will need to call into question with great resolve everything that is not economical,” Bernd Osterloh, head of VW’s works council told more than 20,000 workers at a staff gathering in Wolfsburg, Germany.

The scandal is not yet having consequences for jobs at VW, which employs 60,000 people at its main factory, but will impact earnings at the core autos division as well as bonus payments to workers, Osterloh said.

VW: eight million cars sold in EU with cheat software

Volkswagen Wrestles With Diesel Emissions Scandal<br />BERLIN, GERMANY - OCTOBER 06: The Volkswagen logo is visible under coloured lights on the front of a Volkswagen Passat 2.0 turbodiesel passenger car affected by the Volkswagen diesel emissions software scandal on October 6, 2015 in Berlin, Germany.

Volkswagen has revealed that it sold eight million cars with defective emissions testing software across Europe.

It made the admission in a letter to German MPs, dated last Friday.

That’s the bulk of the 11 million cars affected, including almost 500,000 in the US.

We already know that 1.2m cars sold in the UK contained software to beat emission tests, plus 2.8m in Germany.

Updated

Looks like Lord Lawson got the last blow in:

They’re still arguing…

Lawson and Mandelson on Europe

Back at the IoD conference, Nigel Lawson and Peter Mandelson are having a brisk exchange of views over Britain’s membership of the EU (Lord M is pro, Lord L is con).

Katie Allen is impartial, and tweeting the key points from the Albert Hall:

Mining shares are leading the fallers in London this morning.

The 1.8% drop in German factory orders in August isn’t helping the mood.

Investors are concerned that falling demand from emerging markets could increase the raw materials glut, which has already driven commodity price down to multi-year lows.

Biggest fallers on the FTSE 100, October 05 2015

Biggest fallers on the FTSE 100 this morning. Photograph: Thomson Reuters

Updated

The Institute of Directors’ chief is also rebuking UK politicians for playing the migrants card:

Business leaders demand early EU referendum

Over at London’s Royal Albert Hall, business leaders are gathering for the annual Institute of Directors convention.

The 2,000 or so delegates will be hearing first from IoD head Simon Walker. As we reported this morning, Walker will use his speech to warn prime minister David Cameron that waiting till 2017 to hold the referendum on EU membership risks turning it into a confidence vote in the government.

He wants the referendum brought forward to 2016.

Walker will tell the audience that:

“By 2017 this government will have implemented spending cuts that, while necessary, will not be popular. The third year of an election cycle is a difficult time for any administration. There is a real possibility that a 2017 referendum would be a short-term judgment on the government: a chance to whack the political elite.”

Next up, just after 10am is a debate on Britain’s EU membership between former Labour business secretary Lord Mandelson and former chancellor Lord Lawson, who last week announced he will lead a Conservative party campaign to leave the EU.

Also making an appearance, is chief executive of Lloyds Banking Group, Antonio Horta-Osorio, just a day after chancellor George Osborne announced the sale of the taxpayers’ remaining stake in the bailed out bank. The bank boss is talking on a panel under the banner “The future of banking: How to win back trust in a changing world.”

Alongside its trailing of Walker’s EU referendum thoughts, the IoD is also using its convention to adds its thoughts to the never-ending UK productivity puzzle debate.

Policymakers are looking at the puzzle all wrong, according to the business group’s new report, Balancing UK Productivity and Agility. It wants more focus on “agility” to ensure “new ideas and technologies spread throughout the economy as quickly as possible”.

It warns factors that have driven productivity gains in the past, such as large firms realising economies of scale and developing deep specialisations in certain areas, are no longer relevant for the UK and “it would be foolish to try to recreate them”.

IoD chief economist James Sproule explains:

“In pursuing the nirvana of steadily-rising productivity, one has to bear in mind how our economy is changing, how people choose to work, and what future economic success will look like.

We need to ask if too close a focus on productivity numbers without considering wider factors could pose a long-term risk to the economy and prosperity.”

His report echoes scepticism over how much can be gleaned from current productivity data and what many economists see as a narrow focus on mere output per hour measures.

Updated

Back in the UK, house prices dipped by 0.9% last month, according to mortgage lender Halifax.

But that’s little relief to those hoping to get a house (or buy a bigger one. Prices are up around 8.9% year-on-year. On a quarter-on-quarter basis, they’ve been gaining since the start of 2013.

Jonathan Portes

Interesting…. Jonathan Portes, one of the UK’s better known economists, has left his post as director of the National Institute of Economic and Social Research thinktank.

There doesn’t appear to be an official announcement, but NIESR has updated its website to show that Dame Frances Cairncross is now ‘interim director’.

Portes (who’s staying at NIESR as a research fellow until April) is known for using his statistical nous to fact-checking erroneous claims in the papers, especially over the impact of fiscal policy on poorer households.

But he also raised hackles among right wingers for his comments on austerity; they claimed loudly that Portes (once PM Gordon Brown’s chief economist) was too partisan for an independent thinktank:

Those spats culminated in an epic row with historian Niall Ferguson over an article in the Financial Times, which spawned an 16-page adjudication – and no clear winner (although the FT cleared itself of any failings, of course)

Updated

A general view of Wolfsburg, home to German carmaker Volkswagen.

A general view of Wolfsburg, home to German carmaker Volkswagen. Photograph: Carsten Koall/Getty Images

Over in Wolfsburg, thousands of Volkswagen employees are meeting at company HQ to hear from their new CEO.

Matthias Müller will brief staff on the ongoing emissions scandal, as Volkswagen strives to find a solution after selling millions of vehicles containing ‘defeat devices’ to fool emissions tests.

Müller was appointed as CEO less than two weeks ago, after Martin Winterkorn stepped down following the revelations that VW engines contained illicit software to hide how much noxious gases they produced.

It emerged last night that the probe into the VW scandal centres on two top engineers. Ulrich Hackenberg, Audi’s chief engineer, and Wolfgang Hatz, developer of Porsche’s Formula One and Le Mans racing engines, were among the engineers suspended last week, according to the WSJ.

European stock markets are being dragged down by the news that German factory orders slid in August.

The main indices are all in the red in early trading, with Germany’s DAX shedding almost 0.5%.

European stock markets, October 06 2015

Investors may also be anxious about the eurozone, after Brussels warned Spain last night that i’s 2016 budget isn’t good enough, and needs more spending cuts.

Conner Campbell of SpreadEx explains:

A huge miss in German factory orders (complete with a downward revision for last month’s figure) seems to have taken the edge off of the Eurozone, following a Eurogroup meeting yesterday that hinted at more trouble for the currency union going forwards.

European Commissioner Pierre Moscovici warned that Spain will miss its headline targets in 2015 and 2016, providing yet another bearish note from the country that already includes a 21 month low manufacturing figure, a 9 month low services PMI, a separatist victory in Catalonia AND an impending general election in September.

German economy minister: Global demand is ‘less reliable’

Here’s Associated Press’s early take on the decline in German factory orders:

German factory orders dropped for the second consecutive month in August, led by a drop in demand from countries outside the eurozone and lower demand at home.

The Economy Ministry said Tuesday that orders were down 1.8% in seasonally adjusted terms compared with the previous month. That followed a 2.2% drop in July.

Orders from other countries in the euro area were up 2.5%, following a smaller gain in July. However, demand from inside Germany was off 2.6% percent and orders from outside the eurozone dropped 3.7%.

The Economy Ministry noted that demand from countries beyond the euro area appears to be “less reliable at present.”

Germany has Europe’s biggest economy and is one of the world’s biggest exporters.

Updated

This chart confirms that German industrial orders have tailed off in the last couple of months, after a decent start to the year.

German industrial orders

German industrial orders Photograph: Destatis

The red line shows the total (or Insgesamt), while the blue line shows domestic orders (Inland) and the yellow line shows overseas orders (Ausland).

German factories suffer sliding orders

German factory orders fell unexpectedly in August, fuelling fears that Europe’s largest economy is being hit by slowing global growth.

Industrial orders slid by 1.8%, according to the economy ministry, dashing expectations of a 0.5% rise.

The decline was mainly due to falling demand from outside the eurozone, according to the ministry (which also attribute some of the decline to holidays). Orders from non-euro countries slid by 3.7%, while domestic orders shrank by 2.6%.

This is before the Volkswagen emissions scandal struck, hurting confidence in German industry.

July’s industrial orders has been revised down too, from -1.4% to -2.2%; again, driven by a decline in overseas demand.

It’s a worrying sign, suggesting ripples from the emerging market slowdown are now lapping against the eurozone.

Updated

The Agenda: Stimulus hopes keep markets buoyant

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

There’s a relaxed mood in the markets this morning, as investors become increasingly convinced that central banks won’t be able to tighten monetary policy anytime soon.

European stock markets are expected to inch higher after the Dow Jones industrial average jumped by 304 points overnight.

Last Friday’s disappointing US jobs report has probably helped to kick the first American interest rate rise into 2016.

Jasper Lawler of CMC Markets explains:

The weaker than expected US jobs report significantly reduces the chance of a rate hike this year from the Federal Reserve.

Europe and China could also be on the verge of adding stimulus with deflation and low growth possibly enough motivation for the respective central banks to intervene before the end of 2015.

Over in Japan, the Nikkei has closed 1% higher, as traders in Tokyo anticipate more stimulus from their own central bank.

Also coming up….

The bosses of Britain’s top companies will be gathering at the Institute of Director’s annual bash in London. They’ll be discussing Europe and the refugee crisis (among other topics).

Six former City brokers are going on trial over allegation that they rigged the benchmark Libor interest rate.

And in the City, we’ll be looking at results from budget airline easyJet and pastry purveyor Greggs…..

Updated

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The Bank of England kept rates on hold at 0.5% and there was no change at the ECB, against a backdrop of weak German industrial output and Italy’s slide back into recession. TLTRO still on track to be rolled out later this year by the ECB…

 


Powered by Guardian.co.ukThis article titled “UK interest rates on hold at 0.5%; no change at the ECB – Business live” was written by Josephine Moulds, for theguardian.com on Thursday 7th August 2014 12.23 UTC

More reaction to Russia’s import ban…

The ECB has left rates on hold, as expected.

In June, the bank cut its main refinancing to a record low of 0.15 per cent and put its deposit rate in negative territory, charging banks 0.1% on a portion of their reserves parked at the bank. It also launched a new ultra-cheap, four-year loan program, dubbed TLTROs, to be rolled out later this year.

RBS points out that market opinion on when rates will rise has shifted forwards since the beginning of the year…

But wage growth in the UK is amazingly low compared with the 40-year average.

Chris Williamson at Markit says it’s all about when wage growth starts to pick up.

If pay starts to rise in coming months, the first rate hike looks likely in November. Otherwise, any tightening of policy can wait until next year.

The British Chambers of Commerce is banging the drum for the MPC to sit tight.

The MPC made the right decision to keep interest rates and quantitative easing on hold. The UK’s economic recovery remains on track but is still facing challenges and this is not the time to put it at risk with premature rate increases. The current calls for higher rates, particularly while wage pressures are still weak, are unjustified. Official figures show that a large number of people are working part time because they are unable to find a full time job – refuting the view that there is no spare capacity in the economy.

Captial Economics is betting on a rate rise in early 2015, saying:

The key point is that the absence of inflationary pressure is likely to mean that the MPC will be able to raise rates only slowly over the next few years.

The reaction is flooding in about the Bank of England decision to keep rates on hold. James Knightley at ING Markets said:

Given we don’t expect any significant loss of momentum for the UK economy over the rest of the year we favour a November rate hike from the BoE with very slow and steady additional tightening of perhaps 25bp per quarter thereafter.

He expects to see one, possibly two members of the MPC having voted for a rate hike at today’s meeting, but we won’t find that out until the minutes are released on August 20.

Howard Archer at Global Insight:

No change in interest rates; No Bank of England statement; No surprise. A spike in consumer price inflation to 1.9% in June from 1.5% in May, ongoing appreciable falls in unemployment and further robust GDP growth of 0.8% quarter-on-quarter in the second quarter are supportive to the case for raising interest rates before the end of 2014.

However, ongoing very low earnings growth and some signs that growth could be losing a little momentum (notably, recent weaker news on the manufacturing sector as well as a dip in consumer confidence in July and softer retail sales in June) support the case for the Bank of England delaying any interest rate hike until 2015.

On balance he settles for late 2014.

The Bank of England has kept rates on hold at 0.5%. We’ll find out if there was any split on the voting in two weeks time when they release the minutes.

Tesco has been downgraded to just two notches above junk by Standard & Poor’s. The credit rating agency says the UK’s biggest supermarket is suffering from “persistently high market competition” and “will continue to see a trend of weaker profitability and top-line pressure”.

It downgraded the retailer’s debt one notch to BBB, with a negative outlook. The analysts said:

In a trading update which accompanied the appointment of its new CEO, Tesco has stated that because current trading conditions are more difficult than it anticipated, its sales and trading profit in the first half of the year are less than it expected.

The negative outlook on Tesco reflects our view that the lower profitability could lead to further deterioration in credit metrics, beyond the levels we consider adequate for the current ratings.

The European Commission has responded to Russia’s import ban announcement. A spokesman said:

The European Union regrets the announcement by the Russian Federation of measures which will target imports of food and agricultural products. This announcement is clearly politically motivated.

The Commission will assess the measures in question as soon as we have more information as to their full content and extent. We underline that the European Union’s restrictive measures are directly linked with the illegal annexation of Crimea and destabilisation of Ukraine. The European Union remains committed to de-escalating the situation in Ukraine. All should join in this effort.

Following full assessment by the Commission of the Russian Federation’s measures, we reserve the right to take action as appropriate.

The markets react predictably to Russia’s erratic behaviour. The price Russian companies will now have to pay to borrow money on the international markets has shot up.

Yields (effectively the interest rate) on Russian corporate bonds are now at 7.2%, compared with 5.2% for corporate bonds across emerging markets as a whole.

Power company Drax has lost its court of appeal ruling against the government, meaning one of its power stations will not be eligible for a lucrative subsidy.

The company is in the process of converting Britain’s largest coal-fired power plant to burn biomass, which is heavily subsidised. In December, the government said plans to convert two of its units would be eligible for subsidy contracts. But in April ministers unexpectedly disqualified one of the units, claiming it was ineligible.

The shares are down 11% now, after Drax said it would not appeal the decision.

Updated

The Russian import ban is largely futile, says the Economist.

German submarines sank merchant shipping in both world wars to stop Britain from importing food. Russia presumably imports food from Europe because it is cheaper or of better quality; diverting resocurces to produce food at home will be less economically efficient.

And what happens if they buy the food from Latin America or Asia? Well, those Latin American and Asian producers are currently selling the food to other non-Russian consumers. So those consumers will simply buy European and American goods themselves.

It notes that not all sanctions are so easily got round. Russia could cut off gas exports to Europe but that would mean Russia would not get paid, making it another potential own goal.

The main cost to Russia, as the column pointed out a couple of week ago, is that its erratic actions put off international investors, leading to lower asset prices and a higher cost of funding. In stockmarket terms alone, this effect is a trillion dollars. Impoverishing investors and making food more expensive; it’s not an inspiring platform.

There Bank of England might not be expected to announce a rate change today, but it’s coming.

Some quotes from Dmitry Medvedev’s press conference, when he announced the ban on food imports from the west. He said:

There is nothing good in sanctions and it was not an easy decision to take, but we had to do it.

Medvedev also threatened a series of further counter-sanctions, including a proposal to ban European and American airlines from flying over Russia’s territory.

It doesn’t mean that they’ll be adopted, but they are on the table.

The government was also “potentially ready” to introduce protective measures in a number of industrial sectors including the automobile industry, shipbuilding and aircraft production, he said.

Updated

Greek unemployment eased slightly in May but it is still shockingly high. The country’s statistics agency said the jobless rate inched down to 27.2% from 27.3% in April. That is more than double the eurozone average of 11.6% in May. Joblessness remains a major issue in Greece, despite signs of recovery in the economy, which is expected to emerge from recession this year.

Updated

Companies are starting to feel the effects of the Russian turmoil. The world’s number two bottler of Coca-Cola drinks warned volumes would fall for the rest of the year, citing a “sudden deterioration” in Russia, its biggest market.

It said volumes fell by a low single digit percentage in the second quarter, the first decline in 11 quarters, saying the escalation of the crisis in Russia and Ukraine had affected consumer spending in the region.

Medvedev’s announcement confirms Putin’s comments yesterday, covered in my colleague Jennifer Rankin’s story. She writes:

Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia in a tit-for-tat move that deepens the economic standoff between the Kremlin and the west.

In tacit recognition that Russian consumers will bear the cost of the import ban, the decree also instructs officials to come up with measures to stabilise commodity markets and prevent food price rises.

These bans from Russia will start from today and will last a year.

Russia will ban transit flights for Ukranian airlines via its territory. It is also mulling a ban of transit flights for EU, US airlines to Asia-Pacific reigons.

There are lines coming through on the wires on Russia’s retaliatory measures to sanctions.

Prime Minister Dmitry Medvedev says Russia will ban fruit, vegetable meat, fish, milk and dairy imports for the US, EU, Australia, Canada and Norway.

Adidas, the world’s second-biggest sportswear firm, cut its profit for 2014, saying it would increase spending on marketing and an expansion of its own-run stores a week after it issued a profit warning.

Chief executive Herbert Hainer said: “Missing our goals is something we take very seriously and we definitely reflect critically on”.

The company says Russian turmoil has hit trading: it now plans to open only 80 stores in Russia this year and next, down from 150.

Rates are expected to be kept on hold at 0.5% when the Bank of England announces its policy decision at 12 noon. Samuel Tombs at Capital Economics says:

Although the Monetary Policy Committee (MPC) appears to have edged closer to raising interest rates over the last few months, it would still be a major shock if it raised them at its meeting today. And while the strength of the latest activity surveys suggests that the minutes later in the month may show that the vote was split for the first time since July 2011, the recent fading of momentum in house prices, downward trend in inflation and sluggish pay growth all suggest that the MPC will probably still wait until early next year to raise rates.

It is the first meeting for Nemat (Minouche) Shafik, who ups the number of women on the nine-strong committee to two. Kristin Forbes, a former economic adviser to George Bush, broke the all-male stranglehold on interest-rate setting in the UK when she became a member of the committee last month.

Markets are looking more stable this morning after yesterday’s rout.

  • FTSE 100 down 0.2%, 15 points at 6621
  • Germany DAX down 0.5%
  • France CAC 40 down 0.25%
  • Spain IBEX down 0.8%
  • Italy FTSE MIB down 0.14%

Christian Schulz at Berenberg bank says Putin, not inflation, is the real issue at today’s ECB meeting.

Another major escalation of the troubles in eastern Ukraine could spread the negative confidence effect from core European exporters to the wider economy. If Russian tanks roll westwards into Ukraine, the so-far shielded consumer confidence could take a hit even in far-away Iberia. The ECB will stand ready to act decisively in such circumstances, even deploying quantitative easing as a last resort. So far, however, Putin’s impact on the Eurozone has been mild.

The ECB, which has in the past cancelled its August meeting, is not expected to make any major announcements today.

But economists are intrigued to hear what ECB president Mario Draghi has to say about last week’s dreadful inflation data. Robert Kuenzel of Daiwa Capital Markets says:

Draghi certainly has some explaining to do why euro area inflation saw yet another dip in July to a new 4½-year low of 0.4%. While the technical answer is known (base effects from energy prices), the ECB’s repeated overestimating of the inflation path this year may be starting to harm its credibility. But it is far too soon for the ECB to even consider a policy change, given that the latest flagship initiative TLTROs only starts next month. So the Governing Council will stick to their guns and simply hope for the best.

In the UK, insurance groups Aviva and RSA have posted upbeat results, amid efforts to turn their businesses around. My colleague Julia Kollewe reports:

Britain’s largest general insurer Aviva made an operating profit of £1.1bn in the first six months of the year, up 4%. Overall new business climbed 9% to £453m, although the company reported a 41% reduction in the value of new business from annuities in the UK following the sweeping pension reforms announced in the March Budget. The chancellor scrapped rules that force pensioners to buy an annuity. “We suspect there are further falls to come,” said Eamonn Flanagan, analyst at Shore Capital.

Aviva boss Mark Wilson said: “Aviva remains a work in progress, and these results are a step in the right direction.” The company reduced debt and made more cost savings.

Under Stephen Hester, the former Royal Bank of Scotland boss, rival RSA moved back into the black in the first half with a £69m pretax profit, against a £250m loss a year ago. Hester plans to resume dividend payments at the full year after scrapping payouts in February.

Hester took the helm in February after Simon Lee quit in December in the wake of three profit warnings and an accounting scandal in Ireland. Hester took immediate action, tapping shareholders for cash in a £775m rights issue while also raising over £600m from selling assets in eastern Europe, Canada and China.

Hester said: “RSA’s action plan is going well. Since announcing it five months ago, we have made strong progress improving strategic focus and capital health.” He added: “While first half profits are modest, they reflect further balance sheet and reserve clean-up as well as above normal weather costs.”

Several analysts described the RSA results as messy, however. There were further losses in Ireland and analysts at Citi were disappointed by RSA’s underwriting profit of just £2m.

There’s better corporate news out of Germany this morning. Commerzbank said net profit more than doubled in the second quarter, boosted by a stronger performance at its retail unit and lower overall loan-loss provisions.

Germany’s second biggest bank said it would speed up the clean up of unwanted assets to support the turnaround of the bank, which was bailed out of the financial crisis by the Germany government.

Deutsche Telekom beat forecasts with its quarterly report – EBITDA excluding special items increased to €4.43bn, compared with forecasts of €4.35bn – after a rise in earnings in the US offset investments in its German networks.

The weak German data (see below) suggest the eurozone’s largest economy stagnated or possibly shrank in the second quarter, say economists. Carsten Brzeski of ING Bank blames the slowdown on domestic problems, rather than the crisis in Ukraine.

Contrary to often voiced views that the German economy has suffered severely from the ongoing geopolitical tensions, the probable stagnation was rather home-made. Particularly, the construction sector has become a drag on growth. The expected downturn after the weather-driven boom in the first quarter has been worse than expected.

He expects construction and private consumption, on the back of low interest rates, the strong labour market and higher wages, to drive growth in the second half of the year; but notes that geopolitical tensions and a bumpy recovery in the rest of the eurozone could hit exports.

The domestic fundamentals of the German economy remain sound and with the expected growth acceleration in the US and the UK at least some major trade partners could keep the German export engine running. However, recent data was a strong reminder that islands of happiness only exist in books and not in economic reality.

This morning, we’ve already had weak data out of Germany, fuelling fears that the industrial recovery in the eurozone’s biggest economy is running out of steam.

Industrial output rose just 0.3% from May. While that is the first increase in four months, economists were targeting a rise of 1.3%. Bloomberg reports:

The European Union agreed last week on its widest-ranging sanctions yet over Russia’s backing of rebels in eastern Ukraine and the Bundesbank has cited geopolitical tensions as contributing to a probable stagnation of the economy in the second quarter. Factory orders fell the most in more than 2 1/2 years in June and sentiment surveys have plunged in Germany, Russia’s biggest trading partner in Europe.

“It’s still too early to say that tensions with Russia are already weighing on hard data,” said Andreas Rees, chief German economist at UniCredit MIB in Frankfurt. “But psychological headwinds are increasing and we have to see whether this pessimism will become persistent.”

German industrial output

Updated

Over night, it emerged that Bank of America may have agreed to pay what would be the largest settlement with the US justice department as a result of the financial crisis. AP reports:

Bank of America has tentatively agreed to pay between $16bn and $17bn to settle an investigation into its sale of mortgage-backed securities before the financial crisis, a source directly familiar with the matter said on Wednesday.

The deal with the bank, which must still be finalised, would be the largest Justice Department settlement by far arising from the economic meltdown. It follows earlier multibillion-dollar agreements reached in the last year with Citigroup and JP Morgan Chase.

The source, who spoke on condition of anonymity because the deal had not yet been announced, cautioned that some details still needed to be worked out and that it was possible the agreement could fall apart.

The European Central Bank holds its monthly press conference today against the backdrop of a worsening economic climate in the eurozone and rising tensions with Russia.

ECB president Mario Draghi is not expected to announce any change in policy, given that the new stimulus announced last month has not even started yet. But, as Michael Hewson of CMC Markets, notes:

Markets will be paying close attention to the press conference and in particular the ECB President’s views on what negative effects the situation in Ukraine is likely to have on the ECB’s economic forecasts for the euro area.

The Bank of England will also announce its policy decision later. There’s unlikely to be any change there but we may find out that some members of the monetary policy committee are edging towards a rate rise when the minutes are released in two weeks time.

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Eurozone recovery takes a knock as economy grows just 0.2% in last quarter, with many countries disappointing. France flat, Germany strong, Dutch, Italian, and Portuguese reports miss analyst estimates. Inflation stays at 0.7% y/y in April…

 


Powered by Guardian.co.ukThis article titled “Eurozone growth misses forecasts, as France stagnates and Italy contracts – live” was written by Graeme Wearden, for theguardian.com on Thursday 15th May 2014 13.25 UTC

Back to the big story of the morning, Europe’s weak growth figures.

Economics editor Larry Elliott writes that Mario Draghi should consider copying the UK’s Funding for Lending Scheme, to drive lending in the euro area.

It’s really not happening in the eurozone. An already feeble recovery lost momentum in the first three months of 2014 and the signs are no better for the current quarter. The 18-nation single currency area is nowhere near achieving escape velocity, the rate of expansion that would start to make inroads into mass unemployment and prevent the drift towards deflation. Action from the European Central Bank next month is inevitable.

The nugatory growth in early 2014 was all the more disappointing because of an unusually mild winter. That had led economists to expect activity to pick up by 0.4%; instead it was just half that figure, a weaker performance than in the final three months of 2013. Had it not been for the robust growth posted by Germany, things would look even more dismal.

Some of the weather-related boost to output will be paid back in the second quarter. In addition, there have been signs recently that the tension in Ukraine is eating into business and consumer confidence. China’s slowdown will have an impact on Germany’s export-dependent economy. For those reasons, it is hard to see growth accelerating in the second quarter…..

More here: Eurozone recovery: time to call the ECB – but what’s the number?

Maybe the US economy isn’t healing as well as we thought. Industrial output across the country fell by 0.6% in April, defying expectations it would be unchanged.

Over to Greece, where the countdown to European and local elections (the first round of the latter taking place this weekend) has sent passions skyrocketing.

Protestors, including fired school guards who have been demonstrating outside the country’s administrative reform ministry since early this morning, see the double poll as the ideal chance to vent their spleen.

Our correspondent Helena Smith reports:

The mood outside the administrative reform ministry is as explosive as each of the protestors now gathered outside it. With dismissed school guards vowing to remain on the streets “for as long as it takes” authorities have dispatched vanloads of riot police to the area.

Scuffles have intermittently broken out as the guards, who were laid off as part of plans to streamline Greece’s bloated public sector, have tried to enter the building.

Harris Bastas who heads the group now representing the 2,000 offloaded school guards told me: “right now we want to meet the minister [Kyriakos Mitsotakis] and if it takes one, two, three days we will stay here. In fact as long as it takes. Our basic demand is to be reinstated. We want the jobs that we lost in one night,” he yelled, screaming himself hoarse. “We want what every state should guarantee its citizens: the right to live with dignity.”

Mitsotakis, who is under immense pressure to trim the civil service from Greece’s “troika” of creditors at the EU, ECB and IMF, has shown no inclination to meet the guards. Down the road irate finance ministry cleaners, who also lost their jobs at the end of March after being put into a special labour reserve, are similarly demonstrating. Now the emblem of austerity’s corrosive effects, the women have become increasingly organised, establishing a stall outside the national economy ministry from where they distribute leaflets describing their plight.

Our full story on the IMF’s warning to France is now live:

France must not renege on spending cuts programme, warns IMF

Just in – the number of Americans signing on for unemployment benefit has dropped to its lowest level in seven years.

Just 297,000 new jobless claims were filed last week, the lowest level since May 2007 (the dawn of the credit crunch)

And the US inflation rate has also picked up by its fastest rate since last July. The consumer prices index rose by 2.0% on an annual basis in April, with prices up by 0.3% month-on-month.

Two signs that the US economy is picking up pace, after stalling over the winter.

Here’s some instant reaction to Kristin Forbes’s appointment to the Bank of England’s monetary policy committee:

Dr Kristin Forbes, the US academic just named as the newest member of the Bank of England’s monetary policy committee, is an expert in “financial contagion”.

Bloomberg wrote last year that:

When Kristin Forbes sought tenure at the Massachusetts Institute of Technologyearly last decade, some colleagues said her research focus on financial contagion led to a dead end. Her reaction: Full speed ahead.

Forbes worked to safeguard global financial stability with then-U.S. Treasury Undersecretary John Taylor, became the youngest member ever on the White House Council of Economic Advisers and eventually won tenure at MIT. In August she presented the opening paper at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming.

“Kristin is one of the leaders in the empirical analysis of contagion,” said Roberto Rigobon, who, like Forbes, is a professor of economics at MIT’s Sloan School of Management in Cambridge, Massachusetts, and has co-written research with her on the topic. “Her papers are a tour de force for anyone interested in measuring” its “importance, existence and extent.”

Here’s the full profile: Contagion Thesis Once Derided Proven by Kristin Forbes

Dr Kristin Forbes to join the Bank of England’s MPC

Just in: the next member of the Bank of England’s monetary policy committee has been named.

Dr Kristin Forbes, currently Professor of Management and Global Economics at MIT’s Sloan School of Management, will join the rate-setting committee in July.

Chancellor George Osborne says Forbes is “an economist of outstanding ability with real practical experience of policy making.

She will make an exceptionally strong addition to the MPC. It’s a sign of the high regard in which the Bank of England and our monetary framework are held around the world that someone of Kristin’s ability wishes to be part of them”.

According to Forbes’ web page at MIT, she was the youngest ever person to serve on the White House’s Council of Economic Advisers. She’s also worked for the U.S. Treasury Department, and was a Davos “young Global Leader”.

In addition:

She is a research associate at the NBER and a member of the Bellagio Group, Trilateral Commission, and Council on Foreign Relations. She is on the Panel of Economic Advisers for the Congressional Budget Office and the Academic Advisory Board for the Peterson Institute for International Economics and the Center for Global Development. She has won numerous teaching awards and teaches one of the most popular classes at MIT’s Sloan School. Before joining MIT, Forbes worked at the World Bank and Morgan Stanley.

Correction, the chairman of Lloyds is Lord Blackwell, not Sir Win Bischoff (Blackwell’s predecessor) as I wrote earlier.

As if France wasn’t under enough pressure, the International Monetary Fund has dealt Francois Hollande another blow by questioning whether his new fiscal plan is achievable.

In a new review of the French economy, the IMF questioned whether France will manage to cut public spending fast enough to bring its deficit down to 3% by 2015, given Hollande’s pledge to also cut payroll taxes (paid by on companies).

The IMF warned that France cannot afford to waver on its spending cuts:

“Achieving the deficit objectives while delivering on the tax cut commitments leaves no room to deviate from the announced expenditure reductions,” the IMF said in a regular review on the French economy.

“The major risks are that the initial plans may be diluted in sequential annual budgets and that cuts in transfers to local governments may be compensated by unsustainable cuts in investment, higher taxes or higher debt,”

Good news – the security scare at the Bank of England is over.

The chairman of Lloyds Banking Group, Lord Blackwell, Sir Win Bischoff, has told shareholders at the bank’s AGM in Edinburgh today that the Scottish referendum on independence means “uncertainties for everyone”.

But Blackwell also said Lloyds didn’t hold a ‘corporate view’ – it’s a matter for Scotland.

Via Reuters:

  • 15-May-2014 12:22 – LLOYDS BANK CHAIR SAYS ‘UNCERTAINTIES FOR EVERYONE’ AHEAD OF SCOTS INDEPENDENCE VOTE
  • 15-May-2014 12:17 – LLOYDS BANK CHAIRMAN SAYS NOT PLANNING ANY MOVES AHEAD OF SCOTTISH INDEPENDENCE VOTE
  • 15-May-2014 12:18 – LLOYDS BANK CHAIR SAYS WILL WORK WITH RELEVANT AUTHORITIES IN EVENT SCOTS VOTE FOR INDEPENDENCE
  • 15-May-2014 12:21 – LLOYDS BANK CHAIR SAYS INDEPENDENCE MATTER FOR SCOTS, BANK HOLDS NO CORPORATE VIEW

Updated

Meanwhile in the City, the Bank of England has announced that it has moved staff to “safe areas”, as police investigate a car which has been abandoned outside the central bank headquarters.

Work continues as usual (despite the Bank tube station area being cordoned off), and there’ s no reaction in the financial markets.

Here’s the BoE statement:

Bank of England response to suspect vehicle

Following reports of a suspect vehicle near the Bank of England, the Bank has moved staff to safe areas of the building. All essential operations continue from those areas.

The Evening Standard has more details.

Today’s growth (and non-growth) readings are a “sobering reminder” that the eurozone isn’t out of the woods yet, says Aengus Collins, Europe Analyst at The Economist Intelligence Unit.

He writes:

Over the past year or so, most forecasters have been toning down the language that they use in relation to the euro zone’s economic woes, with Mario Draghi’s monetary activism (by ECB standards, at any rate) seen as a game-changer. In some respects that is correct. The euro zone is no longer gripped by a crisis of existential proportions.

But this morning’s data highlight the fact that the absence of crisis isn’t the same as the presence of recovery.

And while Germany is recovering strongly, this isn’t feeding through to its neighbours, Collins added:

France stagnated in the first quarter and Italy contracted. These two major economies are struggling to sustain even a tentative recovery. Italy is now likely to expand only slightly for the full year (and it would take very little for it to contract) while the first quarter in France will shave a few tenths off growth for the year that was already relatively weak at 0.8%.

Also of concern is the sharp contraction of 0.7% recorded in Portugal, just as that country prepares to exit its EU/IMF bailout.

 

Analysts at BNP Paribas agree that the ECB must act in June, especially as Mario Draghi said last week that the governing council is not happy about the path of inflation.

Weak eurozone growth: what the analysts say

The European Central Bank cannot leave monetary policy unchanged at next month’s meeting, argues James Ashley, chief European economist at RBC Capital Markets:

“The debate over ‘whether’ to act is surely over and it is now just a question of ‘how’ to act.”

Yesterday, it emerged that the ECB is preparing a package of possible measures – from cutting interest rates to stimulating small business lending.

Tom Rogers, senior economic adviser at EY, said today’s data should be “a wake-up call” for any eurozone policy makers who are complacent that Europe is safely on the road to recovery:

Rogers argues that Italy and France are paying the price for not reforming their economies (via AP):

“Stagnating output in Italy and France, two of the four largest economies, is in large part a result of deteriorating cost-competitiveness, while Germany and Spain continue to reap rewards from reform implemented either well before the crisis, or more recently.”

Howard Archer of IHS Global Insight is hopeful that the eurozone will pick up momentum through this year (recent surveys have been quite positive), arguing:

Reduced fiscal squeezes, very accommodative monetary policy (which now seems likely to augmented in June) and sharply reduced sovereign debt tensions are supportive to Eurozone growth, while global growth is seen picking up gradually.

In addition, consumers’ purchasing power is being helped by muted consumer price inflation (just 0.7% across the Eurozone in April) while Eurozone labour markets have largely stabilized and in some cases are even improving modestly.

(the -1.4% contraction at the bottom of the chart is the Netherlands, if you can’t see it clearly)

Updated

On a brighter note, Europe did grow faster than the US for the first time in three years.

Bad weather left the American economy struggling to expand over the winter — its GDP rose by just 0.05% on a quarterly basis.

You can see all the Eurostat data here (pdf)

Ahha! This chart, from the brighter sparks at MacroPolis shows how Greece’s economy may have clawed its way back to stagnation.

The wider European Union grew by +0.3% during the first quarter, beating the eurozone’s +0.2% growth.

Strong growth in the UK (+0.8%), Hungary and Poland (both 1.1% q-on-q) helped the EU outpace the euro area.

That means the EU economy is 1.4% larger than in the first quarter of 2013, according to Eurostat, while the eurozone is +0.9% larger.

Greece’s economy has contracted by around a fifth since the crisis began, and is currently 1.1% smaller than a year ago. Here’s a chart from Trading Economics showing the details:

Cyprus continued to suffer from its austerity programme, and the trauma of last year’s bailout crisis which left its banking sector on the mat.

The Cypriot economy shrank by 0.7% during the last quarter, and is now 4.1% smaller than a year ago.

Is there a glimmer of hope in Greece’s GDP data, just released?

Greece’s economy has shrunk by 1.1% over the last year, which is the smallest annual contraction since the debt crisis began in 2010. That’s also less severe than the 1.5% slump which economists expected.

I”m afraid we don’t get quarter-on-quarter data for Greece — ie, how it fared since the October-December period. So we don’t have a quarterly growth data.

Updated

Not only is Europe struggling to grow, its inflation rate is worrying low.

Eurostat reports that prices rose by just 0.7% across the euro area in April, which confirmed its flash estimate. That’s well shy of the European Central Bank’s target of just below 2% .

Eurozone grows by just 0.2% in last quarter, weaker than forecast

BAD NEWS: The Eurozone grew by just 0.2% in the first three months of this year, dragged down by stagnation in France, and contraction in Italy, Portugal and the Netherlands (see earlier summary).

That’s much weaker than the 0.4% growth that analysts had expected, and raises fresh fears that the eurozone recovery is running out of steam.

Reaction to follow!

Eurozone GDP – a country-by-country catch-up

Time for a very brisk recap before we get the overall figure for Eurozone GDP at 10am sharp (and updated inflation data too):

And the big picture is that the eurozone recovery story has taken a battering this morning with only Germany outperforming in the first three months of 2014.

German GDP beat forecasts, growing by 0.8%, thanks to a mild winter and solid demand from home and abroad.

But France’s economy has stalled, with GDP unchanged in the quarter.

Italy is shrinking again, with GDP down 0.1% – ending its short escape from contraction

Portugal has suffered a contraction, down 0.7%.

The Netherlands economy suffered from the warm winter, with GDP shrinking by an alarming 1.4%.

Austria grew by just 0.3%

And Finland is in recession, after GDP fell by 0.4%

And here’s the latest reaction:

Portugal’s GDP drops by 0.7%, defying hopes of growth

And now we get bad news from Portugal – its GDP fell by 0.7% in the first three months of this year, dashing hopes that it would keep expanding.

It’s one disappointment after another…. apart from Germany

Updated

Finland’s recession adds to euro malaise

Finland has also added to the gloom in the eurozone, sliding into recession with a 0.4% drop in GDP in the first three months of this year.

That follows a 0.3% contraction in Q4, and economists are concerned that the once-healthy Finnish economy is on the slide.

As Nordea analyst Jan Von Gerich put it: “It doesn’t look too good”, adding:

“Zero growth from the full-year is starting to look like an achievement for the economy

“If the situation in Russia gets worse, it will become a year of contraction.”

Andrew Balls, deputy chief investment officer at Pimco (and brother of the UK shadow chancellor) is discussing the eurozone GDP data on Bloomberg TV now.

On today’s laggards, France and Italy, Balls says that “two countries* who have not done a lot of economic] reforms are broadly flat in terms of activity.”

But he is more optimistic about the eurozone as whole, which is returning to trend-like growth….”a big improvement on where have been in recent years”.

Spain, and many smaller countries are also doing quite well, Balls adds (Spanish GDP was released last week, and rose by 0.4%)

* – not countries as I initially mistyped – apologies all

Updated

We also have decent growth data from Poland – the economy grew by 3.3% over the last year (I can’t find quarter-on-quarter figures, sorry)

That’s good, but not quite as good as Hungary’s 3.5% annual growth (which I covered here)

This chart, from ISTAT, shows how the Italian economy is shrinking again (-0.1%) having grown by just 0.1% in October-December after shrinking for nine straight quarters.

Italian GDP shrinks by 0.1%

ITALY’S ECONOMY HAS CONTRACTED AGAIN.

Italian GDP fell by 0.1% in the first quarter of the year, dashing hopes of 0.2% growth.

That’s an alarming development. Italy had only just clawed its way out of recession three months ago.

Today’s data means it has contracted by 0.5% over the last year. For all the talk of European recovery, Italy is still in a mess.

The euro has fallen this morning, as the weak French growth figures put more pressure on the ECB to act. It’s dropped 0.3% to $1.3673

Another gloomy statistics in the Dutch GDP report — in the first quarter of 2014 there were 112 thousand employee jobs less than a year earlier.

But the Central Bureau of Statistics also struck a note of optimism, saying Netherlands’ industrial base continued to recover.

Netherlands GDP falls by 1.4%

Shocking figures from the Netherlands.

Its economy shrunk by 1.4% in the first three months of this year, much worse than the 0.0% which economists had expected. That means its economy has contracted by 0.5% since the first quarter of 2013.

So what on earth happened?

The Netherlands Statistics Office blames lower gas consumption, due to the very mild winter.

Apparently this meant natural gas consumption by households was almost a third lower than a year earlier. Consumers also spent less on food and beverage, partly because Easter in 2014 fell in April rather than March.

This chart (via Yannis Koutsomitis) shows how Germany has now posted its strongest period of growth since 2011, having grown by 0.8% in the last quarter.

(the blue line is Markit’s monthly PMI survey of business leaders)

German DAX hits record intraday high

Germany’s DAX stock index has just hit a new record high, as traders in Frankfurt react to the news that German growth beat forecasts in the last three months.

GERMANY’S DAX .GDAXI HITS ALL-TIME HIGH AT 9,810.29 POINTS – RTRS

The FTSE 100 index is up 12 points this morning at 6890 points –marching towards the alltime closing high of 6930 set in 1999.

France’s CAC index is lagging, down 0.1%.

The Czech Republic has matched France’s weak performance, with no growth at all in the last quarter.

That’s actually better than expected — economists had feared a 0.2% contraction, following strong growth in Q4 2013.

The Czech stats body says manufacturing has recovered from a low base in 2013 (hurt by an 18-month recession), thanks to growing demand from abroad and at home.

Romania’s economy appears to have slowed in January-March, with quarterly growth of just 0.1%.

But year on year, its economy has grown by 3.8%, ahead of forecasts (according to Reuters), thanks to strong exports.

Hungary has beaten expectations with some healthy-looking GDP data. Its economy grew by 1.1% in the last quarter, and is 3.5% larger than a year ago.

The Central Statistics Office said the Hungarian construction and industry firms drove growth.

Austria’s GDP rises by 0.3% in Q1, missing forecasts

Austria’s economy grew by just 0.3% in the first three months of 2014, weaker than the 0.5% expected.

And growth in the final quarter of 2013 has been revised up to +0.4%, from +0.3% initially.

Statistics body WIFO reported that domestic consumption was weak, although exports were stronger.

Exports rose by 1.5% in the quarter, WIFO said, while imports were up by 1.1%.

France’s stagnation means it will be much harder for Paris to achieve its goal of 1% growth through 2014….

Another missed target for Hollande, who didn’t manage to get unemployment falling by the end of 2013 either…

France stagnates, Germany powers ahead – what the readers say

Readers are already having their say in the comments below (thanks, as ever, all of you). Please keep them coming .

Here’s some early reaction:

Bad news for everyone, nobody should be gloating.

Countries usually return to growth eventually, that is just the cycle. Osborne is not really responsible for the UK’s strong growth any more than he was really responsible for the earlier flat period.

But is France locked into perma-slump because of the eurozone?

What can Hollande do? The structural changes to make France more Anglo-Saxon are politically impossible for his party, and would only make a marginal difference anyway.

France’s crash was smaller than the UK’s (it is less exposed to the financial sector) but its long term future looks a bit grim.

France’s current economic weakness is due not to socialism, but rather to vague and meandering non-leadership from Hollande (who seems more involved with his lovers than his country).

Not to mention that there were several presidents from the right beforehand who picked and chose what changes they wanted to make, and what they would leave for the next president to sort out.

It has happened in Germany, and it is happening again: conservative parties leaving reform of welfare systems, that are necessary because an underfinanced state won’t be able to sustain thewelfare state through demographic change, to their left-wing opponents who are supposed by their voters not to make cuts to redistribution. It is a perfect tactics for the right because they reap the harvest twice: the left shoot themselves in the foot for the next election while making the unavoidable corrections to the system for the conservatives.

Or maybe Germany’s strength is due to its corporate structure which requires union representation in every industry at every level from factory to country. So there is no asset stripping. Money goes into investment in training and research rather than into dividends

In 2008 the government upped taxes to subsidise keeping people in work. Unions agreed a 10% wage-cut but workers actually lost only 3% as taxpayer and employer made up the rest.

What you would probably call socialism.

Coming up…

There’s lots more GDP data to come, including

  • Austria and Slovakia in a few moments (8am BST)
  • The Netherlands at 8.30 a.m.
  • Italy at 9am
  • The eurozone as a whole: 10am

Antonio Garcia Pascual, chief eurozone economist at Barclays, says France’s economy was dragged back by “very weak” business investment and household consumption during the last quarter.

He’s particularly concerned about the 0.9% drop in investment — which suggests anxiety about Francois Hollande’s economic programme, including tens of billions of euros of cuts to public spending over the next few years.

Updated

Dixons and Carphone agreed £3.7bn merger

Breaking away to the UK briefly, Carphone Warehouse and Dixons have agreed to merge and create a new high street giant.

The new company, called “Dixons Carphone plc”, is designed to create “a leader in European consumer electricals, mobiles, connectivity and related services” (they say here)

It brings together Carphone’s mobile technology outlets and Dixons electrical shops (fastFT neatly dubs it the “tablets meet toasters” merger).

The deal is worth £3.7bn. Carphone chairman Charlie Dunstone reckons:

“This is a new chapter for both businesses and we are energised and proud to be part of what will be another fantastic journey for consumers and shareholders.”

There is SOME good news for France, alongside its disappointing growth data. INSEE has revised last year’s data, and concluded that the French economy was larger than it first thought in 2012.

This means last year’s debt-to-GDP ratio has been cut to 91.8%, from 93.5%, while the public deficit was revised down to 4.2% from 4.3%. That makes it a little easier for Paris to meet the deficit targets agreed with Brussels.

Credit Agricole’s Frederik Ducrozet is also struck by the comparison between Europe’s two largest economies.

The UK also grew by 0.8% in the January-March quarter, according to data released last month, matching Germany’s performance (let’s hope this doesn’t go to penalties)

Economist Shaun Richards flags up another worrying point in today’s data — French imports rose in the last quarter, while exports slowed down.

The German finance ministry says the country’s economy benefitted from a mild winter, and decent domestic demand.

German economy grows by 0.8% in Q1 2014

GERMANY beats forecasts – with growth of 0.8% in the first quarter of 2014. That’s a little stronger than expected (economists expected +0.7%).

SUCH a contrast with France’s stagnation….

As well as that 0.5% slump in French household spending, INSEE also reports that capital spending dropped by 0.9% in the last quarter.

This chart from INSEE shows how inventories rose, suggesting companies stockpiled goods as demand wavered.

The full statement is here on INSEE’s website.

Jonathan Ferro of Bloomberg sums France’s (non) growth figures up:

So why couldn’t the French economy grow in the last three months?

Dominique Barbet, an economist at BNP Paribas SA in Paris, tells Bloomberg that consumer spending (which fell 0.5%) dragged down the economy. He’s concerned that France’s growth prospects look rather modest.

“What’s worrying beyond the first quarter is that the level of growth is weak. There’s no acceleration. We don’t have the recovery that other countries are seeing.”

Disappointment as French growth stalls

Eurozone GDP day has begun with bad news — the French economy stagnated during the first three months of 2014 as consumer spending slumped.

INSEE reports that GDP was unchanged over the quarter, a new blow to Francois Hollande’s already pummelled government.

Economists had expected growth of 0.2% — which would have been bad enough.

INSEE reported that consumer spending fell 0.5% in the first quarter, showing French households are struggling. Investment by nonfinancial companies also fell 0.5%.

Reaction to follow….

Eurozone GDP released today

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

And we’re heavily focused on the eurozone today, with the release of new growth data from across the region for the first three months of 2014.

It’ll show whether Europe’s economy continued to claw its way back from the recession which ended last summer. And there’s particular focus on France, given fears that the second largest country in the euro area is struggling.

I’ll be covering all the data for the next few hours, building up to the overall eurozone growth figure at 10am BST.

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Published via the Guardian News Feed plugin for WordPress.

Following Ireland’s exit from the bailout, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. Situation in the second-largest economy in the euro-area worsens with French firms suffering. France looks like the ‘sick man of Europe’…

 


Powered by Guardian.co.ukThis article titled “Draghi warns EU on banking supervision — business live” was written by Graeme Weardenand Nick Fletcher, for theguardian.com on Monday 16th December 2013 16.24 UTC

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow’s data from the Office for National Statistics – a measure often used for setting pay and pensions – is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow’s data could show CPI at the Bank of England’s government-set target of 2% for the first time since November 2009. They comment: “Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

“Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

“In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland’s exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Updated

Following the fifth and final review of Spain’s financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country’s banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks’ balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets – so as to reverse the rise in government debt – and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms – amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system – and to ensure effective implementation of all reforms.

Full report here.

Updated

The protests in Ukraine have put pressure on the country’s credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country’s credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here’s ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Markets jump as Fed fears ease and US deals enthuse investors

After days in the doldrums, markets are moving sharply higher. Investors have been selling shares in recent dayks amid concerns the US Federal Reserve could start turning off the money taps as early as this week’s meeting.

Strong US economic data – including industrial output today – has made that more likely, as has the signs of political agreement about the US budget. But on the whole, observers still think, in the main, the Fed will wait until next year.

So with a spate of acquisitions, including Avago Technologies paying $6.6bn for LSI Corporation, shares are back in favour for the moment. The Dow Jones Industrial Average is currently nearly 1% or 156 points higher, helping to pull the FTSE 100 to its highest levels of the day, up more than 1.3%.

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd’s of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd’s managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd’s of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB’s Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

…The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 – DRAGHI – UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 – DRAGHI – SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 – DRAGHI – ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 – DRAGHI – GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 – DRAGHI – GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 – DRAGHI – MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 – DRAGHI – WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 – DRAGHI – SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 – DRAGHI – SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 – DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Updated

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit’s monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up — it just reported a 1.1% jump in industrial output in November.

On that note, I’m handing over to my colleague Nick Fletcher.

Updated

Inga Beale’s appointment as boss of Lloyd’s of London will go a small way to closing the gender gap at the top of the City. But there’s still some way to go.

Currently there are just three women running FTSE 100 companies — Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd’s of London isn’t a listed company, so Beale won’t join the quartet.

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent — but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 — currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress…. except that women who do reach senior positions are in jobs that are traditionally lower paid.

Updated

How times change…. Inga Beale is appointed as Lloyd’s first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd’s decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd’s website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

Updated

Lloyd’s of London appoints first female CEO

Lloyd’s of London has appointed its first ever female chief executive.

Inga Beale will succeed Richard Ward in January. She currently runs Canopius Group, the Lloyd’s-based insurance and reinsurance group.

There had been many whispers in the City in recent days that Beale was in line for the top job at Lloyds, making her the first women to lead the insurance market in its 325-year history.

Beale has worked in insurance for three decades — beginning her career in insurance as an underwriter with Prudential. She’s also previously worked as Global Chief Underwriting Officer of Zurich Insurance, and as Group CEO of Converium Ltd.

John Nelson, Chairman of Lloyd’s, said:

I am absolutely delighted that we have appointed Inga as Chief Executive. She has 30 years’ experience in the insurance industry.

Her CEO experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make Inga the ideal Chief Executive for Lloyd’s. I very much look forward to working with her.

In the statement just published, Beale said Lloyd’s has “an extraordinary opportunity to increase its footprint and to cement its position as the global hub for specialist insurance and reinsurance”.

Back in June, she argued that more diverse boardrooms could deliver stronger results. Beale explained: 

I think the business is run differently if you have women around the decision making table and that’s why it’s good to have diversity, not just on the gender side.

Different people approach things differently and provide alternative views – diverse boards help companies make better decisions, which affect the bottom line.

It’s been a good few days for gender equality in the corporate world, with Mary Barra being appointed to lead General Motors last week.

Updated

The Eurozone’s trade surplus almost doubled year-on-year in October — but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone’s posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year’s €57.4bn.

The data also underlined today’s theme — the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Updated

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA’s recent problems — three profits warning, and the resignation of its CEO — could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

Updated

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results — and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That’s sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit’s view that today’s PMI data doesn’t make fresh stimulus from the European Central Bank more likely.

There’s also edginess ahead of the Federal Reserve’s meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O’Flanagan of Clear Currency reckons the Fed won’t taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

European market: morning update

It’s a positive start to the week in Europe’s stock markets.

The Spanish and Italian markets are the best performers, following the news that private firms in the periphery are enjoying their best month since April 2011, according to Markit

  • FTSE 100: up 32 points at 6,472, + 0.5%
  • German DAX: up 45 points at 9,052, +0.5%
  • French CAC: up 16 points at 4,076, + 0.4%
  • Spanish IBEX: up 141 points at 9,414, + 1.5%
  • Italian FTSE MIB: up 253 points at 18,089, +1.4%

Howard Archer of IHS sums up the good news in today’s data…..

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

… and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter.

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

France lags behind as eurozone recovery picks up

Activity across the Eurozone private sector has risen this month as the single currency area ends the year with ‘fragile’ growth, according to Markit’s new data published this morning.

It found that output in peripheral eurozone countries picked up in December.

With Germany already reporting solid growth this morning (see here), France looks increasingly like the ‘sick man of Europe’ as its firms struggle.

Markit’s Eurozone PMI Composite Output Index — which measures activity at thousands of firms across the eurozone — rose to 52.1 in December, up from 51.7 in November. That’s a ‘flash’ estimate, of course, but it suggests stronger growth in most parts of the euro area – not just Germany.

December is turning into a good month for eurozone manufacturers, with output rising for the sixth successive month. The rate of increase was the highest since April 2011 .

Service sector growth was more modest, though, with the rate of expansion hitting a four-month low (but there was still growth)

But as this graph shows, France was the laggard – with its service and manufacturing firms reporting a drop in activity (see 8.23am for details).

Chris Williamson, chief economist at Markit, said the data suggested the eurozone will grow modestly this quarter, by 0.2%. He fears that France could fall back into recession though, as the gap between the eurozone’s two biggest countries gets bigger .

Williamson explained:

The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track. The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.”

On the downside, the PMI is signalling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

The upturn is also uneven. Growth is concentrated in manufacturing, where rising exports have helped push growth of the sector to the fastest for two-and- a-half years, while weak domestic demand led to a further slowing in service sector growth.

However, it‟s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new “sick man of Europe‟, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.

There‟s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra- accommodative for quite some time.

And here’s some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high….

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace.

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Now over to Germany…..

Germany’s private sector is leaving France in the dust, Markit reports, led by its manufacturers.

Private sector output in the eurozone’s largest economy is growing steadily this month, for the eighth month in a row.

German factories saw output growth accelerate, pushing the manufacturing PMI up to a 30-month high of 54.2, up from 52.7 in November.

Service sector firms expanded at a slower pace than in November, but growth was still solid. The Service sector PMI was 54.0, down from 55.7.

This meant the composite German private sector PMI fell slightly to 55.2 in December, down slightly on November’s 55.4 — but still indicating healthy expansion.

That suggests Germany’s economy will grow this quarter.

Credit Agricole’s Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings…

And this graph shows how recent PMI data has been more negative than the official growth data:

Updated

French PMI: Instant reaction

Here’s how experts are reacting to the news of France’s weakening private sector:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France’s GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September — putting France back into recession (defined as two consecutive quarters of negative growth)

Williamson added:

The pipeline of work that companies have to deal with is drying up and we’ll get to a stage where, if that doesn’t turn around, there will be increased job losses.

French private sector keeps shrinking

France could be sliding into a double-dip recession, as its private sector activity continues to fall this month.

Data provider Markit reports that the rate of decline in French private sector output accelerated during December. It recorded the biggest contraction in output in seven months.

That suggesting that France’s economy is still shrinking, as manufacturers and service sector struggle to win new contracts.

The Markit Flash France Composite Output Index, slipped to 47.0, from 48.0 in November — that’s the second month in a row that it’s been below 50 points (which signals a drop in activity).

In a report shy of good news, Markit found that new orders are decreasing in the French private sector, meaning companies are relying on existing work to keep busy.

 Backlogs of work fell solidly and at the sharpest pace in eight months, it said. Staffing levels also continued to decline during December, as firms shed staff.

Andrew Harker, Senior Economist at Markit, said the readings “paint a worrying picture on the health of the French economy.

The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts.

Firms will hope that such reticence ends in the new year as they seek to avoid another protracted downturn.

Details to follow….

Chinese factory growth slows

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

The last full working week of 2013 (in these parts, anyway) begins with the news that growth in China’s factory sector has slowed this month, for the third month in a row.

It’s that stage in the month when data provider Markit produces its ‘flash’ estimates of activity in key economies, based on interviews with purchasing managers (We get data from France and Germany this morning too).

And China’s PMI has fallen to 50.5 for December, from November’s 50.8, with firms reporting that output growth slowed. That’s closer to the 50-point mark that splits expansion from contraction.

It may suggest the global economy is ending the year on a weaker note. As well as slowing output growth, firms also reported a drop in employment. On a happier note, new orders have picked up.

The news sent China’s stock market sliding to a four-week low, with the Shanghai Composite Index shedding 1.6%.

That’s set the tone for an edgy start to the week, as global investors await the US Federal Reserve’s monthly meeting on Wednesday night (where the Fed might take the plunge and slow the pace of its stimulus programme).

Also on the agenda– the implications of Germany’s new government, after the CDU and the SPD formally formed a coalition over the weekend.

And I’ll be keeping an eye on Greece, where the government and the Troika are continuing to hold talks over its bailout programme…..

Updated

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Eurozone third-quarter growth slows. Analysts: the recovery is faltering. French GDP unexpectedly contracted by 0.1% in Q3. Germany growth slows – GDP up by 0.3%. Japan’s GDP expands less in Q3. UK retail sales unexpectedly drop by 0.7% m/m…

 


Powered by Guardian.co.ukThis article titled “Eurozone grows by just 0.1% as French economy shrinks – live” was written by Graeme Wearden, for theguardian.com on Thursday 14th November 2013 13.39 UTC

Here’s Dublin correspondent Henry McDonald on the news that Ireland won’t ask for a safety net when its bailout programme ends next month:

Ireland to exit EU-IMF bailout without precautionary line of credit

Updated

Some relief for French president Francois Hollande — France’s football clubs have suspended a strike planned for the end of this month to protest at his 75% super-tax on salaries above €1,000,000. AFP has more details.

Summary

On the eurozone GDP figures, my colleague Phillip Inman writes:

The eurozone’s economic woes persisted in the third quarter as Italy’s longest recession continued and a contraction in French output dragged growth down to 0.1%.

In the summer, hopes of a strong recovery were boosted by a second quarter rise in GDP of 0.3%, but the momentum in the first half of the year appears to have fizzled out.

Here’s the full story: Eurozone economic recovery falters in third quarter

Alessandro Leipold, chief economist at the Lisbon Council think tank, challenges the suggestion that Ireland is making a ‘clean’ break with its bailout by deciding not to take a credit line.

He reckon’s it’s a risky decision.

Enda Kenny’s decision not to ask for a credit line will have one intriguing consequence — Ireland won’t able to sign up for the European Central Bank’s OMT programme (in which the ECB would buy a country’s bonds to drive down its borrowing costs).

Ryan McGrath, a Dublin-based bond dealer with Cantor Fitzgerald, told Reuters:

Not taking a credit line is a statement of confidence by the government. It bolsters the sense that Ireland is detaching itself from the peripheral countries

“I don’t think the government is being rash. The big question is what are the implications for OMT access.

Back to the eurozone’s (scrappy) growth figures, and our economics editor Larry Elliott highlights the weak performance from the two biggest players in the single currency:

Europe’s fledgling recovery did not stall in the third quarter of 2013 but it was a close run thing.

Mainly due to a weaker performance by the Big Two – Germany and France – the growth rate in the euro area slipped back from 0.3% to 0.1%.

Few in the financial markets expect the 17-nation single currency zone to enter a triple-dip recession, but nor is anybody predicting anything other than a prolonged period of sub-par activity in which unemployment remains at one in eight of the workforce and deflationary pressures intensify.

And that, Larry concludes, means that the eurozone’s ‘lost decade’ will drag on.

Here’s his full analysis: Germany and France hold back eurozone’s fledgling recovery

fastFT have published more quotes from Irish prime minister Enda Kenny, outlining the decision to make a clean break from its financial assistance programme without the protection of a credit line:

We will exit the bailout in a strong position

The government has been preparing for return to normal market funding for three years….

There are still demanding times ahead. It does not mean any windfall of cash. It does not mean our economic challenges are over.

Ireland to exit bailout without precautionary credit line

Irish prime minister Enda Kenny has confirmed that his government will exit its bailout programme without the protection of a precautionary credit line.

It’s quite a moment. Kenny is addressed the Irish parliament now, declaring that:

This is the right decision for Ireland.

It means that Ireland will make a clean exit from its €85bn financial assistance programme, which ends on 15th December.

It has hit the targets set by its troika of lenders, and Kenny’s government must be confident that it can walk alone.

A precautionary credit line could have been sought from the European bailout mechanism. It would have given Dublin a guaranteed source of funding if it couldn’t borrow at affordable rates in the wholesale money market in future.

The full statement is online here.

Here’s the Irish government’s reasoning for going it alone: 

  • The market and sovereign conditions are favourable towards Ireland with the country returning to the markets in 2012, holding over €20 billion in cash reserves at year end which we can use to ensure that we can meet our maturing commitments and funding costs till early 2015 and Irish sovereign bond yields at historically low levels;
  • The public finances are under control in Ireland comfortably in line with EDP targets. Ireland is targeting a deficit of 4.8% in 2014 which is within the 5.1% EDP target and will deliver a primary balance or small surplus. The Government is committed to reducing the deficit to less than 3% in 2015 and putting the debt ratio on a downward path.
  • The two pack, the six pack and the stability treaty, the introduction of the ESM, and the major efforts by the ECB to do whatever it takes to safeguard the currency, further support our efforts to make a sustainable and durable return to the markets.
  • Domestic and international economic conditions are improving, monetary policy decisions are conducive to exit and confidence and sentiment towards Ireland has improved considerably in recent months.

Meanwhile in Ireland, the government has been meeting to discuss the process of exiting its bailout programme.

An announcement is expected very soon – with rumours flying that the cabinet will decide that it will not take a ‘precautionary credit line’ (which would have acted as a safety net in case Dublin struggled to borrow in the financial money markets).

Markit: eurozone economy still 3% below pre-crisis peak

Here’s another sobering fact — the Italian economy is more than 9% smaller than before the crisis began.

And Germany is the only one of the Big Four eurozone members to have clawed back all its lost growth (although France isn’t far away).

That’s via Chris Williamson of Markit, the data provider, who comments:

In terms of GDP levels, the Eurozone economy is still 3.0% smaller than its pre-crisis peak.

Of the largest member states, only Germany has exceeded its prior peak, with GDP up 2.6%. The French economy remains 0.3% smaller, while Spain and Italy are also 7.4% and 9.1% smaller respectively.

By comparison, the UK economy is still 2.5% smaller than its pre-crisis peak while the US is 5.3% larger. Japan has edged 0.1% up on its prior peak.

Euro GDP: more details

Romania posted the strongest growth across the European Union in the last quarter, with a 1.6% jump in GDP.

Cyprus suffered the biggest quarterly decline, shrinking by 0.8% (with the proviso that we only have annual data for Greece, where the economy is 3% smaller than a year ago).

The biggest reversal was suffered by the Czech Republic, contracting by 0.5% after growth of 0.6% in Q2.

Here’s the full table (sorry if it’s a bit small, the original is here):

Here’s a handy graph showing how the economic performance of major countries has diverged since the financial crisis struck in 2008.

Updated

Nancy Curtin, chief investment officer of Close Brothers Asset Management, takes an optimistic view.

The worst of the economic crisis is over, she argues, despite today’s disappointing growth figures:

Growth may have slowed but the Eurozone is finding its feet. It has taken a considerably longer time than the likes of the US but we are seeing signs of economic improvement. Let’s not forget the journey the 17 country bloc has made since the financial crisis, given that we haven’t seen the dreaded defaults in countries like Greece and Spain materialise.

However, there is still a long way to go. Unemployment continues to be a fly in the ointment and the recovery won’t pick up the pace overnight. More needs to be done to support the labour market from the bottom up. For months we have been calling for an extension to bank lending to SMEs across the Eurozone who are desperate for finance, and are the engine room of the Eurozone’s economy. As things stand, we expect the ECB to continue to boost liquidity through another LTRO.

Growth figures may be lower than expected but five years on from disaster we may have seen the worst of the economic turbulence and we are seeing signs of a global synchronised economic growth.

Eurozone growth slows: what the experts say

The slowdown in eurozone growth to a near-standstill must send a chill through Brussels this morning.

Analysts are warning that the recovery is even more fragile than we thought – with the weaknesses in France and Italy threatening to derail efforts to reform their economies.

Nicholas Spiro of Spiro Sovereign Strategy has an uncompromising view of the meagre 0.1% rise in GDP. The “much-trumpeted economic recovery” has already faltered.

Spiro writes:

The chronic phase of the crisis in Europe’s ill-managed single currency area is clear for all to see.

While the slowdown extends to Germany, it’s the dire state of the French and Italian economies that looms large. Outright contractions in GDP in Italy and, more worryingly, France throw the protracted nature of Europe’s downturn into sharp relief – particularly at a time when Spain’s economy is at least showing some signs of life.

The eurozone’s second and third-largest economies, which together account for nearly 40% of the bloc’s output, have become the “sick men” of Europe, mired in economic crises of varying degrees of severity and politically unable to carry out meaningful structural reforms.

What’s particularly troubling is that the economic fortunes of France and Italy haven’t improved since the end of the third quarter: the contraction in France’s manufacturing sector deepened in October while Italian retail sales dropped at their fastest pace in three months.

While Howard Archer of IHS Global Insight warns that the recovery will remain “gradual and vulnerable”:

It was particularly disappointing to see France suffer a renewed dip of 0.1% quarter-on-quarter in GDP which highlights concern about its underlying competitiveness. There was also a more than halving in the German growth rate to 0.3% quarter-on-quarter in the third quarter from 0.7% in the first, although the economy still looks to be in relatively decent shape.

Better news saw Spain eke out marginal growth of 0.1% while the Italian economy essentially stabilized following extended contraction, although concerns persist about the ability of both countries to develop and sustain genuine recove

Greece’s recession may be easing, but there’s no end to its unemployment crisis.

Greek GDP fell by 3% in the July-September quarter compared to a year ago, which is a softer decline than the 3.7% annual contraction reported in Q2.

Reuters says it’s the smallest annual drop in Greek GDP in three years. Quarter-on-quarter data isn’t available.

The jobless rate, though, was 27.3% in August, according to separate data, matching July’s rate (which was revised down from 27.6%).

After six years of recession and austerity, Greece’s unemployment rate remains twice the eurozone average (a record high of 12.2%).

Updated

Confirmation that Cyprus’s economy continues to suffer from the trauma of its bailout programme.

Cypriot GDP shrank by 0.8% in Q3, which means that that 5.7% of national output has been lost over the last year.

Not a surprise, as Cyprus’s once-dominant banking industry has been brought to its knees this year. Capital controls still restrict how much money people can withdraw at the bank, and large depositors with over €100,000 have seen their accounts frozen, and hefty haircuts imposed.

The euro has weakened this morning, dropping 0.3% against the US dollar to $1.3444.

Eurozone economic growth has been lagging behind America’s for most of the last two years, as this graph shows:

GDP in America (where the Federal Reserve is operating much looser monetary policy than the European Central Bank) rose by around 0.7% in the third quarter.

Eurozone GDP up just 0.1%

So, it’s official, the eurozone’s recovery from recession stumbled over the summer and early autumn with GDP rising by just 0.1% in the third quarter of the year.

That’s a slowdown compared to the growth of 0.3% achieved in the second quarter of the year, when the euroarea exited recession.

If you’ve been with us all morning, you’ll know that France’s economy was a drag on growth, contracting by 0.1%. Germany’s growth of 0.3% was in line with forecasts. But both countries reported weak exports.

The official release from Eurostat is here.

On a year-on-year basis, the eurozone economy remains 0.4% smaller than in the third quarter of 2012.

Updated

Eurostat also reports the GDP across the wider European Union rose by 0.2% in July to September.

Eurozone GDP up just 0 .1%

JUST IN: The eurozone grew by 0.1% in the third quarter of 2013.

Nearly time for the big number…. GDP for the eurozone as a whole. Economists expected a 0.2% rise in output across the region.

Portugal GDP up 0.2%

Portugal’s economy is still growing, but it’s also suffered a sharp slowdown.

Portuguese GDP rose by 0.2% in the last quarter, compared to the strong 1.1% expansion reported in Q2.

Still, there should be relief in Lisbon that it remains out of recession, as its austerity programme continues.

On a year-on-year basis, Portugal’s economy is 1.0% smaller than a year ago.

German GDP: What the analysts say

Back to the eurozone, and many analysts are pointing out that Germany’s 0.3% rise in GDP was due to domestic demand.

As flagged up 7.28am, Germany’s statistics body reported that the balance of exports and imports had a downward effect on GDP growth.

Interesting timing, given the EC yesterday announced an in-depth probe into whether Germany’s large, persistent trade surplus harms the rest of the eurozone.

 Marc Ostwald of Monument Securities writes:

The [eurozone] core and semi-core is seen slowing as per the as expected German 0.3% q/q (paced exclusively by domestic demand, for those idiots at the EU wasting money on investigating Germany’s Current Account surplus) and France’s very unsurprising, but lower than forecast -0.1% q/q GDP.

ING analyst Carsten Brzeski said Germany “remains the stronghold of the Eurozone,” adding:

there is little reason to doubt the stability of the German economy

Oliver Kolodseike of Markit reckon the German economy remains on course:

Although the pace of expansion eased from the second quarter, survey data for Q4 so far suggest the German economy is on track to meet the governments’ expectation of an annual 0.6% rise in 2013.

UK retail sales drop

Just in, a surprise fall in UK retail sales.

Retail sale volumes fell by 0.7% in October, surprising analysts who’d expected that sales would have been flat compared with September.

Stripping out fuel, sales were down by 0.6%, according to the Office for National Statistics.

Clothing sales dropped by 2.1% during the month – suggesting the decent autumn weather deterred people from buying winter coats and the like.

On the upside, sales were still 1.8% higher than a year ago.

Italian GDP falls 0.1%

Italy’s recession continues for a ninth quarter, but the end may be in sight.

Italian GDP fell by 0.1% in the three months to September, in line with expectations. That means the pace of contraction slowed, following a 0.3% drop in GDP between April and June.

It’s the smallest quarterly drop in Italian GDP since its recession began in the third quarter of 2011 as this table shows (more details here)

Italian GDP is down by 1.9% over the last year, INSEE reported. It also revised down its data for the second quarter, to show a 2.2% annual decline (from a first estimate of 2.1%).

Dutch GDP up 0.1%

The Netherlands has emerged from recession.

Dutch GDP grew by 0.1% in the third quarter of the year, according to Statistics Netherlands which also revised up its estimate for Q2 to show that GDP was flat, rather than contracting by 0.1% as first thought.

The Netherlands benefited from rising exports in the last quarter, which grew 2.1% year-on-year. Household consumption was down 2.3%.

On an annual basis, though, the Netherlands economy remains 0.6% smaller than a year ago.

Updated

French GDP falls 0.1%: What the economists say

Diego Iscaro of consultancy IHS:

The new contraction in activity will definitely not help President Hollande to improve his popularity among the electorate – which currently stands at a record low.

Moscovici: France isn’t going back into recession

Back to France. Finance minister Pierre Moscovici has insisted that the French economy is not sliding back into recession.

He’s sticking to his forecast of 0.1-0.2% growth this year, despite the disappointing news that GDP fell by 0.1% in July-September.

Speaking on RTL Radio, Moscovici blamed one-off factors such as slowing aircraft orders (the Paris Air Show, in June, typically delivers a boost to industry), saying:

The productive forces are starting up again, production is recovering

We knew the third quarter would mark a pause, it’s not a surprise, it’s not an indicator of decline, it’s not a recession.

Moscovici was pretty bullish three months ago when France officially exited recession, hailing the ‘encouraging signs of recovery’.

To avoid a double-dip recession, France now has to grow its GDP in the current quarter.

Key event

Europe’s stock markets have opened strongly.

Instead of fretting about the eurozone’s woes, traders are taking comfort from testimony released by the next head of America’s central bank overnight.

In prepared remarks for the Senate Banking Committee, Janet Yellen said the US labour market and the wider economy were “far short” of their potential. She warned:

We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession.

And that’s being taken as a sign that the Federal Reserve is in no hurry to slow its stimulus programme, which is pumping $85bn of new money into the US economy every month.

Cue a stock market rally, sending the FTSE 100 up 1% or 66 points to 6693. Yesterday it fell on speculation that the Bank of England is closer to tightening monetary policy, because Britain’s economic recovery is gathering pace.

  • German DAX: up 0.8%
  • French CAC: up 1.06%
  • Italian FTSE MIB: up 0.7%
  • Spanish IBEX: up 1%

Yellen testifies before the committee at 10am local time, or 3pm GMT.

Decent GDP data from Hungary — its economy grew by 0.8% in Q3, twice as fast as expected.

On an annual basis Hungarian GDP was 1.7% higher. That’s the fastest rate since the first quarter of 2011 says Reuters.

Austrian GDP: up by 0.2%

Austria’s economy grew by 0.2% in the third quarter of the year, helped by a small rise in exports.

Its WIFO statistics body also revised down Austrian GDP growth in the second quarter to 0.0%, from 0.1%.

WIFO also reported that exports rose 0.2% in the last quarter, while imports were up 0.1%.

That 0.1% contraction means France’s economy has been outperformed by Spain for the first time since early 2009.

Spain’s economy grew by 0.1% in the last quarter, according to official data release on October 30.

The small contraction in France, and the slowing growth in Germany, shows that the euro area economy remains weak despite dragging itself out of recession in the summer.

Other countries are doing better. Overnight, Japan reported that its GDP rose by 0.5% during Q3, beating forecasts of 0.4% growth (but slower than the 0.9% in Q2).

Britain grew by 0.8% in the third quarter of 2013, while America posted quarterly growth of around 0.7%.

Here’s AP’s early take on the news that French GDP shrank by 0.1% in the third quarter, dashing hopes of a small expansion:

French economy shrinks after surprise rebound 

The French economy is shrinking again, statistics showed Thursday, underscoring that it is still in trouble despite a rebound last quarter.

The French national statistics agency, Insee, said that gross domestic product fell 0.1 percent in the July-to-September quarter. That comes after an unexpectedly large rebound of 0.5 percent in the second quarter that pulled France out of recession. Economists had said that rebound was partially due to technical effects and that France would likely not sustain that kind of growth in the near term.

The latest figures showed that exports, which had been a big factor in France’s rebound, fell sharply. Some corporate investment was also down and household spending slowed.

Last quarter, the French government hailed the growth figure as a proof that its reforms were beginning to bear fruit, although it cautioned that more time was needed. But many economists said that the rebound was artificially pumped up by such things as high energy use during a particularly cold winter and spring. They contended that France still needs to make significant changes to make its economy more competitive.

For example, economists say that France’s cost of labor, even after a tax credit, is still too high. State spending also needs to be cut, so France doesn’t rely so heavily on taxes to meet its deficit obligations. That leaves France in a tight spot, since it’s difficult to cut spending while the economy is still floundering.

[end]

The full statement from INSEE is online here, including this chart:

Germany’s statistics body warned that trade was weak in the last quarter, pulling GDP growth down to +0.3%.

Instead, “positive impulses exclusively from inside Germany” drove growth, the Statistics Office said. It reported that spending by private households and the state rose during the quarter, as did business investment.

By contrast, the contribution from abroad (exports minus imports) put a brake on GDP growth.

France’s economy also suffered from weak trade, with exports dropping by 1.5%.

German GDP released

The German GDP data is out, and it’s more positive than the news from France.

Germany’s economy grew by 0.3% in the third quarter of 2013. That’s in line with expectations, but is slower than the 0.7% growth achieved in the second quarter of this year.

On an annual basis, the German economy is 1.1% bigger than a year ago.

French GDP data shows economy contracted

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

Is Europe’s economy healing, or is the nascent recovery that began in the summer already petering out? We’ll find out this morning, with the publication of new growth data for the third quarter of 2013.

And the early news is not encouraging. France’s economy shrank by 0.1% in the three months to September, according to provisional data from its statistics body.

That’s worse than expected, following the 0.5% growth reported in Q2.

The small drop in GDP was due to a sharper decline in trade, with French exports falling by 1.5%. Business investment dropped by 0.6%.

It’s another blow to embattled French PM Francois Hollande, just a week after S&P downgraded France’s credit rating.

Lots more data still to come, including the first estimate of German and Italian economic growth.

The full reading for the eurozone is due at 10am GMT. Economists had predicted that euro area GDP would have have risen by 0.2% – the news from France, though, may have sent them scrabbling to rework their sums….

I’ll be tracking all the GDP data, reaction, and other news through the day.

Updated

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Published via the Guardian News Feed plugin for WordPress.

Bundesbank: boom in cities could be unsustainable. Asian markets rally, although Europe stays calm. Bondholders could take control of Co-op Bank. Npower hikes UK energy prices. US employment situation report to steal the spotlight this week…

 


Powered by Guardian.co.ukThis article titled “Bundesbank warning over German house prices as world stock markets inch higher – live” was written by Graeme Wearden, for theguardian.com on Monday 21st October 2013 13.12 UTC

Markets close to five-year highs

Back in the financial markets, and world stocks remain near their highest levels in five years today, despite a somewhat lacklustre session in Europe so far.

The MSCI world equity index, measuring stocks around the globe, is up 0.7% today at its highest level since Macy 2008. It was driven by decent gains in Asia overnight, where Australia’s index hit a five-year and China’s stocks enjoyed their biggest daily rise in two weeks.

As explained in the opening post, markets are being driven higher by steady speculation that the Federal Reserve will resist cutting its $85bn/month stimulus programme this year. Many analysts suspect the Fed will not ‘taper’ the scheme until the consequences of the US shutdown are clear.

In Europe, the FTSEurofirst 300 crept a little higher — helped by decent results from Philips and Akzo Nobel.

London’s FTSE 100 is up a modest 10 points – with Royal Bank of Scotland’s shares down almost 5% as rumour swirl of a good bank/bad bank breakup

Matt Basi of CMC Markets reports that City traders are starting to ponder a festive rally: 

With high street stores seemingly intent on starting the Christmas shopping period earlier each year, equity traders too seem to be weighing an early start to festivities as we approach ‘santa rally’ season.

With many major indices making fresh highs last week and barriers to further upside apparently reduced, the potential for record-breaking gains by year end is strong – though the prospect of another round of political wrangling in the US in early 2014 may be enough to prevent a full bear capitulation…

The oil price, though, has fallen today – with a barrel of US crude sliding below the $100 mark for the first time since July 3 this year. That follows reports of production increases, and comes ahead of new (postponed) government oil inventory data later today.

Fawad Razaqzada of GFT Global Markets in London said prices could well keep falling:

The ample and rising supply of oil, combined with a weaker demand growth prospects, point toward lower prices in the months ahead.

There’ll be a rush of US data this week, with the delayed publication of various reports that were held up by the US shutdown (including the Non-Farm Payroll report on the jobs market). This means some investors are being cautious, for the moment.

Here’s Monex Capital Markets’s take, ahead of the Wall Street open, in around 15 minutes.

With the overdue non-farm payrolls and a busy week for US corporates, Wall Street is certainly set to find some fresh direction.

What’s more, with the threat of a default having weighed on US equities for most of the month so far, there’s arguably some catching up to be done. Ahead of the open we’re calling the DOW down 6 at 15394 and the S&P down 2 at 1743. In after hours trade, Nikkei futures are down 19 at 14675.

In other Italian news, police in Bologna say they yesterday arrested a former banker who is wanted in the United States over accusations of allegedly helping wealthy US clients to set up Swiss bank accounts.

AP has more details:

Police said on Monday that when Raoul Weil checked into a hotel Friday evening, authorities were alerted that he is wanted in the U.S. on an international arrest warrant.

Weil was indicted in 2008 in Florida on charges that he conspired to defraud the government when he was chief of UBS’s wealth management business.

Weil’s lawyer has said his client is innocent, and that the charges should have been dropped when UBS agreed to turn over clients’ names in 2009 to settle allegations it conspired to defraud the U.S. government of taxes.

Updated

Italian unions plan protests over 2014 budget

Political tension is rising in Italy again, with the country’s major unions agreeing to hold strikes and protests to protest against the country’s 2014 budget.

The head of the UIL union, Luigi Angeletti, told reporters in Rome that prime minister Enrico Letta had blundered by not making more radical changes in next year’s fiscal programme, arguing:

Everything stays the same, he shouldn’t have done a budget to stabilise the government, he should have done one to stabilise the country.

Angeletti was speaking after a meeting with other union heads. The planned protests are not a full-blown general strike.

The budget, announced last week, has been badly received across Italy. Many people had hoped for a major cuts to labour taxes, to narrow the gap between the cost of employ workers and what they actually get, along with an easing of austerity.

Instead, prime minister Enrico Letta only offered minimal changes, after struggling to get agreement for spending cuts and deciding to comply with EU debt targets (the budget cuts Italy’s deficit from 3% this year to 2.5% in 2014).

Anger over the budget hit the streets of Rome on Saturday, when thousands of people took part in an anti-austerity protests:

Writing in the FT today, Wolfgang Münchau explains how Italy’s fragile coalition made it impossible for Letta to cut labour taxes and compete better with Germany:

Mr Letta’s Democrats are one of Europe’s last unreformed socialist parties. It supports the prime minister in his determination to stay within the EU-mandated deficit target of 3 per cent of gross domestic product. But it also opposes the changes needed to free up resources for tax cuts.

Meanwhile, Silvio Berlusconi’s centre-right People of Liberty party, another member of the coalition, opposes increases in wealth, property and consumption taxes. If one coalition partner vetoes spending cuts, and the other vetoes tax increases, the margin for budgetary manoeuvre is close to zero.

More here: Italy misses the chance to reform

Royal Bank of Scotland shares remain the biggest faller in London, with 5% wiped off the value of the state-controlled company this morning.

Earlier I blamed uncertainty over its future, with the government poised to say whether it will be broken up.

There is another factor, though, as fastFT flags up. With JP Morgan close to a $13bn settlement over the mis selling of mortgage-backed securities, could RBS be facing another penalty? Berenberg analysts reckon it could be $3.7bn.

The upshot is that RBS shares have slipped to their lowest level in almost six weeks, -5.2% at 353p, as this graph shows.

Bundesbank’s house price warning – more details

The Bundesbank’s warning that German house prices could be overpriced (see also 11.21am) is online here:

Possible overvaluation of residential property in German cities

In it, the central bank cites Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf as cities where prices are up to 20% above the level that demographic and economic factors would suggest as reasonable.

The Bundesbank suggests that overseas investors are piling into the German property market, seeking higher returns than are possible from government debt.

In Germany, renting a home has traditionally been more common than in the UK. That attitude may be changing ,though, as Germans look for a safe place for their savings. As the Bundesbank put it:

The belief that the value of one’s assets can be best secured through property ownership was certainly an argument for many households to consider investing in property.

Bundesbank warning over German house prices

Germany’s economic recovery will continue through the winter, according to its central bank’s latest assessment.

The Bundesbank predicted that Europe’s largest economy kept growing between July and September, partly thanks to rising orders across the industrial and construction sectors. It said:

Economic output should have increased in the summer quarter.

and also suggested German consumers will push private consumption higher.

The monthly report also flagged up concerns over German house prices (rising by around 4% year-on-year), saying:

Price increases have so far concentrated in large cities. Measured by longer-term demographic and economic influence factors, overvaluations could be between 5 and 10 percent

In the attractive large cities, the deviations are up to 20 percent.

(quotes via Reuters)

Wonder what they make of the situation in the UK, with one survey finding London house prices leapt 10% last month alone (driven by hot demand for the priciest residences).

Updated

The latest assessment of European government finances confirms that deficit levels fell last year, but with stark differences across the region.

Eurostat reported that the total national debt of eurozone countries rose from 87.3% of GDP in 2011 to 90.6% of GDP in 2012. The region’s annual deficit dropped from 4.2% to 3.7%.

Across the wider EU, national debts rose in 2012, from 82.3% to 85.1% of GDP.

The updated data also found that Greece’s deficit in 2012 was 9%, not 10% as estimated six months ago. Ireland’s, though, was 0.6% higher at -8.2% of GDP.

Eurostat also reported that:

In 2012 the lowest government deficits in percentage of GDP were recorded in Estonia and Sweden (both -0.2%), Luxembourg (-0.6%) and Bulgaria (-0.8%), while Germany (+0.1%) registered a government surplus.

Seventeen Member States had deficits higher than 3% of GDP, with the largest registered in Spain (-10.6%), Greece (-9.0%), Ireland (-8.2%), Portugal and Cyprus (both -6.4%).

In all, fifteen Member States recorded an improvement in their government balance relative to GDP in 2012 compared with 2011, twelve a worsening and one remained stable.

End in sight for Cyprus capital controls?

Cyprus finance minister has reportedly told the country’s parliament this morning that most of its capital controls could be raised “before the spring” next year.

Harris Georgiades made the comments as he briefed MPs on next year’s budget. He cautioned that people could still be restricted on sending money overseas even if other controls are lifted.

Since March, Cypriots have faced stringent restrictions on how much money they could take out of their bank accounts, to prevent a bank run following its bailout.

Cyprus’s central bank governor also testified, telling MPs that Cyprus’s banks face a rise in bad debts as its recession hits firms

Reuters has the details:

Cyprus’s banking sector is expected to show further losses in 2014 as the economy worsens and banks book rising non-performing loans, but the sector is adequately capitalised, the head of its central bank said on Monday.

Panicos Demetriades also told lawmakers the island state would see an economic contraction of less than the 8.7 percent forecast by international lenders this year, but that risks were on the downside for 2014.

The big news in the energy sector today is that France’s EDF and the China General Nuclear Power Group, have agreed a £14bn deal to build a new UK nuclear power station at Hinkley, in Somerset.

Prime minister David Cameron has declared it was a “very big day” for Britain, and suggested Hinkley Point C will be followed by other new reactors. He said:

This is about guaranteeing secure and safe long-term supply of electricity for this country,…and creating thousands of jobs.

Here’s our latest news story on the deal: UK to build new nuclear power station

Our Politics liveblogger, Andrew Sparrow, is tracking all the action here: Hinkley Point nuclear power station deal announced: Politics live blog

The deal involved a hefty incentive — the government is agreeing to pay roughly twice today’s rate for electricity. Energy editor Terry Macalister writes that Britain is guaranteeing “decades of guaranteed financial returns” in exchange for the £14bn of investment.

City AM’s Allister Heath isn’t impressed by the deal:

Updated

Another day, another energy price hike. This time it’s NPower, hitting UK consumers with a 10.4% hike in dual-fuel tariffs.

This makes an unpopular hat-trick for the industry, after SSE announced an 8.2% rise and British Gas raised prices by 9.2% (the increases are getting steadily higher).

These steep hikes, just as the weather turns colder, has intensified concern over Britain’s living standards squeeze (wages continue to lag well behind inflation).

The opposition Labour Party continues to pledge to freeze bills for 18 months if it wins the next election, while the government encourages consumers to consider changing tariffs. Tricky if everyone raises their prices….

Over in Greece, local authority workers have announced a three-hour walkout tomorrow to protest against the Athens’s government’s cuts to the public sector workforce.

The strike will coincide with the arrival of a group of school guards in the capital. They began walking from Thessaloniki, 300 miles away, in 28 September to object to being dismissed from their jobs.

The protests come as Greece’s finance minister, Yannis Stournaras, insists that the government will not swallow any further austerity measures. Stournaras told the Kathimerini newspaper that:

We are negotiating hard, as we always do….

However, realism and calm has to prevail on all sides. At a time when markets are starting to trust Greece again, illogical demands can only cause damage.

But Athens does appear to be running out of options to fix its financing gap of around €4bn in 2014. Here’s the full story.

Jill Treanor: Co-op Bank could lose control of Bank

Our banking expert, Jill Treanor, writes that Co-operative Group could lose control of Co-op Bank to its bondholders.

She explains what the statement released this morning about the £1.5bn rescue plan really means:

After a month of intense talks with two US hedge funds, Co-op Group has conceded that its original plan, which allowed it to keep a majority stake in the bank, needs rethinking.

The US hedge funds which own debt in the Co-op Bank have been warning they have enough support to block the original plan, under which the overall group kept a 75% stake in the bank, which was to be listed on the stock market. The Co-op was asking bondholders to take £500bn of losses while the group injected £1bn into the bank.

But Aurelius Capital Management, best known for forcing Argentina to pay out on its debts, and Silver Point Capital, linked to distressed groups such as Lehman, had argued that Co-op Group should give them more shares in return for the losses on their bonds. They do not want the Co-op to own as much as 50% of the bank after it floats on the stock market.

Co-op: Bank recapitalisation plan will change

The Co-operative Group’s plan to recapitalise its troubled banking operation appears to have hit problems.

In the last few minutes, the Group released a statement on the process, revealing that negotiations with its bondholders over how to inject £1.5bn in fresh capital are continuing.

It insisted that the talks remain “constructive”, but admitted that its original plan — to float the Bank on the stock market with £1bn of capital from the Group and £500m from bondholders – will change substantially.

Here’s the key point:

The Board of the Group remains committed to delivering a solution that provides both the necessary capital for the Bank, while preserving its ethical focus, and an acceptable outcome for bondholders, including private investors.

To this end, we have been engaging with different bondholder constituencies and seeking to balance the requirements and expectations of these parties.

We currently expect that many elements of any recapitalisation plan will be materially different to the outline provided on 17 June 2013, whilst still meeting the additional £1.5bn Common Equity Tier 1 capital requirement.

The news comes as Co-op also admitted that its bill for PPI provisions will be £100m higher than expected.

More to follow… 

Updated

Market hit five-year high, despite a lacklustre Europe

World stock markets have nudged a new five-year high this morning.

The FTSE All-World equity index crept up to its highest level since January 2008, on the back of Asia’s overnight rally where China was the stand-out performer.

In Europe, the FTSEurofirst 300 hit a new five-year high too, although the main markets are somewhat mixed. While the FTSE 100 is slightly higher, the German DAX and French CAC are both down 0.2%.

The star performer is Philips – up 6% after posting strong profit number.

However, the FTSE 100 is being dragged down by the banking sector, with Royal Bank of Scotland tumbling 6% on speculation that the government is about to split it into a good and bad bank.

China’s stock market just posted its biggest one-day gain since early September, following reports that the Beijing government is urging officials to keep reforming its economy to hit growth targets.

Reuters has the story:

China’s CSI300 share index posted its strongest daily gain in six weeks on Monday, outshining Asian markets after Chinese Premier Li Keqiang said there should be “no slackening” in implementation of policies that ensure growth targets are met.

The CSI300 of the leading Shanghai and Shenzhen A-share listings finished up 1.9% at 2,471.3 points, its biggest gain since September 9. The Shanghai Composite Index climbed 1.6%.

Reports in official Chinese media said that Li, at a State Council meeting on Friday, urged officials to keep up the pace of making reforms and reiterated that the policy focus will not change.

The market also responded positively to local media reports on Monday that China’s securities regulator, over the weekend, said that more steps have been added to the approval process for new initial public listings.

Investors took that to suggest that the freeze on IPO approvals since late 2012 will not be lifted by the end of this year .

Stock markets are traditionally roller-coaster rides. Now the owner of the Alton Towers Theme park wants to join the fun.

Merlin Entertainments has announced plansto float 20% of its business on the stock market, three years after an early IPO was scuppered by the financial crisis.

Merlin is Europe’s largest operator of visitor attractions, including Madame Tussauds, LEGOLAND, and Chessington World of Adventures. It’s owned by a group of private equity firms, who hope to raise £220m to pay down existing debt.

The float suggests its advisors see calm times ahead on the markets (always tricky to get an IPO off the ground when shares are dropping faster than the Nemesis)

If you’re interested, you need to buy at least £1000 of shares. Succeed, and you get money off Merlin annual passes. More fun than just getting a dividend cheque. Official statement here.

The Bank of Japan struck a positive tone this morning, raising its rating on all nine of the country’s regional economies in a sign that its huge stimulus package was having an effect.

The BoJ used the terms “recovering” or “picking up” for each area, with most now ‘recovering moderately’, adding;

Many regions said employment and salaries are showing signs of improvement amid firm domestic demand and a gradual improvement in factory output.

Summary

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

Stock markets are starting the new week on the front foot, with Australia’s main index hitting a new five-year high as Asian markets romp upwards.

Having hit their highest levels since 2008 on Friday, equities seem set to climb even higher today. Three factors seem to be driving the rally:

optimism over global economic prospects (after encouraging Chinese GDP data on Friday)

• ongoing relief that America’s government shutdown is over.

• predictions that the disruption it caused means the Federal Reserve will keep its stimulus programme unchecked a while longer, continuing to pump $85bn of new money into the economy each month through bond purchases.

As Alpari analyst Craig Erlam put it:

A U.S. default has been averted and the disruption caused by these events has almost certainly ensured that the Fed won’t taper until at least December, but probably towards the end of the first quarter of 2014.

This pushed Japan’s Nikkei up 0.9%, while China’s CSI 300 is up 1.7%. Australia’s S&P/ASX 200 closed up 0.5% at a five-year high, while New Zealand’s benchmarkNZ50 hit a record high.

Mind you, America’s political problems (let alone the fiscal ones) aren’t over, as Robin Bew of the Economist Intelligence Unit points out:

Away from the markets, there’s plenty afoot today, including the Germany Bundesbank’s monthly report (at 11am BST). We’ll also be digesting the latest news from Greece, where the government continues to insist that it will not swallow any more austerity…

Updated

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

Published via the Guardian News Feed plugin for WordPress.

Athens government seeks two-month extension. University of Athens ‘suspends operations. Germany’s firms more confident as recovery continues. UK mortgage approvals hit highest since Dec 2009. Long slog expected over German coalition…

 


Powered by Guardian.co.ukThis article titled “Greece pleads for more time over public sector reforms – live” was written by Graeme Wearden, for theguardian.com on Tuesday 24th September 2013 17.06 UTC

Italian PM Enrico Letta is discussing the future of Telecom Italia, after Spain’s Telefonica announced plans to take a much larger stake in its parent company (up to 70%).

Fab Goria tweets the key points:

And here’s more details of the University of Athens’ decision to suspend operations, because (it says) public sector job cuts have made it impossible to continue: University of Athens, NTUA Suspend Operations

Updated

Greek government pleads for more time over public sector layoffs

Over in Greece our correspondent Helena Smith reports that the government has appealed for more time to press on with the troika’s most controversial of demands yet: public sector dismissals.

Inspectors from the EU, ECB and IMF have yet to respond, on a day in which Greek public workers protested again.

And in another worrying development, the University of Athens has suspended all its operations, saying it cannot keep functioning with so many staff laid off.

Helena writes:

Barely two days after negotiations with visiting troika representatives began, prime minister Antonis Samaras’ coalition government has upped the ante asking for yet more time to implement reforms.

At a meeting with mission heads from the EU, ECB and IMF, the administrative reform minister Kyriakos Mitsotakis appealed for a two-month extension to the deadline Athens presently has to transfer some 12,500 civil servants into a so–called mobility scheme where employees would see their salaries drastically reduced before being moved, if lucky, to another government department.

Insiders at the ministry described the atmosphere of the talks “as very positive” – in sharp contrast to the environment outside where thousands of demonstrators gathered to issue howls of protests.

To underline that point about a positive atmosphere the meeting was even cut short, apparently by a good 40 minutes. But a source close to the troika was not so confident.

He said:

They [auditors] made it clear that they would come back with an answer Friday.

Yes, Greece has made progress but there is a feeling that what we are seeing is yet more stalling of the inevitable with the government once again biding time.

After a mad dash scramble the ministry managed to complete the first phase of the scheme – identifying 12,500 civil servants who could be transferred to the programme by the end of the month. Most are from the education sector and have included teachers, administrative staff and school guards.

But the effects of the crude fiscal logic that has often guided those decisions has not been without consequence.

Earlier today the University of Athens repeated that with layoffs making its “educational, research and administrative operation … objectively impossible” it regretted to inform the public that it was “forced to suspend all of its operations.”

“There is a possibility that the next six months could be lost but the bigger issue is not to lose the university altogether,” its rector Theodosis Pelegrinis said. The academic insisted the dismissals had been handled “in an excessive manner” without foresight or any proper review.

Describing the job losses as “incomprehensible” the university’s senate said the cuts would lead with mathematical precision to “undermining higher education and the young generation of Greece, the only real hope for overcoming the social and economic crisis in the years to come.”

Syriza, the radical left main opposition party that has spurred on protests, announced that its leader Alexis Tsipras would hold talks with school teachers tomorrow.

A bad day for cruise firm Carnival, which has been keelhauled to the bottom of the FTSE 100.

Carnival shares fell by 5.6% today, after it warned that bookings are sharply lower this year.

As my colleague Nick Fletcher explains, Carnival spooked the markets by reporting a 30% fall in third quarter earnings after problems with a number of its ships. Most famously, Costa Concordia, which was finally refloated last week after crashing in early 2012.

Bookings for the rest of 2013 and the first half of 2014 are down on the previous year, the company admitted.

It admitted it could take three years for the Costa brand to recover its reputation, following the Concordia disaster in Italy and another setback involving Costa’s Triumph vessel which stranded passengers for five days. Mechanical problems have dogged some of its other vessels.

Video: Top banker under fire over Libor answers

The Libor scandal has taken another twist this afternoon. 

The Wall Street Journal is reporting that Alex Wilmot-Sitwell, a former top UBS executive, is under fire over the testimony he gave to Parliament in January, regarding attempts by traders to fix the rate at which banks would lend to each other.

Wilmot-Sitwell told MPs on the Treasury Committee that he didn’t recall Tom Hayes, one of the traders at the heart of the scandal. But the WSJ’s David Enrich has discovered that Wilmot-Sitwell was included on various emails which discussed Hayes — who was charged over the Libor affair in June.

Mark Garnier MP, a member of the Treasury Committee, says Wilmot-Sitwell has “questions to answer”.

Here’s the full email chain

And here’s the WSJ’s story: Ex-UBS Executive Under Fire Over Libor Testimony

Greece threatened with demotion, again

FTSE Group, the stock market index company, has again threatened to expel Greece from its list of Developed Markets, and rank it as an Advanced Emerging market.

In its Annual Country Classification Review, published this afternoon, FTSE said it was leaving Greece on its Watch List, for yet another year. Greece was first placed on Watch for a possible downgrade in 2006. 

  • Argentina: Possible demotion from Frontier
  • China ‘A’ Share: Possible inclusion as Secondary Emerging
  • Greece: Possible demotion from Developed to Advanced Emerging
  • Kazakhstan: Possible inclusion as Frontier
  • Kuwait: Possible inclusion as Secondary Emerging
  • Mongolia: Possible inclusion as Frontier
  • Morocco: Possible demotion from Secondary Emerging to Frontier
  • Poland: Possible promotion from Advanced Emerging to Developed
  • Qatar: Possible promotion from Frontier to Secondary Emerging
  • Taiwan: Possible promotion from Advanced Emerging to Developed

Morocco and Qatar are new entries, while Ukraine has been booted off the list. It had been lined up for “possible promotion to Frontier market status”, but FTSE is now worried about:

…continuing delays in market developments and no timelines as to when the market developments regarding regulatory oversight, capital controls, treatment of minority shareholders and settlement will be implemented.

Updated

If you’ve not seen it already, do check out this article on Comment Is Free today about Greece’s neo nazi Golden Dawn party, and the investigation into links between the party and the Greek police.

Here’s a flavour:

For a period, Greece’s experience of general strikes, occupations and social movement protests came close to insurrection. This is as near to what Gramsci called a crisis of authority as one can get. The political control of the state has been breaking down. It is this breakdown of authority – which reactionaries blame on immigration, foreign control and communist agitation – that fuels Golden Dawn’s support.

The situation is toxic. Austerity has not run its course, any more than the recession, or the social misery engendered by it. The only recourse of the left is to render Golden Dawn useless by incapacitating it, obstructing its activities and shutting it down as an effective street-fighting fascist organisation.

More here (where regular reader Kizbot had been putting the world to rights in the comments):

Golden Dawn’s rise signals breakdown of the Greek state’s authority

Updated

A weak start on Wall Street, with the Dow Jones index dropping 55 points in early trading to 15345, –.35%.

Once again (again) traders are fretting over the question of when the Federal Reserve will start tapering its QE programme.

There are some big risers, though — particularly in the tech sector. Facebook are up 4% to a new lifetime high after an upgrade from Citi and predictions of a new access deal in China, while Yahoo’s up 3% to a six-year high.

No rush for the Bank’s probing Paul Tucker

Bank of England deputy governor Paul Tucker has joined the chorus of policymakers and it would appear he is singing from the same hymn sheet on forward guidance, reports my colleague Katie Allen.

She’s swiftly digested Tucker’s lunchtime speech (see 1.57pm for the snaps), and explains that Tucker’s speech matches other pronouncements from BoE policymakers this week, all defending the Bank’s new approach.

Katie writes:

Fellow Monetary Policy Committee (MPC) member David Miles said earlier today that he believed the Bank’s promise to keep interest rates low until the recovery is well entrenched could help nurture the nascent upturn.

On Monday, their colleague Ben Broadbent defended tying policy to the unemployment rate.
Tucker’s view is that forward guidance can be particularly useful during a period when the recovery is beginning to take hold. And he wants people to know the MPC is in no rush to take away its economic crutches.

According to the text of his speech to the Association for Financial Markets in Europe (AFME), he said:

Saying more about the committee’s approach to policy in this way might be particularly valuable during a period when signs of recovery have become more apparent. These are conditions in which it would be very easy for the financial markets, businesses and households to jump to the mistaken conclusion that monetary stimulus will soon begin to be withdrawn. Given the slack in the economy, the Committee is not in a rush.

On the question of the Bank’s credibility when it comes to keeping inflation in check, Tucker draws a contrast with the pre-independence era. He argues that it was precisely that credibility of the independent BoE’s commitment to keeping inflation in check that “enabled us to provide such exceptional monetary support to help the recovery.”

Tucker adds:

It is unimaginable that, prior to Bank independence in 1997, any government would have been able to hold the policy rate at effectively zero and make a further monetary injection of £375bn without inflationary expectations – and government financing costs – spiralling out of control.

Still, he does concede that just having a 2% inflation target – that keen UK data watchers will know has been missed for 45 successive months now – is not a license to endless money printing.

Tucker again:

Credibility is not to be taken for granted. Even we cannot provide stimulus without limit, without a wary eye to inflation expectations.

And there is a further note of caution on that long-standing puzzle for the Bank, productivity:

Tucker says:

Let’s be clear: we do not understand why productivity has been so weak. And that means that we are highly uncertain about the amount of slack in the economy currently and prospectively; uncertain about the extent of the consequent downward pressure on domestically-generated inflation; and, thus, uncertain about the path of output and employment consistent with non-inflationary growth.

And where does all that leave policymaking?

Tucker sums it up: “Provide stimulus; pause to see whether inflation expectations remain anchored; if, but only if, they are and more stimulus is needed, provide it etc. A ‘probing’ approach.”

Another resignation in Germany… this time at the Pirate Party, where leader Bernd Schlömer has reportedly told party members that he won’t run again.

Not a surprise, given the Pirates captured just 2.2% of votes.

Updated

Paul Tucker, the Bank of England’s outgoing deputy governor with responsibility for financial stability, is giving a speech on monetary policy in London.

We’ll have full details shortly. In the meantime, here’s the newswire snaps:

24-Sep-2013 13:45 – BANK OF ENGLAND’S TUCKER SAYS BOE DOES NOT UNDERSTAND WHY UK PRODUCTIVITY SO WEAK, TAKING “PROBING” APPROACH TO POLICY

24-Sep-201313:45 – BOE’S TUCKER – MPC APPROACH HAS BEEN TO PROVIDE STIMULUS; PAUSE TO SEE IF INFLATION EXPECTATIONS STAY ANCHORED; IF, THEY ARE AND MORE STIMULUS IS NEEDED, THEY PROVIDE IT

24-Sep-2013 13:45 – BOE’S TUCKER – IF RECOVERY DOES GAIN TRACTION, MPC WILL NEED TO AVOID MISPERCEPTIONS ABOUT LIKELY COURSE OF POLICY

24-Sep-2013 13:45 – BOE’S TUCKER – BY ADOPTING A PROBING APPROACH MPC CAN PROVIDE BROADLY THE RIGHT DEGREE OF STIMULUS WITHOUT DILUTING COMMITMENT TO PRICE STABILITY

24-Sep-2013 13:45 – BOE’S TUCKER – FORWARD GUIDANCE DOES NOT COMMIT MPC TO KEEPING POLICY LOOSE BEYOND THE POINT THAT WOULD BE PRUDENT

24-Sep-2013 13:45 – BOE’S TUCKER – AS DATA COMES IN, BOE UNEMPLOYMENT FORECASTS MORE LIKELY TO CHANGE THAN FORWARD GUIDANCE 

Speaking of Germany, finance minister Wolfgang Schäuble has warned that Angela Merkel’s next government (once formed) will not change its approach to Europe’s economic problems.

Schäuble told the “Leipziger Volkszeitung” newspaper that Merkel will continue to push for rigorous budgetary discipline across the eurozone.

Appeals for countries to be allowed to relax their deficit targets and borrow more to stimulate growth will not be granted, insisted Schäuble, adding:

I’m also in favor of more growth and more jobs

But I believe that only through budget consolidation and accompanying structural reforms can you get there.

At this stage, though, it’s not clear whether Schäuble will remain as finance minister in the next administration. It all depends on the coalition talks….

More here.

The fallout from Germany’s election continues. Jürgen Trittin, co-leader of the Green Party, has announced that he won’t run for the leadership again.

Trittin added that he and co-leader Katrin Göring-Eckardt would continue to hold “exploratory talks” with Angela Merkel’s Christian Democrats.

From Athens, our correspondent Helena Smith reports that today’s protests were “quite raucous”.

Photos from the scene show the usual array of anti-Troika slogans, calling for an end to Greece’s austerity programme.

As expected, today’s 48-hour strike has hit many public services. Associated Press flags up, though, that some local services kept running. Here’s AP’s early take:

Greek civil servants walked off the job Tuesday at the start of a 48-hour public sector strike, the second in as many weeks, to protest job cuts required for the country to continue receiving international rescue loans.

State school, tax office and hospital workers joined the strike, while ambulances services were to run with a reduced staff. Journalists joined in with a three-hour work stoppage, pulling any non-strike related news of the air.

But participation appeared low, with many services remaining open in central Athens, including post offices and some schools and tax offices.

Thousands of people marched peacefully, chanting anti-austerity slogans through the center of the capital and in the country’s second-largest city of Thessaloniki in the north.

Updated

Back in the markets, the Italian stock markets is the best performer this morning.

That’s after Spain’s Telefonica announced plans to take a bigger stake in Telecom Italia’s parent company.

Here’s the lunchtime prices:

David Madden, market analyst at IG, says traders are still pondering when the Federal Reserve might start to taper its bond-purchase scheme, and fretting about Germany.

He also flags up the comments from ECB senior policymakers today, and yesterday, about the possibility of another round of cheap loans for euro-area banks (see 11.07am for details)

The Federal Reserve is trying to keep investors in the dark as to what its next move will be. The decision to keep the bond-buying programme unchanged at $85 billion per month pushed equities higher, but speculation is mounting about what the next meeting will bring. As always, the Fed members are divided: James Bullard is hinting at tapering, while William Dudley isn’t convinced the US economy is strong enough yet.
Just as the Fed is looking to ease up on its stimulus package, the ECB stated it is on standby to pump cash into the banking system if required. Traders are becoming too dependent on stimulus packages, but they can provide a boost to equities in the short term.
Mineral extractors have lost the most ground today, due to softer commodity prices. Meanwhile, European equity traders are sitting on their hands while Angela Merkel puts together a new coalition government.

Back in Greece, one demonstrator is carrying a flag with a German slogan on it — clearly looking for an overseas audience (see below – it’s the blue banner in the background) .

It reads “Nein zu Spardiktaten und Nationalismus” or “no to austerity diktats and nationalism”

Here’s the full details of the OECD’s warning about the eurozone, from Reuters:

 The European common currency area remains “a considerable source of risk” even though the systemic risk from its debt crisis is scaling back, the Organisation for Economic Cooperation and Development’s chief economist said on Tuesday.

The OECD’s Pier Carlo Padoan told a conference in Lisbon positive economic growth in the euro zone should return only in 2014, expecting growth to be still negative this year despite a recovery in many countries, including Portugal.

He said that while pursuing structural fiscal consolidation in 2014, euro zone countries should allow automatic stabilisers to work and focus on fighting high unemployment rates.

OECD chief: global economy is slowly recovering

Some quotes from the OECD’s chief economist, Pier Carlo Padoan, just flashed up on the Reuters screen.

He’s warning that the eurozone economy is still poses significant risks to the global economy, but also sees signs of recovery:.

11:15 – OECD CHIEF ECONOMIST SAYS GLOBAL ECONOMY SLOWLY EXITING RECESSION, BUT FAR FROM SUSTAINABLE GROWTH

11:16 – OECD CHIEF ECONOMIST SAYS EURO AREA “STILL REMAINS CONSIDERABLE SOURCE OF RISK” 24-Sep-2013

11:20 – OECD CHIEF ECONOMIST SEES EURO AREA ENTERING POSITIVE GROWTH IN 2014, 2013 STILL SEEN NEGATIVE 

11:22 – OECD CHIEF ECONOMIST SAYS GROWTH IS COMING BACK FOR MANY COUNTRIES INCLUDING PORTUGAL 

Greek photojournalist Nikolas Georgiou is tweeting some photos from today’s protests. Here’s a couple:

The European Central Bank could help the eurozone banking sector with a third injection of ultra-cheap loans, ECB governing council member Ewald Nowotny said this morning.

Speaking in Venice, Nowotny (who’s also the head of Austria’s central bank) said it was too early to consider stopping the ECB’s ‘non-standard’ stimulus measures.

Asked about the prospects of another Long Term Refinancing Operation (in which the ECB would offer huge quantities of low-priced loans to banks), Nowotny replied:

It is certainly important to show all that we have in the way of instruments, which are flexible.

The ECB offered almost a trillion euros to eurozone banks in two LTROs, at the end of 2011 and in early 2012. Yesterday, ECB president Mario Draghi told MEPs that a third LTRO was a possibility, if conditions required it.

Updated

Greek public sector workers have marched towards the country’s parliament in Athens, at the start the 48-hour strike that began this morning. Syntagma metro station has been temporarily closed.

The public sector ADEDY union has declared, as it’s said so many times before, that the protest is an attempt to push the government to change course.

We call on the workers … the self-employed, the unemployed, the pensioners, the youth and everyone affected by these policies to give their resounding presence.

But the Greek government is more worried about the Troika’s visit this week. There are murmurs from Athens that the debt inspectors are pushing for progress on privatisations, where Greece is already facing a €1bn shortfall this year.

Kathimerini explains:

During a meeting at TAIPED’s headquarters, the mission chiefs of the European Central Bank, the European Commission and the International Monetary Fund called for more action so that this year’s revenue shortfall, amounting to 1 billion euros, can be covered in 2014.

At the troika’s focus were the privatizations of ports, water and sewage companies, and Hellenic Post. According to plans drawn up in January, these sell-off projects should have started in the second quarter of the year, while the aim now is for them to get started in the last quarter, given that the third will be over in a week’s time.

Another reason for optimism about this morning’s IFO surveyit’s the best reading of German business confidence since April 2012.

Here’s AP’s take:

A closely watched index of German business optimism rose for the fifth month in a row in September, reflecting the improved prospects for Europe’s largest economy.

The IFO institute’s index edged up to 107.7 points from 107.6 in August. Market analysts had expected it to rise slightly more, to 108.0

The index is based on a survey of 7,000 companies about how they think the situation is now, and how they see things going in the coming months. It’s a leading indicator, meaning it suggests where the economy is going in the months ahead.

Germany’s economy expanded 0.7% in the second quarter, helping the 17-country euro currency union return to growth after six quarters of shrinking output.

Reminder — there’s analyst reaction here.

Updated

UK mortgage approvals at highest since December 2009

Just in: UK mortgage approvals have hit their highest level since December 2009, in another sign of a revival (some would say a boom) in Britain’s housing market.

A total of 38,228 loans were approved in August, up from 37,428 in July. That’s nearly a 26% jump on a year ago, according to the British Bankers Association.

Last week, chancellor George Osborne insisted that Britain isn’t gripped by a housing boom. But clearly the market has been revived by signs of economic recovery, and by Osborne’s Help To Buy scheme.

Prices are particularly rampant in the UK capital. As the FT’s Alphaville site points out, the average house price increase over the last 12 months (£38,729) is bigger than the average net income of a London household (£38,688).

Houses beating households, London edition

Those income figures include people who can’t afford to get on the housing ladder, of course:

Updated

IFO: What the experts say

Here’s that reaction to the news that Germany’s IFO business conditions index rose this month, if only marginally (see last post).

Analysts broadly agree that Germany is on the road to recovery, particularly as firms are more optimistic about future prospects.

However, there’s also a little bit of concern that the current conditions index fell (from 112 to 111.4), showing that firms are finding life a little harder.

I’ve taken the quotes off the Reuters terminal:

Thomas Gitzel, VP Bank:

“The somewhat worse conditions index reading is offset by the improved expectations index. Everything is pointing to a faster pace of growth for Germany in the coming months. But what is especially pleasing is that the improved indicators in Germany are based on a more positive international climate. These include improved prospects for the stricken euro zone countries, the recovery in the U.S. economy and the brightening situation in China.”"This leads us to conclude that the current upward movement can be seen sustainable.”

Ralf Umlauf, Helaba:

This is good news. The German economy is gaining speed and growth in the third quarter should again be robust. It’s a little disappointing that the rise in the business climate is only due to higher expectations. The European Cental Bank is likely to feel confirmed in its wait-and-see stance. On the political side, it’s now important to form a government able to act in order to prevent potential strain on the mood from a cliffhanger.

Christine Volk, KfW

German growth is on course for recovery, with business expectations brightening. Europe, as Germany’s most important export market, is beginning to stabilise after a very long lean period and Germany is benefiting from that. Growth in 2014 could even reach 2 percent.

We are less optimistic about Europe. There is a lack of growth stimulus and the debt sustainability of some countries is still in doubt. Here there is potential for disappointment.

Ben May, Capital Economics

The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish. The rise in the headline business climate indicator was a touch smaller than the consensus forecast, but it left the index at its highest level since April 2012.

Updated

German business climate improves, but misses forecasts

German firms have reported that the business climate improved slightly in September, but they’re not as upbeat about the situation today as economists had expected.

That’s the top line from the monthly IFO survey, which was released a few minutes ago.

The IFO German Business Climate index came in at 107.7 in September – up from 107.6 in August, but lower than the 108.2 which the City had expected.

The Current Conditions index missed expectations, at 111.4 versus a consensus of 112.5. That’s also a fall compared with August’s reading of 112.0.

And IFO’s Future Expectations index came in at 104.2, just above the 104.0 that was pencilled in.

So, a mixed picture in Europe’s largest economy.

A year ago, the IFO business climate index was just 101.4 — so today’s 107.7 does show how the situation’s improved now Germany has left recession. But the fact firms aren’t as confident about current conditions as expected may show that growth this quarter will be a little weaker than hoped (although still quite robust)

Reaction to follow….

Updated

The most interesting corporate story this morning involves Spain’s Telefonica and Telecom Italia, whose shares jumped 4% in early trading.

Last night, Telefonica announced that it would raise its stake in Telecom Italia’s parent company, Telco, to 66%, and then eventually to 70%. It’s a complicated deal (see here) , but the upshot is that Telefonica will have a rather tighter grip on its Italian rival.

And as mrwicket flags up in the comments, the Italian press see it as a Spanish takeover:

Morning all.

The Italian papers are leading with ‘Telecom Italia becomes Spanish’. The deal was announced at midnight but seems a little more complicated than it appears.

At another midnight meeting, in a hotel in Palermo that used to be owned by the Graviano brothers, the Democratic Party decided to withdraw its support of its Governor of Sicily, Rosario Crocetta. Eleven months after the historic victory which ended the centre-right/mafia domination of the island, they pulled the plug.
Crocetta is openly (and genuinely) anti-mafia and a grass has said a boss has ordered his killing.

European stock markets have inched higher this morning, as traders await developments in Germany, or more clarity over when the Federal Reserve will start to slow its money-printing stimulus.

  • FTSE 100: up 12 points at 6569, +0.2%
  • German DAX: up 27 points at 8663, +0.3%
  • French CAC: up 18 points at 4190, +0.4%
  • Spanish IBEX: up 13 points at 9122, +0.14%
  • Italian FTSE MIB: up 48 points at 17962, +0.25%

Today’s public sector walkout in Greece is the second 48-hour strike in as many weeks.

It’s expected to hit schools and hospitals, and is timed to coincide with the Troika’s visit to Athens. As before, the unions are protesting about the government’s ‘mobility scheme’, part of the drive to cut thousands of public sector jobs.

The private sector GSEE union has called a four hour stoppage, from 11am local time (9am BST) – so it’ll be joining a protest rally in Athens.

While workers march through the streets, officials from the IMF, ECB and EU will be taking a close look at Greece’s budget for 2014. Greece’s Kathimerini newspaper reckons the Troika don’t share the Athens government’s optimism:

High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5 percent of GDP at the end of next year.

It is thought that one of the reasons Greece’s lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased.

With regard to the 2014 budget, the troika still has doubts about the effectiveness, in terms of revenue raising, of the unified property tax. Next year will be the first time the levy, which combines several property taxes into one, is applied.

Jürgen Baetz, AP’s man in Brussels, agrees that an alliance between Angela Merkel and the Greens looks increasingly unlikely.

Merkel’s coalition struggle

Looking at the German newspapers, Der Speigel has an interesting article about how Angela Merkel will find it difficult to reach a deal with the Green party, the only plausible alternative to a Grand Coalition with the Social Democrats.

It explains that some of Merkel’s advisors would prefer a Black-Green alliance, rather than a Black-Red deal with the SPD. But Horst Seehofer, party chief, is strongly opposed to a deal [Here's Spiegel's piece (in German)].

Seehofer told reporters last night that:

I have not heard anyone today calling on me to talk to the Greens.

Which leaves the SPD. But they remain nervous of another alliance with Merkel, having been burned by their first partnership eight years ago. That led to them posting their worst election results since the second world war in 2009.

Having seen history repeat itself last weekend when the Free Democrats were given the order of the boot from the Bundestag, the SPD may not want to risk it again.

As Bloomberg puts it:

The SPD, the second-place finishers in the Sept. 22 vote, may be reluctant to try again, picking up what its chairman suggested yesterday was a poisoned chalice.

The SPD won’t stand in line or make an application after Merkel ruined her current coalition partner,” Sigmar Gabriel told reporters yesterday in Berlin.

Updated

Caution over German coalition talks

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

Uncertainty abounds today, as Europe hunkers down to await progress on Germany’s coalition talks and Greece continues to told talks with its lenders in an atmosphere of tension and strife.

Ongoing confusion over the US Federal Reserve’s plans to slow its bond-buying stimulus programme (maybe next month? Maybe not until 2014?) are also casting a shadow over Europe, just when we’d hoped for some real clarity and progress.

As Michael Hewson of CMC Markets puts it:

If investors had been hoping that the latest Fed meeting and the result of the German elections would help bring much needed clarity to the uncertainty that has bedevilled markets for weeks now, the events of the last few days have soon dispelled that notion with the result that the current state of affairs is becoming quickly like the proverbial itch that you just can’t scratch.

This has inevitably meant that investors have become much less inclined to take on risk and has seen them start to once again err on the side of caution, pulling stocks down from recent all-time highs.

As we covered yesterday, the German coalition talks are going to be a long grind. Angela Merkel reached out to the Social Democrats yesterday, but their leadership group aren’t expected to meet until Friday.

This process could take several weeks, as the SPD is sure to drive as hard a bargain as it can in return for supporting Merkel’s CDU party

We’ll be watching for any developments in Germany through the day.

We’ll get another insight into the state of the German economy this morning, with the release of the monthly IFO survey. Due at 9am BST, it will show how confident businesses are about current conditions, and future prospects.

While in Greece, public sector unions have called another anti-austerity strike for today — with the usual protests in the streets of Athens.

There’s also a platoon of central bank officials holding speeches today — including no fewer than five members of the European Central Bank’s governing council. That’s Ewald Nowotny, Yves Mersch, Jorg Asmussen, Vitor Constancio and Benoit Coeure.

Two members of the Fed’s governing council are also due to speak later today – Sandra Pianalto and Ester George.

Updated

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