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Athens government seeks two-month extension. University of Athens ‘suspends operations. Germany’s firms more confident as recovery continues. UK mortgage approvals hit highest since Dec 2009. Long slog expected over German coalition…

 


Powered by Guardian.co.ukThis article titled “Greece pleads for more time over public sector reforms – live” was written by Graeme Wearden, for theguardian.com on Tuesday 24th September 2013 17.06 UTC

Italian PM Enrico Letta is discussing the future of Telecom Italia, after Spain’s Telefonica announced plans to take a much larger stake in its parent company (up to 70%).

Fab Goria tweets the key points:

And here’s more details of the University of Athens’ decision to suspend operations, because (it says) public sector job cuts have made it impossible to continue: University of Athens, NTUA Suspend Operations

Updated

Greek government pleads for more time over public sector layoffs

Over in Greece our correspondent Helena Smith reports that the government has appealed for more time to press on with the troika’s most controversial of demands yet: public sector dismissals.

Inspectors from the EU, ECB and IMF have yet to respond, on a day in which Greek public workers protested again.

And in another worrying development, the University of Athens has suspended all its operations, saying it cannot keep functioning with so many staff laid off.

Helena writes:

Barely two days after negotiations with visiting troika representatives began, prime minister Antonis Samaras’ coalition government has upped the ante asking for yet more time to implement reforms.

At a meeting with mission heads from the EU, ECB and IMF, the administrative reform minister Kyriakos Mitsotakis appealed for a two-month extension to the deadline Athens presently has to transfer some 12,500 civil servants into a so–called mobility scheme where employees would see their salaries drastically reduced before being moved, if lucky, to another government department.

Insiders at the ministry described the atmosphere of the talks “as very positive” – in sharp contrast to the environment outside where thousands of demonstrators gathered to issue howls of protests.

To underline that point about a positive atmosphere the meeting was even cut short, apparently by a good 40 minutes. But a source close to the troika was not so confident.

He said:

They [auditors] made it clear that they would come back with an answer Friday.

Yes, Greece has made progress but there is a feeling that what we are seeing is yet more stalling of the inevitable with the government once again biding time.

After a mad dash scramble the ministry managed to complete the first phase of the scheme – identifying 12,500 civil servants who could be transferred to the programme by the end of the month. Most are from the education sector and have included teachers, administrative staff and school guards.

But the effects of the crude fiscal logic that has often guided those decisions has not been without consequence.

Earlier today the University of Athens repeated that with layoffs making its “educational, research and administrative operation … objectively impossible” it regretted to inform the public that it was “forced to suspend all of its operations.”

“There is a possibility that the next six months could be lost but the bigger issue is not to lose the university altogether,” its rector Theodosis Pelegrinis said. The academic insisted the dismissals had been handled “in an excessive manner” without foresight or any proper review.

Describing the job losses as “incomprehensible” the university’s senate said the cuts would lead with mathematical precision to “undermining higher education and the young generation of Greece, the only real hope for overcoming the social and economic crisis in the years to come.”

Syriza, the radical left main opposition party that has spurred on protests, announced that its leader Alexis Tsipras would hold talks with school teachers tomorrow.

A bad day for cruise firm Carnival, which has been keelhauled to the bottom of the FTSE 100.

Carnival shares fell by 5.6% today, after it warned that bookings are sharply lower this year.

As my colleague Nick Fletcher explains, Carnival spooked the markets by reporting a 30% fall in third quarter earnings after problems with a number of its ships. Most famously, Costa Concordia, which was finally refloated last week after crashing in early 2012.

Bookings for the rest of 2013 and the first half of 2014 are down on the previous year, the company admitted.

It admitted it could take three years for the Costa brand to recover its reputation, following the Concordia disaster in Italy and another setback involving Costa’s Triumph vessel which stranded passengers for five days. Mechanical problems have dogged some of its other vessels.

Video: Top banker under fire over Libor answers

The Libor scandal has taken another twist this afternoon. 

The Wall Street Journal is reporting that Alex Wilmot-Sitwell, a former top UBS executive, is under fire over the testimony he gave to Parliament in January, regarding attempts by traders to fix the rate at which banks would lend to each other.

Wilmot-Sitwell told MPs on the Treasury Committee that he didn’t recall Tom Hayes, one of the traders at the heart of the scandal. But the WSJ’s David Enrich has discovered that Wilmot-Sitwell was included on various emails which discussed Hayes — who was charged over the Libor affair in June.

Mark Garnier MP, a member of the Treasury Committee, says Wilmot-Sitwell has “questions to answer”.

Here’s the full email chain

And here’s the WSJ’s story: Ex-UBS Executive Under Fire Over Libor Testimony

Greece threatened with demotion, again

FTSE Group, the stock market index company, has again threatened to expel Greece from its list of Developed Markets, and rank it as an Advanced Emerging market.

In its Annual Country Classification Review, published this afternoon, FTSE said it was leaving Greece on its Watch List, for yet another year. Greece was first placed on Watch for a possible downgrade in 2006. 

  • Argentina: Possible demotion from Frontier
  • China ‘A’ Share: Possible inclusion as Secondary Emerging
  • Greece: Possible demotion from Developed to Advanced Emerging
  • Kazakhstan: Possible inclusion as Frontier
  • Kuwait: Possible inclusion as Secondary Emerging
  • Mongolia: Possible inclusion as Frontier
  • Morocco: Possible demotion from Secondary Emerging to Frontier
  • Poland: Possible promotion from Advanced Emerging to Developed
  • Qatar: Possible promotion from Frontier to Secondary Emerging
  • Taiwan: Possible promotion from Advanced Emerging to Developed

Morocco and Qatar are new entries, while Ukraine has been booted off the list. It had been lined up for “possible promotion to Frontier market status”, but FTSE is now worried about:

…continuing delays in market developments and no timelines as to when the market developments regarding regulatory oversight, capital controls, treatment of minority shareholders and settlement will be implemented.

Updated

If you’ve not seen it already, do check out this article on Comment Is Free today about Greece’s neo nazi Golden Dawn party, and the investigation into links between the party and the Greek police.

Here’s a flavour:

For a period, Greece’s experience of general strikes, occupations and social movement protests came close to insurrection. This is as near to what Gramsci called a crisis of authority as one can get. The political control of the state has been breaking down. It is this breakdown of authority – which reactionaries blame on immigration, foreign control and communist agitation – that fuels Golden Dawn’s support.

The situation is toxic. Austerity has not run its course, any more than the recession, or the social misery engendered by it. The only recourse of the left is to render Golden Dawn useless by incapacitating it, obstructing its activities and shutting it down as an effective street-fighting fascist organisation.

More here (where regular reader Kizbot had been putting the world to rights in the comments):

Golden Dawn’s rise signals breakdown of the Greek state’s authority

Updated

A weak start on Wall Street, with the Dow Jones index dropping 55 points in early trading to 15345, –.35%.

Once again (again) traders are fretting over the question of when the Federal Reserve will start tapering its QE programme.

There are some big risers, though — particularly in the tech sector. Facebook are up 4% to a new lifetime high after an upgrade from Citi and predictions of a new access deal in China, while Yahoo’s up 3% to a six-year high.

No rush for the Bank’s probing Paul Tucker

Bank of England deputy governor Paul Tucker has joined the chorus of policymakers and it would appear he is singing from the same hymn sheet on forward guidance, reports my colleague Katie Allen.

She’s swiftly digested Tucker’s lunchtime speech (see 1.57pm for the snaps), and explains that Tucker’s speech matches other pronouncements from BoE policymakers this week, all defending the Bank’s new approach.

Katie writes:

Fellow Monetary Policy Committee (MPC) member David Miles said earlier today that he believed the Bank’s promise to keep interest rates low until the recovery is well entrenched could help nurture the nascent upturn.

On Monday, their colleague Ben Broadbent defended tying policy to the unemployment rate.
Tucker’s view is that forward guidance can be particularly useful during a period when the recovery is beginning to take hold. And he wants people to know the MPC is in no rush to take away its economic crutches.

According to the text of his speech to the Association for Financial Markets in Europe (AFME), he said:

Saying more about the committee’s approach to policy in this way might be particularly valuable during a period when signs of recovery have become more apparent. These are conditions in which it would be very easy for the financial markets, businesses and households to jump to the mistaken conclusion that monetary stimulus will soon begin to be withdrawn. Given the slack in the economy, the Committee is not in a rush.

On the question of the Bank’s credibility when it comes to keeping inflation in check, Tucker draws a contrast with the pre-independence era. He argues that it was precisely that credibility of the independent BoE’s commitment to keeping inflation in check that “enabled us to provide such exceptional monetary support to help the recovery.”

Tucker adds:

It is unimaginable that, prior to Bank independence in 1997, any government would have been able to hold the policy rate at effectively zero and make a further monetary injection of £375bn without inflationary expectations – and government financing costs – spiralling out of control.

Still, he does concede that just having a 2% inflation target – that keen UK data watchers will know has been missed for 45 successive months now – is not a license to endless money printing.

Tucker again:

Credibility is not to be taken for granted. Even we cannot provide stimulus without limit, without a wary eye to inflation expectations.

And there is a further note of caution on that long-standing puzzle for the Bank, productivity:

Tucker says:

Let’s be clear: we do not understand why productivity has been so weak. And that means that we are highly uncertain about the amount of slack in the economy currently and prospectively; uncertain about the extent of the consequent downward pressure on domestically-generated inflation; and, thus, uncertain about the path of output and employment consistent with non-inflationary growth.

And where does all that leave policymaking?

Tucker sums it up: “Provide stimulus; pause to see whether inflation expectations remain anchored; if, but only if, they are and more stimulus is needed, provide it etc. A ‘probing’ approach.”

Another resignation in Germany… this time at the Pirate Party, where leader Bernd Schlömer has reportedly told party members that he won’t run again.

Not a surprise, given the Pirates captured just 2.2% of votes.

Updated

Paul Tucker, the Bank of England’s outgoing deputy governor with responsibility for financial stability, is giving a speech on monetary policy in London.

We’ll have full details shortly. In the meantime, here’s the newswire snaps:

24-Sep-2013 13:45 – BANK OF ENGLAND’S TUCKER SAYS BOE DOES NOT UNDERSTAND WHY UK PRODUCTIVITY SO WEAK, TAKING “PROBING” APPROACH TO POLICY

24-Sep-201313:45 – BOE’S TUCKER – MPC APPROACH HAS BEEN TO PROVIDE STIMULUS; PAUSE TO SEE IF INFLATION EXPECTATIONS STAY ANCHORED; IF, THEY ARE AND MORE STIMULUS IS NEEDED, THEY PROVIDE IT

24-Sep-2013 13:45 – BOE’S TUCKER – IF RECOVERY DOES GAIN TRACTION, MPC WILL NEED TO AVOID MISPERCEPTIONS ABOUT LIKELY COURSE OF POLICY

24-Sep-2013 13:45 – BOE’S TUCKER – BY ADOPTING A PROBING APPROACH MPC CAN PROVIDE BROADLY THE RIGHT DEGREE OF STIMULUS WITHOUT DILUTING COMMITMENT TO PRICE STABILITY

24-Sep-2013 13:45 – BOE’S TUCKER – FORWARD GUIDANCE DOES NOT COMMIT MPC TO KEEPING POLICY LOOSE BEYOND THE POINT THAT WOULD BE PRUDENT

24-Sep-2013 13:45 – BOE’S TUCKER – AS DATA COMES IN, BOE UNEMPLOYMENT FORECASTS MORE LIKELY TO CHANGE THAN FORWARD GUIDANCE 

Speaking of Germany, finance minister Wolfgang Schäuble has warned that Angela Merkel’s next government (once formed) will not change its approach to Europe’s economic problems.

Schäuble told the “Leipziger Volkszeitung” newspaper that Merkel will continue to push for rigorous budgetary discipline across the eurozone.

Appeals for countries to be allowed to relax their deficit targets and borrow more to stimulate growth will not be granted, insisted Schäuble, adding:

I’m also in favor of more growth and more jobs

But I believe that only through budget consolidation and accompanying structural reforms can you get there.

At this stage, though, it’s not clear whether Schäuble will remain as finance minister in the next administration. It all depends on the coalition talks….

More here.

The fallout from Germany’s election continues. Jürgen Trittin, co-leader of the Green Party, has announced that he won’t run for the leadership again.

Trittin added that he and co-leader Katrin Göring-Eckardt would continue to hold “exploratory talks” with Angela Merkel’s Christian Democrats.

From Athens, our correspondent Helena Smith reports that today’s protests were “quite raucous”.

Photos from the scene show the usual array of anti-Troika slogans, calling for an end to Greece’s austerity programme.

As expected, today’s 48-hour strike has hit many public services. Associated Press flags up, though, that some local services kept running. Here’s AP’s early take:

Greek civil servants walked off the job Tuesday at the start of a 48-hour public sector strike, the second in as many weeks, to protest job cuts required for the country to continue receiving international rescue loans.

State school, tax office and hospital workers joined the strike, while ambulances services were to run with a reduced staff. Journalists joined in with a three-hour work stoppage, pulling any non-strike related news of the air.

But participation appeared low, with many services remaining open in central Athens, including post offices and some schools and tax offices.

Thousands of people marched peacefully, chanting anti-austerity slogans through the center of the capital and in the country’s second-largest city of Thessaloniki in the north.

Updated

Back in the markets, the Italian stock markets is the best performer this morning.

That’s after Spain’s Telefonica announced plans to take a bigger stake in Telecom Italia’s parent company.

Here’s the lunchtime prices:

David Madden, market analyst at IG, says traders are still pondering when the Federal Reserve might start to taper its bond-purchase scheme, and fretting about Germany.

He also flags up the comments from ECB senior policymakers today, and yesterday, about the possibility of another round of cheap loans for euro-area banks (see 11.07am for details)

The Federal Reserve is trying to keep investors in the dark as to what its next move will be. The decision to keep the bond-buying programme unchanged at $85 billion per month pushed equities higher, but speculation is mounting about what the next meeting will bring. As always, the Fed members are divided: James Bullard is hinting at tapering, while William Dudley isn’t convinced the US economy is strong enough yet.
Just as the Fed is looking to ease up on its stimulus package, the ECB stated it is on standby to pump cash into the banking system if required. Traders are becoming too dependent on stimulus packages, but they can provide a boost to equities in the short term.
Mineral extractors have lost the most ground today, due to softer commodity prices. Meanwhile, European equity traders are sitting on their hands while Angela Merkel puts together a new coalition government.

Back in Greece, one demonstrator is carrying a flag with a German slogan on it — clearly looking for an overseas audience (see below – it’s the blue banner in the background) .

It reads “Nein zu Spardiktaten und Nationalismus” or “no to austerity diktats and nationalism”

Here’s the full details of the OECD’s warning about the eurozone, from Reuters:

 The European common currency area remains “a considerable source of risk” even though the systemic risk from its debt crisis is scaling back, the Organisation for Economic Cooperation and Development’s chief economist said on Tuesday.

The OECD’s Pier Carlo Padoan told a conference in Lisbon positive economic growth in the euro zone should return only in 2014, expecting growth to be still negative this year despite a recovery in many countries, including Portugal.

He said that while pursuing structural fiscal consolidation in 2014, euro zone countries should allow automatic stabilisers to work and focus on fighting high unemployment rates.

OECD chief: global economy is slowly recovering

Some quotes from the OECD’s chief economist, Pier Carlo Padoan, just flashed up on the Reuters screen.

He’s warning that the eurozone economy is still poses significant risks to the global economy, but also sees signs of recovery:.

11:15 – OECD CHIEF ECONOMIST SAYS GLOBAL ECONOMY SLOWLY EXITING RECESSION, BUT FAR FROM SUSTAINABLE GROWTH

11:16 – OECD CHIEF ECONOMIST SAYS EURO AREA “STILL REMAINS CONSIDERABLE SOURCE OF RISK” 24-Sep-2013

11:20 – OECD CHIEF ECONOMIST SEES EURO AREA ENTERING POSITIVE GROWTH IN 2014, 2013 STILL SEEN NEGATIVE 

11:22 – OECD CHIEF ECONOMIST SAYS GROWTH IS COMING BACK FOR MANY COUNTRIES INCLUDING PORTUGAL 

Greek photojournalist Nikolas Georgiou is tweeting some photos from today’s protests. Here’s a couple:

The European Central Bank could help the eurozone banking sector with a third injection of ultra-cheap loans, ECB governing council member Ewald Nowotny said this morning.

Speaking in Venice, Nowotny (who’s also the head of Austria’s central bank) said it was too early to consider stopping the ECB’s ‘non-standard’ stimulus measures.

Asked about the prospects of another Long Term Refinancing Operation (in which the ECB would offer huge quantities of low-priced loans to banks), Nowotny replied:

It is certainly important to show all that we have in the way of instruments, which are flexible.

The ECB offered almost a trillion euros to eurozone banks in two LTROs, at the end of 2011 and in early 2012. Yesterday, ECB president Mario Draghi told MEPs that a third LTRO was a possibility, if conditions required it.

Updated

Greek public sector workers have marched towards the country’s parliament in Athens, at the start the 48-hour strike that began this morning. Syntagma metro station has been temporarily closed.

The public sector ADEDY union has declared, as it’s said so many times before, that the protest is an attempt to push the government to change course.

We call on the workers … the self-employed, the unemployed, the pensioners, the youth and everyone affected by these policies to give their resounding presence.

But the Greek government is more worried about the Troika’s visit this week. There are murmurs from Athens that the debt inspectors are pushing for progress on privatisations, where Greece is already facing a €1bn shortfall this year.

Kathimerini explains:

During a meeting at TAIPED’s headquarters, the mission chiefs of the European Central Bank, the European Commission and the International Monetary Fund called for more action so that this year’s revenue shortfall, amounting to 1 billion euros, can be covered in 2014.

At the troika’s focus were the privatizations of ports, water and sewage companies, and Hellenic Post. According to plans drawn up in January, these sell-off projects should have started in the second quarter of the year, while the aim now is for them to get started in the last quarter, given that the third will be over in a week’s time.

Another reason for optimism about this morning’s IFO surveyit’s the best reading of German business confidence since April 2012.

Here’s AP’s take:

A closely watched index of German business optimism rose for the fifth month in a row in September, reflecting the improved prospects for Europe’s largest economy.

The IFO institute’s index edged up to 107.7 points from 107.6 in August. Market analysts had expected it to rise slightly more, to 108.0

The index is based on a survey of 7,000 companies about how they think the situation is now, and how they see things going in the coming months. It’s a leading indicator, meaning it suggests where the economy is going in the months ahead.

Germany’s economy expanded 0.7% in the second quarter, helping the 17-country euro currency union return to growth after six quarters of shrinking output.

Reminder — there’s analyst reaction here.

Updated

UK mortgage approvals at highest since December 2009

Just in: UK mortgage approvals have hit their highest level since December 2009, in another sign of a revival (some would say a boom) in Britain’s housing market.

A total of 38,228 loans were approved in August, up from 37,428 in July. That’s nearly a 26% jump on a year ago, according to the British Bankers Association.

Last week, chancellor George Osborne insisted that Britain isn’t gripped by a housing boom. But clearly the market has been revived by signs of economic recovery, and by Osborne’s Help To Buy scheme.

Prices are particularly rampant in the UK capital. As the FT’s Alphaville site points out, the average house price increase over the last 12 months (£38,729) is bigger than the average net income of a London household (£38,688).

Houses beating households, London edition

Those income figures include people who can’t afford to get on the housing ladder, of course:

Updated

IFO: What the experts say

Here’s that reaction to the news that Germany’s IFO business conditions index rose this month, if only marginally (see last post).

Analysts broadly agree that Germany is on the road to recovery, particularly as firms are more optimistic about future prospects.

However, there’s also a little bit of concern that the current conditions index fell (from 112 to 111.4), showing that firms are finding life a little harder.

I’ve taken the quotes off the Reuters terminal:

Thomas Gitzel, VP Bank:

“The somewhat worse conditions index reading is offset by the improved expectations index. Everything is pointing to a faster pace of growth for Germany in the coming months. But what is especially pleasing is that the improved indicators in Germany are based on a more positive international climate. These include improved prospects for the stricken euro zone countries, the recovery in the U.S. economy and the brightening situation in China.”"This leads us to conclude that the current upward movement can be seen sustainable.”

Ralf Umlauf, Helaba:

This is good news. The German economy is gaining speed and growth in the third quarter should again be robust. It’s a little disappointing that the rise in the business climate is only due to higher expectations. The European Cental Bank is likely to feel confirmed in its wait-and-see stance. On the political side, it’s now important to form a government able to act in order to prevent potential strain on the mood from a cliffhanger.

Christine Volk, KfW

German growth is on course for recovery, with business expectations brightening. Europe, as Germany’s most important export market, is beginning to stabilise after a very long lean period and Germany is benefiting from that. Growth in 2014 could even reach 2 percent.

We are less optimistic about Europe. There is a lack of growth stimulus and the debt sustainability of some countries is still in doubt. Here there is potential for disappointment.

Ben May, Capital Economics

The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish. The rise in the headline business climate indicator was a touch smaller than the consensus forecast, but it left the index at its highest level since April 2012.

Updated

German business climate improves, but misses forecasts

German firms have reported that the business climate improved slightly in September, but they’re not as upbeat about the situation today as economists had expected.

That’s the top line from the monthly IFO survey, which was released a few minutes ago.

The IFO German Business Climate index came in at 107.7 in September – up from 107.6 in August, but lower than the 108.2 which the City had expected.

The Current Conditions index missed expectations, at 111.4 versus a consensus of 112.5. That’s also a fall compared with August’s reading of 112.0.

And IFO’s Future Expectations index came in at 104.2, just above the 104.0 that was pencilled in.

So, a mixed picture in Europe’s largest economy.

A year ago, the IFO business climate index was just 101.4 — so today’s 107.7 does show how the situation’s improved now Germany has left recession. But the fact firms aren’t as confident about current conditions as expected may show that growth this quarter will be a little weaker than hoped (although still quite robust)

Reaction to follow….

Updated

The most interesting corporate story this morning involves Spain’s Telefonica and Telecom Italia, whose shares jumped 4% in early trading.

Last night, Telefonica announced that it would raise its stake in Telecom Italia’s parent company, Telco, to 66%, and then eventually to 70%. It’s a complicated deal (see here) , but the upshot is that Telefonica will have a rather tighter grip on its Italian rival.

And as mrwicket flags up in the comments, the Italian press see it as a Spanish takeover:

Morning all.

The Italian papers are leading with ‘Telecom Italia becomes Spanish’. The deal was announced at midnight but seems a little more complicated than it appears.

At another midnight meeting, in a hotel in Palermo that used to be owned by the Graviano brothers, the Democratic Party decided to withdraw its support of its Governor of Sicily, Rosario Crocetta. Eleven months after the historic victory which ended the centre-right/mafia domination of the island, they pulled the plug.
Crocetta is openly (and genuinely) anti-mafia and a grass has said a boss has ordered his killing.

European stock markets have inched higher this morning, as traders await developments in Germany, or more clarity over when the Federal Reserve will start to slow its money-printing stimulus.

  • FTSE 100: up 12 points at 6569, +0.2%
  • German DAX: up 27 points at 8663, +0.3%
  • French CAC: up 18 points at 4190, +0.4%
  • Spanish IBEX: up 13 points at 9122, +0.14%
  • Italian FTSE MIB: up 48 points at 17962, +0.25%

Today’s public sector walkout in Greece is the second 48-hour strike in as many weeks.

It’s expected to hit schools and hospitals, and is timed to coincide with the Troika’s visit to Athens. As before, the unions are protesting about the government’s ‘mobility scheme’, part of the drive to cut thousands of public sector jobs.

The private sector GSEE union has called a four hour stoppage, from 11am local time (9am BST) – so it’ll be joining a protest rally in Athens.

While workers march through the streets, officials from the IMF, ECB and EU will be taking a close look at Greece’s budget for 2014. Greece’s Kathimerini newspaper reckons the Troika don’t share the Athens government’s optimism:

High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5 percent of GDP at the end of next year.

It is thought that one of the reasons Greece’s lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased.

With regard to the 2014 budget, the troika still has doubts about the effectiveness, in terms of revenue raising, of the unified property tax. Next year will be the first time the levy, which combines several property taxes into one, is applied.

Jürgen Baetz, AP’s man in Brussels, agrees that an alliance between Angela Merkel and the Greens looks increasingly unlikely.

Merkel’s coalition struggle

Looking at the German newspapers, Der Speigel has an interesting article about how Angela Merkel will find it difficult to reach a deal with the Green party, the only plausible alternative to a Grand Coalition with the Social Democrats.

It explains that some of Merkel’s advisors would prefer a Black-Green alliance, rather than a Black-Red deal with the SPD. But Horst Seehofer, party chief, is strongly opposed to a deal [Here's Spiegel's piece (in German)].

Seehofer told reporters last night that:

I have not heard anyone today calling on me to talk to the Greens.

Which leaves the SPD. But they remain nervous of another alliance with Merkel, having been burned by their first partnership eight years ago. That led to them posting their worst election results since the second world war in 2009.

Having seen history repeat itself last weekend when the Free Democrats were given the order of the boot from the Bundestag, the SPD may not want to risk it again.

As Bloomberg puts it:

The SPD, the second-place finishers in the Sept. 22 vote, may be reluctant to try again, picking up what its chairman suggested yesterday was a poisoned chalice.

The SPD won’t stand in line or make an application after Merkel ruined her current coalition partner,” Sigmar Gabriel told reporters yesterday in Berlin.

Updated

Caution over German coalition talks

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

Uncertainty abounds today, as Europe hunkers down to await progress on Germany’s coalition talks and Greece continues to told talks with its lenders in an atmosphere of tension and strife.

Ongoing confusion over the US Federal Reserve’s plans to slow its bond-buying stimulus programme (maybe next month? Maybe not until 2014?) are also casting a shadow over Europe, just when we’d hoped for some real clarity and progress.

As Michael Hewson of CMC Markets puts it:

If investors had been hoping that the latest Fed meeting and the result of the German elections would help bring much needed clarity to the uncertainty that has bedevilled markets for weeks now, the events of the last few days have soon dispelled that notion with the result that the current state of affairs is becoming quickly like the proverbial itch that you just can’t scratch.

This has inevitably meant that investors have become much less inclined to take on risk and has seen them start to once again err on the side of caution, pulling stocks down from recent all-time highs.

As we covered yesterday, the German coalition talks are going to be a long grind. Angela Merkel reached out to the Social Democrats yesterday, but their leadership group aren’t expected to meet until Friday.

This process could take several weeks, as the SPD is sure to drive as hard a bargain as it can in return for supporting Merkel’s CDU party

We’ll be watching for any developments in Germany through the day.

We’ll get another insight into the state of the German economy this morning, with the release of the monthly IFO survey. Due at 9am BST, it will show how confident businesses are about current conditions, and future prospects.

While in Greece, public sector unions have called another anti-austerity strike for today — with the usual protests in the streets of Athens.

There’s also a platoon of central bank officials holding speeches today — including no fewer than five members of the European Central Bank’s governing council. That’s Ewald Nowotny, Yves Mersch, Jorg Asmussen, Vitor Constancio and Benoit Coeure.

Two members of the Fed’s governing council are also due to speak later today – Sandra Pianalto and Ester George.

Updated

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USA 

Mrs. Merkel wins 41.5% of the vote but fell short of an overall majority. A coalition with the SPD seems the most probable outcome. European markets in the red. Merkel press conference in Berlin- highlights. How Merkel stormed to victory…

 


Powered by Guardian.co.ukThis article titled “Markets fall as Merkel faces ‘difficult’ coalition talks – live” was written by Graeme Wearden, for theguardian.com on Monday 23rd September 2013 15.21 UTC

Here’s CMC Markets’ Michael Hewson with an update from the City (pretty much reinforcing what I posted at 4pm)

While we now know that Angela Merkel won the German elections over the weekend, such are the idiosyncrasies of the German electoral system that it could well be another two months before we have any idea as to what form the new government will take.

Mrs Merkel may have won 41.5% of the vote but she fell short of an overall majority and it seems likely that a coalition with the SPD seems the most probable outcome.

This could well be complicated as they are more sympathetic to the idea of a banking union, something that Mrs Merkel has been reluctant to countenance, and any disagreements are likely to complicate the decision making process at a time when key decisions are needed with respect to Greece, and the ESM in the coming months.

We’ve also seen some residual softness in European markets as a result of comments last week from St. Louis Fed President James Bullard about the possibility of an October taper as well as concerns over political deadlock surrounding the raising of the debt ceiling and this has translated into further weakness despite some encouraging PMI data from China, while French and German PMI’s were somewhat mixed.

Apologies – our comments system seems to be broken. Hopefully a temporary problem — it’s being looked into.

Markets fall

The prospect of lengthy coalition negotiations in Germany has helped to push European stock markets down, with the major indices all in the red.

The German DAX has fallen almost 0.5%, while the Spanish market is off around 0.8%

Here’s the details:

Not major falls, of course. But at the same time, there is no relief rally at all. Markets don’t like uncertainty, and paradoxically Merkel’s success – and the failure of the Free Democrats to get into the Bundestag — has created doubts over Germany’s next government.

Shares are also down because of confusion over US monetary policy, after the Federal Reserve chose not to start slowing its huge asset-purchasing scheme last week. Last Friday, St Louis Federal Reserve President James Bullard suggested ‘tapering’ could begin as soon as October if economic data was strong enough.

Other analysts reckon it might not happen until 2014….

Updated

JP Morgan: Coalition talks will take some time

Angela Merkel faces a “difficult few weeks” as she attempts to pull together a new administration, warns JP Morgan.

They reckon there’s a 70% chance of a Grand Coalition between the Christian Democrats and the Social Democrats, and a 25% chance of a deal between the CDU and the Greens. They’re not totally discounting the idea that CDU might govern alone, although without a Bundestag majority that would be a bold move.

JP Morgan said:

The process will take some time…

The reality is that the SPD’s willingness to engage or not with the CDU will be crucial. By early next week we should have more of a sense of the approach they are likely to take. For now, Gabriel and Steinbruck are playing down the chances of a deal in the near-term.

They also suggest that Wolfgang Schauble is likely to remain as finance minister:

It is too early to tell precisely what the trade-offs will be in the formation of a new coalition. However, the Chancellor will be in a much stronger position to demand that she keep the finance ministry than we would have expected a week ago. Continuity looks significantly more likely than it once did.

This might not please readers in countries hit hard by the eurozone debt crisis, where Schauble is blamed for Europe’s austerity push.

Here’s the full research note

Updated

Draghi also surprised the markets by telling MEPs that the ECB is ready to offer the banking sector more help by launching a third round of ultra-cheap loans (or long term refinancing operation) if necessary.

That has knocked the euro down to $1.3485, a fall of around one third of a US cent.

Updated

Draghi: too early to discuss another Greek bailout

Back at the European parliament, Mairo Draghi has been asked about whether Greece needs a third bailout.

He replied that it’s “premature to ask this”, as the European side of the readjustment for Greece runs until the end of 2014.

In our view it’s too early to discuss a follow-up programme now, or an extension of the current one.

Any decision on further aid would also depend on whether Greece can return to the financial markets by the end of next year, he added.

Earlier, Draghi appeared to defend the ECB’s role in the Troika — telling MEPs that while it provided help and advice, the Eurogroup (eurozone finance ministers) takes the decisions. In the long term, Draghi added, the ECB doesn’t see itself as part of the troika.

This prompted committee chair Sharon Bowles to joke: “The Eurogroup may or may not accept advice.”

MEP Sylvie Goulard wasn’t impressed, comparing the Eurogroup to a group of children who’ve generated a mess – it can be hard to know which one is really to blame .

Updated

Reuters has filed a full story about how Angela Merkel won cheers from the press pack in Berlin, by joking about how she decided what to wear today (as mentioned at 12.55pm)

Relishing a thumping election victory for her conservatives in Germany’s Sunday election, a smiling Angela Merkel said on Monday that conjecture about looming coalition talks presented her with a dilemma on what to wear.

With speculation swirling about her coalition options – which Germans tend to describe in terms of party colours – a relaxed-looking Merkel told reporters how she had tried to choose a neutral colour for the news conference.

“This morning I stood in front of my wardrobe and I thought red is no good, bright green is no good, blue was yesterday, what are you going to do?” said Merkel, who wore a dark jacket with a blue-green hue.”I decided for something very neutral,” she chuckled, raising a cheer and applause from reporters.

The Social Democrats (SPD), with whom she seems most likely to share power, have red as their colour while green represents the Greens who may offer Merkel another coalition option. Her own conservatives’ colour is black.

Updated

Back to the German elections…and the Open Europe thinktank has published a handy guide to the Key Players To Watch in the coalition discussions.

As I’ve suggested already today, the process could be slow …

Little progress is expected before the end of the week, with the SPD holding a small party conference on Friday where it will determine its strategy for the negotiations.

Open Europe suggests the Social Democratic Party chairman Sigmar Gabriel could become vice-chancellor if a grand coalition between the CDU and SPD is agreed, or he might get the defence or labour brief.

The SPD’s leader in the Bundestag, Frank-Walter Steinmeier, is likely to become foreign minister.

But what if the Greens form a coalition with CDU? It’s already in flux, with several senior players offering their resignations today after the party’s vote share fell to 8.4%, from 10.7%.

Open Europe explains:

The party’s chief whip, Volcker Beck, has already announced his resignation while the double party chairmanship, Claudia Roth and Cem Özdemir, offered their resignation this morning.

Both lead candidates, Katrin Göring-Eckar and Jürgen Trittin, seem to be dedicated to stay even though internal party pressure is increasing on the latter. Finally, the leader of the Green parliamentary group, Renate Künast, would need to be considered among the key players in a potential coalition with the CDU/CSU. What ministerial posts they could or would push for is unclear, but one would assume environmental and energy related posts would be top of the list

More here: As focus shifts to German coalition negotiations, who are the key players to watch? 

Updated

Heads-up: Mario Draghi is testifying at the European parliament’s committee on economic and monetary affairs (livestream here)

He’s starting by reading out a statement, largely reiterating what the ECB said at its monthly meeting at the start of this month.

inflation is still subdued, credit conditions are still poor, the eurozone economy remains weak (although now recovering) …

Updated

America’s manufacturing sector is expanding at a slower pace this month, according to data released a few minutes ago.

Markit’s “flash” manufacturing PMI came in at a three-month low of 52.8 – mirroring the slower growth reported in Germany and France this morning.

Updated

Protests over closure of Greek police service

There have been extraordinary scenes in Greece this morning, where police officers held a symbolic funeral for the municipal police service that’s being closed as part of the government’s austerity cuts.

Our Athens correspondent, Helena Smith, reports that municipal policemen and other public sector workers took to the streets to protest job dismissals today.

She writes:

At the start of a second week of intense industrial action in the public sector, Greek municipal police took drama to another level this morning, holding a mock funeral in the centre of Athens to protest internationally mandated cuts that have marked the death of the sector.

Hundreds of black clad protestors marched solemnly behind a hearse carrying a coffin before opening the casket outside the administrative reform ministry and dumping uniforms once worn by municipal police into it.

The images, captured on TV, appeared to take even hardened program presenters by surprise.

Under pressure from its troika of creditors at the EU, ECB and IMF, the government announced the disbandment of the force two months ago saying staff would be redeployed into a mobility scheme on reduced pay.

Protestors denounced the scheme as a euphemism for jobs cuts in a nation which, with about 1.4 million out of work, has already been hit by explosive levels of unemployment.

“A lot of us have no one working in our families. This is insane,” said one protestor standing outside the reform ministry, the government department in charge of implementing public sector cuts.

Meanwhile teachers, who have also thrown their weight behind a second week of strikes, demonstrated outside the education ministry where they have draped banners denouncing the dismissals and promising to “overturn” the deeply unpopular policies.

These protests could escalate tomorrow when ADEDY, the civil servants union, begins another 48-hour work stoppage.

All this comes as the Troika continue to conduct their audit of the Greek finances (see 8.57am)

Updated

Interesting … Social Democrats’ chairman, Sigmar Gabriel, has declared that there’s “nothing automatic” about forming a coalition with the Christian Democrats.

The comments come after Angela Merkel told reporters that she’d contacted Gabriel to begin coalition talks with the SPD (see 12.44pm for the details).

Here’s the Reuters newflash:

23-Sep-2013 13:07 – GERMAN SOCIAL DEMOCRATS’ CHAIRMAN SAYS NOTHING AUTOMATIC ABOUT COALITION WITH CONSERVATIVES, UP TO MERKEL TO FORM A MAJORITY 

The SPD’s losing candidate for the chancellorship, Peer Steinbrück, has also insisted that the ball is in Merkel’s court. He added that the issue of eurozone banking union (where Merkel’s government has taken a slow approach), must be part of any coalition talks.

Updated

Merkel also expressed “sincere respect” to the Irish people for what’s been achieved since the financial crisis struck. Prime minister Enda Kenny has shown a passionate commitment to reforms, she added.

When not slapping down impudent questions about her fashion sense, Angela Merkel also reiterated that her commitment to tough reforms in other parts of Europe has not weakened.

Asked about the Irish bailout, chancellor Merkel said Ireland was an example of a country where conditions are improving (it exited recession last week).

Its progress, though, was based on people recognising the mistakes of the past:

Chancellor Merkel caused much amusement among the press pack in Berlin when she was asked if there was any symbolism in her outfit at today’s press conference.

Does the choice of a blue-greenish teal jacket suggest an imminent coalition alliance with the Greens?

Not at all, insists Merkel (already famous for her wide range of coloured jackets). She jokes that she stood at the wardrobe this morning, thinking:

Red doesn’t go, green doesn’t go, blue was yesterday.

So she chose a “neutral” colour instead.

Updated

Angela Merkel appears to be on top form at her post-victory press conference – neatly avoiding a question from one hack about whether Europe needs a Marshall plan to stimulate a recovery.

Updated

Ok, here’s the key quotes from Angela Merkel about her coalition plans (via Reuters’ Berlin office)

We conservatives have a clear mandate to form a government and Germany needs a stable government, so we will carry out this mandate

We are, of course, open for talks and I have already had initial contact with the SPD chairman* who said the SPD must first hold a meeting of its leaders on Friday.

* That’s Sigmar Gabriel (rather than Peer Steinbruck, who was the SPD challenger for the chancellorship). 

Updated

Merkel says she wants to study the reasons for the rise in support for the eurosceptic Alternative for Germany party, but won’t change CDU policy on Europe in response.

Updated

Merkel: Europe must become more competitive

The election result is a strong vote for a united Europe, says Angela Merkel as her post-victory press conference continues.

The chancellor also underlines that there will be no let-up in Europe’s economic strategy. We are not at the end of the reform process in Europe, she declares. Europe must become more competitive.

Merkel also indicates that her CDU-CSU party will not govern alone, saying wants a “stable” government to run Germany for the next four years.

Merkel press conference highlights

Angela Merkel had told reporters that she has opened coalition talks, by making her first contact with the chairman of the Social Democrats (who came second to the CDU with 192 seats).

This does not exclude talks with other parties, she adds (such as the Greens, who came third with 63 seats, I imagine).

On Europe, she says that Germany’s current policy is “integration friendly”, and she sees no need to change it.

More to follow …

Updated

ECB president Mario Draghi has flown to Brussels today for an appearance at the European parliament.

Chiara De Felice, ANSA’s EU correspondent, reports that Draghi’s first priority was to catch up with the latest Italian sports news. Suggests he’s not worried about the German election.

Heads-up: Angela Merkel is giving a press conference now. Let’s see what she says about coalition plans…..

Updated

Spain’s tourism industry has notched up its busiest August ever, offering hope to one of the eurozone’s most hard-pressed members.

A record 8.3 million holidaymakers from abroad visited Spain last month, a 7.1% increase on the same month last year. It appears that this was partly owing to people avoiding unrest in Egypt and Turkey.

Total visitor numbers are up 4.5% this year, suggesting Spain’s on track to beat 2012′s record number of visitors.

The number of French visitors jumped by 9% to 1.8 million. while Russian tourist numbers jumped by 30% to 1.1 million (according to Reuters).

As the image above shows, Angela Merkel’s election dominated the Spanish papers today.

Updated

Video: Inside the campaign headquarters

This video clip, from the Wall Street Journal, shows the scene at Germany’s various party headquarters last night as the election results came in.

There’s a wide spectrum of emotion – from jubilation at CDU HQ to open-mouthed shock at the Free Democrats bash.

Updated

Peter Schaffrik, an analyst at RBC Capital Markets, explains that the stock markets are subdued today because it could take weeks to agree a new German coalition.

He warned:

The formation of a government is not straightforward at all.

If finding a new government takes too long, markets might get jumpy as regards the stability of the German government, particularly with key European issues coming up for a negotiation.

The Bundesbank has predicted this morning that the German economy is on track for further growth in the months ahead, although the pace of expansion may have faltered this quarter.

Germany’s central bank said growth in the third quarter of 2013 would not match the previous three months, but still sounded fairly upbeat in its new monthly report. Here’s a flavour:

A noticeable improvement in expectations for production and exports as well as a slow increase in incoming orders point to growth in coming months

The extraordinarily good consumer sentiment continues, supported by slowing inflation and an overall good situation on the labour market.

Updated

Merkel’s win: what the analysts say

Here’s some more analyst reaction to the German election results (see 9.49am for Saxo’s early take).

Jonathan Pryor of Investec Corporate Treasury:

 The significance for the euro of Merkel being re-elected is that currency markets are generally quite precious when it comes to political change so a third term for Merkel is likely to be euro positive.

The fact that her party will also be forced to enter into a coalition should be received well by markets considering that it’s likely, left to their own devices, the Conservative party would yield a firm austerity first view to the peripheral member states.

 Steven Englander of Citigroup:

This is a vote in favour of Merkel rather than a vote in favour of big changes

It’s most likely Merkel will govern in a grand coalition with the Social Democrats, so that’s a slight euro positive because the government would be somewhat more friendly to the peripheral nations in the currency bloc.

Barclays:

Chancellor Merkel’s CDU/CSU won about 42% of the vote in the federal elections, according to the latest estimates, but a poor showing by the FDP means a CDU/CSU/SPD “grand” coalition of the largest parties looks the most likely outcome, providing limited near-term implications for markets …

We do not expect much change from Merkel’s current stance and continued support for weaker euro area member states. The relatively strong showing of the euro-critical AfD, however, is likely to limit the room for any new financial concessions from the next German government.

Kit Juckes of Société Générale:

Angela Merkel won a resounding endorsement of her policies from the German voters, with the highest share of votes for the CDU since 1990, but she didn’t win enough to avoid a painful period of coalition-building and uncertainty.

The outcome leaves markets somewhat in limbo.

Monex Capital Markets:

Critically, the future shape of Germany’s government will dictate how the eurozone works through its problems. Anything that is seen to deviate too far from the harsh austerity measures of recent years could inject a degree of fear, not just in Europe but in markets worldwide.

And here’s some more media reaction:

Updated

Forgot to mention earlier, but China’s manufacturing activity has hit its highest level since March, bolstering hopes that its economy is performing well this month.

China’s manufacturing activity hits six-month high.

Updated

Although Alternative For Germany (AfD) didn’t quite hit the major 5% mark to win Bundestag seats, the eurosceptic party still made a pretty decent impact in the election.

In the Financial Times, Peter Spiegel reckons AfD could still influence Angela Merkel’s thinking over Europe:

The future of AfD

Although it failed to reach the 5 per cent threshold to get into the Bundestag – it ended up with 4.696 per cent of the vote – the anti-euro Alternative for Germany party (known by its German initials AfD) surprised many in Brussels by getting as close as it did.

It was once conventional wisdom that no anti-Europe party could attract significant support in Germany, but if AfD is able to use this result as a base to grow, it could force Ms Merkel to keep an eye over her shoulder as she gets into bed with the SPD. Exit polls show that AfD drew most heavily from disaffected FDP voters, assuaging some of the fears within the CDU that they would pull voters away from them.

But if the AfD emerges as the alternative conservative force in Germany amid the rubble of the FDP, that could shape the way Ms Merkel approaches Brussels.

More here: What does the German result mean for the EU?

Interestingly, AfD appears to have won support from across the political spectrum. This chart, via Alberto Nardelli, shows how it won 330,000 from the Free Democrats (helping to drive them out of the Bundestag) and 230,000 from the Green party:

Market update

The news that eurozone private sector output hit a 27-month high this month has pushed stock markets a little higher this morning (see above), led by the French CAC.

The euro is flat at $1.314 to the US dollar.

There’s still no real relief that Angela Merkel secured such a strong result, particularly as we don’t know whether she’ll hammer out a credible coalition.

John Hardy, head of FX Strategy at Saxo Bank, suggests that a Grand Coalition with the SPD might lead to further tensions over eurozone strategy, and prevent rapid progress on issues like banking union and closer political ties.

Hardy writes:

Germany’s election was good for Angela Merkel, but leaves Europe and the euro in extreme state of uncertainty. Merkel’s landslide victory comes with a twist as much of her party’s strength was due to voters abandoning ship from the coalition partner FDP. Thus, the election result leaves Merkel in need of forming an awkward coalition with either the SPD or the Greens.

The storyline goes that one of these coalitions will be more “EU friendly” as the parties to the left tend to lean toward more generosity toward the EU project than Merkel. But even a “grand coalition” with the SPD if likely to be anything but grand and the greater risk from here is that Germany’s leadership in Europe risks being as weak as Merkel’s victory in the elections was strong. That’s at least in part because every EU-related decision in Germany will be a nervous exercise in calculating the effects of domestic politics within an uncomfortable coalition.

From here, Merkel is likely to try to continue the approach that has brought her relative success so far, making small concessions here and there, such as a small third bailout in Greece, to stem the risk that any individual crisis triggers a wider contagion. What we won’t see is a new overall vision for Europe. The on-going Big Question for Europe is the fundamental tension that will tear Europe apart if it is not eventually addressed: the single currency and single central bank within a multiple-sovereign union.

The EU is a house without a foundation, and such a house can’t stand forever. And a new Merkel-led coalition will not put Germany on a path toward building that foundation, it will merely see Germany continuing to send out the repairmen to plaster over the cracks that are appearing in the walls as the house continues to destabilize.

Francesco Papadia, who used to run market operations for the European Central Bank, believes the German election results could be good news for the eurozone.

He tweets that Angel Merkel will no longer be ‘captive’ to right-wing views, should she form a grand coalition with the Social Democrats:

Graph: Eurozone recovery gathers pace

Here’s the graph showing how Europe’s private sector is growing at its fastest pace in 27 months (see previous post):

Markit says it shows the eurozone recovery is ‘gathering pace’ – with both services sector and manufacturing firms reporting a rise in activity:

• Flash Eurozone Services PMI Activity Index at 52.1 (50.7 in August). 27-month high. 

• Flash Eurozone Manufacturing PMI(3) at 51.1 

The revival is being driven by Germany, where activity is growing at its fastest rate since the start of this year (details)

although Markit also believes the wider eurozone private sector continues to grow this month:

And Europe’s jobs crisis continues, with another small fall in manufacturing employment. The full report is here.

Eurozone business activity at highest since June 2011

Just in: business activity in the eurozone is growing at its fastest rate in over two years, due to a surge in new orders.

That’s according to data provider Markit, which reports that its composite purchasing managers index has jumped to its highest level since June 2011. It hit 52.1 this month, up from August’s 51.5 (anything over 50=growth).

This follows the better than expected data from France (8.25am) and Germany (see 8.39am) this morning, which showed a service sector revival.

Chris Williamson, chief economist at Markit, says the data is very encouraging:

These surveys show a real underlying swell of improvement. It’s all looking very positive.

More to follow….

Updated

While Germany was gripped by election fever, the Greek government was beginning a new round of talks with its lenders.

Troika officials are in Athens to assess whether Greece’s financial aid programe is on track. Overshadowing the talks is the question of whether Greece will get a third bailout in 2014.

The Wall Street Journal has a good take:

After a meeting lasting almost four hours with senior officials from the European commission, the International Monetary Fund and the European Central Bank– known locally as the troika – and the Greek finance minister, Yannis Stournaras, a senior finance ministry official said initial discussions focused on a broad range of issues including the execution of the 2013 budget.

‘We will continue to work through the week,’ said the official.

While the negotiations represent the latest round in the regular quarterly inspection visits that have accompanied Greece’s almost four-year-long debt crisis – and will decide on whether to unlock the country’s next aid tranche of €1bn ($1.35bn) – new budget and growth data also show Greece may be turning a corner.

Senior officials in Athens have spoken of gradually exiting the draconian austerity program tied to the bailouts, but they also warn that the turnaround has yet to be felt by the average Greek, and that extremism in the country is rising.

More here: Greece, Creditors Begin Talks on New Bailout

Meanwhile, Greek journalist Kostas Karkagiannis sums up the mood:

Updated

Here’s a nice montage of how German newspapers are reporting Angela Merkel’s success, via the invaluable Electionista

Updated

The key point from this morning’s French and German economic data could be that manufacturing output in both countries was weaker than expected.

Here’s some instant reaction:

German private sector picks up speed

German service sector companies, like the country’s chancellor, are enjoying a pretty successful September. Activity has reached its highest levels since the start of this year.

The monthly ‘flash’ survey of purchasing managers, just released, showed firms in Europe’s largest economy reporting stronger growth this month. This pushed the German PMI up to 53.8, up from August’s 53.5, and the best reading since January.

As in France (see last post) the service sector led the way:

• Flash Germany Services Activity Index at 54.4 (52.8 in August), 7-month high.

• Flash Germany Manufacturing PMI(3) at 51.3 (51.8 in August), 2-month low.

It indicates that Germany’s economy is continuing to expand this quarter, despite problems elsewhere in the euro area. A key factor in Angela Merkel’s victory last night.

Tim Moore, senior economist at Markit, suggested Germany could pull weaker neighbours forwards:

Germany’s economy remained firmly in recovery mode during September, and its strengthening performance should continue to reverberate across the euro area. Positive signs from the German economy are a crucial factor underpinning global business confidence at present, especially while some momentum has been lost across emerging markets.

German manufacturing and services output both rose again on the back of improved new business levels during September.

French private sector returns to growth

Encouraging economic news from France this morning – its private sector has returned to growth this month for the first time since February 2012.

The monthly ‘flash’ PMI (a survey of purchasing managers across the country) came in at a 19-month high 50.2 – up from August’s 48.8. That’s the first time it’s been above the 50-mark, which indicates growth, since the early months of last year.

(reminder, we get German PMI data in a few minutes)

Markit, which conducts the research, said French industry appears to have stabilised this month thanks to its service sector, where growth was a 20-month high. However, manufacturing output did fall slightly (to 49.5, worse than expected).

Jack Kennedy, senior economist at Markit, explained:

The latest Flash PMI data point to stabilising business conditions in France during September. A return to expansion for the service sector counterbalanced a weaker manufacturing performance, but new business trends were broadly flat across both sectors.

Employment also moved closer to stabilisation, which should help the economy remain on a firmer footing.

Updated

European markets open

As expected, there’s no sign of a Merkel rally in Europe’s stock markets after her historic election win over night.

In Frankfurt, the DAX index is up a measly 0.1%, as is the French CAC in Paris. In London, the FTSE fell 8 points at 6592.

Traders may be waiting to see how the coalition negotiations progress, and there’s talk that Merkel might struggle to strike a deal with the Social Democrats.

Via FT Alphaville:

As JP Morgan’s Alex White said, ‘One can hardly escape the fact that Merkel’s coalition partners in her last two terms lost double digit shares of the vote.’

Merkel’s win also means that the eurozone crisis may flare up again this autumn, as Mike van Dulken, Head of Research at Accendo Markets, points out:

With the election behind us, prepare for revival of discussions on tough eurozone issues put on hold for the summer.

Gary Jenkins of Swordfish Research agrees:

Updated

Angela Merkel’s election success made the front page of the Guardian today:

Here’s our full story of the German election: Merkel secures third election win

And if you missed the action, my colleague Mark Rice-Oxley live-blogged it all here: Germany election results – live updates

Updated

Our Europe editor, Ian Traynor, writes that Angela Merkel’s triumph is her reward for protecting German’s from the effects of the euro crisis:

Her victory demonstrates the gulf between Germany and the rest of the EU and the eurozone, although it is not clear what impact her third term will have on the direction of the crisis.

Merkel’s second term coincided exactly with the euro crisis. As she was forming her coalition with the Free Democrats (FDP) in October 2009, Greece went belly-up, prompting deep doubts about the euro and the survival of the EU.

She has been resented and criticised across Europe for her crisis management and responses. Berlin became alarmed at the resurrection of the “ugly German” stereotype in neighbouring countries. But German voters have voiced their approval.

More here: Angela Merkel’s election win is reward for weathering the euro crisis at home

Angela smashes her rivals

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.

What a triumph for Angela Merkel, eh? Germany’s chancellor stormed to a third term last night, leading the Christian Democrats to their best election result in two decades. The CDU-CSU alliance have scooped 311 seats out of 630, just five seats short of an overall majority.

At one stage last night it looked like Merkel might win enough seats to govern alone. Instead, she will now start coalition talks with her rival parties — but not her old partners, the Free Democrats, who have been dramatically ousted from the Bundestag after failing to win 5% of the vote.

That 5% threshold proved a stretch too far for the new eurosceptic force in German politics, Alternative für Deutschland, on an impressive debut performance.

Forming a coalition with one of her left-wing rival could be tricky for Merkel, who admitted last night that “Maybe we won’t find anyone who wants to do anything with us”.

A grand coalition with the SPD (192 votes) is a possibility — but could take some time to hammer out (as in 2005, when coalition talks took two months).

The SDP could demand some serious concessions from Merkel, including possibly new finance minister.

As Reuters sums up:

During the campaign, the center-left party argued for a minimum wage and higher taxes on the wealthy — both opposed by Merkel. The party could also demand the finance ministry, pushing out respected 71-year-old incumbent Wolfgang Schaeuble.

Don’t expect a decision imminently, though.

And this uncertainty over Germany’s next government means there will be no relief rally in Europe’s financial markets, where the euro has inched a little higher this morning to €1.354.

The German DAX might rise a few points this morning , but other markets are expect to fall (the FTSE is being called down 15 points by IG).

From the City, Michael Hewson writes:

The likely outcome [for Merkel] looks set to be a grand coalition with the SPD. In any event her old coalition partners the FDP appear to have missed out badly, with the new euro sceptic party Alternative for Deutschland, the AfD, doing particularly well, coming in as it did from a standing start.

Whatever the look of any government that is formed, and this might take several days, one of the key factors that did come out of the campaign was the increasing opposition of a rising number of German voters to further bailouts of what they perceive as fiscally irresponsible peripheral European economies. Any new government that chooses to ignore this rising scepticism in subsequent months is likely to come unstuck at the ballot box in any new state or European elections.

And speaking of bailouts, Greece’s “Troika” of lenders returned to the country yesterday to start a new assessment of its financial programme. New public sector strikes have been called for later this week — putting more pressure on the Athens government.

We also get new survey data this morning which will show how Germany and France’s manufacturing and service sectors are performing this month.

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

Updated

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

 


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

Here’s some Friday night ratings action:

On Malta Fitch said:

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

And on Croatia being cut to junk:

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

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

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

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

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

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

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

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

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

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

Dow Jones opens lower after Fed taper comments

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

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

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

Updated

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

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

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

Updated

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

Reuters writes:

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

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

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

That’s the spirit.

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

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

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

Updated

Forsa: German election is neck-and-neck

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

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

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

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

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

My colleague Katie Allen explains all:

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

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

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

Katie continues:

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

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

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

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

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

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

Or as one fund manager puts it:

Updated

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

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

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

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

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

Updated

Speaking of eurosceptics….

Italy cuts growth targets

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

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

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

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

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

On that point….

Updated

AP: Tight fight in Germany

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Updated

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

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

Updated

Corporate news

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

More here: OFT probes sports bra price fixing

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

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

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

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

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

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

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

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

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

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

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

Updated

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

Anjali Verma, chief economist at PhillipCapital:

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

Anubhuti Sahay, economist at Standard Chartered:

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

Abheek Barua, chief economist at HDFC Bank:

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

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

India battles inflation with surprise rate hike

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

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

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

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

As Rajan put it in today’s statement:

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

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

Updated

On the campaign trail….

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

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

Updated

German election looms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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No ‘taper’ to central bank’s support of US economy. Fed requires ‘more evidence that progress will be sustained’. Markets cheer the announcement while the US dollar falls. The Fed’s decision underlines the fragility of US recovery…

 


Powered by Guardian.co.ukThis article titled “Ben Bernanke: no change in Federal Reserve’s stimulus – live” was written by Tom McCarthy in New York, for theguardian.com on Wednesday 18th September 2013 21.15 UTC

Summary

We’re going to wrap up our live blog coverage. Here’s a summary of where things stand:

• The Federal Reserve announced no change to its program of monthly asset purchases designed to stimulate the economy. The central bank will continue to buy mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. ”The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the central bank said in a statement.

The news sent markets through the ceiling. The Dow Jones Industrial Average, which had been concerned that the central bank would take the economy off life support, hit an all-time high on the announcement.

• However the decision to maintain the stimulus pointed to a diagnosis on the part of the Fed of sustained, underlying economic weakness. In June, Fed chairman Ben Bernanke said the central bank may begin tapering its asset purchases. There was no sign of such talk today, three months later.

• Bernanke said that unemployment was lower but not low enough (the Fed has set a 6.5% benchmark) and growth is up but not far enough. Bernanke said the current unemployment rate of 7.3% “understates the amount of true unemployment in the economy” because of the job markets cycle and demographic trends.

• The news floored analysts and reporters, who reminded Bernanke that as recently as June he was talking about “tapering” quantitative easing. “I don’t recall stating that we would do any particular thing in this meeting,” he replied.

• Bernanke said the economy continued to show signs of recovery, and sectors closest to the QE program – housing and autos – showed some of the best improvement. “There has been a lot of progress,” he said. “Labor market indicators are much better today than they were when we began… more than a year ago.”

• Bernanke warned of the potential “very serious consequences for financial markets and the economy” if the country defaults on debt or if the federal government has to shut down due to a congressional failure to reach a budget deal.

• Bernanke dismissed the idea that quantitative easing is turning, against the central bank’s will, into a very long-term policy. He said easing would last until there’s “substantial improvement” in the outlook of the labor market. At the moment there’s some improvement, he said, but “ultimately we will reach that level of substantial improvement.”

Updated

Bernanke is done. The news conference has ended. For the time being, he’s not going anywhere.

Pushing back against the impression that Fed policy helps the affluent most, Bernanke says the Fed is working to help the middle class by seeking to strengthen the jobs market and ensuring price stability.

He acknowledges that the rich are getting richer and the poor are getting poorer. Then he says the Fed can’t do much about that:

Our economy is becoming more unequal. The very rich people and the people in the lower half who are not doing well.

This has been going on for decades…. It’s important to address these trends, but the Federal Reserve doesn’t really have the tools to address these long-run… trends.

Bernanke says there are signs quantitative easing is working: 

It’s difficult to get a precise measure. There’s a large academic literature.. . my own assessment is that it has been effective… some of the leading sectors like housing and autos” are tied most directly to asset purchases.

There has been a lot of progress. Labor market indicators are much better today than they were when we began… more than a year ago.

Bernanke addresses the question raised by my colleague Dominic Rushe earlier. If the economy continuously fails to meet the benchmarks the Fed has laid out for ending asset purchases, how will it ever get out of QE?”

“The criterion for ending purchases is a substantial improvement in the outlook for the labor market,” Bernanke says. He says there has been some improvement and “ultimately we will reach that level of substantial improvement.”

Then easing can end.

A potential failure next month in Congress to raise the debt limit or pass a budget is “obviously part of a very complicated set of legislative decisions, strategies, battles” that Bernanke won’t comment on.

But he says “a government shutdown and failure to raise the debt limit could have very serious consequences for financial markets and the economy.”

Bernanke says the central bank tries to take into account such potential threats, but the Fed is relatively powerless in this field.

Is the Fed concerned about confusing investors by mentioning tapering and then not doing it?

I don’t recall stating that we would do any particular thing in this meeting. What we are going to do is the right thing for the economy, Bernanke says… We try our best to communicate.. We can’t let market expectations dictate our policy actions.

The markets really like it. 

0-2: At the start of the blog we speculated that Bernanke might simultaneously announce that he’s winding down QE and winding down his career as Fed chairman. In fact he has done neither.

Bernanke is asked whether he’s leaving:

“I prefer not to talk about my plans at this point.”

Could tapering begin by the end of 2013? Bernanke says there’s no fixed schedule:

There really is no fixed calendar… If the data confirm our basic outlook… then we could move later this year. But even if we do that, the subsequent steps will [rely] on continued progress in the economy.

The criteria include an improved labor market including lower unemployment.

Bernanke is asked whether he was speaking out of turn in June, when he said the fed could start tapering its stimulus program. Was it a mistake to talk about tapering back in June?

I think there’s no alternative … but to communicate as clearly as possible. As of June we had made meaningful progress in terms of labor [market],” Bernanke says. He says green shoots in the jobs market convinced the committee that it was the time to start talking tapering.

The question: what changed, to make the talk stop?

Updated

Bernanke says low job market participation is partly cyclical:

“There’s a cyclical proponent to participation. The unemployment rate understates the amount of true unemployment in the economy.”

“There’s also a downward trend in participation in our economy,” Bernanke says, but he pins the trend on external factors including an aging population.

The focus of course is on the Fed’s decision to leave its asset purchase program unchanged but a relevant question is “why.” “It seems as though there are two major reasons for the decision,“ Guardian business correspondent Dominic Rushe (@dominicru) writes:

1. The rise in mortgage rates is contributing to a tightening of financial conditions, which the Fed is obviously worried about.

2. The Fed inserted a new sentence that begins with “taking into account the extent of federal fiscal retrenchment.” The Fed has long been worried about their fiscal brethren and that worry crept further into today’s statement.

Even though the Fed acknowledges that things have picked up since they began QE3 late last year, they “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

This is not what we expected. However it is, from the Fed’s point of view, understandable.

But there’s a rather unsettling conclusion to Dominic’s analysis:

However, if the tightening of financial conditions, which was partially a result of the Fed’s decision to discuss slowing asset purchases, is enough to forestall an actual reduction, then in theory the Fed can never cease purchasing assets unless there is no adverse reaction in asset markets. It becomes a negative cycle in which the Fed would find itself trapped.

Guardian finance and economics editor Heidi Moore (@moorehn) is performing Bernanke-to-English tranlsation:

Bernanke says there are signs the economy is improving.

He says that unemployment is falling [Editor: if only by 1.8% over the last two years]; 2.3m private sector jobs have been created; aggregate hours of work are up; and weekly unemployment claims are falling. ”

All this “despite substantial fiscal headwinds,” Bernanke says.

Bernanke is discussing the FOMC projections for interest rates, unemployment and inflation.

He says the collective projections of the committee members have rates moving from 2.0-2.3% in 2012 to 2.5-3.3% in 2016.

Unemployment is expected to move from 7.1-7.3% in 2013 to 5.4-5.9% by 2016, “about the long-run normal level.”

Inflation is projected to move from 1.1-1.2% in 2013 to 1.7-2.0% in 2016.

Updated

Bernanke is speaking. Watch live on CSPAN here.

Anything to instill confidence?

Updated

If the Fed keeps buying long-term government debt – and the board of governors just announced that that will continue to the tune of $45bn per month – return to investors on that debt will not be as strong. Also see this chart:

Bloomberg columnist Caroline Baum posed this question for Bernanke in the event that the Fed decided to maintain its stimulus program, which it now has: Why?

Various Fed studies suggest that the third round of asset purchases has had a negligible effect on long-term interest rates, that the real benefit comes from forward guidance. Why, then, have you decided to stick with the program? Ten-year yields are up 120 basis points since May. Any bang for the buck seems to have dissipated.

Read Baum’s Ten Burning Questions for Ben Bernanke here.

Fed chair Ben Bernanke is scheduled to meet the press in about 10 minutes. He’s likely to face sharp questions about why the Fed has decided to stick with a policy, quantitative easing, that seems to have born little fruit over three rounds and almost five year.

Guardian finance and economics editor Heidi Moore (@moorehn) sees the move as a symptom of how dire the economic situation is. Easing isn’t working – but there isn’t a plan B.

Try, try again. And again. And

What just happened? You can read the full Fed board of governors statement on the decision that has emerged from the two-day meeting of the open markets committee here.

In short the central bankers did not judge the economy to have hit benchmarks that would have dictated a change in stimulus policy – in this case slowing the purchase of mortgage-backed securities, Treasury bills and bank debt.

At a deeper level, the Fed self-evidently retains belief in these levers to move the economy. The tools still work, this decision says, and the Fed intends to keep applying them.

Here’s the key graph from the Fed statement, with this key sentence: ”the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

Read the full Fed statement here.

The markets like it.

Updated

Guardian business correspondent Dominic Rushe has some early details of the Fed announcement that it has no immediate plans to phase out or “taper” its $85bn-monthly asset purchase program.

The Fed says it is waiting for “more evidence that progress will be sustained before adjusting,” Dominic reports.

Reactions

No taper. More to come. 

And …

All the major US stock markets are trading slightly lower ahead of Fed announcement, GuardianUS business correspondent Dominic Rushe (@dominicru) reports:

 The S&P 500 is down 0.11% and the Dow 0.26%. Blame nerves. As until the announcement comes this afternoon, no one outside the Fed really knows whether Bernanke is going to start the “tapering” the $85bn a month quantitative easing stimulus programme or not.

That shoe took a long time to drop. President Obama is prepared to name Federal Reserve vice chairman Janet Yellen as the next chairwoman of the Federal Reserve, the Washington Post reports, citing a White House official and “people close to the White House”:

Federal Reserve Vice Chairman Janet Yellen is the leading candidate to be President Obama’s nominee to lead the Fed as chairman, a White House official said Wednesday. Barring any unexpected development, that likely means that Yellen will get the nomination, perhaps as soon as next week.

People close to the White House said this week that Yellen was the front-runner after the unexpected withdrawal by former White House economic adviser Lawrence Summers, who was facing sharp resistance on Capitol Hill.

Full piece here. Summers’ withdrawal did not leave Yellen the lone horse in the race, however. Wonkblog’s Neil Irwin today handicapped a competition between Yellen and Donald L. Kohn, her predecessor as Fed vice chairman. Irwin concluded it could go either way on the merits, but Yellen may be the more politically expedient choice:

The president has a choice between two very qualified, experienced central bankers for the job, with the differences between them more subtle variations in style and temperament than any vast chasm in monetary policy views. Against that backdrop, if he passes over Yellen, who would be the first woman in the job and has been endorsed by Wall Street economists and many in Congress, he’ll face tough questions on why.

Read the full piece here.

“After three years of money-pumping, quantitative easing is evidently doing nothing to bring the country to full employment, which is one of the two tasks the Fed exists to perform,” Guardian finance and economics editor Heidi Moore (@moorehn) wrote at the start of this month. That’s one reason “it’s worth examining whether QE has outlived its usefulness”:

The hard news is this: it’s a smart idea for the Fed to taper, to start opening the door for the end of stimulus. It’s not a smart idea because the economy is healthy – it isn’t – but because the economy needs to come off life-support and breathe for itself.

Quantitative easing is a drug that seems to be long past its due date. After three years, the returns are in: there are likely no more benefits coming to the economy from holding down interest rates and buying up mortgage bonds.

The economy isn’t recovering, Heidi writes; it’s “in some kind of unresponsive fugue state that we’ve arbitrarily chosen to call a ‘recovery.‘” Read the full analysis here.

Good midday and welcome to our live blog coverage of Ben Bernanke’s eagerly awaited remarks on two topics he uniquely owns: quantitative easing and Ben Bernanke. There’s a chance the Fed chair will use his press conference this afternoon to show them both the Out door.

There’s money on the line. Markets will be listening for signals that the Federal Reserve bank plans to wind down its $85bn in monthly asset purchases known as quantitative easing. For nearly five years the stimulus program has helped markets find confidence in a discouraging landscape. Bernanke has signaled that it won’t last forever. But it was supposed to last until the economy – and specifically the unemployment rate – improved. Or until rising interest rates grew too worrisome.

Neither has happened. The landscape remains discouraging, with unemployment at 7.3% and job market participation at an all-time low. Inflation has yet to rise to the 2% target Bernanke has proposed (he calls it the “objective” rate).

Clearly, easing isn’t working. Unless it is, and the numbers would be even more terrible without it. For two days the fed’s open markets committee (FOMC) has been discussing this and other questions. This afternoon Bernanke is expected to indicate what the group decided.

Additionally Bernanke may talk about his own plans to step down as Fed chair, a seat he’s occupied since President George W Bush appointed him in 2006. The conclusion that Bernanke will leave when his current term expires at the end of January is so foregone that the secret struggle to replace him already has produced public losers.

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Investors cheer prospect of dovish replacement for Bernanke. Would Janet Yellen really be a dramatically different prospect to Summers? Noon market update: Euro shares at highest since 2008. Greek riot police use teargas as strikes begin…

 


Powered by Guardian.co.ukThis article titled “Larry Summers’ withdrawal from Fed race pushes markets to five-year high – live” was written by Graeme Wearden, for theguardian.com on Monday 16th September 2013 11.53 UTC

The Bank of England is touring the UK, holding roadshows to promote its plan to replace Britain’s paper banknotes with plastic alternatives.

They’re in Gateshead today, having kicked off in the refined environs of Oxford on Friday – where my colleague Katie Allen watched events unfold.

She writes:

Stephen Barratt, an accountant from Oxford, is unimpressed. He rubs the polymer dummy between his fingers with a look of disgust.

“It’s the feel. I can see the practical advantages but paper is much nicer. I don’t like them personally … The fact paper notes age is actually quite nice,” he says.

More than 650 people handle the notes before the day is out. Questions range from the environmental impact to washability.

Justin Gunson, a 29-year-old magician, is keen to see how the notes handle as well as other possible professional challenges. “As a magician you want to know if you can mark them, if you can use fake ones.”

The Bank has more than a dozen roadshows planned (unless local conjurers relieve them of the prototypes first).

More here: British shoppers get to grips with Bank of England’s polymer notes

Updated

Back to Greece, and Greek unions say that more than 40,000 civil servants took part in the central Athens demonstration today.

Participation in strike action is reckoned to be 95% - a very high figure given that strikers lose their salaries when they walk off the job.

Angeliki Fatourou of the OLME union (which represents workers in education) told our correspondent Helena Smith that:

It’s been a huge success.

And indicative of what the government and troika can expect in the coming weeks and months ahead.

As flagged up earlier, Greece’s Troika of international lenders return to Athens next week…..

Market update: European share at five-year high

A quick markets update. European stock markets remain buoyant following Larry Summers’ decision to withdraw from the race to succeed Ben Bernanke as head of the Federal Reserve.

• FTSEurofirst 300: up 9.5 points at 1259, a new five-year high 

• FTSE 100: up 59 points at 6643, a five-week high

• German DAX: up 103 points at 8613, an all-time high

• French CAC: up 32 points at 4146, highest since February 2011

Some financial analysts reckon that the market reaction is overblown. After all, Ben Bernanke has already outlined the conditions under which the Fed would slow its stimulus programme. Would Janet Yellen really be a dramatically different prospect to Summers?

Stephen Lewis of Monument Securities thinks not.

Here’s his reasoning:

The markets should not assume that other candidates to lead the Fed will deviate far from the timetable for ‘tapering’ QE3 that Mr Bernanke has outlined. Ms Yellen, whose chances of taking the Chairmanship will appear to have improved with Prof Summers’ withdrawal, may be of a generally ‘dovish’ disposition.

But she has not dissented from the Bernanke schedule nor has she released any public comment recently about economic growth or unemployment that suggests she might look with favour on a more accommodative policy-course than the FOMC consensus currently approves.

There remains the mystery of why President Obama has appeared reluctant to nominate Yellen already. Lewis adds:

Dark rumours of personal frictions during the Clinton Administration abound but, politically, a Yellen appointment would probably be the easiest course for the President to pursue. He could at least count on most of the Democrats in the Senate being on his side.

Updated

Helena Smith: Anger on the streets of Athens

Over in Greece our correspondent Helena Smith reports that passions are on the rise as striking workers, starting with teachers, kick off a week of industrial action in the debt-stricken country.

She also confirms that several people were taken to hospital after riot police used tear gas this morning.

 After a slow-motion summer, Greek unions are back in action organising protests and walk-outs with a vengeance.

Outrage over government plans to pare back the bloated public sector boiled over at 7 AM this morning when a week of strikes got off the ground with police firing tear gas at demonstrating school guards amassed outside the administrative reform ministry.

Three protestors were subsequently rushed to hospital suffering respiratory problems. The decision of authorities to resort to using toxic chemicals so early in the day appears only to have reinforced the resolve of unions in both the public and private sector to step up action against the reforms now being asked of Greece by the EU and IMF.

“It’s just made us more mad,” said Angeliki Fatourou, a leading member of the secondary school teachers union OLME which kicked off five-day rolling strikes today. “Please note that we will not rest easily. This will be the mother of strikes and teachers will lead the way.”

As Helena writes, thousands of teachers, from both secondary and primary sectors, are marching towards the parliament building in Syntagma square in a massive display of opposition over reforms that will see some 12,500 civil servants being transferred to a mobility scheme, widely seen as shorthand for dismissal, by the end of the year.

“The cuts really are the last straw,” said Fatourou insisting that most public schools no longer had enough money to pay heating, electricity or water bills.

ADEDY, the umbrella group representing civil servants nationwide, has also called on its 42 federations to go on strike later this week.

The 48-hour walkout, Wednesday and Thursday, comes ahead of crucial meetings Friday and Saturday that will decide whether industrial action will continue across the public sector. “At the moment different sectors are backing the idea of strike action with varying degrees of intensity,” ADEDY’s Tania Karayiannis told me this morning. “But that is expected to change. Greeks in both the public and private sector have been pushed to the absolute brink. This will be a very hot week that should be seen as a prelude to a very hot winter,” she said.

Visiting inspectors representing Greece’s international creditors will almost certainly be given a baptism of fire when they arrived in Athens to begin what will be the most crucial review, yet, of the Greek economy next Monday.

This video clip appears to show those reported clashes outside Greece’s Ministry of Administrative Reforms between school guards and riot police this morning (see 10.56am onwards):

That’s via the Keep Talking Greece website, which reports that demonstrators held a sit-down protest in the middle of the road outside the ministry, prompting riot police to move them.

And here’s a photo of teachers on strike in Crete:

Updated

Greek schoolteachers have gathered in force in the city of Thessaloniki for today’s walkout, as these tweets from local resident Antonis Gazakis show:

That’s via university lecturer Spyros Gkelis. He also flags up that there is reportedly a high turnout across the country from Greece’s school teachers for today’s strike.

Updated

Greek strikers ‘clash with riot police’ as week of industrial action begins

Over in Greece, a week of industrial action has begun with schoolteachers downing tools, and reports of clashes between school guards and riot police in Athens.

Greek secondary school teachers launched a five-day strike this morning, in protest at the government’s plans to cut thousands of jobs, and transfer staff to its unpopular ‘mobility scheme’ [from where employees can be forced to take a new job or be laid off].

It’s likely to be the first in a series of ‘rolling’ strikes.

According to local reports, Greek police fired teargas to disperse school guards who tried to enter the Administrative Reforms ministry in central Athens this morning, as the walkout got underway.

One police official told Reuters:

About 60 to 70 school guards tried to enter the building to occupy it and were pushed back by police.

School guards are responsible for patroling educational premises, and also operate road crossings for pupils.

Here’s Associated Press’s early take:

Riot police have scuffled with striking school guards outside a ministry in central Athens, as labor unions gear up for a series of public sector strikes over job cuts.

Local media report Monday at least two demonstrators were transported to hospitals suffering from breathing problems after police used small amounts of pepper spray in an attempt to move protesters away from the Administrative Reform Ministry.

Greece’s government has pledged to ax thousands of public sector jobs in an effort to meet conditions of its international bailout. The country has been depending on rescue loans from the International Monetary Fund and other European countries that use the euro currency since May 2010.

Today’s walkout is the prelude to a major 48-hour walkout, starting on Wednesday, called by Greece’s main unions.

Updated

Janet Yellen is the odds-on favourite to succeed Ben Bernanke this morning. A shoe-in, really, at just 1-8 with Paddy Power (so you’d get £9 back for every £8 you risked.)

Tim Geithner, outgoing Treasury secretary, is an 8-1 shout, as is former Fed vice-chairman Donald Kohn.

Stanley Fischer, who just stepped down from running Israel’s central bank, is a 40-1 outsider.

More details here.

Larry Summers decision not to run for the Federal Reserve chair (see opening post onwards), is going to trigger a rally on Wall Street later today.

Traders are calling the Dow Jones industrial average up by over 1%, as US investors give the thumbs up to the prospect of a more dovish Fed chair (although we still don’t know who is going to actually replace Bernanke, of course)

European stocks remain at five-year highs, and the US dollar is still down around 0.5% on the currency markets.

Summers’ decision could give the US economy a small boost , tweets economic policy analyst Alan Tonelson:

Eurozone inflation fell to just 1.3% (annual basis) last month, data just released from Eurostat confirmed.

That’s a drop from July’s reading of 1.6% (for the consumer prices index), further away from the European Central Bank’s target of just below 2%. That shows there’s no pressure on the ECB to raise rates, or change its commitment to leave them at present levels, or lower, for an extended period.

The data confirmed that Greece remains in deflationary territory, with prices falling by 1.0% year-on year. Bulgaria (-0.7%) and Latvia (-0.1%) also showed the lowest rates.

The highest eurozone inflation figures were seen in Estonia (3.6%), the Netherlands (2.8%) and Romania (2.6%), with the UK also reporting inflation of 2.8% last month.

Updated

This may please Mario Draghi — as the ECB chief began his speech, Italy reported that its trade surplus has widened

Imports fell 0.3% year-on-year in July, while exports jumped by 3.0% compared with July 2012 – the first rise in exports in three months. This pushed the Italian trade surplus up to €5.948bn, up from €4.733bn a year ago.

In another welcome sign of rebalancing, exports to non-EU countries were up by 3.5% (full details here)

Draghi is also warning that eurozone governments must not slacken off the pace of reform – a familiar refrain for the ECB chief:

 Thanks to their consolidation efforts so far, the primary fiscal deficit for the euro area has fallen from 3.5% of GDP in 2009 to around 0.5% in 2012. This is projected to turn into a primary surplus from 2014 onwards.

This improvement in public finances has helped send a signal to investors that government debt levels will stabilise and then fall in the future. This has been crucial in reassuring markets about debt sustainability. But the average public debt level in the euro area is still very high, at around 95% of GDP. This means that consolidation efforts need to be maintained in the years to come.

Draghi: Europe’s ‘fragile’ recovery needs more help

Mario Draghi’s Berlin speech is now online at the ECB’s web site: click here

It’s called “Europe and the Euro – A Family Affair”*, and the key theme is that Europe needs growth to underpin its delicate recovery.

As Draghi puts it:

The recovery is only in its infancy. The economy remains fragile. And unemployment is still far too high.

Draghi is reminding his audience of German small business owners that the eurozone faced” difficult circumstances” a year ago, with “severe tensions in financial markets” as investors feared the break-up of the euro.

That threat has receded, he said, but Europe remains too weak:

My main message is that we have made significant progress on the first step, stabilising the euro area. But there is still work to do to transform this achievement into higher growth and employment. Strengthening the euro area through sustainable policies, higher competitiveness and stronger common institutions is therefore our priority for today.

The speech contained some familiar themes — unemployment remains too high, and banking union remains incomplete.

On competitiveness, Draghi actually hails the drop in wages in some eurozone countries:

One way to regain competitiveness quickly is to address the numerator in unit labour costs – nominal wages. Another, longer-term approach is to increase the denominator – to achieve higher productivity. In my view, in the euro area today we need both.

On the first count, there are already some encouraging signs of rebalancing in the euro area in terms of cost competitiveness. Thanks in part to the structural reforms introduced in several countries, relative costs are adjusting where they had become misaligned in the past.

• – presumably the title is a reference Sly and the Family Stone, following Mark Carney’s decision to name-check young UK singer-songwriter Jake Bugg last month.

Over in Berlin, European central bank president Mario Draghi has begun giving a speech – here’s the wire snaps off the Reuters terminal….

16-Sep-2013 09:00 – ECB’S DRAGHI – EURO ZONE ECONOMY REMAINS FRAGILE, UNEMPLOYMENT FAR TOO HIGH

16-Sep-2013 09:00 – ECB’S DRAGHI – GIVEN SUBDUED INFLATION OUTLOOK, EXPECT KEY INTEREST RATES TO REMAIN AT CURRENT OR LOWER LEVELS FOR EXTENDED PERIOD OF TIME

16-Sep-2013 09:00 – ECB’S DRAGHI – BANKING UNION SHOULD HELP SPEED UP THE REPAIR OF BANKS – THAT IS IF, AS I HOPE, WE END UP WITH A STRONG SINGLE RESOLUTION MECHANISM 

Updated

Kit Juckes of Société Générale dubs today’s market action the “Larry Rally”, and puts his finger firmly on the causes of the buoyant financial markets — easy money.

From his morning note to clients:

Five (long) years on from Lehman’s collapse, and while the global economy is still struggling to find its feet, financial markets are riding high. This morning’s catalyst may be Larry Summers’ decision to withdraw from consideration for the Fed Chairmanship, but the real driver is easy monetary policy. Of course.

June saw a huge market blood-letting as ‘tapering’ was priced in, and the period since then has seen outflows from emerging markets and bond funds slow, markets calm down.

The issue is how long the risk party can last as talk of tapering becomes reality and before the focus switches firmly to when and how fast the Federal Reserve actually tightens policy.

The Fed’s monetary policy committee meets on Wednesday night, so we might not have long to wait…..

Britain’s borrowing costs have dropped this morning, following Larry Summers’ decision.

The yield on 10-year gilts has dropped to 2.86% , from 2.91% on Friday night, as traders rush to buy UK debt (pushing up the price, and thus lowering the interest rate on the bond).

US Treasuries have also strengthened, driving down yields on America’s 10-year bonds by a chunky 8 basis points to 2.812%, from 2.9% on Friday.

The message from the markets is clear — they expect a less hawkish Fed chair than Summers….

Germany’s DAX index hit a new record high this morning — nudging 8,601 points in the opening minutes of trading.

Updated

European markets hit five-year high

The FTSeurofirst 300 index of Europe’s biggest companies has just hit a new five year high, driven by the prospect of the dovish Janet Yellen becoming the next Fed chair.

It has jumped 0.58% to 1,260.35, a level not seen since June 2008 — three months before the collapse of Lehman Brothers.

Here’s the details of the European markets this morning, following Asia’s rally (see 7.51am)

Mike van Dulken, head of research at Accendo Markets, explains that recent progress in Syria is also boosting the markets – along with the first election results from Germany (of which more shortly…..)

Investors are reacting positively to news that the more hawkish Larry Summers has withdrawn from the race to be the next Fed chair in Jan (not enough support from Obama’s Democrats), paving the way for the more accommodative vice-chair Janet Yellen.

Markets are not worried about tapering per se, rather the speed of it, seeing Yellen reduce bond buying more slowly and leave rates lower for longer.

Sentiment is also helped by news of deal between US & Russia over Syria’s chemical weapons surrender.

German Chancellor Merkel’s sister party won the Bavarian election which bodes well for her to keep her position in next week’s general election.

Updated

Summers end drives European markets higher

Europe’s stock markets are open, and the news that Larry Summers won’t be the next Fed chair is pushing shares higher.

The prospect of an “ even more dovish chairman at the helm of the world’s most pivotal central bank” than Ben Bernanke, as Chris Weston of IG puts it, is giving markets a lift.

The FTSE 100 jumped 1% at the start,and is now up 50 points at 6633.

Italy’s FTSE MIB has also gained 1%, with other indexes jumping at least 0.8%.

So why the rally? It’s all about Janet Yellen, the new favourite to replace Bernanke. As Weston explains, Yellen could potentially have quit the Fed altogether if Summers got the top job, depriving the Fed of one of its most dovish members:

Life with Larry Summers at the helm would have potentially been very different from life under Ben Bernanke; it’s these uncertainties that keep markets held back.

In theory if Larry Summers had got the job, we could easily have seen Janet Yellen step down from the Fed and return to academia, which would have had negative ramifications on the composition of the Fed in Q2 2014, with the board not just losing a key note dove, but also its last voting female. This has now changed, and while we know Donald Kohn has been interviewed, if Janet Yellen doesn’t get the job there could be an outcry given a large number of democrats and certainly market participants have been campaigning for her appointment.

Updated

Larry Summers’ withdrawal may be good news for investors who don’t want America’s stimulus programme to end, but it’s a blow to President Obama.

As our Washington bureau chief, Dan Roberts, explained last night:

Barack Obama’s hopes of a smooth transition of power at the US Federal Reserve were dealt a significant blow on Sunday night when Larry Summers unexpectedly pulled out of the running to replace Ben Bernanke when he stands down in January.

Summers, a former Treasury secretary under President Clinton, had been frontrunner to take charge of US monetary policy during a crucial phase in the economic recovery but is understood to have been deterred by the prospect of bumpy Senate confirmation hearings.

Despite an impeccable track record as an economist and policymaker, Summers remains widely associated with the period of laissez-faire economic policy-making that led up to the banking crash and his decision to step aside on the eve of the fifth anniversary of the crisis shows how raw the politics remain in Washington.

More here: Larry Summers withdraws name for Federal chairmanship

Updated

…while fastFT have swiftly rounded up the currency movements:

  • Malaysian ringgit: +1.42%
  • Indian rupee: +1.41%
  • Indonesian rupiah: +1.09%
  • Aussie dollar: +0.88%
  • Kiwi dollar: +0.71%
  • Thai Baht: +0.50%
  • Japanese yen +0.47%

Updated

Here’s a snapshot of the rally in Asia today: led by emerging markets (which have been buffeted in recent weeks by the prospect of the Fed ‘tapering’ its quantitative easing programme):

The agenda

It’s going to be a busy day, quite apart from the excitement over the Fed race.

Here’s an agenda:

• Mario Draghi gives speech in Berlin – from 10am CET (9am BST). Details

• Eurozone inflation data for August: 11am CET (10am BST)

• Troika begin review of Portugal’s bailout programme – all day

• Greek teachers strike over austerity cutbacks – all day

• Italian trade data – 10am CET (9am BST)

Markets to surge on Summers withdrawal

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

European stock markets are set to rally this morning following the surprise news last night that Larry Summers, former US Treasury secretary, has withdrawn from the race to become the next chairman of the US Federal Reserve.

The former US Treasury secretary threw in the towel yesterday, seemingly daunted by the prospect of a bruising fight with Congress.

The move throws the race to succeed Ben Bernanke wide open, with the Fed on the very brink of deciding whether to begin slowing its huge monetary stimulus programme. The new front-runner appears to be Janet Yellen, Fed vice-chair since 2010 – a popular choice with Democrats and many in the financial markets and the media.

As well as having helped guided Fed policy through the crisis, Yellen is credited with a rare knack of reading economic trends — including predicting in 2009 that the recovery would be “frustratingly slow”.

Economists and analysts believe Yellen is more likely than Summers to maintain a robust stimulus programme, meaning more easy money for Wall Street and the City.

Summers’ withdrawal has already hit the dollar, driving sterling to its highest level since January. The pound is up by 0.8 cents this morning, to $1.59.5.

Emerging markets have rallied overnight, with Thailand’s stock market up almost 3% and India up 1%.

European stocks are expected to surge too, while bond yields should probably slide — on the prospect of the Fed buying even more US debt than under Larry Summers.

IG is calling the FTSE 100 up 72 points at 6655, the DAX up 131 points at 8640, and the CAC up 57 points at 4171.

I’ll be tracking all the news through the day, as usual….

Updated

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Published via the Guardian News Feed plugin for WordPress.

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

 


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

Key event

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

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

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

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

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

Our correspondent in Athens, Helena Smith, reports:

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

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

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

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

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

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

The group also predicted slower growth in the months ahead:

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

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

Updated

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

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

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

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

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

Updated

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

He told Reuters:

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

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

Updated

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

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

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

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

As our G20 live blog explains:

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

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

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

Updated

Our Wall Street correspondent Dominic Rushe writes:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Taper off?

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

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

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

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

Market reaction

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

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

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

Some instant reaction:

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

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

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

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

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

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

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

US Non Farm Payroll released

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

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

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

More to follow!

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

G20 statement released

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

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

Updated

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

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

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

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

Updated

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

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

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

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

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

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

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

Non-farm payroll coming soon…

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

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

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

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

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

Updated

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

Updated

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

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

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

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

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

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

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

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

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

Greece’s Kathimerini newspaper has more details:

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

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

Updated

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

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

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

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

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

Updated

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

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

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

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

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

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

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

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

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

Here’s the key points from the ONS release:

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

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

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

Updated

UK trade deficit widens and industrial production stays flat

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

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

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

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

More to follow……

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

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

Reuters reports:

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

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

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

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

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

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

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

Halifax housing economist Martin Ellis reckons:

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

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

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

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

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

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

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

Here’s the full statement.

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

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

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

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

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

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

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

Waiting for Non-Farm

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

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

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

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

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

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

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

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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

 


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

6.21pm BST

Closing summary

Time to wrap up for the day.

Here’s a brief closing summary.

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

Details from 9.,39am onwards.

Analyst reaction at 10.14am

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

The eurozone data is covered at 9.18am

The key highlights by country begin at 8.31am

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

Meanwhile in the eurozone…

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

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

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

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

Updated at 6.23pm BST

5.55pm BST

Markets close

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

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

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

David Madden, market analyst at IG, commented:

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

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

And here’s the closing prices:

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

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

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

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

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

5.27pm BST

If the cap doesn’t fit….

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

Our City editor, Jill Treanor, reports:

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

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

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

Updated at 5.40pm BST

4.55pm BST

Fed’s Fisher: Tapering is looming

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

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

Here’s the key quote:

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

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

4.41pm BST

IMF: France is recovering

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

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

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

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

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

4.26pm BST

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

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

4.17pm BST

Global private sector activity hits 16-month high

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

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

Here’s the details:

Updated at 4.24pm BST

4.03pm BST

Putin pays Berlusconi a visit

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

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

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

More here: Putin in visita da Berlusconi

3.45pm BST

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

Larger version here.

Updated at 3.51pm BST

3.34pm BST

Duncan Weldon: 5 thoughts on the service sector surge

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

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

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

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

Here’s the full piece:

The Service Sector PMI: 5 Quick Thoughts

Updated at 5.06pm BST

3.16pm BST

US service sector also posts strong growth

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

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

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

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

2.48pm BST

2006 and all that

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

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

My colleague Angela Monaghan has more here:

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

Updated at 2.48pm BST

2.19pm BST

Brazil’s private sector activity falls

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

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

New orders fell and job creation was unchanged.

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

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

Updated at 2.28pm BST

1.24pm BST

Photos: Greek workers march

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

12.57pm BST

Strike watch (2): German canal workers protest

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

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

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

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

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

12.50pm BST

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

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

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

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

Mitsotakis said:

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

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

Updated at 1.17pm BST

12.06pm BST

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

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

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

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

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

11.28am BST

Key event

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

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

11.26am BST

Alberto Nardelli: Italian government’s lifetime is shortened

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

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

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

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

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

11.12am BST

Berlusconi conviction still grips Italy

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

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

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

He declared:

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

(full story by Lizzy Davies here)

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

The ANSA news agency reports:

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

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

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

10.49am BST

FTSE 100 rises on Lloyds sell-off rumours

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

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

My colleague Jill Treanor wites:

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

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

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

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

10.23am BST

Pound rallies

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

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

10.14am BST

UK services sector PMI: what the experts say

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

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

Wood wrote:

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

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

Howard Archer of IHS Global Insight called it a:

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

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

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

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

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

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

10.10am BST

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

9.54am BST

Graph: Britain’s surging services sector

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

The full report is online here (pdf).

9.39am BST

UK services data smashes forecasts

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

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

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

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

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

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

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

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

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

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

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

More to follow….

9.25am BST

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

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

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

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

9.18am BST

Relief for eurozone as private sector starts expanding

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

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

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

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

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

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

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

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

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

However…

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

9.01am BST

Signs of recovery in Europs

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

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

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

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

8.53am BST

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

Updated at 8.53am BST

8.52am BST

Egypt’s private sector in dire situation

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

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

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

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

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

8.35am BST

Graph: Spanish PMI vs GDP

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

Updated at 8.37am BST

8.31am BST

Spain: Services downturn slows

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

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

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

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

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

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

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

8.25am BST

Sweden roars back

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

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

8.19am BST

What we expect from Europe

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

Michael Hewson of CMC Markets rounds up the predictions:

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

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

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

Updated at 8.19am BST

8.10am BST

Service sector data adds to India’s gloom

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And here’s the obligatory graph:

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

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

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Federal Reserve chair says bond-buying could slow. No firm plan for policy adjustment, however. Jobs market ‘far from satisfactory,’ Bernanke testifies. The Fed anticipates curtailing its assets purchasing program by the end of the year contingent on an improving economic picture…

 


Powered by Guardian.co.ukThis article titled “Ben Bernanke: ‘We’re very focused on Main Street’ – as it happened” was written by Tom McCarthy, for theguardian.com on Wednesday 17th July 2013 15.44 UTC

1.31pm ET

Summary

We're going to wrap up our live blog coverage of Fed chair Ben Bernanke's House testimony. Here's a summary of where things stand:

Bernanke said the economy hasn't recovered enough for the Fed to take its foot off the gas – yet. "We need accommodative monetary policy for the foreseeable future," he said. 

The Fed anticipates curtailing its assets purchasing program, known as quantitative easing, by the end of the year, but that's contingent on an improving economic picture, which Bernanke emphasized isn't a given. Stocks were up and bonds were down slightly on the perceived signal that asset purchases could taper.

• Bernanke said the economy's still too weak to recommend raising interest rates. He reiterated two key benchmarks for moving rates: unemployment below 7% or inflation of 2%. We're not there yet.

Committee members thanked Bernanke for his service on the occasion of what may be his last appearance before the House as Fed chair. But it wasn't his last Hill appearance: he testifies before the Senate tomorrow. 

1.15pm ET

After 3+ hours of testimony before the House today, guess what Ben Bernanke gets to do tomorrow? Testify before the Senate. 10.30 am ET – be there.

1.13pm ET

And they're done. Adjourned.

1.12pm ET

Michele Bachmann, Republican of Minnesota, is up. She has a debt ceiling question. She says that for 56 days, federal debt on the books mysteriously stayed just under the debt ceiling.

"Has the federal government been cooking the books on this?" Bachmann asks.

Could be a good question – for the Treasury.

"This is not the federal reserve," Bernanke says. "You'd have to ask the secretary of the treasury."

Bachmann's follow-up: Have we exceeded our debt limit?

"Uh, I don't think so," Bernanke says.

1.04pm ET

Andy Barr, Republican of Kentucky, asks Bernanke about sustained unemployment: is it the Fed's fault or Obama's fault?

The economy has weak spots, but "it is the case that we have made some progress since 2009… we're doing better than a lot of other industrial countries," Bernanke replies.

Barr says there's "gotta be a fiscal policy problem here," because the Fed's expansionary policy has been responsible. But Barr isn't another self-hating Congressman. The implication is that it's Obama's fault.

12.59pm ET

University of Michigan professor Justin Wolfers notes that bond prices are down slightly... after months of steep climbing.

12.49pm ET

Guardian emergency responder Alan Yuhas clarifies the IRS Star Trek video reference. Alan wrote about it back in March:

The IRS has apologized for spending tens of thousands of taxpayer dollars to film a Star Trek parody, but has defended the value of Gilligan's Island parody made at the same time. The agency estimates that total expenditures were about ,000.

The Star Trek video features a spaceship on a "never-ending mission to seek out new tax reforms, to explore strange new regulations, to boldly go where no government employee has gone before". They set off to the planet Notax, whose fiscally irresponsible aliens live in chaos. The six-minute video has special effects, elaborate costumes, and two crewmen banter: "Back in Russia, I dreamed someday I'd be rich and famous." "Me too. That's why I became a public servant." The ship's captain throws up his hands in dismay as the crewmen bump fists.

Read the full fun piece here.

12.45pm ET

Congress.

"I feel like Bette Midler,' says Denny Heck, Democrat of Washington – "the very last guest on the very last episode of the Tonight Show. She famously quipped to Johny Carson, 'You are the wind beneath my wings.'"

Heck says Bernanke's like that, with the economy. 

Updated at 12.50pm ET

12.42pm ET

Dennis A. Ross, Republican of Florida, has said something about an "IRS Star Trek video." He does not elaborate. We'll wait for him to circle back around on that. He's calling for a healthy debate on the debt ceiling – he thinks that the brinksmanship that led to the downgrading of US debt was a good thing. Unclear whether there's a question coming here.

Bernanke says the debt ceiling fights are bad. 

"We did get a pretty big shock to consumer sentiment and it did do harm to the economy."

Updated at 1.19pm ET

12.36pm ET

Bernanke, still going strong, ish, 150 minutes in. Currently talking: Joyce Beatty, Democrat of Ohio, the second-least-senior member of the committee.

12.32pm ET

Randy Hultgren, Republican of Illinois, returns to a concern of many lawmakers on the GOP side, that the Fed is over-regulating community banks, which Hultgren says are being hurt by an interest-rate crunch.

Bernanke says the low rates are meant to strengthen the economy. Throughout the hearing he's deflected the assertion that local banking is crippled. "We're very focused on Main Street," he said early on.

Updated at 12.33pm ET

12.18pm ET

We're not going anywhere! This is the part where Bernanke drops the surprise that turns the economy on a dime. Any second now. 

Updated at 12.20pm ET

12.13pm ET

Marlin A. Stutzman, Republican of Indiana, asks whether Obamacare is hurting the economy. Bernanke admits there have been signs that employers are having some difficulty navigating the new rules requiring them to provide insurance if they carry a certain number of full-time employees:

"It's very hard to make any judgment. One thing that we hear… is that some employers are hiring part-time in order to avoid the mandate there. So we have heard that. But … the high level of part-time employment has been around since the beginning of the recovery, and we don't fully understand that.

Stutzman asks whether it might be smart to push back Obamacare compliance deadlines. Bernanke replies:

This is beyond my pay grade. This would depend on how well, and how much time is needed, to fully implement the bill.

12.04pm ET

Guardian finance and economics editor Heidi Moore flags an exchange between Bernanke and Republican Stephen Lee Fincher of Tennessee, who is worried about private sector dependence on federal largesse – except when he's not worried about that.

Updated at 12.05pm ET

11.44am ET

Emanuel Cleaver, Democrat of Missouri, has a koan-like question for the Fed chair:

What would be the consequences of easing quantitative easing prematurely? 

Bernanke replies with half of this and half of that. The Fed plans to decrease asset purchases unless that's not called for in which case they'll be continued.

11.38am ET

Guardian finance and economics editor Heidi Moore agrees with the congressman's assessment that the legislature hasn't done diddly to bring the jobs market back. In April she wrote, under the headline "When will this do-nothing Congress wake up to America's job crisis?":

While the unemployment rate is dropping, and the number of jobs goes up and down, the labor force participation rate has been steadily falling since the economy started weakening in 2007. [...]

This situation is, economically, a catastrophe. It has existed for the past five years, and no lawmaker in Washington has done very much about it. Somehow, a small group of Republican lawmakers have hijacked the national conversation about financial matters to blather about deficits and long-term budgets. (Leave aside the fact that not a single lawmaker, of either party, seems capable of putting together any kind of practical budget at all.)

Most Democrats and the White House have gone along with this empty rhetoric, accepting that the current standard of wise budgeting is "discipline" and "long-term goals". It's not. The current standard for the creation of a reasonable budget should be "do something that encourages job creation". This task has gone too long unaddressed.

Read the full piece here.

11.35am ET

Congress has to do more to instill confidence in consumers that "we will do things to help create jobs," Al Green, Democrat of Texas, says. "We have not done enough… your good work still needs some help from the policy makers.

"Consumers say to me, 'I need confidence.'" Really?

Bernanke is diplomatic. "No one has a magic formula" for creating consumer confidence, he says. 

11.28am ET

Stephen F. Lynch, Democrat of Massachusetts, is up. He notes that Bernanke is a scholar of the Depression era and wonders whether 30-year mortgages were available back then. They weren't; Lynch's point is to underscore the importance of government support for the housing market.

We want to keep "a preservable, 30-year fixed mortgage, keep that market going, without having the taxpayer take all the risk up front," Lynch says.

Bernanke says the government can't unilaterally move prices but it can step in when the market won't self-correct. "The argument for thinking about government participation is exactly like the situation we faced in the last few years, where there's a big housing problem" and private lenders aren't willing to act counter-cyclically, Bernanke says. 

Lynch thanks the Fed chair for his service. "I've heard stories that this might be your last appearance before this committee for this purpose," he says.

11.19am ET

Bernanke's lips are talking tapering, but that may not be the take-home message here:

Updated at 11.19am ET

11.16am ET

Suggested reading via the National Journal:

11.13am ET

Carolyn B. Maloney, Democrat of New York, is up. She defers to Ed Perlmutter, Democrat of Colorado, because he didn't get to ask a question last time Bernanke appeared.

Perlmutter thanks Bernanke for his steady hand on the economic rudder. Then he goes back to … the sequester. How do we better understand what this 1.5% in lost growth means, practically speaking, he asks.

Bernanke says losses could be thought of in terms of 760,000 "full-time equivalent jobs" or unemployment down "another seven or eight tenths, something like that."

"So it makes a very big difference," Bernanke says. "It's very substantial." 

11.08am ET

Dominic Rushe is keeping an attentive eye on the tickers. Stock markets are still rising as Bernanke speaks, he notes – the Dow is now up +24.13 points or 0.16%.

Hold onto your seats.

11.03am ET

Guardian US business correspondent Dominic Rushe captures the Fed chair in a pensive moment:

11.02am ET

Democrat William Lacy Clay of Missouri is up with a question about how the sequester may be hurting the jobs market.

"In this recovery, even as the private sector has been creating jobs, government at all levels has been cutting … 600,000 jobs," Bernanke says. He says that's unusual during an attempted recovery. 

He refers back to the CBO estimate that the sequester is dulling growth by 1.5% a year. Whose idea was the sequester again? Did we decide whom to blame? The Democrats keep bringing it up, apparently confident the public believes it's the fault of John Boehner's Congress. Insofar as the public is thinking about it.

Updated at 11.04am ET

10.58am ET

Isn't it true, Huizenga asks Bernanke, that Wall Street has benefited more from loose money and bond-buying than Main Street has? 

"I don't think so," the Fed chair replies. "We're working through the mechanisms we have, which of course are financial interest rates and financial asset prices."

"We're very focused on Main Street," Bernanke says.

Updated at 10.58am ET

10.55am ET

Bill Huizenga, Republican of Michigan, asks Bernanke if his buddy should refinance his house – is now a good time?

"I'm not qualified to respond as a financial adviser," Bernanke jokes. Ha.

10.52am ET

We have a self-hating Congress.

10.50am ET

Ranking Democrat Maxine Waters of California is up. She asks Bernanke about an IMF recommendation to repeal the sequester and raise the debt ceiling. The president would like that. Does Bernanke agree?

Bernanke says the sequester is hurting growth, to the tune of about 1.5% in 2013.

"As I've said many times, I think that fiscal policy is focusing too much on the short run and not enough on the long run," he says. 

10.46am ET

Bernanke answers a question from committee chair Jeb Hensarling, Republican of Texas.

Bernanke defends the Fed's decision to telegraph its intentions of keeping rates low, pegged to the unemployment and inflation benchmarks. He says markets are figuring out the Fed's intentions and relative stability is the result.

Updated at 10.46am ET

10.41am ET

If Bernanke testifies and no one hears him, did he make a sound?

10.40am ET

Bernanke testifies that the economy is recovering "at a moderate pace" but he doesn't sound inspired. Home sales and construction are up. Unemployment is down slightly – it hit 7.6% in June – but "the jobs situation is far from satisfactory." Inflation has not touched the 2% benchmark.

The Fed may begin to ease its bonds purchases "later this year," Bernanke says. But it's conditional on sinking unemployment or new indicators of inflationary pressure:

Committee participants also saw inflation moving back toward our 2 percent objective over time. If the incoming data were to be broadly consistent with these projections, we anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year. And if the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear. At that point, if the economy had evolved along the lines we anticipated, the recovery would have gained further momentum, unemployment would be in the vicinity of 7 percent, and inflation would be moving toward our 2 percent objective. Such outcomes would be fully consistent with the goals of the asset purchase program that we established in September.

10.31am ET

It works! They fixed it. Bernanke begins. Once more his remarks are here. CSPAN has yet to fix its online feed. The Wall Street Journal has a feed that's working fine.

10.29am ET

Now the committee members and the witness are just sitting uncomfortably staring at each other as presumably terrified techs try to sort out what's wrong.

Bernanke has his arms folded at the witness table and appears not the least put out at the unexpected twist. It's exactly the kind of composure the markets look for in a Fed chair. 

10.26am ET

Heidi Moore is the Guardian's finance and economics editor.

10.23am ET

Committee members are making opening statements, but they're hard to hear because either the mics or the speakers – it seems like a speaker issue – aren't working. CSPAN is not running its usual online video stream on account of the technical issue. 

The statements from committee members are barely audible on television with the volume turned up to around 40. What words can be made out sound safely dull.

It's like Bernanke mumblecore. 

10.15am ET

The Guardian's Dominic Rushe is watching the markets as we prepare to watch Bernanke. So far so good, he reports:

All the major US markets are up – a bit – ahead of Bernanke's testimony. The Dow is up 21 points, 0.14%. This despite the fact that the sequester has obviously taken a huge bite out of Congress's broadcast budget.

10.12am ET

Bernanke's testimony is delayed due to an audio problem in the hearing room. 

SELL! Sell!

While we wait you can read Bernanke's prepared remarks here

9.13am ET

Good morning and welcome to our live blog coverage of Federal Reserve chairman Ben Bernanke's testimony before the House Financial Services Committee. Bernanke's testimony has been released in advance of his 10am ET start in an effort to forestall any undue market excitement.

According to his prepared remarks, Bernanke will announce a possible winding down of the central bank's program to add fuel to a sputtering economy by buying bn in bonds each month, cyclical purchases known as quantitative easing. "Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," Bernanke will testify, according to Reuters:

Bernanke set off a brief but fierce global market sell-off last month when he outlined plans to reduce the quantitative easing program, and he has joined a slew of Fed officials since then who have spelled out their intention to keep interest rates near zero well after the asset purchases.

Bernanke will take questions from committee members on the health of the economy, expectations for unemployment, inflation and other indicators in his semi-annual trip to the Hill – potentially his final appearance as Fed chair. Watch it with us here. 

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European markets close lower again as Bernanke comments continue to unnerve investors. EU urged to find €3bn to plug Greek funding gap. Greek coalition on the brink. EU leaders meet in Luxembourg to discuss process for future bank bailouts…

 


Powered by Guardian.co.ukThis article titled “Global markets slip again after record falls – as it happened” was written by Simon Neville and Nick Fletcher, for theguardian.com on Friday 21st June 2013 15.22 UTC

5.22pm BST

Another down day for markets post-Bernanke

European markets have closed and after a bright start, the mood turned sour again. The prospect of Ben Bernanke turning off the money taps continued to unnerve investors, while the chaos in Greece with splits in the coalition over the ERT closure reminded everyone the eurozone crisis is far from over. So to the closing scores:

• The FTSE 100 finished 43.34 points or 0.7% lower at 6116.17

• Germany's Dax dropped 1.76% to 7789.24

• France's Cac closed 1.11% lower at 3658.04

• Italy's FTSE MIB lost 1.89% to 15,254

• Spain's Ibex fell 1.56% to 7700

• In Athens the market slumped 6% to 830 amid worries about new elections

Meanwhile on Wall Street, the Dow Jones Industrial Average is currently 46 points or 0.3% lower.

And on that note, as EU finance ministers drag the longest day into the longest night, it's time to shut up shop on what has been another tumultuous week. Thanks for all your comments and we'll be back on Monday. Have a good weekend.

4.22pm BST

Greek government could avoid new elections, says strategist

The withdrawal of Democratic Left ministers from Greece's coalition government over the ERT chaos is not likely to lead to new elections, according to Unicredit. Its strategist Dr Vasileios Gkionakis said:

The most likely scenario is a coalition government by prime minister Samaras’ New Democracy and PASOK. The new coalition would retain 153 out of 300 seats in parliament, and further support is likely to come from four independent parliamentarians (Markopoulos, Soldatos, Loverdos and Aidonis).

We think it is more likely than not that this new coalition government will not require a vote of confidence from the parliament. A cabinet reshuffle may take place, with PASOK possibly obtaining some key ministries. This reshuffle is most likely to happen in early July, after New Democracy’s convention scheduled in 28-30 June. We do not think this will have a significant impact on markets, but some nervous trading and higher volatility could emerge as markets digest the news and assess the challenges that the coalition's wafer-thin majority faces in the future.

At present, we attach a low probability to scenario in which Samaras sticks to his position on ERT and refuses any greater involvement of the PASOK in the government, inducing also Venizelos’ party to pull out of the coalition and thus earlier elections.

Moreover, it is reasonable to assume that the Troika may put some pressure on Samaras to avoid early elections, which would risk threatening the viability of the program and increase market uncertainty. Still, if such a scenario manifests, then we feel that a period of much increased uncertainty and higher volatility is very likely to resurface and threaten to deliver yet another blow to an already fragile risk appetite.

4.08pm BST

EU finance ministers back calls for French pension reform

EU finance ministers have put more pressure on France to revamp its pension system and cut labour costs in return for getting longer to shrink its budget deficit to within EU limits. According to Reuters:

The ministers backed the European Commission's detailed recommendations on how France should proceed with those reforms, despite Paris's instance that Brussels cannot "dictate" its policies.

Recommendations by the Commission last month on the details of the reforms, and especially the pension system, hit a raw nerve, with President Francois Hollande insisting France would go at its own pace.

EU finance ministers underscored the same message as the Commission on Friday, saying possible measures included increasing full-pension contribution periods and reviewing special schemes while avoiding an increase in employers' social contributions.

"The pension system will still face large deficits by 2020 and new policy measures are urgently needed to remedy the situation," finance ministers said in a statement.

French economy, finance and foreign trade minister, Pierre Moscovici (right) speaks with Dutch finance minister and Eurogroup head Jeroen Dijsselbloem (left) and Swedish finance minister Anders Borg (centre) at today's EU meeting. Photograph:   AFP/Getty Images/John Thys
French economy, finance and foreign trade minister, Pierre Moscovici (right) speaks with Dutch finance minister and Eurogroup head Jeroen Dijsselbloem (left) and Swedish finance minister Anders Borg (centre) at today’s EU meeting. Photograph: AFP/Getty Images/John Thys

3.47pm BST

As we suggested earlier, the EU ministers could be in for a long night. From the FT's Peter Spiegel:

Updated at 3.48pm BST

3.40pm BST

Markets lose earlier calm and turn negative

After the earlier calm, markets appear to be getting a little rattled again.

The FTSE 100 has turned negative and is now down 21 points, with Royal Bank of Scotland a big faller, down 6.8%. RBS, which could be split into a good bank/bad bank, was not helped by news of an increase in mortgage arrears in Ireland.

Germany's Dax is down around 0.9% and France's CAC off 0.38%. Even Wall Street, which got off to a bright start, is down around 8 points.

The mini-revival after Thursday's tumultuous falls now looks like the proverbial dead cat bounce….

3.22pm BST

Cyprus gas pipeline could be eligible for EU support

Over in Cyprus, a proposed gas pipeline to Crete and then Greece or Italy will be one of the strategic projects eligible for EU financial support, according to Cypriot officials. Reuters reports:

"The European Union will include the East Med Pipeline in the revised list of projects of common interest within the Southern Corridor for gas," George Shammas, chairman of the Cyprus Energy Regulatory Authority, said.

Cyprus Energy Minister George Lakkotrypis also said he had information the European Union would include the pipeline, although adding that Cyprus had to study the feasibility of the link.

An official announcement on the outcome is expected next week, but European Commission President Jose Manuel Barroso said, following talks with the Azeri president in Brussels, he was confident both routes could ultimately be realised.

2.58pm BST

US reaction

Michael Hewson at CMC Markets said on yesterday's US selloff:

There is no escaping the fact that yesterday’s falls could well have done some significant short term damage having broken through the key 1,600 level yesterday. The S&P500 needs to get and close back above this level fairly quickly or we could well see a further fall back towards the 1,536 level and the April lows over the coming weeks.

And on that note, I'm handing over to may colleague Nick Fletcher.

Updated at 3.42pm BST

2.55pm BST

The US wakes up

After two days of selling, Wall Street has started the day up slightly.

  • Dow Jones up 0.4% at 14,812
  • Nasdaq up 0.1% at 3,367
  • S&P 500 up 0.5% at 1,597

2.46pm BST

IMF: we’ll give Greece until July to agree a bailout programme

With all the noise from Greece about the split in the coalition, there was a glimmer of good news.

The IMF managing director David Lipton has said they will not suspend Greek funding, as previously thought, and Athens has until July to come up with an agreement on its bailout programme (made slightly harder by the reduced majority the government has).

The suggestion the IMF could without funds came after it was suggested part of Greece's financing broke ECB rules, leaving the creditors worried over future lending.

2.06pm BST

Ireland and Portugal bailout loans extended

The EU finance ministers have agreed to extend the maturity dates for Ireland and Portugal's loans from the European Financial Stabilisation Mechanism (EFSM) for an extra seven years, from twelve-and-a-half years to nineteen-and-a-half years.

The full statement is here

1.49pm BST

Greece’s new government

The new Greek government would still just about have a majority following the resignation of Democratic Left ministers. Apologies for suggesting it would be a minority earlier.

1.39pm BST

Poll: Have the markets overreacted to Bernanke?

As you digest the news spewing out of Greece, do go take our poll on whether the markets overreacted to Bernanke's call for a tapering off of QE by the US Federal Reserve.

The votes so far show more readers think the markets did overreact, but there's still time to vote here.

Traders in South Korea take in Bernanke's news.
Traders in South Korea take in Bernanke’s news. Photograph: Ahn Young-joon/AP

Seemingly, Vladimir Putin agrees with the majority of our readers and has told a press conference he's holding with Angela Merkel that Bernanke was right to make his announcement.

1.29pm BST

Democratic Left leader Fotis Kouvelis said in a statement that the country should avoid a new election and that his party would continue to back reforms within a European framework.

1.27pm BST

1.07pm BST

Democratic Left confirmed to leave Greek government

The Democractic Left party in Greece has confirmed it will withdraw its ministers from the Greek government, forcing a reshuffle. No word from its coalition partners.

A spokesman said

On the basis of developments and the prime minister's policies, the Democatric Left has decided to withdraw its ministers and general secretaries from government.

However, the party could still vote with the government on key issues and the remaining coalition parties could continue as a minorty administration.

1.03pm BST

Greek update

12.21pm BST

German-Turkish relations in trouble

A war of words has broken out between Germany and Turkey over the current protests in Istanbul.

It all started when Angela Merkel said the crackdown on protestors was "appauling".

Yesterday, Turkey's minister for relations with the EU, Egemen Bagis, accused Merkel of blocking further talks on the country's intentions to join the EU because she was

looking for domestic political material for her elections

And now, the comments have led to the Turkish ambassador being summoned to the German foreign office for a dressing down this afternoon.

A German foreign office spokesman called the comments "unacceptable" and claimed Germany's decision to block talks with Turkey were due to "techinical reasons" rather than in retaliation over the protestor crackdown.

Robert O’Daly, Turkey and Eurozone analyst at The Economist Intelligence Unit, suggested the setback to leave Turkey's EU ambitions in tatters.

EU condemnation of the police crackdown on the anti-government protests in Turkey and the Erdogan government's aggressive reaction to the EU's criticism has caused an abrupt cooling of Turkey-EU relations, undoing all the painstaking work of the last 12 months to revive Turkey's EU accession negotiations after three years in the doldrums.

In the current climate and with major elections taking place in Germany later this year and in Turkey in 2014-15, reviving Turkey's EU membership negotiation process will be a tough challenge.

Until now neither Turkey nor the EU has wanted to put an end to it, but neither side has been prepared to go the extra mile to provide real momentum.

Avoiding a complete breakdown now will require a huge effort.

11.47am BST

Leader of Democratic Left party Fotis Kouvelis, a junior partner in Greece's ruling coalition, wants to leave the the government after it shut down the state broadcaster
Leader of Democratic Left party Fotis Kouvelis, a junior partner in Greece’s ruling coalition, wants to leave the the government after it shut down the state broadcaster. Yorgos Karahalis/Reuters

A majority of lawmakers for Greece's Democratic Left party want to leave the coalition government, following a meeting (see 9.16am and 10.34am)

An official from the party told Reuters:

A strong majority of the parliamentary group and the executive committee are backing [leader Fotis] Kouvelis's propsal to withdraw minsters from the government.

We will bring you any follow up reaction from their coalition partners when it arrives.

Also, we are guessing, but perhaps its a Greek political thing to turn up to a briefing with your packet of cigarettes on top of your notes when talking to the press.

11.40am BST

EU meet in Luxembourg

Netherlands' Finance Minister Jeroen Dijsselbloem, center, talks with Spain's Finance Minister Luis de Guindos, left, and Sweden's Finance Minister Anders Borg over new bailout rules
Netherlands’ Finance Minister Jeroen Dijsselbloem, center, talks with Spain’s Finance Minister Luis de Guindos, left, and Sweden’s Finance Minister Anders Borg over new bailout rules Photograph: Geert Vanden Wijngaert/AP

EU leaders in Luxembourg are holding a day (and probably night) of talks to create rules that force losses onto large savers when banks fail.

Finance ministers want to work out how they can shut failed banks without causing panic or burdening taxpayers.

According to the official press release, the Council will:

be called on to agree on a draft framework for bank recovery and resolution — a key element of the future banking union — in order to allow negotiations to start with the European Parliament.

And when they finish that:

The Council is expected to close excessive deficit procedures for Italy, Latvia, Lithuania, Hungary and Romania, give notice to Belgium on measures to correct its deficit, extend the deadlines for Spain, France, the Netherlands, Poland, Portugal and Slovenia to correct their deficits, and reopen an excessive deficit procedure for Malta.

Sweden's finance minister said

We are in for a very tough negotiation

warning that a one-size-fits-all rule for all EU countries was "dangerous".

A draft bill has suggests bank shareholders should suffer first, followed by bondholders and then savers. A new fund could also be set up to oversee new tighter rules.

However, Sweden, Britain and France want individual countries to have a final say rather than following a blanket rule.

Putting a happy spin on the talks, the European Commission's top economics official, Olli Rehn, said

Midsummer is the longest day of the year so we have plenty of time.

10.42am BST

Stablisation: shortlived or genuine optimism?

Matt Basi at CMC Markets UK asks whether the stablisation (FTSE now up 69 points) could be short lived.

He said

Much desk discussion this morning has been devoted to the nature of the move higher, with sceptics convinced that we’re witnessing a dead cat bounce whilst more optimistic traders expect a leg higher following yesterday’s shake out.

The options expiry saw FTSE stocks bid higher during the mid-morning auction suggesting risk appetite remains in some quarters, which is reflected in the flow we’re seeing on desk with over 60% of clients with FTSE index positions currently long.

10.34am BST

Greek political fallout

Reuters are reporting that Greece's Democratic Left party head Fotis Kouvelis has advised his lawmakers to withdraw the party's ministers from the coalition government over its decision to shut down the state broadcaster.

An official said

Kouvelis has recommended that the ministers of the Democratic Left withdraw.

10.13am BST

Crisis? What crisis?

Two hours after opeing, the European markets continue to hold up well.

The FTSE stands up 33 points at 6192

DAX up 17 points at 7946

CAC up 25 points at 3724

10.06am BST

Chinese rates ease from 25% highs

Meanwhile over in China, the central bank has been clashing with banks in an attempt to end informal lending which officials believe is being used for speculative trading.

The banks have been using cheap official funds to finance a vast shadow banking market, which Beijing worries is siphoning credit from industry and creating asset-price bubbles.

In an attempt to stem the lending, the People's Bank of China has stopped putting funds into the market to steady the interest rate, sending short-term interest rates up to 25% and higher.

However, the rate mellowed today and fell to around 9% on the back of rumours that some major banks were helped out after asking for emergency funding.

Barclays economist Yiping Huang said:

One consensus among many government officials and policy advisers is that tough decisions on economic reforms could no longer be delayed and that taking some short-term pain is necessary for healthy long-term growth

And Charlene Chu, senior director at Fitch, told Reuters:

They are trying to take a different approach to rein in shadow banking activity.

This new approach, where you are trying to tighten the funding in the system available for that type of credit, is much more effective, but it is also taking the market by surprise.

China's cabinet said this week it was committed to reducing financial risks and ensuring that credit growth supported the real economy.

The central bank does not want to cut the levels of reserves banks must hold, worried that bubbles could be formed, especially in the housing market.

9.52am BST

Greek bond reaction

The rise in the Greek bond yields could be the start of a rise elsewhere due to the QE news from the US.

Nicholas Spiro from Spiro Sovereign Strategy warned

Eurozone peripheral debt markets are used to being in the eye of financial storms. Yesterday, however, they were the silent victims of the "tapering terror" convulsing the international investment community.

Right now, southern European sovereign debt is the least of investors' concerns. Eurozone bond markets have become a derivative of investor perceptions of the timing, pace and consequences of the US Federal Reserve's exit from its third round of quantitative easing (QE).

The "Bernanke put", or the perceived lack of it, has replaced the "Draghi put" as the main driver of market sentiment towards the eurozone.

Mr Draghi needs the tapering debate like he needs a hole in the head. Not only does it undermine the perceived credibility and effectiveness of the ECB's bond-buying programme, it provides a foretaste of what's in store when the ECB itself starts to normalise policy – however distant a prospect that may be.

9.16am BST

New Greek turmoil

Over in Greece, the Government's coalition could be about to lose one of its members.

Leaders from the small Democratic Left party are currently meeting to decide if it should leave PM Anotonis Samaras's coalition, angry at the decision to to shut down the state broadcaster ERT last week.

Samaras said

I want us to continue together as we started but I will move on either way.

Our aim is to conclude our effort to save the country, always with a four-year term in our sights. We hope for the Democratic Left's sopport.

The unrest – coupled with the market volitility and threats from the IMF – sent ten year Greek bond yields to their highest since late April. They were up 70 basis points to 11.41%.

8.36am BST

Nikkei closes the week up

Overnight the Nikkei rose 1.7%, recovering thanks to a weak yen against the dollar.

The rise burned out early falls on the back of the QE announcement in the US.

It rose 216 points, closing at 13,230 after falling as low as 12,703 in early trading.

After weeks of falls, the Japanese market closed up 4.3% on the week. The first weekly rise for more than a month.

8.29am BST

Today’s agenda

As well as keeping an eye on the markets as they respond to yesterday's biggest fall in 18 months, we will keep an eye on the following:

Over in China, we will bring you the latest on the rocketing interest rates, after government fears of excessive lending.

And in Luxembourg EU ministers are meeting to discuss various plans to avoid further bailouts and fallouts. They could also approve Latvia's desire to join the Euro currency.

The ministers will also be dealing with threats from the IMF that it is preparing to suspend aid payments to Greece unless Eurozone leaders stump up a €3-4bn shortfall, all at a time when the fragile Greek coalition looks on the brink of collapse.

8.17am BST

Markets open steady

Good morning and welcome to another day of our live eurozone crisis rolling coverage, where it's heads down to see if the markets can recover after yesterday's violent reaction to the US Fed's warning at winding down QE.

So far, so good, it would seem, as markets across Europe ticked up ever so slightly.

FTSE 100 up 0.1%

DAX up 0.2%

CAC 30 up 0.5%

IBEX up 0.4%

FTSE MIB flat

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Published via the Guardian News Feed plugin for WordPress.

Euro officials say Cypriot president won’t get bailout revamp. Fed Chairman Ben Bernanke to discuss US stimulus package. What the analysts say. Bank of England minutes: Mervyn King outvoted for last time as the Monetary Policy Committee keeps the size of QE program unchanged…

 


Powered by Guardian.co.ukThis article titled “Bernanke predicts tapering this year, as Cyprus denies seeking bailout changes – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 19th June 2013 20.12 UTC

9.25pm BST

That’s a wrap

Time to stop, I think

• Highlights of the Fed decision, and Bernanke's press conference start here:

• Details of the Cyprus government's commitment to its bailout programme are here, with a full statement here

• Details and reaction to the UK report into banking, including its call to jail reckless bankers, start here

• And highlights of the Mansion House speeches start here.

Thanks, and goodnight. GW

9.24pm BST

Osborne at the Mansion House

Britain's Chancellor of the Exchequer George Osborne poses with his wife Frances Osborne (L) during the 'Lord Mayor's Dinner to the Bankers and Merchants of the City of London' at the Mansion House in London June 19, 2013.
Britain’s Chancellor of the Exchequer George Osborne poses with his wife Frances Osborne during the ‘Lord Mayor’s Dinner to the Bankers and Merchants of the City of London’ at the Mansion House in London tonight. Photograph: POOL/REUTERS

Here's our full story on the Mansion House speech, by my colleagues Jill Treanor and Nick Watt:

George Osborne readies City for Lloyds sell-off

George Osborne has signalled he is ready to start the sell-off of the taxpayer's stake in Lloyds Banking Group, but said he is to consider whether to break up the Royal Bank of Scotland, in a move that could delay the bailed out bank's return to the private sector.

In his annual speech to City grandees at Mansion House on Wednesday night, the chancellor said he was "actively considering options for share sales in Lloyds", in which the government has a 39% stake. Speculation is mounting that a partial sell-off of the state's Lloyds stake could take place within months.

But he played down expectations of an immediate "Tell Sid" style privatisation, as implemented by the Conservatives during the 1980s.

While Nils Pratley argues that the chancellor's change of heart on RBS, although somewhat baffling, is sensible:

The mystery deepens. Last week it was imperative that Stephen Hester be hustled out of Royal Bank of Scotland because the Treasury wanted privatisation to happen by the end of 2014 and to give a new chief executive time to settle in.

This week, however, a rapid sale of shares is not a priority. Instead, as chancellor George Osborne announced, the option of a good bank/bad bank split at RBS will be examined in detail. In any case, privatisation of RBS is "some way off", said Osborne, and Lloyds is top of the batting order for a sale of shares.

What on earth is going on? Well, one thing is clear: the assembled forces of Lord Lawson and other members of the Banking Commission, the governor of the Bank of England, and business secretary Vince Cable have scored a notable victory.

Here's Nils's full comment: George Osborne's shift on bad bank model is welcome

9.12pm BST

Wall Street down

Wall Street has closed for the day with the Dow Jones falling 206 points, or 1.35%, to 15112.

Ben Bernanke's prediction that the Fed's asset purchase scheme will start to slow this year, and end by the middle of 2014, has not gone down terribly well in New York.

Still, it's far from a rout. And the key to exiting this crisis will be how the process of tapering is managed, rather than exactly when it starts and finished. That's the 'landing on an aircraft carrier' analogy which the Fed chair made today.

Not that everyone took it totally seriously:

9.07pm BST

Sir Mervyn King is also speaking at the Mansion House — in a speech called A Governor looks back – and forward.

It includes the traditional sporting allusion:

I shall not detain you this evening with a retrospective examination of my time as Governor. Suffice it to say that it was a game of two halves. And, far from a boring goalless draw, it turned out to be a rather exciting and dramatic game, full of incident, with a red card or two and a passionate and at times justifiably angry crowd.

We shall have to wait for the historians of tomorrow to file the full match report. 

The full speech is online here.

8.57pm BST

Mansion House Speeches

And lo, the day ends with the Mansion House speeches in London.

The great and the good (and the rest) of Britain's financial world are gathered for the annual black tie event. And the big news tonight is that George Osborne is announcing that he will review whether to break up Royal Bank of Scotland.

He's also announcing that the government is "actively considering" returning Lloyds Banking Group to the private sector.

Osborne is declaring:

Nothing better signals Britain's move from rescue to recovery than the fact that we can start to plan for our exit from government share ownership of our biggest banks.

Our banking expert Jill Treanor sums it up:

Updated at 8.58pm BST

8.50pm BST

King to be Lord

Some late news in the UK — Sir Mervyn King is getting a peerage in recognition of his loyal service at the Bank of England

8.41pm BST

A bit more instant reaction to Bernanke

Kit Juckes of SocGen comments:

Bottom line – no backing down, no turning back, the Fed will taper unless the data deteriorate.

Kit also provides a copy of the key quote from Bernanke – on when asset purchases might slow, and then stop.

If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program. I would like to emphasize once more the point that our policy is in no way predetermined and will depend on the incoming data and the evolution of the outlook as well as on the cumulative progress toward our objectives.

8.34pm BST

Here's a natty screengrab from Bloomberg, showing how volatility fluctuated through Bernanke's press conference as traders tried to work out what it means:

Volatility during Bernanke's speech
Photograph:/Bloomberg TV

8.31pm BST

And Bernanke's press conference is over.

8.27pm BST

Bernanke: I back Japan’s stimulus

Asked about Japan's stimulus programme, Ben Bernanke says he supports it – and prime minister Shinzo Abe's Three Arrow approach to reviving the economy.

The Bank of Japan needs to be very aggressive to tackle deflation, he says, and is also correct to be targetting fiscal and structural issues.

I support what Japan is doing, he adds, even if it has some effects on our economy, Bernanke adds.

8.25pm BST

8.24pm BST

Quantitative easing is often blamed for pushing up the price of commodities, but Bernanke says he's not seen much evidence that the current US stimulus programme has had an effect. He cited weaknesses in Europe's economy as one factor.

And on the labour market, the Fed chair sais that weak rises in wages is proof that the US unemployment rate is too high (as workers are in a poor bargaining position).

8.22pm BST

Bernanke also denies that the Fed isn't worried about inflation falling below its target (US CPI came in at 1.4% yesterday).

Inflation that is too low is a problem, he says – it's 'entirely wrong' to say the Fed isn't concerned about this risk.

8.20pm BST

Wall Street's looking less-and-less impressed by Bernanke's comments, and the prospect of tapering begining later this year.

The Dow is now down 158 points, or just over 1%, at 15158.

8.17pm BST

Bernanke also refused to reveal why he won't be attending the Jackson Hole symposium this summer — the central bankers shindig of choice.

He points out that he's been to the event many times — so what's the problem with attending different events instead?

Two personal questions in one press conference…..Bernanke's future risks becoming the story.

8.08pm BST

Meanwhile, over in Greece….

While the Federal Reserve was capturing our attention, the meeting between the three leaders of Greece's government broke up.

And Evangelos Venizelos, head of the left-wing Pasok party, has announced that another round of talks will take place on Thursday night, from 8.30pm local time (6.30pm BST).

From Athens, Helena Smith reports:

Mega TV interrupted its news programme to say that the talks have ended but that prime minister Antonis Samaras will not be making statements (as had been hoped).

His partners, socialist Pasok leader Evangelos Venizelos and Democratic Left leader Fotis Kouvellis will make statements however.

Doesn't sound like relations between the three men are fully repaired, following the row ove the closure of Greece's state broadcaster.

8.05pm BST

Bernanke says he hopes for more progress on implementing new rules on the financial sector, but argues that US banks are already being strengthened "as the rules are finalised".

He said:

We are not ignoring the health and safety of the banking sector. The amount of capital held by banks has almost doubled.

7.57pm BST

Key event

A few more key quotes from Bernanke:

7.52pm BST

Bernanke, whose term of office ends in early 2014, also declines to answer a question about his future. I'm here to talk about policy, not personal matters, he smiles.

7.51pm BST

Should we be worried about recent rises in interest rates on US government bonds?

No says Bernanke — it's a sign of optimism in the US economy.

7.48pm BST

Question time. Hasn't the Fed got its forecasts too optimistic in the past, so how can we be sure it's right to be considering tapering later this year?

Bernanke responds that "Fundamentals look a little better", especially in the housing market. But if the US economy falters, asset purchases will continue for longer, he says.

Updated at 7.49pm BST

7.44pm BST

Bernanke on the pace of asset purchases

Next Key Point: If the Fed's economic forecasts are correct, then the committee expects to start slowing its asset purchases scheme this year.

And it would probably end the scheme by the middle of 2014.

Bernanke also told his press conference that the US jobless rate will probably be around 7% when the slowing process begins ends.

That slowing process will be 'gradual'.

Bernanke also insists that slowing asset purchases should not stun the US economy. He describes it as:

Letting up the bit on the gas pedal as the car picks up speed, not pressing on the brake.

IUsing the brakes, by raising rates, is still far in the future, he adds.

Updated at 7.55pm BST

7.37pm BST

Bernanke: our view of normalising policy

Interesting. Bernanke tells his press conference that "a strong majority" of members of the Fed's Open Marcket Committee believe that it will not sell mortgage-backed securities acquired during its QE programme "during the process of normalising policy".

The Fed is currently buying bn of MBSs, and bn of Treasury bonds, each month.

We're not getting more information now, though, with Bernanke insisting that the Fed will continue to support the US economy even as the labour market and economic growth picks up.

Updated at 7.37pm BST

7.33pm BST

Bernanke is starting his press conference by reading out a statement, similar to the one released at 7pm BST (2pm EDT), and explaining the new economic forecasts.

Ben Bernanke, June 19th 2013
Ben Bernanke, June 19th 2013 Photograph: /Federal Reserve

7.30pm BST

HERE COMES BERNANKE

The Federal Reserve chairman's press conference is upon us – you can watch it in this livestream:

7.29pm BST

Fed: early reaction

Here's some early reaction to the Fed's statement, from Jeremy Cook, chief economist at World First foreign exchange said:

We’ve seen a fairly muted response to the Fed decision so far but, on balance, it looks like this is a meeting that was taken with the very real knowledge that markets have been spooked of late by what the central bank could be up to. This is a soothing release; designed to say that the tapering away of asset purchases will come but they are wary of scaring the horses

The balancing act in the data revisions comes down on the side of tapering sooner rather than later given growth is roughly the same as in the March meeting and unemployment is towards the lower side of March expectations too.

The key will be inflation. The Fed’s stock measure of inflation (Personal Consumption Expenditure) only rose 0.7% through the year to April, less than half the bank’s target. While we think that the risk of deflation in the US is low, we also believe that the Fed will continue asset purchases at the current rate through until the end of the year.

The Fed expects these measures to remain muted through 2014.

I am slightly away from the market’s expectations in that I believe that the Fed will not ‘taper’ away its asset purchases until next year. The basis of this is the Fed’s determination to make sure that the recovery in the US jobs market is sustainable. The latest numbers from the US jobs market have simply not been good enough in my eyes; additions to payrolls have not been above trend regularly and the unemployment rate is not improving consistently.

Fold in the likelihood that the world economy is likely to remain in a below trend growth cycle through Q3 and I would think that the Federal Reserve will err on the side of caution; especially as inflation expectations remain so firmly anchored.

7.26pm BST

Handy:

7.25pm BST

The Fed’s new forecasts

Federal Reserve predictions, June 2013
Photograph: Federal Reserve

Clearer version in the Fed's release (pdf).

7.19pm BST

US Treasuries slide on Fed statement

US government bonds have fallen in value since the Fed's statement was released, pushing up the yield (or interest rate) on the debt.

The yield on the 10-year Treasury bond has jumped to 2.27%, from 2.18% this morning, a move of 9 basis points (that's a significant shift for Treasuries).

That shows traders are anticipating an earlier 'tapering' of the Fed's bond-buying programme, despite it holding it unchanged at today's meeting.

Not much reaction in the stock market, though, with the Dow Jones down just 35 points.

7.15pm BST

Fed upgrades unemployment forecsts

The Federal Reserve has also released its new economic forecasts. They show that it now expects the US jobless rate to be lower next year than three months ago. They're online here.

The Fed nowe expects the unemployment rate to be between 6.5% to 6.8% in 2014, down from 6.7% to 7% in March.

With 6.5% seen as the crucial target for the Fed before it starts to tighten monetary policy, this suggests the end of ultra-lose monetary policy may be closer than previously thought….

7.07pm BST

Fed Statement in Full

Here's the full statement released by the Federal Reserve:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of billion per month and longer-term Treasury securities at a pace of billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations."

7.06pm BST

FED DECISION

The Federal Reserve's statement is out — the FOMC has voted to leave its QE programme unchanged at bn per month, although two members have dissented.

The Fed also stated that "downside risks" to the economy and the labour market have diminished 'since the Fall', with improvements to the employment sector in recen months.

It also reiterated to keep monetary policy at its current loose levels until the jobless rate has dropped below 6.5%.

Here's the Reuters snaps:

  • FED REPEATS WILL BUY LONGER-TERM TREASURY SECURITIES AT PACE OF bn A MONTH, AGENCY MBS AT bn A MONTH FED SAYS DOWNSIDE RISKS TO OUTLOOK FOR ECONOMY AND LABOR MARKET HAVE DIMINISHED SINCE THE FALL
  • FED VOTE IN FAVOR OF POLICY WAS 10-2; BULLARD DISSENTED, CITING RECENT LOW INFLATION READINGS; GEORGE DISSENTED, REPEATING CONCERNS OF FUTURE IMBALANCES
  • FED SAYS LABOR MARKET CONDITIONS HAVE SHOWN FURTHER IMPROVEMENT IN RECENT MONTHS, BUT JOBLESS RATE REMAINS ELEVATED
  • FED SAYS INFLATION HAS BEEN RUNNING BELOW TARGET, PARTLY REFLECTING TRANSITORY INFLUENCES; LONG-TERM INFLATION EXPECTATIONS STABLE
  • FED-TO KEEP FED FUNDS RATE 0-0.25% AS LONG AS JOBLESS RATE ABOVE 6.5%, 1-2 YEAR PROJECTED INFLATION NO MORE THAN 2.5%, LONGER-TERM INFLATION EXPECTATIONS WELL ANCHORED 
Federal Reserve Board Chairman Ben Bernanke testifies before the Joint Economic Committee in Washington in this May 22, 2013 file photo.
Federal Reserve Board Chairman Ben Bernanke. Photograph: GARY CAMERON/Reuters

Updated at 7.07pm BST

6.58pm BST

Fed statement imminent

Just a couple of minutes until the Federal Reserve's decision on US monetary policy, and updated economic forecasts.

Analysts and traders will be looking to see if the Fed has actually slowed its stimulus package (currently running at bn of bond purchases), and for any changes to the wording of its statement. 

Its new economic forecasts will be scrutinised for any changes to its growth and employment predictions. That could show whether the US central bank is closer, or further away, from slowing its quantitative easing programme.

6.28pm BST

Berlusconi declares support for Italian government despite court blow

In other euro crisis news, Silvio Berlusconi has vowed to keep supporting Italy's coalition government despite losing his bid to block his tax fraud conviction, from last October.

In a statement, Berlusconi said:

Today's constitutional court decision, which goes against common sense and all the preceding jurisprudence made by the very same court, will not have any influence on my personal commitment to support the government with loyalty and conviction.

The decision means the original judges who convicted the former prime minister eight months ago, and sentenced him to four years in prison, must now decide on his appeal.

Berlusconi claims they acted unfairly by not allowing him to delay a hearing in March 2010, which he couldn't attend due to prime ministerial duties.

6.06pm BST

Cyprus government’s denial in full

The Cypriot government has now released its full statement denying asking for changes to its bailout programme. Prime minister Anastiades was simply trying to alert fellow leaders to the economic challenges on the island when he wrote to them last week, apparently.

Here's the full statement, which comes hours after EU officials ruled out any leeway for Cyprus (see 9.25am)

Clarifying letter by the Government Spokesman regarding an article in the Financial Times 19/06/2013

The Government Spokesman, Mr Christos Stylianides, sent today the following clarifying letter in relation to an article in the Financial Times entitled “Cyprus President calls for bailout overhaul to save economy”. Specifically, the letter says:

“In response to Peter Spiegel’s article in the Financial Times issue of June 18, regarding President Anastasiades’ letter to the European leaders last week, I would like to offer the following clarifications.

The letter of President Anastasiades in no way aimed at a reversal of the memorandum of understanding (MoU), as the article reports.

As has been favourably observed by the EU institutions, Cyprus, in fact, applied most of the terms of the memorandum, even before the agreement was signed and sealed. Allow me to clarify that the Government is fully committed to implement all the provisions of the MoU, with the aim of achieving its objectives.

Furthermore, I would like to emphasize that it is not true to state, as reported in the said article, that failure to adequately prepare for the bailout impact is partly the Anastasiades’ government’s fault, which voted down the original plan, before accepting a similar deal nine days later.

In fact, the Government did not vote down the original plan. It submitted, as it was duty bound, the deal it had reached with its European partners to the Cyprus House of Representatives and it is the House that voted against it, in the first instance.

The objective of the President’s intervention was to bring to the attention of our European partners important issues, that are inhibiting the achievement of the objectives of the MoU and initiate a dialogue with a view to finding the best way forward.

I reiterate once again that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road, because it is convinced that the full and transparent implementation of the agreement is the only way the economic challenges can be addressed There is no attempt to renegotiate the MoU.”

Updated at 6.09pm BST

5.19pm BST

While we wait for anything official from Athens following today's meeting of coalition leaders, here's an interesting piece on RadioBubble about the closure of Greek state broadcaster ERT:

Truths and lies about ERT: A former news director answers the Prime Minister's claims

It points out that Antonis Samaras, who has accused ERT of corruption and cronyism, actually made several senior appointments to the organisation. It also suggests the PM should share some blame for its recent drop in popularity. Interesting stuff

Updated at 5.34pm BST

5.01pm BST

Markets close

Traders gather at posts on the floor of the New York Stock Exchange Wednesday, June 19, 2013.
Traders on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

Europe's stock markets have closed, with all the major markets falling during a day spent waiting for the Fed.

David Jones of IG explain:

It being Fed day, investors are stuck doing their best ‘rabbit in the headlights’ impression, unable to move much for fear of being caught out.

What will be, will be, and we just have to note that the Fed remains a fair distance from both its unemployment and inflation targets. Thus, despite the fairly broad improvement in the US economy, it is probably too early to take the monetary policy crutches away.

And the details… the FTSE 100 inished 25 points lower at 6348. That fall of -0.4% was matched by the Geman DAX, while the French CAC shed 0.55%.

Spain and Italy's main markets both closed around 1% lower.

In New York, the Dow Jones is flat.

Just two hours to wait for the Fed.

4.33pm BST

Cyprus denies seeking bailout changes

It appears that Cyprus has written to the Financial Times to insist that it is not demanding its bailout programme is overhauled, as the paper reported on its front page this morning (see 9.25am).

Via Reuters:

Cyprus is fully committed to implementing an EU/IMF bailout that saved the island nation from bankruptcy and is not attempting to renegotiate its terms, the government's spokesman said on Wednesday.

"I reiterate once again that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road," Christos Stylianides wrote in a letter to the Financial Times and circulated to media.

"There is no attempt to renegotiate (it)". Stylianides was responding to an article in the Financial Times citing a letter Cypriot President Nicos Anastasiades sent to euro zone officials criticising the bailout terms. Reuters reported the letter on June 11.

Nicos Anastasiades's letter to the Troika is still online here. The key lines come at the end, with the president "calling upon you for active and tangible support" for its banking sector. He suggests reversing the merger of the 'good' portion of Laiki bank with Bank of Cyprus – which was a key part of the rescue programme.

So Nisosia may still be 'fully commmitted' to the bailout, but it still wanted additional help….

3.37pm BST

News flashes from Cyprus on the wires – the Nicosia government pledging to stick to its bailout plans.

• 15:27 – CYPRUS IS "FULLY COMMITTED" TO APPLYING TERMS OF EU/IMF BAILOUT-GOVT SPOKESMAN

ª 15:28 – CYPRUS SAYS IT IS NOT ATTEMPTING TO RENEGOTIATE BAILOUT-GOVT SPOKESMAN

More to follow…..

3.29pm BST

Video: Ed Balls on the Banking Commission report

And here's the shadow chancellor, Ed Balls, backing the call for bank reforms:

Updated at 3.30pm BST

3.28pm BST

Cameron supports new measures on bad bankers

Back on the UK Banking commission…and David Cameron has told parliament that the banking reform bill going through parliament will be amended to include powers to jail bankers for reckless misconduct.

The prime minister told MPs:

Obviously we need to take time to read this excellent report and I commend [Andrew Tyrie] for the excellent job that he has done. But penalising, including criminal penalties against bankers who behave irresponsibly, I say yes.

And also making sure that banks who are in receipt of taxpayers' money – that you can claw back bad bonuses I say yes too.

That may not please the Institute of Directors. Its director of Corporate Governance and Professional Standards, Dr Roger Barker, has just claimed the idea is flawed and counterproductive:

The risks associated with taking on personal liability could make it hard to recruit senior people and potentially drive up pay, which is clearly not the Commission’s intention.

On the other hand, any bankers who wants extra pay to compensate for the fact they might break the law should perhaps be avoided…

(see 11.12am onwards for more details of the Commission report, and our reader poll)

Updated at 3.29pm BST

2.55pm BST

Wall Street calm before Bernanke

Wall Street is open, and traders are sitting on their hands while they wait for the Federal Reserve's monetary policy decision and updated economic forecasts in around four hours.

Then the big event, Ben Bernanke's press conference, 30 minutes later.

The Dow Jones is down slightly, losing just 27 points at 15291 (-0.17%), while the major European stock markets are also in the red today:

Stock markets, 2.45pm June 19
Photograph: Thomson Reuters

2.47pm BST

Troika statement on Greece

The European Commission, ECB and IMF has released a pretty terse statement on their latest 'Troika' visit to Greece.

Here it is in full:

A mission from the EC, ECB, and IMF that has been reviewing the government's economic programme has made important progress. To allow completion of technical work, policy discussions will pause, but are expected to resume by the end of the month.

That technical work means assessing exactly how well (or badly) Greece is doing meeting its bailout targets. That includes laying off thousands of civil servants this year, an area where Athens has struggled.

2.21pm BST

Meanwhile in Greece, employees of state organisations who are at risk of dismissal have been demonstrating outside the Parliament in Athens today:

Employees of state organisations in danger of dismissal demonstrate in front of the Parliament Building, in Athens, Greece, 19 June 2013.
Photograph: ORESTIS PANAGIOTOU/EPA

2.09pm BST

Greek junior coalition leaders to demand concessions

Greece's coalition leaders are due to sit down in two hours time to discuss the way forward, following the row over state broadcaster ERT's closure.

The Junior partners, Evangelos Venizelos of Pasok and Fotis Kouvelis of Democratic Left, have already held a meeting to agree a joint position ahead of their crunch talks with PM Antonis Samaras.

Could the government collapse? Mujtaba Rahman, European director at Eurasia Group, reckons not.

Here's highlights from Rahman's latest analyst note:

Importantly, neither PASOK nor Democratic Left have threatened to leave the government. Instead, they have been looking to extract certain concessions. Venizelos wants a cabinet reshuffle to actually increase his party's participation and visibility in the government (his original strategy was to shadow the government in case things went wrong; however, as the program has performed Samaras has been swallowing all of the credit).

In terms of specifics, the current speculation is that PASOK is targeting the ministry of administrative reform as well as some deputy minister positions in the health and labour ministries. Likewise Kouvelis does not object to a reshuffle. Venizelos's and Kouvelis also keep repeating their desire for a renewal of the government's agreement and better "coordination of the government". In the aggregate, these statements should be interpreted as a warning to Samaras that he cannot decide on big policy issues without more active involvement and agreement of the coalition heads.

Of course, the latest opinion polls show that Pasok and Democratic Left would be big losers if an election was held soon. Both are currently polling around the 4-7% mark, compared to New Democracy at 29-30%.

Rahman adds:

Samaras personally comes in around 43% compared to Syriza's Tsipras at 37%, depending upon the poll). And government collapse would almost certainly lead to an internal leadership challenge within PASOK.

1.44pm BST

Cypriot President Nicos Anastasiades signing a document during the swearing-in ceremony for a new president and new judge of the Supreme Court, at the presidential palace in Nicosia on June 19, 2103.
Cypriot President Nicos Anastasiades at the presidential palace in Nicosia today. Photograph: STAVROS IOANNIDES/AFP/Getty Images

Following the Cyprus president's appeal for its bailout to be reexamined, economist Shaun Richards argues that the country must consider leaving the single currency.

He summarises Anastasiades' letter in this blog post, before wearily concluding:

So far his appeal has fallen on deaf ears, as this morning a spokesman for the European Commission has made it clear – that just like the Titanic – the plan is to go full steam ahead.

He then takes the latest economic data for Cyprus to assemble a dire picture of deflation, falling retail sales and shrinking GDP, with capital controls continuing to stifle economic growth.

A repeat of Greece's depression-grade slump looks likely:

Unfortunately the evidence so far is that my prediction from March 25th that the contraction that hit Greece will be repeated in Cyprus looks as though it is coming true and I fear that the risks are of something worse. However there is another way for Cyprus which would be to in effect reset the economic button via abandoning the capital controls imposed on her and leaving the Euro. At least there would be some hope and she would be doing so in a disinflationary phase which will help with any inflationary implications.

However, Cyprus does have one weapon – the €11bn of assistance provided the the ECB to prop up its banking sector:

As to threats from the Euro area she does have the bargaining counter of 11 billion Euros of Emergency Liquidity Assistance provided by the European Central Bank (via the Central Bank of Cyprus). So her bargaining position is stronger than it may initially appear.

More here: Cyprus needs to leave the Euro to have any chance of an economic recovery

12.50pm BST

Cyprus stil favourite to leave eurozone after bailout plea

Cyprus is now an evens-money bet to leave the eurozone within the next 12 months.

Ladbrokes slashed its odds after president Anastiades called for its bailout to be revamped. The news that he had been swiftly rebuffed by EU officials this morning (see 9.25am), means Cyprus remains the most likely country to leave the eurozone.

Next country to leave the Euro

  • Cyprus: 1/2
  • Greece: 2/1
  • Slovenia: 7/1
  • Italy: 10/1
  • Spain: 10/1
  • Portugal: 12/1
  • Cyprus to leave the Euro within a year: evens

Alex Donohue of Ladbrokes commented:

Cyprus have always been market leaders when it comes to leaving the Euro next. The latest news has seen their position strengthen and it would now be considered an upset were they not to leave within a year at least.

12.26pm BST

Fed meeting: latest reaction

Time for another look ahead to Ben Bernanke's press conference tonight, and the Federal Reserve's monthly decision on monetary policy (see our opening post at 8.12am for details)

Kit Juckes of Société Générale believes the Fed must start to slow its bond-buying programme soon, and is braced for some wild swings in the financial markets this summer.

There are good and bad ways to let air out of balloons, but the worst of all is not to start. Most US economists expect the Fed to start reducing its monthly bond purchases later this year, but the wider market view is much more mixed and there are plenty who expect the FOMC to put enough criteria in the way of tapering, to calm markets.

The next leg of a summer of market volatility is likely to start in the days ahead.

Jane Foley of Rabobank points out that Bernanke brought the attention on himself. The weak US labour market means the Fed's unlikely to 'taper' its bond-buying programme tonight, she adds:

Since Bernanke uttered the words on May 22 that the Fed could start to taper QE “at the next few meetings”, the markets have been focussed on the outcome of today’s FOMC decision at 19:00 BST and the press conference that will follow 30 minutes later. Insofar as Bernanke is unlikely to contradict himself, it is likely that the Fed President will reiterate his warnings that the Fed could start to taper QE in the foreseeable future. However, we do not expect this to happen before the turn of the year. 

The US unemployment rate currently stands at 7.6%. This is significantly below the 10% high registered in 2009. However, the US labour market has a long way to go before it can claim to have returned to pre-crisis levels. The labour force participation rate has only just come off a 37 year low. This suggests that the headline unemployment rate is understating the actual levels of joblessness and underemployment in the economy, potentially by a large margin.

RanSquawk’s FOMC preview

And Ransquawk predicts that the Fed will reiterate that it expects to maintain exceptionally low rates until mid-2015 or until the unemployment rate reaches 6.5%.

More in their video preview above, which explains how traders will be looking for any signs that Bernanke has turned more hawkish.

11.42am BST

The FT's James Mackintosh, though, reckons our bankers could even turn the threat of jail to their advantage:

11.15am BST

Should bankers be jailed? Vote now!

We're running a reader poll on whether the threat of jail for bad bankers would improve the industry, as recommended by the Banking Commission.

Would the threat of jail be enough to end bankers' reckless behaviour?

Shadow business secretary Chuka Umunna believes it would help:

Updated at 11.39am BST

11.12am BST

Banking Commission: reaction

The long-awaited report into Britain's banking sector, released at midnight, has captivated attention today.

The recommendation that bankers guilty of 'reckless misconduct' could be jailed has captured attention, while the commission also criticised the macho culture in British banking, and the government's meddling in the sector in recent years.

The report has been welcomed by chancellor George Osborne, Labour's Ed Balls, and many senior figures.

We've rounded up all the reaction here.

And here's our full story on the Banking Commission report:

Banking commission: Bankers should be jailed for 'reckless misconduct'

Commission led by Andrew Tyrie recommends jailing reckless bankers for and enforcing a wait for bonuses

10.52am BST

Eurozone construction output rises

Eurozone construction data, to April 2013
Construction data, to April 2013. Eurozone is pink, EU is black. Photograph: /Eurostat

There are encouraging signs of life in Europe's construction sector, with production rising by 2.0% in the euro area in April compared with May.

Eurostat reported big month-on-month increases in Germany (+6.7%), Portugal (+5.9%) and Italy (+5.5%). Work at civil engineering sites jumped by nearly 4% in the euro area, outpacing the 1.1% rise in building construction.

Output across the EU rose by 0.9%.

Monthly construction output can be volatile, and today's increase still leaves eurozone output around 6.6% lower than a year ago – in the early days of the recession.

Still, it may suggest the downturn is bottoming out.

10.14am BST

Bank of England minutes: early reaction

File photo dated 08/08/12 of a general view of the Bank of England.
The Bank of England. Photograph: Yui Mok/PA

Reuters has rounded up the early economist reaction to the Bank of England minutes, which showed its monetary policy committee was split 6-3 again over quantitative easng (and 9-0 to leave interest rates unchanged).

Here's some highlights:

Ross Walker of Royal Bank of Scotland:

There's no dramatic departure but the minutes serve as a reminder the MPC retains a dovish bias. The on-hold majority noted the rise in bond yields in response to Fed tapering concerns and hinted more QE could be done in response to that.

Philip Rush of Nomura:

It's as expected in terms of the vote split but, for me, the tone is slightly more dovish than the market might have expected. The minority voting for more QE thought the case for more stimulus remained compelling and the economic outlook was no stronger than it was in May.

It seems clear that both Fisher and Miles will continue to vote for more QE when Carney takes over next month.

Howard Archer of IHS Global Insight:

We now move to the Carney era at the Bank of England, and he will no doubt be relieved to see the economy looking a bit perkier as he takes up the reins.

Indeed, with the economy currently showing signs of widespread improvement, pressure on Carney to take immediate action has receded thereby giving him more time to take full stock of the situation from within the Bank of England and to establish his working relationship with the rest of the MPC.

"We believe it is unlikely that any major policy action will occur at the July MPC meeting, especially as the committee will be getting the Bank of England’s new growth and inflation forecasts at the August meeting.

While we do not expect any action from the Bank of England in July, we believe further Quantitative Easing is still very possible further out.

And here's more reaction:

9.50am BST

Bank of England Minutes: the details

The situation in the eurozone helped to persuade King, Fisher and Miles that Britain's economy needs another £25bn of quantitative easing (effectively creating fresh money to buy government bonds from the banks)

The minutes state that:

For other members the case for more monetary stimulus remained compelling…..

The risks from the euro area remained substantial, especially through their potential effects on the UK banking sector. Commodity prices were lower and domestic cost pressures, as illustrated by very low pay growth, remained weak.

The minutes also show that UK inflation, which hit 2.7% yesterday, is probably doing to hit 3% this summer. That's the level that precipitates a letter from the governor to the chancellor, explaining himself.

That job will fall to King's replacement, Mark Carney:

9.38am BST

Bank of England minutes released

Sir Mervyn King was, again, outvoted in his bid for another dose of quantitative easing to stimulate the UK economy, for the final time before he leaves the Bank of England.

Minutes from this month's Monetary Policy Committee meeting, just released, show that the committee divided 6-3 against another £25bn of quantitative easing.

Once again, the outgoing governor was joined by Paul Fisher and David Miles.

The minutes are online here (pdf).

Details and reaction to follow

Updated at 9.39am BST

9.25am BST

Cyprus call for bailout help falls on stony ground

Eurozone officials have slapped down Cyprus's bid to have its bailout terms softened.

Last week, Cyprus's president wrote to fellow eurozone leaders pleading for more help, and pointing out that his island was a casualty of the Greek debt restructuring.

Anastasiades's appeal, though, is likely to be rebuffed when finance minister meet tomorrow, ahead of an euro summit next week.

Reuters has the story:

Asked if the terms of the bailout could be changed, one senior EU policymaker said: "No, not as far as I can see."

A second official said: "There's no chance we'll revise the terms of the bailout, but we'll discuss it on Thursday."A third confirmed no change was possible in the short-term, but said there could "potentially" be adjustments in the medium term, as was the case of Greece. However, that also depends on euro zone leaders, who will meet on June 27-28.

The officials were speaking after the Financial Times gave the letter the front-page treatment today:

Financial Times Front Page, June 19 2013
Photograph: Financial Times

Open Europe has helpfully translated and published Anastasiades's letter here: Full letter from the Cypriot President to the Troika slamming Cypriot bailout

In it, he warns that Cyprus's economy is struggling to cope with the shock of the abrubt restructing of its banking sector, a badly prepared bailout, and ongoing liquidity problems at the Bank of Cyprus – which he dubbed a 'mega-systemic bank'.

Updated at 9.29am BST

9.09am BST

Greek leaders meet as Troika takes a breather

Greek prime minister Antonis Samaras and his coalition partners, PASOK leader Evangelos Venizelos and Fotis Kouvelis of Democratic Left (DIMAR), are expected to discuss a cabinet reshuffle when they meet at 4pm BST tonight (or 6pm local time).

Kathimerini describes the meeting as "crucial talks aimed at bridging a rift over the closure of state broadcaster ERT that has put the future of the government in doubt".

European Commission Director Matthias Morse (front) and European Central Bank's (ECB) Mission Chief for Greece Klaus Masuch leave the Prime minister's office in Athens June 18, 2013.
European Commission Director Matthias Morse (front) and European Central Bank mission chief for Greece Klaus Masuch leaving the prime minister’s office in Athens last night. Photograph: YORGOS KARAHALIS/REUTERS

Interestingly, officials from the Troika have paused their latest assessment of Greece's economy for a week, following talks last night.

The finance ministry stated last night that the sides have made decent progress. However, following the ERT row, and the recent problems with its privatisation programme, the Troika must be concerned about the situation….

Updated at 9.29am BST

8.51am BST

Market update

European stock markets are falling in early trading. The prospect of Ben Bernanke hinting tonight that the US stimulus package could be slowed soon is making investors cautious.

FTSE 100: down 36 points at 6337, – 0.6%

German DAX: down 48 points at 8180, -0.6%

French CAC: down 26 points at 3834, -0.7%

Spanish IBEX: down 65 points at 8114, -0.8%

Italian FTSE MIB: down 57 points at 16140, -0.35%

Mike McCudden, head of derivatives at stockbroker Interactive Investor, says traders are nervous….

Despite strong signs of improvement in the US economy, equity markets have been pricing in investor sentiment that Bernanke won't be scaling back on his QE programme any time soon.

Confirmation from the man himself later today may have the power to propel markets back up to recent highs but in early trade nervous investors are heading for the sidelines. Furthermore, market chatter that Bernanke may have decided not to stand for another term has awoken some bears from hibernation.

On that last point, Barack Obama strongly hinted this week that Bernanke will exit the Fed when his term expires in early 2014. The US president said that, like the head of the FBI, Bernanke has "already stayed a lot longer than he wanted or he was supposed to."

Updated at 8.53am BST

8.35am BST

Federal Reserve meeting: what the analysts and traders are saying:

Ben Bernanke's challenge tonight is to persuade those in the financial markets that the Fed can extricate itself from the warm, soothing glow of quantitative easing without a nasty shock.

So argues Marc Ostwald of Monument Securities:

So what is it that Mr Bernanke needs to deliver today in order for some form of calm to be restored?

The simple answer is to persuade markets that the Fed and other central banks can exit QE [quantitative easing, or bond buying] without inflicting a cataclysmic blood bath in financial markets, and without forcing a more substantive deleveraging, and wholesale write-off of non-performing assets in the mainstream financial sector, and also not unleashing wholesale destruction in the shadow banking sector.

In the "Goldilocks" scenario, Bernanke would argue that economic growth is just decent enough to allow some responsible slowing of QE at the appropriate time. Has he got the stomach for it, though, in the face of massive easing in Japan, and a rather stricter approach in the eurozone.

Ostwald isn't sure:

[it] looks to be an extraordinarily tall order for a man, who along with his departing 'academic in arms' Sir Mervyn King, is clearly weary of 'fighting a good theoretical fight' which founders eternally on the myopia of unreconstructed, and totally self-interested politicians and the captains of the financial sectors, along with those pesky realists that inhabit the ECB's increasingly numerous hawkish wing, (perhaps fleeing from Signor Activist Draghi).

And here's more early reaction:

Mike van Dulken, head of research at Accendo Markets hopes that Bernanke can take the idea of 'tapering' (ie, slowing the pace of the Fed's bond-buying) off the agenda for a while:

Maybe the markets are slowly coming round to accepting tapering will occur at some point (likely a few months away), but convinced now that there are no rate rises anytime soon and tapering can always be reversed?

To be honest, a tapering of taper talk would be nice.

Stan Shamu of IG reckons Bernanke will be cautious:

There is a high probability that Mr Bernanke will only make minor changes to his statement and will re-emphasise inflation and employment as the key metrics for adjusting asset purchases.

Following the recent data, we wouldn’t be surprised to see minor revisions to growth and employment.

And here's some Twitter chat, with Robin Bew of the Economist Intelligence Unit speculating that emerging market bonds could be hit if Bernanke hints at an early tightening:

Updated at 8.53am BST

8.17am BST

Today’s agenda

Coming up:

Bank of England minutes: 9.30am BST

Eurozone construction data for April: 10am BST / 11am CEST

Greek coalition leaders meet: from 4pm BST/ 6pm local time

Federal Reserve announces monetary policy decision, and releases latest economic forecasts: 7pm BST / 2pm EDT

 • Ben Bernanke's press conference: 7.30pm BST / 2.30pm EDT

• George Osborne's Mansion House speech: 8pm BST

Updated at 8.32am BST

8.12am BST

All City eyes on the Fed

Traders work on the floor of the New York Stock Exchange on June 17, 2013 in New York City.
Traders work on the floor of the New York Stock Exchange on June 17, 2013 in New York City. Photograph: Spencer Platt/Getty Images

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

Few central bank events in recent years have been anticipated quite as eagerly as today's meeting of the US Federal Reserve's Open Market Committee.

The prospect of the Fed slowing its stimulus package has loomed over the financial markets for weeks now – and finally, it's time for Ben Bernanke to update us all on his views on America's economy, and future monetary policy.

The Fed will also release new growth forecasts for the world's largest economy. The FOMC isn't expected to start tightening policy today, but Bernanke's performance at his press conference tonight will be vigorously combed over for signals as to when its bond purchase scheme might start to be 'tapered' (as the jargon has it).

The Fed is currently buying bn of US government bonds and mortgage bonds each month with new electronic money, and the prospect of this punch bowl being taken away has already jolted shares and bonds in recent weeks.

As Michael Hewson of CMC Markets points out:

Given recent market volatility it is going to extraordinarily difficult for the Fed Chairman to signal any type of exit strategy without causing some form of market rout, which essentially makes the Fed a hostage to market sentiment.

adding:

How he goes about managing perceptions in his press conference will determine whether or not we head straight back down again after last nights gains, with the likelihood that we could well see continued volatility throughout the summer as the market scrutinises each and every economic data point, with a view to timing the taper.

Which also underlines what unusual times we are living through.

There's also lots more going on today, both in the eurozone and beyond.

• Greece's coalition leaders are holding fresh talks this afternoon to attempt to patch up relations, following the row over the closure of state broadcaster ERT.

I'll also be monitoring reaction to the news that Cyprus's president has asked for its bailout to be rewritten.

• In the UK, we get the latest minutes from the Bank of England's latest interest rate/QE-setting meeting. And, tonight, chancellor George Osborne will deliver the Mansion House Speech.

Also, an influentual report into the banking sector, published by MPs this morning, will also dominate the news agenda in Britain. Its recommendations include the proposal that reckless bankers who cause a crisis should face jail.

Busy day ahead….

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