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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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USA 

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

 


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

US retail sales miss forecasts, with no growth in July

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

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

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

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

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

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

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

Labour: Weak wage growth shows economy isn’t fixed

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

He says:

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

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

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

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

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

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

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

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

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

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

He says:

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

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

Those new BoE forecasts

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

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

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

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

This fan chart shows the new growth forecasts:

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

Carney said:

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

(thanks to Reuters for the quote)

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

Quick recap.

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

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

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

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

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

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

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

Carney said:

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

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

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

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

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

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

Eurozone industrial production hits recovery hopes

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

My colleague Jo Moulds reports:

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

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

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

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

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

Asked about the impact of the European Central Bank’s new stimulus measures (including hundreds of billions of cheap loans for banks), Shafik urged caution, saying the new impact of this LTRO programme will become clear over time.

The eurozone still faces low growth and low inflation, Shafik says, and we need to see whether the ECB’s measures lead to stronger credit growth and a stronger recovery.

The UK can’t rely on a eurozone recovery to lift our recovery. It would be good if the eurozone could drive us forwards, as it’s such an important export market, that’s not very likely, she concludes.

And that was the end of the press conference. Summary and reaction to follow…

Updated

Asked about the rise in self-employed workers (as covered earlier in the blog) deputy governor Ben Broadbent plays down the suggestion that it’s a risk. This isn’t necessarily a bad thing for productivity, he claims.

The Bank of England is tweeting some of the key points from today’s briefing, including a rather dashing (and slightly menacing?) photo of the governor:

Carney treats a question about his ‘muddled’ forward guidance policy with some distain.

Asa Bennett of the Huffington Post points out that the initial pledge (no rate rise until unemployment has fallen below 7%), has evolved into a broader measure based on slack, wage growth, and the like. Was it a muddle, or a learning process?

Not an unfair question, frankly, if a little mischievous.

But Carney doesn’t look pleased, claiming that Bennett is the muddled one, and that his guidance has been entirely consistent across many inflation reports and MPC minutes.

It’s consistent, it’s boring, but what’s what you get, he smiles.

The audience aren’t smiling, though:

Mark Carney: Bank of England has contingency plans for Scottish independence

Mark Carney has revealed that the Bank of England has drawn up contingency plans in case Scotland votes for independence next month.

Asked for his views on the prospect of ‘sterlingisation’ (that Scotland would use the pound without a formal currency union), Carney reveals that that BoE is preparing for all eventualities, as “uncertainty” over Scotland’s currency arrangements could hit financial stability.

He concedes that

He says:

We have contingency plans…. but it’s never a good idea to talk about them in public apart from to say that you have them.

Carney says that in terms of the Bank’s responsibilities for financial stability, we have “a wide range of tools and plans”. And the BoE isn’t the only body with responsibilities here — some are shared with the Treasury.

Updated

Back on the markets…. Carney says he is “encouraged” that the financial markets are more responsive to the latest data.

James Macintosh of the Financial Times takes up Larry’s point, that the Bank is looking increasingly clueless (on a spectrum between certainty and cluelessness).

Mark Carney replies; if we can agree that the range is between perfect certainty and perfect uncertainty, it’s fair that there is more uncertainty, mainly around the issue of productivity.

Here’s a link to the inflation report (sorry for the delay #hectic)

Ah, the Scotland question — is it time for Alex Salmond to produce a Plan B on an independent Scotland’s currency?

Mark Carney takes a cautious line; the Bank will implement whatever policymakers decide, but it has “noted” the statements from the three main UK political parties that they would not enter a formal currency union with iScotland.

He also points out that the Bank has a responsibility for financial stability across the UK, and will keep discharging those duties until circumstances change.

Updated

Could the Bank of England raise interest rates by as little as 0.125%, or would that be the equivalent of ‘boiling the frog’, asks Szu Ping Chan of the Telegraph.

Carney chuckles at the analogy, but doesn’t suggest such a small rise is on the agenda.

Ed Conway of Sky invites Mark Carney to comment on the financial markets’ expectations for UK interest rate rises (harking back to his Mansion House speech in June, when he suggested they were too dovish).

Carney plays the ball deftly, saying that the overall shape of market expectations are consistent with an adjustment that is both gradual and limited.

Deputy governor Ben Broadbent chips in, saying that it’s a “false dichotomy” to suggest the Bank should either be completely certain about everything, or completely clueless.

Larry Elliott, the Guardian’s economics editor, isn’t impressed by today’s report:

Doesn’t today report show that the Bank “really hasn’t got a clue, the MPC is divided, and that anyone taking out a mortgage or an overdraft would be ill-advised, as anything you say must be taken with a very large pinch of salt?”, Larry politely suggests.

Governor Carney defends his record, suggesting rather archly that Larry should try speaking to a lot of firms around the country*. The firms I speak to insist that business have understood the Bank’s ‘forward guidance’, he adds.

Interest rates will go up as the economy improves, they will go up to a limited extent, ands gradually, Carney says. But there are geopolitical dangers, and we may need to react to them.

* – Like in Rochdale, perhaps, Governor?

How much spare capacity is left to be absorbed in the UK economy?

Carney says there is “tremendous uncertainty” about the degree of slack, among policymakers on the Bank’s monetary policy committee (the overall view is that there’s 1% of capacity to mop up).

That’s not hugely reassuring, given the importance that the Bank now puts on the issue when setting monetary policy.

Updated

Alex Brummer of the Daily Mail wants more details about the Bank’s worries about geopolitics.

Carney replies that there is a “slight downturn skew” to today’s growth forecasts.

Bank of England press conference – Q&A session begins

Onto questions — Ben Chu of the Independent asks why the Bank has lowered its forecasts for productivity growth.

Mark Carney explains that firms have been taking on workers rather than investing in new equipment, as labour is cheaper than capital.

That process should end once cheap labour has been mopped up, meaning workers demand higher wages, and encouraging firms to invest in new equipment that will boost productivity. That process is taking longer than thought.

Pound hits 10-week low against the US dollar

The pound has hit its lowest level against the US dollar since last May, as the markets digest the inflation report (and the jobless data).

Sterling is down by 0.45% today, at $1.6732.

Updated

On interest rates, Mark Carney again reiterated that borrowing costs will rise in a “small, slow” manner, when the appropriate moment comes.

The economy is returning to a semblance of normality, Carney concludes.

Carney says that the amount of spare capacity in the economy has fallen somewhat in the last quarter, but the Bank also reckons there was more slack in the UK than before.

Updated

Bank of England slashes forecast for wage growth.

Over at the Bank of England, governor Mark Carney is unveiling the Quarterly Inflation Report.

He is declaring that the Uk recovery is “on track”…. “Robust growth” has taken output above the pre-crisis peak, and the Bank has revised its near-term forecast for growth up.

But the Bank has also slashed its forecast for wage growth in the UK.

  • It now expects wages to rise by just 1.25% in 2014, down from 2.5% previously.
  • It sees growth picking up to 3.25% in 2015, down from 3.5% before.
  • And in 2016, it reckons wages will rise by 4%, up from 3.75% previously.

Carney is also warning that Britain faces rising geopolitical risks, while the eurozone economy remains weak.

And the persistent strength of sterling is also a worry.

You can watch the press conference live here (right-click to open in a new tab).

Updated

So much for the year of the pay rise

Today’s report have cast a shadow over hopes that 2014 will be “the year of the pay rise.”, says the Resolution Foundation.

Adam Corlett, their economic analyst, comments:

“Once again a strong employment performance is to be welcomed but concerns remain over wages. There is still good reason to expect that real pay will start increasing during 2014 but today’s disappointing performance pushes the wages recovery further down the road.

It’s now almost impossible for average real pay in 2014 as a whole to exceed last year’s unless we see an unprecedented surge in wages during the rest of the year.

The number of people receiving the Jobseekers Allowance could soon fall below the one million mark:

The Press Assocation reports:

The claimant count fell for the 21st month in a row in June, by 33,600 to 1.01 million, according to today’s data from the Office for National Statistics.

If the trend continues, the number of Jobseeker’s Allowance claimants will fall below a million next month for the first time since September 2008.

See the report yourself

Nearly forgot… you can see the full labour market report here (as a pdf).

Iain Duncan Smith: Long-term plan is working

Work and Pensions Secretary Iain Duncan Smith has claimed that his changes to the welfare system have helped heal the labour market.

Here’s his official response to the jobless figures:

“In the past, many people in our society were written off and trapped in unemployment and welfare dependency. But through our welfare reforms, we are helping people to break that cycle and get back into work.

“The Government’s long-term economic plan to build a stronger economy and a fairer society is working – with employment going up, record drops in youth unemployment and hundreds of thousands of people replacing their signing-on book with a wage packet.

“This is transformative, not only for these individuals and their families, but for society as a whole. That is why we have set full employment as one of our key targets – bringing security and hope to families who have lost their jobs and others who never had jobs, we put people at the heart of the plan.

“The best way to help even more people into work is to go on delivering a plan that’s creating growth and jobs.”

However….critics, such as our own Polly Toynbee, are less impressed with Duncan Smith’s performance, given the stuttering start to his universal credit project:

Iain Duncan Smith’s delusional world of welfare reform

Today’s slump in real wages are a blow to hopes that the cost of living squeeze was easing — readers may remember that four months ago there was chatter that the squeeze was over, after pay rises (briefly) burst above inflation.

Could Britain’s falling real wages be partly due to changes in the composition of the labour market, with more people taking lower-paid jobs?

Newsnight’s economics correspondent, Duncan Weldon, reckons so:

Britain’s youth unemployment total has fallen:

The ONS reports that there were 767,000 unemployed people aged from 16 to 24 in April-June 2014; 102,000 fewer than for January to March 2014 and 206,000 fewer than for a year earlier.

These were the largest quarterly and annual falls in youth unemployment since comparable records began in 1992.

Updated

The recovery in the labour market has partly been driven by Britain’s army of self-employed people, which swelled by almost 10% over the last year.

The ONS reports that, since April-June 2013,

  • The number of employees increased by 447,000 to reach 25.77 million.
  • The number of self-employed people increased by 408,000 to reach 4.59 million.

UK unemployment, the key charts:

These two charts show what a bizarre jobs recovery the UK is experencing.

On the one hand, the employment rate is close to its highest level on record, as jobless falls and more people find work (820,000 in the last year).

But yet, real wages are shrinking – with the gap between earnings and inflation widening alarmingly (whether you include volatile bonuses or not)

One reason for caution — pay packets were boosted a year ago, because many bonuses were held back until after the UK top tax rate fell to 45%, in April 2013.

The ONS points out that “some employers who usually paid bonuses in March paid them in April last year.”

But if you strip out bonuses, pay is still up a measly 0.6% year-on-year, the lowest on record.

Updated

This chart from Bloomberg confirms that UK wages have suffered their first fall since the depths of the financial crisis:

Here are the key points on today’s unemployment data, from the ONS:

  • For April to June 2014, there were 30.60 million people in work, 167,000 more than for January to March 2014 and 820,000 more than a year earlier.
  • For April to June 2014, there were 2.08 million unemployed people, 132,000 fewer than for January to March 2014 and 437,000 fewer than a year earlier.
  • For April to June 2014, there were 8.86 million economically inactive people (those out of work but not seeking or available to work) aged from 16 to 64. This was 15,000 more than for January to March 2014 but 130,000 fewer than a year earlier.
  • For April to June 2014, pay including bonuses for employees in Great Britain was 0.2% lower than a year earlier, but pay excluding bonuses was 0.6% higher.

UK unemployment rate drops to 6.4%, but wages fall

Breaking News: Wage growth in the UK has hit its lowest level on record, and actually contracted if bonuses are included.

The Office for National Statistics reports that average earnings, excluding bonuses, rose by a mere 0.6% in the three months to June.

That means pay packets lagged well behind inflation — which hit 1.9% in June.

Including bonuses, total pay packets actually contracted by 0.2% during the quarter, the first fall since 2009.

In brighter news, the overall unemployment rate fell to 6.4% in April-June, which is the lowest since the end of 2008. And the claimant count fell by 33,000, showing that the labour market continues to recover.

But that recovery still isn’t reaching people’s pockets.

More details and reaction to follow

Updated

Nearly time for the UK unemployment data to hit the wires….

Reminder — economists expect another rise in employment, and a drop in the number of people claiming benefits.

But a crucial issue is whether earnings are picking up, after years of low pay rises.

As my colleague Katie Allen reports, many employees have been hit hard:

Angela Chicken was still in hospital with her newborn son when she was made redundant. She had been earning £11 an hour as a graphic designer. Ten years on, the 52-year-old single mother makes around £8 an hour working part-time at her local Sure Start children’s centre in Southampton.

With the cost of living rising faster than her pay, Chicken’s wages have fallen even further in real terms, a pattern likely to be reflected across the country in the latest official labour market figures today. After bills and housing costs, Chicken is left with £108 a week to feed herself and her son, buy clothes and anything else they need. They eat well, she said, but there is little left for treats or outings.

“We don’t really have enough money to go on holiday … I don’t get haircuts, I very rarely buy any clothes,” she said. “What I have had to do is pull myself back over the last 10 years to a position that isn’t as good as it was because I got knocked off my perch.”

More here:

In low-wage economy employers paying well make sound investment

Updated

Most of Europe’s stock markets have risen this morning, despite the worrying economic news from Asia overnight (details).

Germany’s DAX is leading the way, up 77 points or 0.86% at 9147.

Insurance group Swiss Re has cheered investors by posting a 3.5% jump in profits.

In London the FTSE 100 is flat (dragged back by a few companies going ‘ex-dividend’).

The Bank of England may admit this morning that it was too optimistic about wage growth, reckons Bloomberg’s Emma Charlton:

We also have confirmation that the eurozone has slipped worryingly close to deflation last month.

Fresh data this morning showed that Spain’s consumer prices index fell by 0.3% year-on-year in July, the biggest drop in almost five years. Month-on-month they slipped by 0.9%.

In France, prices were up by a meagre 0.5% last month compared with July 2013, and also fell on a monthly basis, down 0.3%.

Japan’s GDP shrinks by 6.8%; Chinese new lending slumps

Global economy watchers have two big pieces of economic data from Asia to digest today.

1) Japan has suffered its biggest contraction since the 2011 tsunami, in a blow to efforts to revitalise its economy.

Japanese GDP fell at an annualised rate of 6.8% between April and June (meaning it shrank by 1.7% during the quarter). The slump is being blamed on the recent hike in Japan’s sales tax, from 5% to 8%, which encouraged firms and households to bring forward their spending to January-March.

The government remains relaxed, saying the economy is recovering. But critics of prime minister Abe’s stimulus plan suggest he may have to postpone plans to raise the sales tax again in December.

2) The news from China isn’t too rosy either. The broadest measure of new credit has dropped to the lowest since the global financial crisis, suggesting many banks are cutting back on new lending.

Economists are concerned, as Chinese banks also face the impact of the property market downturn. Beijing may need to unleash further stimulus measures to avoid growth weakening. fastFT has a round-up of analyst comments.

Updated

Analysts at ING will be combing the inflation report for signs that the Bank of England’s monetary policy committee was divided last week, when it voted to leave interest rates unchanged.

They say:

The Bank will release new forecasts and update its forward guidance which will leave the door open for a rates rise this year. Any hints of dissent at the August meeting will boost the case for a November hike.

Inflation report: what to watch for

The Bank of England inflation report will be scrutinised for hints over interest rate rises, the latest assessment of ‘slack’ in the economy, wage growth (or lack thereof), and the outlook for growth (could possibly be revised up) and inflation (might be revised down).

Mark Carney can also expect a few questions about the UK housing market.

Here’s Angela Monaghan’s preview:

Bank of England inflation report – what to watch for

City analyst Michael Hewson of CMC Markets predicts that today’s data will show another welcome drop in the jobless rate, but an unwelcome drop in wage growth.

He writes:

The latest ILO unemployment numbers for June are expected to see a drop from 6.5% to 6.4%, while jobless claims in July are expected to show another drop of 30k, slightly lower than the 36.3k drop seen in June.

Wages growth continues to be the economic head scratcher and is the Bank of England’s biggest problem when it comes to deciding when to raise rates. If we continue to see the gap with inflation widen out then it becomes increasingly difficult to see how the Bank could even contemplate a rate rise this year.

Expectations are for flat wage growth for the 3 months to June, down from the 0.3% rise in May.

* – The wages figures are skewed by the cut in Britain’s top rate of income tax back in April 2013. That prompted some firms to hold back bonus payments until then, making comparisons trickier.

UK unemployment and Bank of England inflation report in focus

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

We’re tracking two big events in the UK this morning. First, the latest unemployment figures, due at 9.30am BST. They are expected to show another drop in the number of people out of work.

But that labour market recovery has come at a price — low wage growth, and today’s figures are likely to show pay rises lagging behind inflation again.

That would mean real wages are still falling; taking the shine off Britain’s economy recovery.

That data will set the scene for the Bank of England’s latest quarterly Inflation Report, released at 10.30am.

This is the Bank’s latest health-check on the UK economy, including forecasts for growth and inflation.

But the big issue is whether the BoE has moved closer to hiking interest rates — Governor Mark Carney will probably be quizzed on this during the press conference.

The key issue is whether the Bank thinks most of the spare capacity, or ‘slack’, in the economy has now been mopped up. Carney will probably reiterate that the Bank is watching wage growth closely – showing whether employers are having to pay more for talent, and whether households could cope with higher borrowing costs.

As Ian Williams of Peel Hunt explains:

Formal changes to the forecasts are likely to be minimal; the overall assessment of the degree of slack, especially regarding the labour market, will be the focus of investor interest.

Elsewhere, European stock markets are expected to rise modestly, despite ongoing geopolitical tensions [the Russian aid convoy chugging towards the Ukraine border could be the next flashpoint].

And in the euro area, investors are digesting yesterday’s slump in German investor confidence, and fretting about how bad tomorrow’s growth figures for the April-June quarter could be.

I’ll be tracking the key events though the day….

Updated

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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’…

 


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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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Both central banks keep rates on hold but investors will look for clues on outlook. U.S. jobless claims drop below 300k to 298k, while the Q3 GDP figures were revised much higher to 3.6% q/a compared with the preliminary estimate of 2.8% q/a…

 


Powered by Guardian.co.ukThis article titled “Bank of England and ECB keep rates unchanged – live” was written by Nick Fletcher, for theguardian.com on Thursday 5th December 2013 14.16 UTC

German journalist (sorry didnt catch name) asks about divergence of opinion on council. Asks about options for using extreme measures

Draghi says rarely have a vote, but did last time. The discussion in November was whether to cut rates now or later, and some who disagreed later said it was justified. (NB the Bundesbank for one was not keen on cutting).

On other instruments, it is a hard question to decide which to use (under which circumstances).

Economico from Portugal asks what conditions could see the country exiting bailout programme.

Draghi says progress in Portugal has been significant. Prospects for a return to market financing have improved. Initial weaknesses were very serious, but progress has been made.

Les Echo asks about negative deposit rates. Was there a discussion about cutting rates? On exchange rates, in February these were mentioned as downside risks. Is it not a risk now?

Draghi says again there was a brief discussion on cutting rates.

On exchange rates, the fact there is no statement there today does not mean ECB is not watching exchange rates.

Wall Street Journal goes back to the policy options, and what they are and the discussions which were had. Also ask about the weak growth projections.

Draghi says no specific instruments were identified by the discussion. Level of preparedness is high on all of them. Don’t need any further analysis. Question is, would use of these instruments be justified by medium term outlook.

Markets have responded strongly to forward guidance. But will still closely monitor any developments and are fully aware of downside risks of extended period of low inflation.

On the growth, he says the fundamentals of euro are are strong. Major policy mistakes of previous times are being corrected, the structural imbalances had to be reformed. Low growth is outcome of economies that need to have structural reform. Each country has own specific list of work it has to do.

Neither growth nor equity can be expected from endless debt creation. So have to be careful, the economies have to structually prepared for stimulus to have an effect.

CNBC asks about new LTROs or something like the Bank of England’s funding for lending scheme.

Draghi says forward guidance is there, have not identified one specific instrument. They had a brief discussion about negative interest rates.

On LTRO, when this was introduced level of uncertainty was high, which justified it. LTRO was very successful and avoided credit contractions at time due to lack of funding.

Now the level of uncertainty is lower.

Plus, the banks used this facility to buy government bonds and not much found its way through to the economy.

If do another operation like LTRO, want to make it sure it goes to the economy and not subsidising banking system.

Market Week asks for more news on any release of the minutes. Secondly, no one has mentioned option of foreign exchange intervention, would ECB use it.

Draghi says minutes issue is complicated, with issues including should people be named as to what they say. They are still working on it.

On exchange rates, he says they are not a policy target but they are important for price stability and growth. Forex intervention is not contemplated by current G20 policies.

Updated

Reuters (speaking as he says from the cheap seats at the back) asks about the inflation targets, whether there is enough of a buffer against deflation and the fact that the closest to the 2% target is 1.3%.

Draghi starts by saying its decision to cut rates in November is justified, and forward guidance is working.

All in all, we are seeing positive developments after November decision. Inflation expectations remain firmly anchored in medium term. HIPC path is what it is , but inflation excluding food and energy drifts slightly higher.

It would be wrong to think we decide monetary policy on one figure, inflation, but would also be wrong to say effect of monetary policy is instantaneous. The length of time it takes depends on a number of factors, including what is the state of bank and private sector balance sheets.

Draghi sums up:

The economic analysis indicates that we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. A cross-check with the signals from the monetary analysis confirms this picture.

As regards fiscal policies, the Governing Council welcomes the European Commission’s assessment of the 2014 draft budgetary plans which were submitted in October for the first time under the “two-pack” regulations. This new surveillance exercise needs to be fully effective. In order to put high public debt ratios on a downward path, governments should not unravel their efforts to reduce deficits and sustain fiscal adjustment over the medium term.

In particular, consolidation measures should be growth-friendly and have a medium-term perspective, so as both to improve public services and minimise the distortionary effects of taxation. At the same time, there is a need to push ahead with product and labour market reforms, in order to improve competitiveness, raise potential growth, generate employment opportunities and foster the adaptability of our economies.

Now for questions.

Updated

Draghi says (as many had expected) more details of the ECB’s forecasts will be released, but says nothing about releasing full minutes. Both the Bank of England and US Federal Reserve routinely release minutes of their monthly meetings, but the ECB has not done so in the past.

Updated

On inflation the bank expects HIPC to be 1.4% in 2013 (down 1 percentage point on previous forecasts). For 2014 it expects a figure of 1.1% (down 0.2 percentage points) and 1.3% for 2015.

Draghi says the ECB will continue all available instruments.

Third quarter GDP rose 0.1% quarter on quarter, with a small postive growth rate expected in the fourth quarter.

The ECB’s forecast for GDP in 2013 is unchanged at -0.4%. It has raised the forecast by 0.1 percentage point to a 1.1% rise in 2014. It expects a 1.5% rise in 2015, but warns risks are on the downside.

Draghi is here, slightly late. He begins by wishing everyone a merry Christmas, to chuckles.

He says price pressures will remain subdued in medium term, and inflation expectations are firmly anchored in line with the 2% target.

A prolonged period of low inflation is expected to be followed by rates close to 2% later on.

The council continues to expect key interest rate to be at this or lower level for extended time.

US weekly jobless claims fall and GDP rises

Meanwhile US jobless claims fell unexpectedly to 23,000 to 298,000 last week. Analysts had expected a rise to 325,000.

The US economy grew faster than first forecast in the third quarter. GDP grew by 3.6%, up from the 2.6% previously reported. This is the fastest pace since the first quarter of 2012.

The ECB press conference is about to start.

A leading US central banker has said it is reasonable for investors to expect the Fed to wind down its stimulus programme over the next year.

Atlanta Fed president Dennis Lockhart said in a speech in Miami that when the Fed begins trimming its $85bn a month bond buying programme – a key support for markets over recent months – it should commit to a schedule for ending it completely.

It should consider taking the first steps towards tapering “in the coming meetings” given the overall positive economic data recently. That seems to include this month’s meeting, even though most observers are not expecting any move until the new year.

Lockhart would not say whether he supported tapering, saying he would be “looking for positive evidence of momentum as well as the absence or retreat of factors that could restrain or even torpedo progress.”

Investors are poring over every piece of US data, and central bank comment, for clues as to when tapering might begin.

Updated

Ahead of the ECB press conference, some reaction to the central bank’s statement. Annalisa Piazza at Newedge Strategy said:

We expect a dovish tone [at the meeting] and Draghi is expected to leave door open to further accommodation if needed, with the use of any available tool.

We anticipate the December staff projections to show a slight downward revision for the 2014 inflation forecast (about 0.2% to 1.1%) on the back of lower oil prices and a carry-over effects due to the low inflation rate at the end of 2013. Looking ahead, we expect the projections to show HICP at an average 1.4% in 2015, which would remain well below the ECB 2% preferred level. The profile for growth will remain that of a very gradual recovery, which implies very modest underlying inflationary pressure in the medium term.
In a nutshell, the ECB doesn’t need to act now but we suspect that any undershooting of the current inflation path would be a trigger for further accommodation at any time. A stable inflation outlook at the current levels (or slightly higher) seems to be the pre-condition for no additional policy accommodation in the coming months. That said, the ECB will also look at the development of financial conditions. Should market rates increase sharply and/or the exchange rate appreciate further, the ECB might decide to act with further accommodation even if deflation risks don’t increase.

Updated

Here for completeness, is the full ECB statement:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

Updated

ECB keeps rates unchanged

The European Central Bank, which surprised markets with a rate cut last month, has kept rates unchanged after today’s meeting.

The ECB press conference will be streamed here at 13.30 GMT.

Updated

Here’s some reaction to the Bank of England decision to keep rates and QE on hold, which came minutes after George Osborne announced an increased forecast for UK GDP:

Howard Archer at IHS Global Insight:

There was never any doubt that the Bank of England would leave all aspects of monetary policy unchanged at its December MPC meeting and this duly proved to be the case.

Indeed, the odds still favour interest rates staying at 0.50% all through 2014 despite the Bank of England’s more optimistic view of the growth outlook and expectations that the unemployment rate will get down to 7.0% early in 2015, and possibly even in late 2014.

While interest rates will probably start rising in 2015, this may still not happen until well into the year. For what it is worth, our current view is that the Bank of England will start to raise interest rates gradually from the third quarter of 2015.

In contrast to the uncertainty over when interest rates could start to rise, it is blatantly obvious that any further Quantitative Easing is off the agenda barring a major relapse by the economy over the coming months. Significantly, there did not even appear to have been any discussion of the case for more QE at the November MPC meeting.

James Knightley at ING:

This was universally expected given the forward guidance provided by the Bank. In any case the Bank is now going down the route of macro prudential policy by potentially directly intervening in the mortgage market, such as already seen in Canada and New Zealand where the central banks set lending standard boundaries. Such action gives the BoE greater control over the booming property market whilst giving parts of the economy that are lagging behind breathing space to try and catch-up.
The Bank of England’s decision to adopt macro-prudential policy supports our view that the eventual peak in Bank Rate will be significantly lower than the previous cycle high of 5.75%. Nonetheless, with jobs market likely to strengthen through next year there is the clear potential for the unemployment rate to drop below 7%, the threshold the Bank of England has set before it will consider tightening monetary policy, to be breached in the second half of 2014. We therefore remain of the view that the first tentative interest rate rise will be implemented in early 2015.

Philip Shaw at Investec:

 There was no material accompanying announcement. Of course the focus in the UK today is the Chancellor’s Autumn statement. However we expect some attention to be diverted back onto monetary policy next week thanks to data releases on industrial production, construction output, and the RICS survey of the housing market.

David Kern, chief economist at the British Chambers of Commerce:

Once again, the MPC did the right thing by holding interest rates and QE. However as the economy continues to recover, the forward guidance strategy faces challenges due to a change in expectations on interest rates. It is important to remember that most of the doubts around forward guidance are coming from City analysts, whereas most businesses have welcomed its use despite the difficulties of forecasting unemployment.

The MPC can do more to improve its communication on forward guidance. Initially stating in August that the 7% threshold would be reached in 2016 was perhaps too cautious, but the most recent prediction that there is a 40% chance it could be reached by the end of 2014 is too ambitious. The MPC needs to continue its two-pronged approach with forward guidance on interest rates and a firm commitment to lowering inflation. In addition, more emphasis should be placed on improving the flow of finance to SMEs and growing businesses.

Updated

Bank of England holds interest rates and QE steady

The Bank of England has held interest rates at 0.50% and its asset purchase programme at £375bn, as expected.

So no upstaging of George Osborne then, who continues to unveil his Autumn statement

Updated

In Cyprus:

And ahead of the European Central Bank meeting, here’s one of the key points to watch:

Here’s the first central bank decision of the day: the Norges Bank, as widely expected, left its deposit rate unchanged at 1.50%.

In his statement George Osborne is quoting new forecasts from the Office for Budget Responsibility.

The UK economy is now expected to grow by 1.4% this year, well up on the 0.6% predicted in March’s Budget.

For the Euro area, the OBR expects GDP to shrink by 0.4% in 2013.

Updated

Autumn statement begins

UK chancellor George Osborne has begun his Autumn statement. You can follow all the developments in our live blog here and get rolling reaction separately here.

Italy’s top court yesterday ruled the current electoral law was unconstitutional, putting pressure on the country’s political parties to pass a reform of the system. As Reuters reported:

The constitutional court cited two aspects of the system that flouted the constitution, namely a winners’ bonus of seats awarded to the largest coalition without a minimum threshold, and the fact that it does not allow voters to pick an individual candidate.

Economists Chiara Corsa and Dr. Loredana Federic at UniCredit Research looked at the implications:

First of all, we highlight that the Court’s decision has no impact on the current parliament as it applies only to future elections.

Secondly, the Court’s decision implies that the majority premium no longer exists: in case of new elections and absent any legislation change, the new system would be fully proportional.

Third, the Court’s decision forces the parliament to legislate on the preferences issue – there are no alternatives.

It is now up to the parliament to decide whether and how to reform the electoral law amending the current version of the majority premium. We see two possibilities. The first and, in our view, most likely scenario is that the Court’s decision will force the main parties to reach a compromise to reform the electoral law, moving towards a majoritarian system or a mixed one (like the framework that was replaced by the current version of the electoral law). The second possibility is that parties fail once again to find an agreement: this would lead straight to fully proportional system, with potential negative implications in terms of governability.

Ireland is the ‘best country in the world’ to do business, according to Forbes. Henry McDonald in Dublin writes:

The Republic moved up this year from sixth most pro-business state to the top which the country’s Employment Minister Richard Bruton said today was “a testament to the hard work and innovation of our businesses and workers.”

The magazine’s rankings are based on 11 different factors ranging from property rights, innovation, taxes, technology, corruption, freedoms, investor protection and stock market performance.

The Irish are now ahead of countries which have been relatively immune from the global recession such as New Zealand, Hong Kong, Denmark and Sweden.

The highly educated workforce and the Republic’s low 12.5% corporation tax rate are also cited as factors in Forbes as to why Ireland is the best location for business.

Ireland’s Industrial Development Authority – the body that tries to woo foreign direct investment into the Republic – also welcomed Forbes’ global business assessment.

IDA’s Chief Executive Barry O’Leary said: “This Forbes ranking will reach senior business people across the world, making them aware of all the advantages available to those that locate businesses here.”

“Country rankings like this are used by companies across the world when they make initial decisions to investigate the possibility of locating their businesses internationally.”

Despite all the talk of the US Federal Reserve potentially trimming its $85bn a month bond buying programme, the dollar does not seem to be benefiting, unlike US bond yields. Kathleen Brooks at Forex.com said:

As prospects of Fed tapering gather pace it appears that foreign exchange traders have not got the memo. 10-year Treasury yields rose to their highest level since September on Wednesday, yet the dollar index remains in the doldrums.

While 10-year Treasury yields were buoyed on Thursday by a strong ADP labour market report and better data on the housing market, the foreign exchange market seemed focused on the weaker than expected ISM non-manufacturing survey for November. So which asset class is correct?

That is impossible to answer, but usually the dollar and Treasury yields tend to move in the same direction. For example, they peaked at the same time in the first week of September, and they both reached recent lows on the 25 October. Thus, periods of divergence tend to be rectified.

We think the dollar could play catch up with yields, especially if we get a strong non-farm payroll reading tomorrow (200,000 plus), which could increase the chances of a January taper from the Fed. From a technical perspective, we have seen the dollar claw back some recent losses this morning. A deeper dollar recovery may be dependent on a few factors over the next 24 hours:

1. Dovish commentary from ECB President Draghi.

2. Strong domestic data: the market expects the US to revise upwards its second GDP reading for the third quarter to 3.1% from 2.8%, we will also be watching initial jobless claims. If the fundamental data in the US is strong then we could see a deeper recovery in the dollar.

Spain has sold €3.53bn of bonds in its penultimate auction of the year, at yields broadly unchanged from recent sales and has now reached its 2013 target.

It sold €1.28bn worth of April 2017 bonds at an average yield of 2.182%. The yield at November’s auction was 2.101%. The bond was 3.6 times subscribed, up from 2.5 times last month.

It also raised €2.25bn with an October 2018 bond with a 2.722% yield, compared to 2.871% last month. Newedge Strategy said:

The relative spread widening versus Italy (and also core EMU countries) supported demand at today’s auction.

Economists at RBC have issued a quick rundown on the three central bank meetings today (we neglected to mention Norges Bank earlier):

  •  For the ECB, the macro news since the previous policy meeting is fairly limited and, therefore, we see relatively little chance that there will be a consensus for any further easing at this stage. That said, we expect President Draghi to reiterate that there are still many options open, any combination of which could be taken if there is material downside news in the months ahead.
  • For the Bank of England, with the MPC continuing in forward guidance mode, there is little risk of anything exciting happening today, and we see no impetus for policy change.
  • For the Norges Bank, we expect that it will leave its key policy rate unchanged at 1.50%. We look for the accompanying Monetary Policy Report to show a modest downward revision to the baseline profile for policy rates, indicating that a rate cut still remains possible in the near term (particularly if there are further signs of a weakening in the housing market).

On the corporate front, shares in AZ Electronic Materials – which makes specialty chemicals used in the manufacture of Apple’s iPad – have soared more than 50%. The company has agreed a £1.57bn bid from German drugs and chemicals group Merck.

Updated

Howard Archer, chief European and UK economist at IHG Global Insight welcomed the UK car sales but warned consumers were still being squeezed. He said:

Car manufacturers are justifiably very happy with the way sales have gone in the UK in 2013 and they will be encouraged by the markedly improved UK economic environment and the substantial overall strengthening in consumer and business confidence.

Even so, car manufacturers will be very aware that it is not all plain driving ahead with consumers’ purchasing power squeezed by inflation persistently running markedly higher than earnings growth while businesses generally remain keen to contain costs.

The motor industry will be hoping that the recent improvement in UK economic activity is sustained and extended, and that this underpins consumer and business confidence, and their willingness to splash out on new cars.

UK new car sales accelerate in November

Car makers have already sold more vehicles in the UK so far this year than in the whole of 2012, with one month to go.

A total of 159,581 new cars were registered in November, up 7% on the same month last year, according to the Society of Motor Manufacturers and Traders (SMMT).

So far this year, some 2,111,819 cars have been sold, well above the total of 2.04m for 2012. The total for this year is expected to reach around 2.25m, which would make this the best year for new registrations since 2007, when sales reached 2.4 million. SMMT chief executive Mike Hawes said

[This is] a tremendous success for the industry on the back of buoyant consumer confidence and innovative new products.

With the UK economy looking increasingly positive, we can expect strong underlying demand for new cars to continue into 2014, with volumes set to match or surpass those seen this year.

Alternatively-fuelled vehicle sales rose 16.4% this year but still make up just 1.4% of the new-car market. The best selling models in November were:

1. Ford Fiesta
2. Ford Focus
3. Vauxhall Astra
4. Vauxhall Corsa
5. Volkswagen Golf
6. Vauxhall Insignia
7. Nissan Qashqai
8. Fiat 500
9. BMW 3 Series
10. Nissan Juke 

Updated

Here’s an early look at the markets:

Updated

Good news for Spain last night, as Moody’s raised its outlook for the country’s government bonds. It kep its rating at Baa3 but moved the outlook to stable from negative. It gave three reasons for the move:

1) The evidence of a sustained rebalancing of the Spanish economy and improving medium-term economic prospects, which supports Moody’s view that Spain’s public finances are on a slowly improving trend. The external accounts continue to improve, the situation on the labour market has stabilized and the private non-financial sector continues to deleverage. Moody’s expects moderate but positive growth from 2014 onward.

2) The material decrease in market access risks for the Spanish sovereign and the lower risk of contagion from negative events elsewhere in the euro area than at the time of Moody’s last rating action in October 2012. This is reflected in the Spanish Treasury’s relative ease in securing sizeable amounts of market funding at significantly lower interest rates than in 2012.

3) The significant reduction in contingent liabilities for the sovereign emanating from the Spanish banking sector over the past year. Following several rounds of capital injections and the transfer of real-estate assets to the so-called bad bank Sareb, Moody’s now believes that any further potential recapitalization needs of the Spanish banking system would be limited in size and would be unlikely to derail the slowly improving trend in the country’s public finances.

The full announcement is here:

Moody’s changes outlook on Spain’s Baa3 government bond rating to stable from negative

Updated

Central banks expected to keep policy unchanged

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

In another busy day, the main focus will be on the UK’s autumn statement, due to be unveiled by chancellor George Osborne at 11.15 GMT, as well as the latest meetings of the Bank of England and European Central Bank. In the US, there are weekly jobless claims data, and GDP figures.

The autumn statement is being covered in a live blog by my colleagues Andrew Sparrow and Graeme Wearden, leaving me to concentrate on the central banks and the economic figures here.

The Bank of England is expected to keep interest rates and its QE programme unchanged. Nor do analysts expect any change for the ECB, especially given its surprise rate cut last time round. But the press conference after the meeting will be scoured for clues on the bank’s thinking about the outlook. Michael Hewson, chief market analyst at CMC Markets UK, said:

The latest economic data that markets had to digest yesterday starkly illustrated the problems facing the ECB when trying to set policy for an economic area that is diverging quite sharply.

The perennial problem has always been how you set a policy that addresses economies that appear to be going in opposite directions, and it has been no better illustrated this week by the data coming from Germany which continues to surge ahead, contrasting sharply with that of France which appears to be heading back to recession, while occupying the middle ground of stagnation we have Italy.

Given the sharp drop in inflationary pressures seen in the past six weeks the ECB caught the markets off-guard with the timing of last months rate cut, which on the face of it had all the hallmarks of a bank acting so that they could be seen to be doing something, rather than a bank that actually had the tools to resolve this economic riddle given to them by politicians to try and resolve.

And therein lies the rub, under the rules of this dysfunctional monetary union the ECB’s mandate prevents it from implementing the very fiscal stabilisers that have bought time for UK and US politicians, and yet we still see the same political stubbornness and reluctance to implement reforms and policy changes in France and Italy that are absolutely necessary for the monetary union to at least have a chance of working.

Given that we only saw a rate cut last month it is highly unlikely that we will see another move on rates this month, and given the resistance from Germany to the last rate move, policymakers at the Bundesbank will be even more resistant after the positive economic data seen this week. Under normal circumstances, excluding all else, rates in Germany would probably need to be nudged higher, not lower.

It will be at the press conference where we will see what the ECB’s thoughts are on inflation and growth forecasts and whether we will see any changes to them in 2014, as well as the first glimpses of ECB thinking about the prospects for 2015.

Meanwhile investors are still nervous about the prospect of the US Federal Reserve starting to trim its $85bn a month bond buying programme, which has been a key support for the markets.

Recent US data has been mixed, but good enough to prompt fears the Fed could “taper” its buying sooner than expected. Today jobless claims – expected to rise from 316,000 to 328,000 – and GDP could give further clues, but Friday’s non-farm payroll numbers could be the key piece of data.

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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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

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Published via the Guardian News Feed plugin for WordPress.

Chinese finance minister: US must act fast. US Treasury secretary: Congress is ‘playing with fire’. Goldman Sachs: 4.2% wiped off US GDP without debt deal. The US AAA credit rating was downgraded by S&P two years ago after the last debt ceiling standoff…

 


Powered by Guardian.co.ukThis article titled “China warns US over debt ceiling, as markets fall again – live” was written by Graeme Wearden, for theguardian.com on Monday 7th October 2013 14.40 UTC

Oil price drops

The oil price is down today, with a barrel of Brent crude dropping by over one dollar to $108.44.

That doesn’t look to be related to the US standoff, though. Instead, it reflects relief that Tropical Storm Karen weakened over the weekend. That means oil work in the Gulf of Mexico is resuming, having been suspended a few days ago as Karen approached.

China’s warning to America to raise its debt ceiling swiftly comes as the issue becomes intertwined with Congress’s failure a week ago to agree a budget for the new fiscal year (triggering the partial government shutdown).

Terry Morris, senior vice president of National Penn Investors Trust Company in Pennsylvania, says the deadlock is a growing worry, telling Reuters:

Now you’ve got not only the budget but the debt ceiling and time is running out and everybody knows it..

The longer this goes on, the more the uncertainty, the closer the deadline and the more nervous investors are going to be.

Gold has risen to a one-week high, with the spot price gaining 1.3% to $1,327 a ounce.

Updated

Although shares are down on Wall Street, there’s no sign of panic in the US stock markets over the budget and debt ceiling deadlock.

Todd Horwitz of Average Joe Options is telling Bloomberg TV that traders don’t like the uncertainty caused by the ‘blowhards in Washington’, saying:

It’s not a panic selloff, it’s very controlled.

Horwitz added that trading volumes are light at the moment, but could pick up as the debt ceiling deadline approached

The closer we get to the 17th [October], the more action we’ll see.

Wall Sreet open: Dow falls

Shares are falling in New York as the echoes from the Wall Street opening bell fade away.

The Dow Jones industrial average is down 140 points in the first few minutes to 14931, a drop of almost 1%.

The other indices are also down, matching losses in Europe.

FTSE 100: down 51 points at 6403, – 0.8%

German DAX: down 73 points at 8549 ,- 0.85%

French CAC: down 28 points at 4136, -0.67%

Reaction to follow

Business is underway in Washington DC, with White Officials sticking to their position that President Barack Obama will not negotiate with congressional Republicans under the threat of a debt default.

Via Reuters:

“There has never been a period where you have a serious faction or a serious strategy by one political party … to use the threat of default as the main tactic in extracting policy,” White House National Economic Council Director Gene Sperling said at a Politico breakfast on Monday.

On asset class isn’t suffering from the looming debt ceiling today – US sovereign debt.

The price of 10-year Treasury bonds has actually risen this morning, showing stronger demand for America’s debt.

One-month bills are slightly weaker today, but are still changing hands at a yield (or rate of return) or just 0.147%. That doesn’t suggest bond traders are frantically dashing to sell them.

US debt is still being treated as a a place of safety, even though it’s at the centre of this particular storm.

Nick Dale-Lace, senior sales trader at CMC Markets, comments:

Ironically it seems one beneficiary of a risk off morning is US treasuries, with investors continuing to flock to the very bonds that are apparently at risk of default.

The ramifications of a default on bond markets are not clear cut, with much confusion about what the fallout would be given the dependency of the financial world on US debt markets. What are the legal triggers of such a default and are they irreversible? With every minute passed we edge closer to the unknown, and that is rarely good for the markets

US politicians get their chance to heed China’s chiding over the debt ceiling, when Congress returns to work today.

Both the House and the Senate will be in session, with votes scheduled for the afternoon.

However, none of the legislation on the table amounts to the ‘clean’ budget bill (stripped of cuts to the Affordable Care act) which the Democrats are demanding.

CBS’s News Mark Knoller is tweeting the state of play:

China warns US on debt ceiling crisis

China has raised the pressure on the US today, warning that time is running out to raise its debt ceiling.

Vice finance minister Zhu Guangyao told reporters in Beijing that America needs to take decisive steps to prevent hitting its debt limit in a fortnight’s time. The intervention came as European stock markets remained lower, on the seventh day of the US shutdown.

In the Chinese government’s first public comments on the deadlock, Zhu also urged Washington politicians to “learn lessons from history”. A reminder that the US AAA credit rating was downgraded by S&P two years ago after the last debt ceiling standoff.

Zhu said (quotes via Reuters):

The United States is totally clear about China’s concerns about the fiscal cliff.

We ask that the United States earnestly takes steps to resolve in a timely way before October 17 the political [issues] around the debt ceiling and prevent a U.S. debt default to ensure safety of Chinese investments in the United States and the global economic recovery

This is the United States’ responsibility.

As the biggest single holder of US debt, China would be in the front line to suffer if Treasury prices fell – and would obviously be hit if the US were to stumble into a technical default.

Beijing must have watched the deadlock in Washington with growing alarm (yesterday, Republicans continued to demand healthcare cuts as the Treasury Secretary warning Congress was playing with fire).

Analysts were already concerned about the lack of progress (round-up here). with Goldman Sachs warning of drastic cutbacks if America breaches the debt ceiling (details here).

Zhu’s warning added to the jitteriness in the City. Shares remain down across Europe’s trading floors, with the FTSE 100 down 50 points at 6402, a fall of 0.8%. The German and French stock markets are both down around 1%. Here’s a round-up:

Alastair McCaig, market analyst at IG, says there is an increasing ‘fear factor’ in the City as America moves closer to its debt ceiling:

The news that US politicians have again put self-interest ahead of the greater good of the country by failing to make any progress in sorting out the budget or tackling the debt ceiling will have surprised few.

As yet the US debt markets have remained calm but the closer we get to the mid-October deadline the less likely that is to remain the case.

And as mentioned earlier, the US dollar is still down against most major currencies. The pound has gained almost 0.5% to $1.608 so far today.

Updated

US showdown: What the experts are saying

Here’s a round-up of what City experts are saying about the deadlock in America over its budget talks, and the debt ceiling — which the US will hit on 17 October.

Louise Cooper of Cooper City:

As the disaster that is Washington continues, the world needs bond vigilantes to bring the political class to its senses. Sadly thanks to the Federal Reserve’s endless QE, that restraint and imposed market discipline is no longer in place. And that is dangerous. Without the market check, Washington is risking ruin.

So how are these “bond vigilantes” and how do they impose discipline on the ruling classes? They are simply the mass of investors in government debt who by their actions force governments back to the financial straight and narrow. If they think a Nation is spending too much without enough taxation, resulting in excessive deficits and ballooning debt, they will demand a higher interest rate. That is basic finance; higher risk is compensated by a higher return. So as a Nation’s debt rises rapidly, the nation has to pay higher interest rates. So bond yields – borrowing costs – rise. And that is the restraint imposed upon governments – borrowing becomes more expensive the more fiscally irresponsible the government becomes.

That is the check to stop politicians getting their country overly indebted.

And it is the same mechanism with irresponsible monetary policy too – a higher yield is required by investors to compensate for the loss in monetary value from inflation. So bond investors are really important for financially feckless nations, because they that drag the ruling classes back to sensible economic policies (by demanding higher interest rates).

But the problem is that the Federal Reserve is currently buying $85bn of bonds a month, manipulating America’s borrowing costs lower.

The Fed is the biggest player in the markets and if it wants bond yields down then few will bet they will go up. Thus there is no corrective mechanism. Without the Fed’s QE, the current Washington fiasco would have increased America’s borrowing costs and that would have helped to force politicians back to the negotiating table. It now looks likely that the Fed didn’t taper in September as it was concerned about the impact the shutdown would have on the economy. It is also likely that with no non farm payrolls figure being released on Friday, the Fed will not taper in October either.

Implicitly the Federal Reserve is bailing out the incompetency of Washington. The stick has been removed allowing the political class to play wild and threaten default.

Kit Juckes of Societe Generale

I have no vote and hope I am non-partisan in this debate but I think that this is a row about principles as much as about power, which argues for a drawn-out impasse, though the odds still favour last-minute resolution. A good question (from Joe Weisenthal) was what the Republicans would have used to justify the stalemate if Obamacare wasn’t there to argue over.

And while I am sure the GOP could have found a reason for disruptive politics, it also seems clear that Obamacare is too important to the President’s ‘legacy’ for him to compromise on that, while the right wing of the GOP is opposed on principle as much as anything else. But it’s also clear that the Republicans are
‘losing’ the public relations war. I don’t think that merely reflects my Twitter stream or choice of on-line reading.

The big winner of this mess will be Hilary Clinton. And that, in turn, means that a compromise, with tax cuts elsewhere, is likely to be found to get a deal through that allows the debt ceiling to be increased by 17 October.

Jane Foley of Rabobank

The rallying call of Republican House Speaker Boehner over the weekend that it is “time for us to stand up and fight” looks set to commit the shutdown of the US government into a second week.

The vote by Congress in favour of paying the government workers who has been sent home on leave will offset some concerns about the economic costs of the shutdown. Even so, with the October 17 deadline for a debt default looming, investors are likely to become increasingly nervous with every passing day.

Marc Ostwald of Monument Securities:

Shutdown Day 7 is unfortunately the theme for the day, and quite possibly for the week…

While mutterings ahead of the weekend suggested that Boehner said he would make sure that there was no default, and some hopeful whispers of a few Tea Party aligned members of the House softening their stance, positioning as the week starts appears to be even more entrenched.

The backlog of official US economic data is building quite rapidly with little obvious prospect of anything being published this week. One assumes that the end of week G20 meeting of finance ministers and central bank heads may have little else to discuss, though the protests about the US political impasse (assuming it has not been resolved) from other G7 and EM countries will be vociferous.

Elsa Lignos of RBC Europe:

The hard line on both sides has unsurprisingly been taken negatively by risky assets. The Yen and Swiss franc are outperforming, US equity futures are pushing down towards Thursday’s lows, while US Treasuries are still trading sideways.

It is still a case of waiting and watching on developments in Washington. Our US Strategists expect that the longer the government remains dark, the greater the likelihood that the shutdown and debt ceiling issues are resolved together, which would result in a better outcome

Investec Corporate Treasury

Some analysts have estimated that default is likely by November 1st when the Treasury Department is scheduled to make nearly $60 billion in payments to Social Security recipients, Medicare providers, civil service retirees, and active duty military service members.

With such a limited window of time available all eyes will be on the US this week to see if a resolution can be reached. In the meantime expect the US shutdown to dominate currency markets and be prepared for some volatility if a default starts to look more likely.

Updated

Greek budget predicts growth in 2014

Back to Greece, where the government has predicted a return to growth next year after a six-year slump.

The draft 2014 budget, announced this morning by deputy finance minister Christos Staikouras, also forecasts a surplus excluding debt financing costs. This is a crucial target for Athens as it aims to agree further assistance from its international partners.

Reuters has the details:

Greece will emerge from six years of recession next year, its draft 2014 budget projected on Monday, in one of the strongest signs yet that the country has left the worst of its crippling debt crisis behind.

The economy, which has shrunk about a quarter since its peak in 2007, will grow by 0.6% next year thanks to a rebound in investment and exports including tourism, the budget predicted. The economy is set to contract by 4 percent this year. Athens is also targeting a primary budget surplus of 1.6% of national output next year and is on track to post a small surplus this year.

Attaining a primary surplus – excluding debt servicing costs – is key to helping Athens secure debt relief from its international lenders.

“In the last three years Greece found itself in a painful recession with an unprecedented level of unemployment,” Deputy Finance Minister Christos Staikouras said as he unveiled the 2014 budget.

“Since this year the sacrifices have begun to yield fruit, giving the first signs of an exit from the crisis.”

These signs of recovery are encouraging hedge funds to buy stakes in Greek banks (see 9.12am) and fuelling rumours that Greece could swap some debt for new 50-year bond (see opening post).

The budget also shows that Greece will run a deficit of 2.4% (including debt costs). This will push its public debt to 174.5% of GDP, despite investors taking a haircut early last year.

How much damage would be caused if American politicians doesn’t raise the debt ceiling before the October 17 deadline?

Goldman Sachs has crunched the numbers, and told clients over the weekend that the Treasury would be forced into a drastic cutback in spending from the end of October which would wipe 4.2% off annualised GDP.

The research note (from Saturday, but still well worth flagging) showed how the Treasury is on track to hit its borrowing limit in two weeks.

After that point, the amount of money coming into the Treasury will equal only about 65% of spending going out, Goldman said. There are various ways that the US could play for time — such as prioritising some payments over others, or delaying payments altogether.

But officials would soon be forced to implement measures that would hurt growth badly, in a bid to avoid missing a debt repayment and triggering a downgrade to Selective Default status.

Here’s a flavour of the note:

If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. We estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly.

And more detail….

A very short delay past the October deadline—for instance, a few days—could delay the payment of some obligations already incurred and would create instability in the financial markets. This uncertainty alone could weigh on growth.

But a long delay—for example, several weeks—would likely result in a government shutdown much broader than the one that started October 1. In the current shutdown, there is ample cash available to pay for government activities, but the administration has lost its authority to conduct “non-essential” discretionary programs which make up about 15% of the federal budget.

By contrast, if the debt limit were not increased, after late October the administration would still have authority to make most of its scheduled payments, but would not have enough cash available to do so.

US deadlock hits euro investors

The US government shutdown debacle has hit investor confidence within the eurozone, according to the latest data from German research firm Sentix.

Sentix’s monthly measure of investor sentiment dropped to 6.1, from 6.5 in September. Analyst had expected the index to jump to 8.0, but it appears morale has suffered from the deadlock in Washington.

Sentix reported that investors’ current assessment of the United States, and the assessment of prospects in six-months time, has been noticeably damaged by the budget row and the debt ceiling fears. Its headline index for the US dropped to 16.8, from 24.8 last month.

Overall indices for the emerging markets regions rose, while those surveyed remain optimism for Japan’s prospects.

Over in Italy, Silvio Berlusconi is preparing to request a community service sentence, following his tax fraud conviction in August.

Berlusconi, whose efforts to bring down the Italian government (and reignite the eurozone crisis) failed last week, has now turned his attention to his legal troubles.

From Rome, Lizzy Davies has the story:

“Silent and humble manual tasks” are not something to which Silvio Berlusconi has ever felt naturally drawn. Before big business and politics he sold vacuum cleaners and sang on cruise ships.

Now, however, thanks to the Italian legal system, a very different kind of activity awaits him. His lawyer has said he intends to ask to serve his sentence for tax fraud in a community service placement.

Franco Coppi said that barring any last-minute changes, the former prime minister’s legal team would submit the request to the Milan courts by the end of this week. It would be then up to the judges to decide how to proceed.

More here: Silvio Berlusconi to request community service for tax fraud sentence 

Former Greek minister convicted over money-laundering charges

Court drama in Athens this morning, where a former defence minister has been found guilty of money-laundering.

Akis Tzohatzopoulos was one of 17 defendants convicted after a five-month trial. Associated Press reports that Tzohatzopoulos’s wife, ex-wife and daughter were also found guilty.

Tzohatzopoulos was charged with accepting bribes in exchange for agreeing military hardware contracts, in the 1990s and the early 2000s. The court heard that these kickbacks were laundered through a network of offshore companies and property purchases.

Sentences will be handed down tomorrow.

Greek journalist Nick Malkoutzis reckons this is the most serious conviction of a Greek politician in around 20 years.

In March, Tzohatzopoulos was convicted of corruption charges, after lying on his income statements and hiding luxurious spending. He was jailed for eight years following that case.

Updated

Some interesting stories about Greece this morning. First up: John Paulson, the hedge fund boss who made billions of dollars betting against America’s mortgage market before the crisis began, is a big fan of Greek banks.

Paulson is making a serious move into the Greek financial sector, as investors gamble that the worst of its woes are over.

The FT has the details:

Mr Paulson, best known for his successful wager against the US subprime mortgage market in 2007, praised Greece’s “very favourable pro-business government”.

“The Greek economy is improving, which should benefit the banking sector,” Mr Paulson told the Financial Times.

He confirmed his fund, Paulson & Co, had substantial stakes in Piraeus and Alpha, the two banks that have emerged in best shape from the crisis. “[Both] are now very well capitalised and poised to recover [with] good management,” he said in rare public comments.

More here: Paulson leads charge into Greek banks

The US dollar has also dropped this morning against most major currencies. This pushed the yen up around 0.5%, to ¥ 96.9 to the dollar. That won’t please Japanese exporters, who’d rather see the yen over the ¥100 mark.

America’s stock indices are also expected to drop around 0.8% when trading begins in about 6 hours, Marketwatch flags up.

The head of ratings agency Moody’s reckons America won’t default, even if it ploughs into the debt ceiling this month.

Raymond McDaniel told CNBC overnight:

Hopefully it is unlikely that we go past October 17 and fail to raise the debt ceiling, but even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities.

Markets drop:

Europe’s stock markets have followed Asia by falling in early trading, as investors fret over the lack of progress over America’s government shutdown.

In London the FTSE 100 swiftly shed 46 points, or 0.7%, with 95 of the companies on the index . It’s a similar tale across Europe’s markets, with Germany’s DAX down 0.85% and the French CAC shedding 0.75%

Mike van Dulken of Accendo Markets sums up the mood in the City:

Sentiment is still dampened by USuncertainty as the partial shutdown moves into its second week and the more troubling debt ceiling of 17 October nears. How long will this drag on for? Only the politicians know.

The congressional stalemate shows no signs of progress with House Speaker Boehner adamant that a clean spending bill will not be approved while Treasury Secretary Lew says congress is playing with fire putting the nation’s sovereign reputation at risk, on top of President Obama’s highlighting of the potential impact on Q4 GDP.

It all adds up to another sea of red on the European markets:

Updated

World Bank cuts China growth forecasts

America’s deadlock isn’t the only issue worrying the City today. The World Bank has warned that East Asia’s economic growth is slowing as it cut its GDP forecasts several nations, including China.

In a new report, the Bank said weaker commodity prices means weaker growth in the region. It also urged Chinese policymakers to tackle the consequences of recent loose policy and tighten financial supervision.

Here’s a flavour:

Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand,” the World Bank said in its latest East Asia Pacific Economic Update report.

“Growth in larger middle-income countries including Indonesia, Malaysia, and Thailand is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports,” it added.

It now expects the Chinese economy to expand by 7.5% this year, down from its April forecast of 8.3%. For 2014, the forecast is cut from 8% to 7.7%.

Full story here: World Bank cuts China growth forecasts

US deadlock continues to worry the markets

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

It’s the seventh day of the US government shutdown, and the lack of progress in Washington continues to cast a shadow over the financial world.

Shares have slipped in Asia overnight; in Japan, the Nikkei shed another 1.2%. European markets are expected to fall again.

America seems no closer to a solution to the deadlock, nearly a week after the Federal government began shutting services and sending workers home. It is, though, closer to its debt ceiling — the US is still on track to hit its maximum borrowing limit of $16.7bn on 17 October.

Yesterday, Treasury secretary Jack Lew warned that America would default if the ceiling isn’t raised. Congress, he said, was ”playing with fire”.

Lew said:

I’m telling you that on the 17th, we run out of the ability to borrow, and Congress is playing with fire.

But the Republican-controlled House of Representatives hasn’t blinked — continuing to demand concessions from President Obama.

House speaker John Boehner was defiant last night, saying his side would “stand and fight” for concessions on issues like healthcare reforms.

Boehner told ABC television:

You’ve never seen a more dedicated group of people who are thoroughly concerned about the future of our country.

The nation’s credit is at risk because of the administration’s refusal to sit down and have a conversation.

So the deadlock continues, with investors pondering whether this impasse really could turn into a catastrophic debt default.

Stan Shamu of IG explains that traders are more nervous than late last week:

While Friday’s modest gains in US equities were driven by a glimmer of hope that leaders are getting closer, this seems to have waned over the weekend.

House speaker John Boehner was quoted as saying he wouldn’t pass a bill to increase the US debt ceiling without addressing longer-term spending and budget challenges. This has really rattled markets and is likely to result in further near-term weakness for global equities.

Not much on the economic calendar today, although we do get the latest eurozone reading of investor confidence at 9.30am BST.

In the UK, the row over the Royal Mail privatisation continues, with critics warning that it’s being sold off too cheaply.

While in Greece, there were reports on Saturday that Athens is considering swapping some bailout loans for new 50-year bonds, as part of a third aid package.

Reuters had the story: Greece mulls swapping bailout loans with 50-year bond issue: source

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

IMF Chief Christine Lagarde says “vital to raise US debt ceiling”. The US Treasury Department also weighed in, warning of dire calamity. US services sector showed growth was slowing, with the PMI coming in at 54.4 in September, down from 58.6 in August…

 


Powered by Guardian.co.ukThis article titled “Lagarde demands urgent action over US debt ceiling as markets get jittery – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 3rd October 2013 16.51 UTC

The end

The big story tonight remains the US government shutdown - which my US colleagues are live-blogging here. So here’s a brief summary to finish with.

• Christine Lagarde has piled pressure on America’s politicians to raise the US debt ceiling quickly. The IMF chief said it was “mission-critical” to avert the danger of a US default. The country’s Treasury Department also weighed in, warning of dire calamity.

• Fears over a possible US default hit shares on Wall Street. There were also signs of investors moving money out of short-term US debt, pushing up bond yields. Encouraging US jobs data was cancelled out by weaker service sector growth. Here’s what analysts are saying about the debt ceiling….

• Europe’s private sector has posted its biggest rise in activity in 27 months. Italian firms reported a stronger month, boosting hopes that the country is pulling out of recession. Retail sales also picked up.

• China’s service sector performed well in September too, pushing activity to a six-month high.

• In Greece, the head of the Golden Dawn party is being held in custody ahead of the criminal trial into the party, as the clampdown continues to raise fears over the country’s political stability. Another GD MP appeared in court, as the party raged against the decision to jail its leader.

• A survey of a Cyprus gas field found smaller reserves than hoped, but the government will still push on with exploiting it.

Back tomorrow, hopefully for a more lively day. Goodnight. GW 

An uninspiring day in Europe’s stock markets is over.

The FTSE 100 finished up 11 points at 6449, but the other main markets all lost ground. The French CAC shed 0.7%, the German DAX closed 0.37% lower, Spain’s IBEX is down 0.7% and the Italian FTSE MIB dropped 0.5%. No boost from today’s decent eurozone economic data, while the US debt ceiling deadline gets closer…..

Updated

The Japonica Partners investment fund, which has a big holding of Greek debt, has been holding a conference call for City analysts to explain why Greece’s bonds are actually much better quality than people realise.

Here’s a screengrab of Bloomberg’s news flashes:

FT Alphaville’s Joseph Cotterill is on the call, and flags up that Japonica was asked whether it’s planning to buy Greek state assets with its Greek government bonds. The idea wasn’t ruled out….

Wall Street falls

Those warnings over the US debt ceiling from Christine Lagarde, and from the US Treasury, come as shares fall on Wall Street today.

US traders pushed down the Dow Jones industrial average, as they watched Barack Obama lay into the Republicans in a speech in Rockville, Maryland (details in our US liveblog).

The Dow Jones industrial average is down 130 points, or 0.8%, with 28 of its 30 members losing ground.

It’s not all because of the deadlock on Capitol Hill. A monthly survey of the US services sector showed growth was slowing, with the PMI coming in at 54.4 in September, down from 58.6 in August (anything over 50 shows growth).

There are already fears that the shutdown will cost jobs and hit growth.

United Technologies, which supplies helicopters and jet engines to the U.S. military, has warned that if there’s no deal by Monday it might tell 2,000 workers to down tools. Bloomberg has the details.

My US colleague Tom McCarthy has launched a new liveblog tracking Day Three of the government shutdown:

Government shutdown enters third day after talks fail to break deadlock – live

It includes details of a report from the US Treasury Department which warns that there would be catastrophic consequences if America doesn’t raise its debt ceiling on time.

It certainly sounds scary:

A default would be unprecedented and has the potential to be catastrophic,” the Treasury reported.

“Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.

Surely they’ll get a debt ceiling deal in time, right? Surely….

Heads-up, Alexis Tsipras, head of Greece’s Syriza party, is giving a press conference with European Parliament president Martin Schulz.

It’s being streamed here.

The Golden Dawn clampdown has been raised. Schulz said there was “no place” for those with Nazi views in a democratic society while Tsipras welcomed the EP’s plans for a special session on “Golden Dawn and right-wing extremism”.

Tsipras also slammed the Greek bailout programme, saying: “One shouldn’t be taking new loans to pay off old ones,” according to AP’s Jurgen Baetz.

I don’t think he’s arguing against rolling over sovereign debt….

The IMF are tweeting highlights from the Lagarde speech, where she’s warning about the looming debt ceiling:

Lagarde: Mission critical to resolve US government crisis now

The head of the International Monetary Fund, Christine Lagarde, urged America’s warring politicians to settle their differences as she warned that an escalation of the budget row would harm the entire global economy, our economics editor Larry Elliott writes:

Speaking ahead of the Fund’s annual meeting in Washington next week, Lagarde said it was “mission critical” that Democrats and Republicans raise the US debt ceiling before the October 17 deadline.

Financial markets have started to take fright at the prospect that America could go into technical default as a result of the impasse in Washington and the IMF’s managing director said the dispute was a fresh setback for a global economy that would take at least a decade to recover from the deep slump of 2008-09.

Lagarde said:

I have said many times before that the U.S. needs to “slow down and hurry up”—by that I mean less fiscal adjustment today and more tomorrow.

She added that the world’s biggest economy needed to put its finances in order, but favoured back-loaded measures to raise revenues and limit entitlement spending that did not jeopardise short-term growth.

Lagarde added:

In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.

So it is “mission-critical” that this be resolved as soon as possible.

We’ll have the full story online shortly

Some early snaps from Christine Lagarde’s speech, in which she also warns that America was too eager this year to cut spending and raise taxes:

03-Oct-2013 15:00 – IMF’S LAGARDE SAYS U.S. ECONOMIC GROWTH THIS YEAR WILL BE ‘TOO LOW,’ BELOW 2 PCT, DUE TO TOO MUCH FISCAL TIGHTENING

03-Oct-2013 15:00 – LAGARDE SAYS U.S. GROWTH WILL BE ABOUT 1 PERCENTAGE POINT HIGHER IN 2014 AS FISCAL STRAINS EASE – SPEECH TEXT

03-Oct-2013 15:00 – LAGARDE SAYS U.S. FAILURE TO RAISE DEBT CEILING COULD ‘VERY SERIOUSLY’ HURT U.S. AND GLOBAL ECONOMY, CRITICAL TO RESOLVE AS SOON AS POSSIBLE

03-Oct-2013 15:00 – LAGARDE SAYS MARKET TURBULENCE SINCE MAY OVER PERCEIVED END TO U.S. EASY MONEY POLICIES COULD REDUCE GDP IN MAJOR EMERGING MARKETS BY 0.5 TO 1 PCT

Christine Lagarde urges US politicians to end budget row

Breaking: Christine Lagarde, head of the International Monetary Fund, has urged politicians in Washington to act quickly to resolve the government shutdown before the global economy is hurt badly.

Speaking in Washington right now, Lagarde is warning that a failure to raise the debt ceiling could “very seriously hurt” the US and global economy.

It is critical to resolve the crisis soon, she said.

More to follow

Updated

The yield on America’s one-month debt has risen to the highest level in 10 months, suggesting investors are getting worried about the looming debt ceiling and selling bonds which mature at the end of October.

This has pushed the yield up to 0.129%, from just 0.028% a week ago. That’s still a very ‘safe’ level, of course, but it’s a sign that the US budget deadlock is starting to make traders more nervous, with the debt ceiling looming.

The cost of insuring US bonds against default is also up:

Updated

Some reaction to the Cyprus gas drilling results:

Updated

Cyprus gas results are in

Cyprus’s hopes of receiving a huge windfall from offshore reserves of natural gas received a knock today, after new drilling results found there is less recoverable gas at one field than hoped.

The Nicosia government announced the results of exploratory drilling off its coast a few minutes ago. Texas’s Noble Energy, which did the drilling in the Cypriot Aphrodite concession, also updated its shareholders.

And the news is that Noble Energy has estimated there is 5 trillion cubic feet of natural gas (or between 3.6trn and 6trn) to be recovered at that particular gas field south of the Mediterranean island. That’s a disappointment, as earlier drilling in 2011 indicated there was 7 trillion cubic feet (or between 5trn and 8trn).

The Cypriot government is still pushing on with its plans to exploit the reserves, though:

Cypriot energy minister Yiorgos Lakkotrypis told reporters:

It’s important to state from the outset that, despite the lower quantities we announce today compared to those of 2011, the confirmed reserves affirm a particularly important reserve of natural gas.

Keith Elliott, Noble Energy’s senior vice president for Eastern Mediterranean, also remained upbeat:

Results from the Cyprus A-2 well have confirmed substantial recoverable natural gas resources and high reservoir deliverability.

Cyprus has talked about recovering 60 trillion cubit feet of gas from its reserves – although some analysts are skeptical.

Separately, there are reports from Cyprus that the country is considering withdrawing from Eurovision as part of its financial plight.

Can we come too?

Updated

Here’s a handy graph putting today’s US jobs data into some context:

US initial jobless claims rise slightly

The weekly US jobless claims data is out…and it shows a small rise in the number of people signing on for unemployment benefit last week.

The initial jobless claims total rose by 1,000 last week to 308,000. That’s close to the recent six-year low, and better than expected.

The four-week average fell, to 305,000 – which is the lowest since May 2007.

That won’t include the effect of the US government shutdown (as this data runs to 28 September and the shutdown began at midnight on 1 October).

Oil giant BP helped push the FTSE 100 higher this morning, after a US court ruled in its favour in a case about compensation payments following the Deepwater Horizon diasaster.

BP share are up 1.5% in London, and are expected to rise a similar amount in New York. Last night, judges ruled that the company should not be forced to pay billions of dollars in compensation to those not directly affected by the environmental damage following the oil rig explosion in which 11 men died.

Angela Monaghan explains:

The British oil company welcomed a ruling by the US court of appeals which will force a rethink on how compensation claims related to the disaster will be assessed.

The supreme court also ordered that payments must be stopped to people who did not suffer “actual injury traceable to loss” from the spill until cases have been properly heard and decided through the judicial process.

More here: BP welcomes US court of appeal ruling on Gulf of Mexico oil spill payouts

Here’s the situation in Europe’s stock markets this lunchtime:

(I was incorrect to say the DAX was closed today for Germany’s Unity Holiday — but given it’s down 0.02% it may as well be :) )

Plenty of chatter in the City today about whether America will raise its debt ceiling in time.

Gary Jenkins of Swordfish Research reckons Washington DC will get its act together, before the US crashes into the $16.7bn borrowing limit, probably around 17 October.

He writes;

After all, would politicians really be so stupid as to go through a process in which the potential unintended consequences could be so harmful, where there is no precedent for their actions and where there is no clear plan of what exactly they are trying to achieve? (Unless it’s to do with military action…).

Jenkins adds, though, that the US should be careful about appearing so blasé about its priorities:

 If the US were a company and the shareholders were openly discussing whether or not they should pay their bills or not then I find it hard to believe that the agencies would be taking such a relaxed view of the matter.

So, even if the politicians step back from the abyss, unless the debt ceiling dynamic is dealt with we could see a recurrence of current events. I do not know what the unintended consequences will be, but then again nor do the politicians. What I do know is that if I had the major economic and political advantage of having the world’s reserve currency and most wanted debt instrument is that I wouldn’t play around with it.

There’s talk in Washington of carving out a ‘Grand Bargain’ (a wide-ranging fiscal program designed to lower America’s long-term borrowing needs). That’s a tough task, though, especially when the two sides can’t agree to reopen the government.

Louise Cooper of Cooper City reckons any deal will just be a temporary patch-up job

While Ishaq Siddiqi, market strategist at ETX Capital, isn’t 100% convinced Washington will manage a deal in time.

The fact that US lawmakers are tied in a game of political brinkmanship over a fresh budget leaves traders not feeling too confident that lawmakers will be able to find common ground on raising the debt ceiling.

Indeed, failure to do so could see a US default. President Obama warned Wall Street last night that a conservative faction of the Republicans is willing to allow the US to default on its debt, lifting fears in the market that such a scenario could be played out.

The euro has risen around 0.2% against the US dollar to $1.360, while Europe’s stock markets are pretty calm.

Another Golden Dawn MP in court

Back to Greece, another Golden Dawn MP has arrived in court as the courtroom drama over the last two days continues to reverberate.

Michaloliakos’ right hand man, Christos Pappas, was also arrested on charges of overseeing a criminal organisation. His hearing was due to start at 1pm local time, or 11am BST.

Earlier this week anti-terror units discovered “a heap” of Nazi paraphernalia in Pappas’s home, including a book titled “Hitler by my side”.

Golden Dawn itself is furious that judges decided to jail its leader, Nikos Michaloliakos, ahead of a trial over charges that the party is a criminal gang. It issued a statement calling the move “wretched plot” and blaming it on ”foreign centres.”

From Athens, Helena Smith reports:

In a move that has stunned Greeks, Ilias Kasidiaris, the party’s spokesman who emerged from court yesterday kicking and shoving journalists, has now used the media to denounce the imprisonment of Michaloliakos.

“The detention of our general secretary is totally unjust, unconstitutional and has been dictated by foreign centres of power,” he has told reporters gathered outside the court.

Yesterday’s courtroom drama (and the violence seen outside court afterwards) also gets plenty of coverage in today’s newspapers.

Reuters flags up:

“The leader’s in, the gang’s out!” top-selling daily Ta Nea wrote on its front page. “It is the state’s duty to go to the end: The criminals need to be revealed, they need to be tried, and they need to pay,” the newspaper said.

Kathimerini makes an important point. This is a live criminal trial, Due process needs to be followed.

The fact that certain Golden Dawn deputies were released from pretrial custody – conditionally – does not in any way represent evidence of their innocence, just as their being remanded to appear before a magistrate had not meant that they were guilty of the crimes being leveled against them.

Updated

More good news for the European economy: retail sales were much stronger than expected in August.

Eurostat reported that retail sales volumes rose by 0.7% in the euro area, and 0.4% across the wider European Union in August. July’s data was also revised higher, showing consumers weren’t as cautious about spending as first thought.

Eurostat’s data shows that non-food shopping was strong, rising by 0.6% in the eurozone. That covers items such as computers, clothing and medical products.

The data also showed an increase in fuel purchases, suggesting a rise in motor journeys. Spending on “automotive fuel in specialised stores” (that’s petrol stations to you and me) was up by 0.9% across euro members.

Nice result for Spain in the bond markets this morning, suggesting the political tensions in the euro area have eased following yesterday’s Italian confidence vote.

Spain sold its maximum target of debt in a strong auction, in which borrowing costs hit their lowest level in three years.

The auction saw the Spanish treasury shift €1.18bn of 10-year bonds at a yield (the rate of return on the debt) of 4.269%, a drop on the 4.5% paid last month.

Updated

UK service sector on a charge

The UK’s service sector has revival continues, with the strongest quarterly growth in 16 years - driven by the upswing in the housing market.

The monthly PMI survey shows that September was another strong month — with a reading of 60.3, close to August’s seven-month high of 60.5 and deep into expansion territory.

However, firms dependent on consumer spending aren’t doing quite as well as financial firms, it appears….

Reuters handily provides more details:

The sector saw jobs growth in September, something mirrored in surveys of manufacturing and construction earlier this week.

Over the third quarter as a whole, the index – measuring the change in activity, including income and chargeable hours worked, from the previous month – averaged its highest level since the second quarter of 1997, Markit said.

“Growth is being led by financial services – linked in part to increased housing market activity – and the business sector,” said Chris Williamson, chief economist at survey compilers Markit.

“Consumer-facing services continue to struggle, reflecting the ongoing squeeze on incomes due to weak pay growth and high inflation.”

Around half of firms surveyed in the service sector – which makes up more than three quarters of Britain’s output – expected even brisker trade in a year’s time, with the outlook index rising to 71.8.

Service providers reported that a jump in new business last month placed strain on resources, with backlogs of work rising at the fastest pace in more than 13 years.The workload, along with firms’ optimism about future business, led to a solid rise in employment and some pay rises.

Updated

Eurozone private sector output hits 27-month high

The eurozone recovery is gathering pace, with its private sector firms reporting the biggest leap in activity since June 2011 last month.

Data firm Markit’s monthly surveys of companies across the single currency showed a solid rise in activity.

New business has picked up, and the rate of job cuts may finally be slowing to a halt.

Markit’s monthly survey of activity came in at 52.2, up from August’s 51.5. Both service sector firms and manufacturers said conditions were better.

Here’s some key factoids from the report (online here)

Ireland: 55.7 2-month low
Germany: 53.2 2-month low
Italy: 52.8 29-month high
France: 50.5 20-month high
Spain: 49.6 2-month low

The news comes hours after China’s service sector output hit a 6-month high.

Chris Williamson, chief economist at Markit, said the eurozone data showed Europe’s recovery on track, despite Spain’s private firms faltering after a better August.

The final PMI confirms the message from the earlier flash reading that the eurozone enjoyed its strongest quarter of expansion for just over two years in the third quarter. With the rate of expansion picking up in September, the survey bodes well for ongoing growth in the final quarter of the year.

Growth is being led by Germany, but France has also now returned to growth. Even more encouraging are the upbeat survey data for Ireland and Italy, both of which show signs of returning to robust growth, and Spain has also stabilised, as ongoing weakness in the domestic economy is offset by a strong upturn in exports.

But don’t get the bunting out yet — this only suggests a weak recovery.

Williamson explains:

Growth remains only modest – the Eurozone PMI is consistent with GDP rising by just 0.2% on the third quarter, and the political instability that has reared up in Italy is a reminder that there remains plenty of scope for recoveries to be derailed.

Updated

Italian service sector finally growing

Good news from Italy this morning – its service sector has burst back into growth for the first time in 28 months.

This may suggest the Italian economy has finally stopped shrinking, a new boost a day after prime minister Enrico Letta faced down Silvio Berlusconi’s revolt.

Data provider Markit says it’s a welcome sign that the economic recovery could be underway, with the monthly PMI jumping to 52.7 in September, from 48.8 in August. It’s not been over the 50-point mark (which separates contraction from expansion) since May 2011.

Here’s the key points:

• Business activity lifted by increase in new work

• Job shedding continues, but at slower rate

• Future expectations highest in more than two years

Credit Agricole’s Frederik Ducrozet is encouraged:

Phil Smith, economist at Markit, said the data shows “the first signs” of recovery in the Italian economy after some grim months. But without political stability, he warned, it could quickly deteriorate.

He explained:

Should the data hold up, however, there may also be a return to growth in service sector employment, which showed its slowest fall for 16 months in September.

A significant improvement in businesses’ expectations for the year ahead will have no doubt also helped on this front.

The data, alongside those for manufacturing, show Italian GDP at least stabilising in Q3 and perhaps even rising slightly for the first time in more than two years. Political stability is key to this forward momentum being sustained into the later stages of the year and beyond.

Updated

Overnight in Greece, the head of the far-right Golden Dawn party was remanded in custody, hours after three of his MPs were released pending trial.

Another MP, Yannis Lagos, was also detained, as was Giorgos Patelis, the head of Golden Dawn’s local office in the area west of Athens where hip-hop star Pavlos Fyssas was stabbed two weeks ago. <updated, many thanks to reader Kizbot>

All the men faces charges of running a criminal gang, which they deny.

From Athens, Helena Smith reported:

Armed police led Nikos Mihaloliakos away from the courthouse in handcuffs in the early hours of Thursday after testimony lasting more than six hours.

His wife and daughter, also party members, and other Golden Dawn MPs, stood outside the building and shouted words of encouragement to him as he was led away.

“The ridiculous little men, they decided to jail the leader,” said party MP Michalis Arvanitis.

Golden Dawn leader jailed pending trial after Athens hearing

Updated

Just in – Spain’s service sector suffered a drop in activity in last month. Its PMI index has fallen into contraction territory again — at 49.0 in September, down from 50.4 (showing slight growth) in August.

Markit, which compiles the PMI data, also reported that new order growth slowed. On the upside, optimism hit a 41-month high.

Spain’s government ministers have been boldly declaring that the recession is over. This data doesn’t suggest much of a recovery yet.

Andrew Harker, senior economist at Markit, commented:

The Spanish service sector failed to show much sign of a recovery during September as activity fell back in response to weaker new order growth which itself had been supported by further sharp discounting.

One bright spot from the latest survey was that companies were at their most optimistic about the future for nearly three-and-a-half years, suggesting that Spanish service providers are seeing some light at the end of the tunnel.

Markets edge higher

Shares are edging a little higher in early trading — suggesting China’s strong service sector data is trumping US deadlock woes.

Here’s the early prices: (German’s DAX is closed for a public holiday)

FTSE 100: up 20 points at 6458, + 0.3%

French CAC: up 7 points at 4,165, + 0.18%

Italian FTSE MIB: up 98 points at 18,191, +0.5%

Spanish IBEX: up 21 points at 9,371, +0.23%

Mike van Dulken, head of research at Accendo Markets, reckons there’s some “cautious optimism” in the City this morning, despite the lack of progress in Washington DC. He argues that, with America on track to smash into its debt ceiling on 17 October, there’s little chance of the Federal Reserve turning down its bond-buying stimulus programme soon:

Sentiment is still not quite ignoring, but nor is it pricing in the worst case scenario – which is no agreement until debt ceiling deadline, and possible sovereign default.

The possible assumption is that default won’t be allowed, but the longer the budget takes to sort out, the longer the Fed is held off from tapering. Happy days for easy money policy lovers and risk appetite.

Updated

Michael Hewson of CMC Markets says traders will be hoping for encouraging data from Europe’s service sector this morning:

As we enter the third day of the shutdown of the US government the various positions seem as inextricably entrenched as ever. On the plus side at least we don’t have to worry about the soap opera playing out in Italy as Silvio Berlusconi negotiated what could be politely called a tactical withdrawal and agreed to support Enrico Letta’s government after it became apparent he didn’t have his party’s support with respect to the confidence vote.

While he may have run into a brick wall on this occasion Berlusconi has never lacked the capacity to surprise, so I would doubt that we have heard the last of him in this regard.

In any case while the political uncertainty in Italy may have subsided for now it still remains quite likely that any type of reform is still set to remain slow and problematic.

As for the rest of Europe’s markets while the FTSE may get a slight boost from a positive China services PMI, they continue to have one eye on events in the US, finishing lower yesterday along with US markets, though after yesterday’s non event of an ECB press conference, todays focus is on the latest services PMI data for September for Italy, Spain, France and Germany. All are expected to show positive readings above 50, with the exception of Italy, which is expected to come in at 49.2, raising expectations of a continued recovery.

Chinese service sector output hits six-month high

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

Looks like a mixed day ahead . Growing concern over the US government shutdown have taken the shine of some encouraging Chines economic data earlier today.

While in Europe, Italy is waking up to front pages dominated by Silvio Berlusconi’s humiliating defeat in the Senate yesterday, where prime minister Enrico Letta swept home in his confidence vote. More on this shortly.

First the good news — growth in China’s service sector has surged to a six month high. Activity jumped to 55.4 in September, from 53.9 in August, as measured by the official Purchasing Managers Index (anything over 50 points = growth).

That suggests that Beijing’s efforts to pep up the Chinese economy is bearing fruit this autumn.

Craig Erlam, analyst at Alpari, explained:

This is just another sign that the government’s targeted stimulus efforts, which were announced a few months ago in order to combat the slowing growth in the economy and achieve its minimum 7% growth target, are having the desired effect on the economy.

That might normally give stock markets a boost, especially with more service sector data due from the eurozone and UK this morning.

But now the bad news — Wednesday was another day of deadlock in Washington, despite US bank chiefs urging politicians on Capitol Hill to get a grip before it’s too late.

Obama meets bank chiefs as economists warn of ‘deep and dark recession’ 

So it’s probably going to be a nervy day in the markets….

Updated

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ECB keeps rates at record low 0.5% as the 17-nation economy recovers from the prolonged recession. Italian Prime Minister Letta survives as Berlusconi caves in. Letta: A new election would be a disaster. Anger in Greece as Golden Dawn MPs released…

 


Powered by Guardian.co.ukThis article titled “Berlusconi backs Italian prime minister in crunch confidence vote – live” was written by Graeme Wearden, for theguardian.com on Wednesday 2nd October 2013 12.11 UTC

It will be fascinating to see what Mario Draghi, head of the European Central Bank, makes of the Italian situation when he begins a press conference in 20 minutes time (as expected, they have left interest rates unchanged)

Our Southern European editor John Hooper says Berlusconi has saved face, but lost influence:

Enrico Letta definitely looked less than euphoric as Berlusconi yanked hard on the political handbrake, and declared with palpable understatement:

we have decided, not without some internal strife, to support the government.

The general view among Italian political journalists is that Letta would be much better off without Berlusconi around at all. Instead, Letta remains the prime minister of a shaky coalition.

Having said that, Berlusconi is damaged by the antics of the last few days. The remarkable political gymnastics must have taken their toll — and an optimist might argue that PdL is irrevocably on the path to a new future….

Updated

Why Berlusconi caved in

What drama!

So, here’s the position. By sensationally dropping his opposition to Enrico Letta, Silvio Berlusconi has guaranteed that the Italian government survives.

Add all Berlusconi’s PdL senators to Letta’s existing support — his PD party, plus small parties and senators for life — and it’s a healthy majority.

So why did Berlusconi do it? Clearly, he concluded that he could not keep enough of his PdL party onside. The photo I included in the blog earlier showed a long list of rebels.

If Berlusconi hadn’t pulled such a SCREECHING u-turn, then he would presumably have seen his group shatter. The moderates would have followed Letta, and he’d have been left nursing a rump faction.

Updated

The Italian stock market jumped as the news came in, pushing the FTSE MIB up 1.4% today.

Italian government debt prices remain high, with the yield on 10-year bonds down at 4.38% (from 4.46% yesterday).

Here’s the key quotes from Berlusoni, before he threw his support behind Letta a few moments ago.

Updated

Berlusconi himself buried his head in his hands after announcing that the PdL party will support Letta — which means today’s confidence vote is a WIN for the prime minister.

It was not the speech of a winner — rather of a man whose long grip on his party may be slipping .

There’s applause in the Senate as Berlusconi says he will support Enrico Letta — although I think I saw Letta pull a rather rueful grin.

BERLUSCONI BACKS LETTA

BERLUSCONI SAYS HE AND HIS PEOPLE OF FREEDOM PARTY WILL SUPPORT LETTA.

Berlusconi

Berlusconi is addressing the Senate in an atmosphere of silence, trying to sound statesmanlike….

Berlusconi’s got the microphone!

Former technocratic prime minister Mario Monti just gave a brisk speech, in which he urged senators not to risk Italy falling into the troika and its “neocolonial oversight”. If Italy is forced to take a bailout, it could take years to recover, Monti warned.

Updated

While we wait for that vote, here’s Reuters’ report on Letta’s second speech to the Senate:

Italian Prime Minister Enrico Letta said on Wednesday his government could achieve reforms even with a smaller majority, as he wound up a debate on a confidence vote in which he has been boosted by dissidents from Silvio Berlusconi’s centre-right party.

“Our government can reach its objectives despite the fact that the majority’s numbers have changed,” Letta said as he formally put a confidence motion to the Senate, which is expected to complete the vote in the early afternoon.

Letta spoke at length about Italy’s role in the European Union and his goal to push for greater integration during the country’s rotating presidency in the second half of 2014, suggesting he sees his government lasting at least until 2015.

The vote hasn’t actually started yet. Senators are continuing to give their views. The latest word from Rome is that Berlusconi isn’t expected to speak (but given today’s twists and turns, let’s see).

Rome correspondent Lizzy Davies reports that two distinguished honorary senators, architect Renzo Piano and conductor Claudio Abbado, are both absent because they are out of the country.

Confidence Vote has been called

To repeat, Enrico Letta has called for a vote of confidence.

After a dramatic couple of hours in the Senate, we still don’t know what’s going to happen. There have been rumours that Berlusconi will back Letta, and also that he will order the entire PdL party to vote against. Speculation abounds.

We do know that there is a solid bunch of ‘dovish’ PdL senators who are unlikely to bow to pressure from Berlusconi, and are highly likely to back Letta. But we do not know if it will be enough.

As John Hooper flagged up the Berlusconi rebels are talking about creating a new party called ”Popolari per l’Italia”.

Wolf Piccoli, managing director at Teneo Intelligence, is as reliable as any, and he reckons Letta might get 171 votes — that’s a win, as he needs 160 for victory.

A briefer speech from Letta this time — his main message to the Senate is that today is a historic opportunity. Tomorrow the government must get back to work.

Amid applause from some members of the senate, Letta calls for a confidence vote:

Updated

Letta still looks calm:

Updated

Letta speaks again as vote looms

Italian prime Enrico Letta is beginning his second speech to the Senate, explaining that he didn’t sleep last night as he worked to hold the government together.

He’s initially heard in silence (gosh it’s tense), but there’s some heckling as Letta bluntly tells the Senate that he’s not prepared to keep taking “lessons in morality” from those who are holding him to ransom.

Letta then tells Senators that he needs their support. A smaller majority will make it even hard for him to govern.

Letta back on his feet

Enrico Letta is speaking again in the Italian parliament. Reminder: it’s being streamed on RAI News.

Updated

The rumour mill keeps swirling in Italy ahead of this lunchtime’s confidence vote. One insider reckons Berlusconi is going to back Letta, the next says he’s not. Confusion reigns (not for the first, or last time).

John Hooper, our Souther Europe editor, reports that Berlusconi’s rebels are talking of creating a new party called “Popolari per l’Italia” – even if the loyalist wing of PdL join them by supporting Letta.

Plenty of concern in Greece that three Golden Dawn MPs were released from court this morning, and promptly kicked and shoved their way through the assembled media .

Here’s a flavour:

Three Golden Dawn MPs released on bail – lash out at press

Breaking away to Greece briefly.

Four of the Golden Dawn MPs who were arrested as part of the clampdown on the neo-Nazi party appeared in court today. Three of the men were promptly released pending a future trial, while party leader Nikolaos Michaloliakos is due back in court later today.

TV footage from the scene shows one cameraman being pushed out of the way, while another man is kicked as the MPs and their supporters leave the scene.

Here’s the video clip showing the aggressive scenes:

And here’s Kathimerini’s early take:

Only one of four Golden Dawn deputies arrested last week on charges of heading a criminal organization responsible for a range of felonies, including murder, assault, blackmail and money laundering, among others, was remanded in custody on Wednesday, while another three were released pending trial, one of them posting a 50,000 euro bail.

Yiannis Lagos was expected to be transferred to a local jail on Wednesday following a unanimous decision reached by two investigative magistrates and two prosecutors.

Party spokesman Ilias Kasidiaris was ordered to post a €50,000 bail and not to exit the country. Deputies Ilias Panayiotaros and Nikos Michos were also ordered not to leave the country.

The clampdown followed the death of 34-year-old rapper Pavlos Fyssas two weeks ago. A Golden Dawn member was subsequently arrested over the stabbing.

More to follow

Updated

Here’s a photo that appears to show the list of Senators from the People of Freedom party who are considering backing Enrico Letta:

Rumours flying:

It is increasingly likely that Enrico Letta has enough votes for victory, even if Berlusconi decides to back him.

Letta needs 161 votes for victory – although he would like more. Vincenzo Scarpetta of Open Europe reckons that he currently has 170 senators behind him, based on the latest reports and public statements.

Here’s how Barclays summed it up this morning:

Letta has the numbers to survive the vote today. The Government needs the support of 161 Senators, and can count on 137.

With the support of the life Senators, and defectors from the smaller parties (including M5S) it is likely to get to around 147-149. Letta therefore only needs around 12-14 PdL Senators to defect in order to survive. With the PdL split he is likely to get this.

More reaction to the reports that Berlusconi is considering throwing his support behind Enrico Letta in the confidence vote:

It would be a stunning u-turn from Silvio Berlusconi if, as reports suggest, he has now decided to back Enrico Letta in today’s vote of confidence.

But it wouldn’t exactly be out of character — and a number of political journalists and analysts were suggesting yesterday that this might happen, once we learned that his party were rebelling.

Remember, it was Berlusconi who triggered this crisis by threatening to bring the government down last week — by withdrawing his PdL party from the Letta coalition.

If he backs Letta today, then he could still trigger a crisis in future.

As Serena Ruffoni of the WSJ put it to me:

I don’t think the Letta government is any stronger even if it survives this confidence vote.

Updated

Reports: Berlusconi’s Party to back Letta

Important: Sky Italia is reporting that the People of Freedom party are going to BACK Enrico Letta in the confidence vote.

If true, that means Letta would win a solid majority. It would also suggest that Berlusconi has decided that he cannot bring his rebels back into line, and has decided to fall in with them.

That is NOT the best result for Letta, though. While he’d still be in power, he’d also still be lumbered with the Berlusconi problem.

Market reaction

The Italian stock market surged during Enrico Letta’s speech, hitting a new two-year high as the PM sat down.

Italian government bonds are also strengthening, which has pushed the yield on its 10-year debt down to 4.37% . It as as high as 4.74% on Monday after Berlusconi launched his bid to bring the Letta government down.

Senators are now speaking, with one tearing into Silvio Berlusconi — calling the former prime minister “‘a simple story of criminality”.

The BBC’s Gavin Hewitt reckons the gloves are off, as the battle for Italy’s future continues:

Updated

Letta speech: instant reaction

How did he do?

Five months isn’t enough time to build a track record of leadership success — and much of Letta’s time as prime minister has been overshadowed by Berlusconi’s legal defeats.

It was a speech of vision — asking Senators to choose between future of a more competitive, thriving Italy, or a future of political strife, fresh elections, and the prospect of another divided parliament at the end of it.

Letta isn’t the most thrilling orator in European politics, but he has a mature, sensible style.

Highlights of his speech start here.

Updated

Letta’s speech over

Worth noting that Berlusconi didn’t applaud Letta as he ended his speech – so he’s not thrown in the towel yet….

Enrico Letta concluded his speech by urging those in the chamber to give him their ”courage and confidence”. “A confidence that is not against anyone; a confidence that is for Italy” (quotes via Lizzy).

He also urged senators to search their consciences, and avoid a result that would leave them feeling “shameful regret”.

While Letta was speaking, Berlusconi could be seen holding discussion with some of his allies. I grabbed a picture:

Oh the drama….

There’s also a European theme to the speech — with Letta speaking of the need to dream of a “United States of Europe” one day. That fits with his tradition of being a solid Europhile (he was an MEP at one stage of his career)

Letta is outlining his vision for Italy — saying that growth and jobs must be the focus in 2014.

Apparently Berlusconi has told Italian media that he will listen to Letta’s speech and then decide whether to support him or not.

Enrico Letta’s speech is turning into a solid defense of his government’s record in the five months since he took over (colleague Lizzy Davies dubs it a “ very level-headed and systematic defense”.

But will that be enough to persuade PdL members to back him? As explained earlier — Letta would like to see 30 rebels jump the fence. He needs more than 20 (I think 24 is the magic number).

Letta also cited three priorities – support economic recovery; cutting taxes on workers, and increasing competition in Italy’s economy.

Letta is continuing to defend his government’s record on the economy — part of the strategy to persuade moderate members of the Berlusconi camp to back him.

It is on ordinary people suffering in economic crisis that our actions will have biggest effect, he said.

A better webfeed

Berlusconi’s just arrived! He also looks weary, probably due to late night efforts to corall rebelling members of his PdL party into line.

No sign of Silvio Berlusconi at the start of Letta’s crunch speech. Angelino Alfano (deputy PM) is there, and there’s a consensus that he looks nervous.

(see 8.22am for a blurry snap of Dudu not being walked)

Looks like the confidence vote will come at midday — earlier than the previous indications.

And how many rebels will there be?

Lizzy Davies writes:

It’s all about the numbers today. Giovanardi claimed yesterday there were “more than 40″- believed to be as many as 44- PdL MPs prepared to vote for the confidence vote. But the Italian press reports that Berlusconi’s hawks told him the rebels were much- much- less numerous. Who’s right?

We’ll find out soon. Letta needs over 20 rebels. He’d be happier with more than 30.

Updated

Letta went on to warn that a new election could cause the same gridlock as last time:

Enrico Letta is urging parliament to give him a mandate for a “real and new” pact to tackle Italy’s problems.

(a reminder — Italy’s last election, in February, resulted in deadlock — with no party winning a majority in the Senate. Eventually a coalition was agreed between the centre-left PD and Berlusconi’s centre-right PdL, with Letta (a senior member of PD) as leader)

Here’s the key early quotes from Letta’s speech:

Letta speech begins

Prime minister Enrico Letta has begun to give one of the speeches of his political life, in a bid to win enough support to continue as the head of Italy’s shaky coalition government.

Before he started, there was a standing ovation for the country’s veteran president, Giorgio Napolitano.

Letta began his speech in the Italian parliament by urging its members to “seize the moment”. And, as expected, he insisted that the legal troubles of Silvio Berlusconi cannot be an excuse to bring the country’s government down.

But can he persuade enough of Berlusconi’s PdL party to back him?

Lizzy Davies is tweeting the key points, so I’ll be embedding them in the blog now….

Watch the speech here

Enrico Letta has begun speaking in the Italian parliament.

There’s a live stream here. However, it’s very flaky.

Key points from his speech will follow!

Update: the latest word from Italy is that we might get the confidence vote around midday, not this evening as I initially thought. 

Markets down

Europe’s stock markets are all in the red today, with the FTSE 100 shedding 73 points. There’s nervousness about the situation in Italy, and also a knock-on effect from a bad day in Asia. The US Federal government shutdown isn’t exactly helping sentiment.

Overnight, the Nikkei tumbled 2% after the latest stimulus package from prime minister Abe failed to excite investors.

Updated

Tesco shares lead fallers in London

In the City, Tesco’s shares are leading the fallers on the FTSE 100 after issuing a trading statement, down over 3%.

Britain’s biggest supermarket reported zero growth in like-for like UK sales, excluding fuel and VAT sales tax, in the 13 weeks to 24 August.

Tesco also warned that it faced ‘challenging economic conditions’ overseas. Europe was particularly tough, with profits down almost 70% and like-for-like sales down by 5% in the first half of the year.

Sainsbury posted stronger figures in the UK (as expected) – sales at British stores open at least a year were up 2%. Its shares are also suffering, though, down 1.5%. More here.

Wolf Piccoli, managing director at Teneo Intelligence, agrees that it could be a long day in the Rome parliament:

Analysts at Nordea Markets say it’s “fight night” in Italy, and possibly Berlusconi’s final bout.

In the red corner, we have PM Letta, who has probably worked hard – together with the President – to convince some of Berlusconi’s senators that new elections at this point is in no one’s interest.

A vote for a continuation of the current government and later on a vote for a budget and a new electoral law would make for a fresh start after spring elections. In the blue corner, we have Berlusconi. Media are full of stories about Berlusconi’s outstanding merits when it comes to winning tight political battles. But this time it seems that even members of his own party believes he has gone too far. Even Alfano – who has been seen as the crown prince in the PDL – said that he might vote for a continuation of the government.

Furthermore, it may be the old Champs last fight, if he is stripped of his senatorial seat on Friday. It will be a close call. Italy, and to a lesser extent Spain, will sell off if the government falls.

Jeremy Cook of World First agrees:

What might Letta tell parliament in his speech this morning?

Lizzy Davies explains that his speech is likely to focus on the socio-economic suffering of Italy, and tell deputies that they cannot just let its government fall.

His strategy will be to ram home the idea that the judicial woes of one man* have to be kept separate from the interests of the country – in an effort to split the doves in Berlusconi’s party from the hawks.

• – that man being Berlusconi himself, of course, who is on the brink of being expelled from the Senate after his tax fraud conviction.

In the comments section, regular reader mrwicket has outlined the potential scenarios from tonight’s vote.

As he flags up, we’re not 100% certain that a confidence vote will actually be called — Enrico Letta will probably judge the mood of the Senate first, and if he feels he can’t win then he might simply resign.

So, Django Alfano is standing his ground and wants to support Letta in the vote of confidence, as do the other maybe ministers and a chunk of the party.

Berlusconi says he wants the government to fall and to have new elections.

The two will meet again this morning at 9’30 so things could change.

Marina Berlusconi is said to be ready to enter into politics.

I asked yesterday how you could have a vote of confidence in a government that didn’t exist. On Monday, Letta’s office said the resignations were irrevocable but yesterday afternoon, it announced that it had refused to accept them. The ‘maybe ministers’ will walk into parliament today as ministers.

Giovanardi claimed yesterday that there were 40 PdL senators ready to vote for Letta (some reports in the evening said that number was dwindling). He even spoke of a new party called Nuova Italia

There were some nasty exchanges last night between Sallusti, editor of Il Giornale and Cicchitto, an important PdL dissident. Sallusti said they were cowards, hitting the man when he was down and that they had forgotten what had happened to Fini. “They are stabbing him in the back in his moment of weakness. They are cowards because they didn’t have the courage to do it when he was strong.”
“No! You are the coward!” etc…

Letta has said he will refuse to govern with a weak majority.

————

Possible scenarios;

Letta wins vote of confidence with sufficient votes to continue in government.

Letta wins vote of confidence with insufficient votes to continue in government and Napolitano sets up a technical government.

Letta wins vote of confidence by a narrow margin and continues to govern

Letta loses vote of confidence and Napolitano sets up a technical government.

Letta doesn’t call for a vote of confidence and Napolitano sets up a technical government.

————

With regard to policy, there would be very little to distinguish between a Letta government and a technical government so we will be as we were after this dramatic little interlude. The change is likely to be inside the PdL.

Lisa Jucca, Reuters chief financial correspondent in Italy, agrees that this could be the moment that Angelino Alfano, Berlusconi’s right-hand man for so long, finally rises up:

How Letta can win

Silvio Berlusconi is facing an unprecedented rebellion, opening up the possibility that Letta can surge to victory tonight. As our Rome correspondent, Lizzy Davies, explains:

To win the confidence vote in the senate, Letta needs to attract extra votes from either the centre-right PdL or the anti-establishment Five Star Movement (M5S) to reach the magic number of 161. He has said, however, that he has no interest in continuing at the head of a government that only sneaks in by a handful of votes.

His chances appeared to have been significantly boosted on Tuesday, when Carlo Giovanardi, a long-time ally of Berlusconi, struck the first major blow when he announced that “more than 40″ PdL MPs were prepared to vote to keep the government afloat.

Then, in a stunning move likened by one observer to an “Et tu, Brute?” moment, Angelino Alfano, the deputy prime minister long seen as Berlusconi’s political heir, appeared to solidify the mutiny. “I remain firmly convinced that all our party should tomorrow back the confidence vote in Letta,” he said, according to Ansa.

Here’s the full story: Silvio Berlusconi’s allies turn on him to keep Italy’s grand coalition alive

Make-or-break confidence vote for Italian PM

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

After yesterday’s foray into the US shutdown , we’re back in familiar territory today – the political crisis in Italy, with a monthly meeting of the European Central Bank on top.

Enrico Letta, Italy’s prime minister, is heading to parliament this morning for a make-or-break confidence vote. It was triggered by Silvio Berlusconi’s decision last Saturday to ordered his ministers out of the coalition, to bring Letta down.

Does Letta still have the support of the lower house, and the Senate? If not, Italy could be plunged deeper into chaos.

But Letta could win, and wins well, if Berlusconi’s centre-right party defy their disgraced leader and through their support behind the PM. Yesterday, key members of the People of Freedom party (PdL) said they would support the coalition [an alliance between Letta's own centre-left PD and the PdL].

The big question is how many PdL members of the Senate decide to throw their support behind Letta today.

Letta is due to start giving his first speech at around 9.30am Rome time, or 8.30am BST. The actual confidence vote could be quite late (we’ll update with firm timings when we have them).

The other key event in the eurozone today is the monthly meeting of the ECB’s governing council. They’re in Paris today. We’re not expecting any change to interest rates. There’s also a press conference at 2.30pm Paris time (1.30pm BST), where Mario Draghi will be quizzed over a range of issues, doubtless including his homeland of Italy.

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

Updated

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House and Senate fail to reach deal before deadline. Estimated 800,000 federal workers told to stay at home. National parks and museums closed, Nasa affected. Signs of splits among Republicans over tactics. The President plans to make a statement today…

 


Powered by Guardian.co.ukThis article titled “US government shutdown begins as Congress fails to reach deal – live” was written by Tom McCarthy in New York, for theguardian.com on Tuesday 1st October 2013 16.12 UTC

Guardian Washington correspondent Paul Lewis (@PaulLewis) is in the streets of Washington DC, a city in which the government is not just the main employer, but the lifeblood of the city. The impacts of the shutdown were immediately visible, Paul writes:

By mid-morning, downtown Washington DC had the throng of a busy lunchtime, as furloughed workers from all the major government buildings trickled out onto the streets after closing down their offices.

Everywhere from obscure government agencies to the White House was operating on a slimmed-down staff, with all so-called ‘non-excepted’ employees ordered to return home after turning up to work on Tuesday morning.

DC’s mayor, Vincent Gray, immunised many staff working for the city’s government from the shutdown, by declaring them all ‘essential’ workers, a legally contentious measure. But it at least kept the city movement, and guarded America’s capital from less sightly impacts of the last shutdown, in the 1990s, when uncollected trash piled up on the street.

Later we’ll have Paul’s interviews with tourists and federal workers talking about how the shutdown is affecting them.

Updated

Veterans of World War II have stormed their own memorial on the National Mall, barricades be damned, reporter Leo Shane III of Stars and Stripes tweets:

Honor flight vets just knocked over the barriers at the WWII memorial to get inside, #shutdown or no.

No sign of folks leaving. The vets have control of the memorial. #shutdown

John McCain may be trying to make a point by publicizing polling showing Americans oppose the GOP strategy of tying the shutdown to health care cuts, but most national polls on who gets blamed are rather useless in understanding what’s going through the mind of the House GOP, Guardian polling analyst Harry J Enten (@ForecasterEnten) writes.

Harry argues that, district-for-district, Republicans really aren’t vulnerable to voter outrage in midterm elections in 2014 because the districts are rigged:

While there are a number of reasons why House Republicans were willing to shut down the government, no answer is probably as satisfying as the fact that majority of House Republicans don’t live in districts that look anything like the rest of the nation. Thanks to urban packing and gerrymandering, Republicans don’t have to worry about losing to a Democrat.

The average vote share for President Obama in 2012 in Republican House districts was only 40.4%. Only 17 members of the Republican House caucus are from districts that voted for Obama in 2012. More than half of Republicans in the House come from districts that are 10 points more Republican than the nation as a whole. The average Republican district is over a 11 points more Republican than the nation.

The thing that most worries most members is likely a primary challenge, not a general election. The fact that more Republicans support a shutdown to stop Obamacare, as Quinnipiac found, is what’s most important for them.

That analysis leaves open the question on whether blowback from the shutdown represents potential damage to a party’s national brand, with consequences for membership, fundraising, turnout, activism, public support in hard policy fights and more.

Shut down: Tweets from Voyager 2. 

Not to be confused with Voyager 1, which recently entered interstellar space. Voyager 2 is only 15.37bn km away, according to the Nasa site that tracks it, which interestingly is still online here.

Updated

Shut down: the US Census Bureau online. 

You can’t visit the web site here, but you can read a shutdown notice.

(h/t @kennelliott)

Updated

Senator Mike Lee of Utah, who with Ted Cruz of Texas led the charge to tie stopgap spending legislation to changes to Obamacare, is delivering a speech on the Senate floor calling for a focus on people whose livelihoods will be damaged by the government shutdown. “I want to focus our attention in the coming days and hours on those people,” Lee says, gravely.

It turns out however that mostly Lee wants to continue his critique of the Affordable Care Act. “I’d like to turn for a moment to people who are and for a number of months have been already [hurting],” he says. “Obamacare happens to be the No.1 job-killer in the country.”

Threatened by shutdown: airport efficiency(!).

Here’s a question from the comments:

Can someone tell me will airport be affected? Ie will take ages to get through security?

Answer, in short: Yes, expect some delays, but security will remain tight. The Transportation Security Administration, part of the department of Homeland Security, is expected to furlough certain nonessential employees, but those do not include most screeners. Air traffic controllers will report for work as usual.

John McCain, Republican of Arizona, argued Monday against the House Republican shutdown strategy, telling the House to accept fate and pass a “clean” spending resolution.

This morning McCain indulges in a preliminary bit of “I told you so,” directed at Republican colleagues:

From the Bloomberg story:

By 72 percent to 22 percent, Americans oppose Congress “shutting down major activities of the federal government” as a way to stop the Affordable Care Act from going into effect, the national survey from Quinnipiac University found. [...]

A majority of the public, 58 percent, is opposed to cutting off funding for the insurance program that begins enrollment today. Thirty-four percent support defunding it.

Note that the poll featured in the story McCain links to is from last week; while the Bloomberg story is from today, it does not reflect new polling from today.

Updated

Here’s the tabloid view, then and now:

Shut down: Freedom of Information Act requests.

The justice department claims it can’t meet FOIA deadlines in an Electronic Frontier Foundation lawsuit over phone metadata collection because of the shutdown, Politico’s Josh Gerstein reports:

Just hours after the partial government shutdown kicked in, Justice Department lawyers filed a motion Tuesday morning with a federal judge in Oakland, Calif. seeking to postpone all deadlines in connection with a suit brought by the Electronic Frontier Foundation.

The motion submitted to U.S. District Court Judge Yvonne Gonzalez Rogers (and posted here) says the government will be unable to continue reviewing documents for release because both DOJ lawyers and intelligence community personnel involved in the process are being furloughed.

Read the full piece here.

Senate minority whip John Cornyn, Republican of Texas, says Democrats are “whistling past the graveyard” in asserting that the Affordable Care Act is not negotiable:

“This is the law of the land. It’s perfect. Couldn’t be better,” Cornyn, on the Senate floor, ridicules his Democratic colleagues as saying. “That’s like whistling past the graveyard.”

Then Cornyn accuses Democrats of engineering the shutdown because polls show Republicans will take the blame:

They’re looking at polls…They’re willing to risk shutdown of the federal government just to gain political advantage… The Democrats have doubled down on their strategy, hoping to gain political advantage at the expense of people hurt.

Part of the difficulty this morning for 2m federal workers is that many did not find out until they showed up for work as usual whether they were part of the “essential” core that would be kept on the job. Some were told to stay. Others were sent home.

The Guardian’s Paul Lewis (@PaulLewis) and Dan Roberts (@RobertsDan) are watching the shutdown unfold in Washington:

Some federal workers were reportedly instructed to switch off their BlackBerry smartphones to prevent them from working remotely, a disciplinary offence.

From 7am, forlorn-looking commuters could be seen heading to government buildings and agencies across Washington DC, where they would learn their fate. The city, where the government is a huge employer, will feel the impact of the federal shutdown more acutely than anywhere else in the US. The White House said it estimates a one-week shutdown would cost the wider US economy $10bn.

Read the full piece here.

Dan also has the inside story of how the shutdown played out in the halls of Congress last night:

Unfortunately, much of Washington acted as if it had seen this movie before. The metaphorical tumbleweed blowing down the corridors of Capitol Hill reflected not a fear of being caught in the crossfire, but a cynical war-weariness that left many lawmakers on the sidelines until it was too late. After three years of similar standoffs over the federal budget that were resolved at the last minute, no one could quite believe that this one would finish with shots fired.

Read the full story here.

The Senate has killed the House GOP request for a budget conference, again along party lines, 54-46.

Senate majority leader Harry Reid is on the floor of the Senate decrying the House request as a cynical 11th-hour ploy meant to portray the GOP as being serious about making a budget deal when in fact the party has, Reid says, ignored six months’ worth of Senate requests for a conference. Here’s Reid:

Sen. Murray [Patty Murray, D-Washington, budget committee chairwoman] has asked to go to conference 18 times. [McCain] has asked eight times himself. This has gone on for six months.

But it’s a clock tick past midnight… Boehner demanded the very conference they shunned us with for six months.

This display I hope would be embarrassing for House Republicans and Senate Republicans… what a deal!

If the House passes the piece of legislation they have over there… to reopen government, we’re happy to go to conference – why wouldn’t we? We’ve been asking to do that for months and months.

Updated

Senator John McCain, Republican of Arizona, sees the shutdown as a boon to the president because it distracts from the administration’s woes elsewhere:

“Obamacare is going to have a lot of problems in its rollout… the president’s poll numbers are falling in every category,” McCain told MSNBC. “Yet the story to the American people is Republicans are fighting Republicans – that’s not helpful.”

The president plans to make a statement today at 12.25pm ET in the Rose Garden, the White House advises.

As the two parties try to reach a spending agreement, they also are trying to pin the blame for the shutdown on the other side. In a statement in the briefing room yesterday afternoon the president said Republican maneuvers resulting in a government shutdown would be the “height of irresponsibility.” Expect the president to expand on that theme this afternoon.

Last time the government shut down, the Republican Congress caught the blame and the Democratic president emerged the stronger. That fact is not lost on the Obama administration, which is using president Clinton’s playbook, Bloomberg reports:

Five administration officials, including Treasury Secretary Jack Lew and budget director Sylvia Burwell, were central figures during the shutdowns of 1995 and 1996. That two-stage battle pitted a House Republican majority against Democratic President Bill Clinton and resulted in a public relations defeat for the Republicans.

Now, Like Clinton, Obama is casting his Republican rivals as partisan warriors willing to put the country’s economic future at risk to score political points with their base.

While Clinton chided Republicans for putting “ideology ahead of common sense” in a 1995 address, Obama told reporters yesterday that “House Republicans continue to tie funding of the government to ideological demands.”

Read the full piece here.

Updated

Are you a federal employee forced to stay home because of the shutdown? Is one of your family members an essential employee who has to work without pay? We want to hear from you:

* Where do you work? What is your role?

* What have your supervisors told you to expect in coming weeks? Please be specific. How will furloughs or payment delays affect you and/or your family?

* Is there anything you’d say to members of Congress? to President Obama or House Speaker John Boehner? Do you see the shutdown as necessary? Is there a silver lining?

Please share your views in the comments or reach out to us directly at ruth [dot] spencer [at] theguardian [dot] com. We’ll be featuring your comments here. Thanks for writing!

Welcome to our live blog coverage of the partial government shutdown, which went into effect at midnight. America is waking up to shuttered parks, silent call centers for veterans’ services, empty Pentagon offices and skeleton crews in White House and congressional offices. It’s the first government shutdown in 17 years.

The president signed a bill late on Monday defending against one of the most painful effects of a shutdown: the bill ensured there would be no delay in delivering paychecks to active-duty military personnel. The core services of other big government programs, including Medicare and social security, were expected to operate as usual.

The House and Senate played ping-pong on Monday with stopgap spending resolutions that would have kept the government open if they were able to agree on one. The last House resolution retained delays in the rollout of the Affordable Care Act that the Senate leadership had made clear would be rejected. The resolution was rejected, and at about 11.40pm ET the office of management of the budget sent out a memo ordering agencies to “execute plans for an orderly shutdown due to the absence of appropriations.” Read Jim Newell’s play-by-play of last night’s action here, and Graeme Wearden’s early-morning updates here.

Just before the shutdown, House Republicans made a significant move on the overall budget issue, electing to join a conference with the Senate to cut an actual budget deal, a step the House leadership had been resisting. Senate majority leader Harry Reid said he would not bargain over the current spending measure at a budget conference.

Updated

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