pound

Nov. 22, 2017 (Tempus Inc.) –  The U.S. Dollar remains quiet ahead of the Thanksgiving holiday, even after the release of Durable Goods Orders.

USD

The figures surprised as the indicator was expected to show a 0.3% expansion, instead contracting by (-1.2%). When transportation costs are excluded, a 0.4% increase was registered, but this still fell below expectations of 0.5% for October.

The saving grace may be the revision of September’s numbers where the expansion was thought of being at 0.7%, but came in upgraded at 1.1% Overall; this piece of data has lacked consistency over the year and may not be as influential as we close the year.

The FOMC Minutes are scheduled for 2PM, but we see little if any reaction as the Fed’s move towards hiking is very much determined and priced-in. Tempus will be closed Thursday in observance of Thanksgiving and will be open again on Friday.

EUR

The Euro continues to swim in relatively calm waters after Monday’s half-percent decline based on worries in German political stability. At the moment, Chancellor Angela Merkel would not refuse to have another snap election in order to gain seats and have an easier time forming an alliance.

However, headlines overnight saw the prospect of another vote as worrisome, but welcomed the idea of forming a “grand coalition” with the Social Democrats, a party usually aligned with Merkel’s goals, but that suffered bigly on election day and blamed her platform for the failure. We shall see if downside risks manifest themselves into further depreciation, but for now Euro is not paying any heavy tolls.

GBP

The Pound’s recent gains have been subdued slightly due to concerns over Brexit and its symptoms affecting the economic outlook. Later today, the Chancellor of the Exchequer, Philip Hammond, will present a new budget and his remarks may provide guidance the state of affairs. PM Theresa May is just hoping that the EU embraces new talks and the idea of being paid an agreed final bill amount.

Orders in the UK are up to their best level in 30 years per a survey by the Confederation of British Industry. This mix of good economic data and bad news on the Brexit front are likely to dominate the Sterling environment for what’s left of the year and beyond.

 


USA 

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

 

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

Portuguese bonds hit by political crisis

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

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

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

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

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

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

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

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

He says:

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

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

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

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

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

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

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

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

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

Factory fears as UK exports fall at fastest pace since 2012

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

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

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

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

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

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

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

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

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

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

And here are the key figures from the report:

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

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

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

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

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

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

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

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

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

Updated

9% hacked off TalkTalk shares after cybercrime attack

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

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

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

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

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

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

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

Updated

IFO: German car industry unfazed by VW scandal

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

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

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

Wohlrabe says:

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

Updated

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

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

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

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

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

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

Updated

The euro is slightly higher following the IFO survey:

Updated

German IFO survey: What the experts say

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

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

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

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

Updated

German business climate worsens, but expectations rise

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

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

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

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

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

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

I’ll mop up some reaction now…

Updated

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

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

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

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

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

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

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

WPP: business leaders remain ‘risk averse’

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

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

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

WPP told shareholders that:

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

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

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

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

European markets in muted mood

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

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

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

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

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

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

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

Connor Campbell of SpreadEx says:

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

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

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

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

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

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

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

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

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

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

Chinese officials to agree next five-year plan

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

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

He declared:

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

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

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

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

Asian market creep higher after Chinese rate cut

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

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

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

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

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

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

Updated

The agenda: Investors await German confidence figures

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

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

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

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

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

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

China cuts interest rates in surprise move – as it happened

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

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

Portugal Government Fuels Debate About Democracy in Europe

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

Updated

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Published via the Guardian News Feed plugin for WordPress.

World markets at their highest since August as investors calculate that the US central bank won’t raise rates this month, and probably not until 2016. Eurozone inflation gauge dips back into negative territory, placing the euro under pressure…

 

Powered by Guardian.co.ukThis article titled “World stock markets hit two-month highs as stimulus hopes build – business live” was written by Graeme Wearden (until 13.45) and Nick Fletcher, for theguardian.com on Friday 16th October 2015 13.21 UTC

US industrial production slips in September

Every piece of US data is now watched carefully to see how it might influence the US Federal Reserve in its interest rate policy.

But there is not too much to glean from the latest figures. US industrial production dipped 0.2% in September, in line with expectations. August’s figure was revised to show a 0.1% decline compared to the 0.4% fall originally reported.

Weakness in the oil and gas sector was mainly responsible for the fall.

Later comes the Michigan consumer confidence survey.

Now here’s an admission. Credit Suisse has said its clients have no idea what is going on out there in the markets. They are “lost and bearish.” The bank says:

Never have we seen so many clients who just do not know what is happening and have cashed up. US investors, in particular, were clearly cautious. European and especially Asian investors were more constructive.

Reasons for the bearishness: Global growth being at ‘growth recession’ levels, China, QE running out of steam, the rise in non-energy high yield credit spreads, the risk of the Fed policy mistake (with most clients believing, correctly in our opinion, that a December rate rise would be a policy mistake and see Yellen’s communication as being poor), US equities being expensive on ‘normalised’ earnings and the 4-week moving average of earnings revisions falling close to a 4-year low.

Two new concerns often cropped up: (i) the $0.5trn decline in global foreign exchange reserves, with this being likened to monetary tightening…[But] 80% of the decline is due to China, where the fall is largely being sterilised. (ii) The rising political tide against profits (living wage in the UK, the BEPS OECD initiative on corporate taxation).

What was not mentioned: Eurozone politics, US debt ceiling, Russia’s involvement in Syria or the UK referendum on the EU.

In sum, we think clients are focused more on risks, which are abnormally high, rather than reward, which is also high, with the equity risk premium, for example, at 5.8%. We would agree, however, that visibility is abnormally low.

Chinese investors, 16 Oct 2015.

Chinese investors appear to have regained their appetite for risk.

The Shanghai Composite Index gained 6.5% this week, helped by speculation that Beijing might do more to stimulate its economy.

Some bolder traders have been borrowing more money to buy shares, anticipating that markets are going to rally this autumn.

Xiao Shijun, an analyst at Guodu Securities, explains (via the WSJ):

“Some medium- to long-term investors are betting that the market has bottomed and thus are more confident to add leverage.”

And there are signs that the authorities have relaxed their recent clampdown on lending, which was imposed to calm excessive speculation.

China’s outstanding margin financing has risen 5.6% since the start of the month and looks to have bottomed, according to IG’s Angus Nicholson.

16 Oct 2015, Nanjing, Jiangsu Province, China --- Chinese investors look at prices of shares (red for price rising and green for price falling) at a stock brokerage house in Nantong city, east China’s Jiangsu province, 16 October 2015.

Ever wondered what you have to do to get banned from the City?

Well, running up losses of £1.4bn through rogue trading will do the trick.

The Financial Conduct Authority – Britain’s City watchdog – has declared today that former UBS trader Kweku Adoboli cannot work in the industry again after demonstrating “a clear and serious lack of honesty and integrity.”

It added:

“In reaching its decision, the FCA has considered all the relevant circumstances and the severity of the risk posed by Mr Adoboli to consumers and financial institutions, and to confidence in the market generally.”

Adoboli was released from prison this summer, having been sentenced to seven years in 2012 for Britain’s biggest ever fraud. He is now fighting efforts to deport him to Ghana, where he was born in 1980.

Updated

The Bank of England building on Threadneedle Street in the City of London.

Kristin Forbes’ speech today highlights that the Bank of England’s interest rate-setting committee is split into several camps, even though it voted 8-1 to leave borrowing costs unchanged last week.

IHS’s Howard Archer has broken them down:

The current position seems to be that Ian McCafferty is already voting for interest rate hike from 0.50% to 0.75%, while Kristin Forbes and (seemingly still) Martin Weale both believe interest rates need to rise before long.

In contrast, Andy Haldane and Gertjan Vlieghe are clearly far off from voting for a rate hike while Ben Broadbent has also recently indicated that he is some way off from such a move.

That leaves governor Mark Carney, and deputy governors Minouche Shafik and Jon Cunliffe in the centre ground.

Updated

Bank of England’s Forbes: Emerging market doom and gloom is “overblown”

Professor Kristin Forbes joined the Monetary Policy Committee of the Bank of England in July of 2014. http://www.bankofengland.co.uk/about/Pages/people/biographies/forbes.aspx

Professor Kristin Forbes.

Capping off a busy week for views out of the Bank of England’s rate-setting committee, Kristin Forbes is giving a speech in Brighton.

The key message for markets from Forbes is that the next move in rates is up and is not too far off.

That puts her at odds with the Bank’s chief economist Andy Haldane who has raised the prospect of the next move being down, even further below the current record low Bank rate of 0.5%.

Forbes says, however, that pessimism about the global economy is overdone.

Forbes, who is also professor of Management and Global Economics at MIT’s Sloan School of Management, told the Brighton and Hove Chamber of Commerce that:

“Although the risks and uncertainties in the global economy have increased, the widespread pessimism is overstated.”

“Despite the doom and gloom sentiment, the news on the international economy has not caused me to adjust my prior expectations that the next move in UK interest rates will be up and that it will occur sooner rather than later.”

“Of course, if some of the potential risks to emerging markets play out – such as a sharper slowdown than expected or financial crisis of some type – then the UK economy is unlikely to be immune. But based on what has actually occurred to date, the limited direct exposure of the UK to emerging markets (even when incorporating second-round effects through other countries such as Germany), appears manageable. This is especially true when considered relative to the strength of the UK’s domestic-led expansion – which shows all signs of continuing, even if at a more moderate pace than in the earlier stages of the recovery.”

At its last meeting, the Bank’s Monetary Policy Committee (MPC) left rates at a record low of 0.5%. But one of the nine rate-setters, Ian McCafferty, voted for a rate rise. Perhaps Forbes will be joining him soon….

Updated

El-Erian: Fed could hike in December

Investors who believe the Federal Reserve won’t raise rates this year could be making a mistake, argues Mohamed El-Erian, the chief economic adviser at Allianz.

El-Erian, former CEO of bond-trading giant Pimco, believes that that Janet Yellen and colleagues could take the plunge at their meeting in December, given the strength of the US jobs market.

He’s written his views up for Bloomberg. Here’s the conclusion:

After a frustratingly slow post-crisis start, the U.S. economy has had an impressive run of job creation. But further progress is dependent on important structural issues that are not easily addressed by Fed policy.

Meanwhile, wage and inflation pressures are starting to build, though in a rather modest fashion. And concerns about excessive risk-taking — an unintended side effect of the central bank’s prolonged use of unconventional monetary policy — are far from settled.

Taken together, this suggests that, even though an October rate hike can almost certainly be discounted, it would be premature to entirely rule out action by the Fed in December, let alone to predict it would be postponed until March of next year. Only a lot more signs of weakness in the domestic economy, as well as a return of global financial market instability, would make that a sure bet.

World markets hit two-month high on stimulus hopes

FTSE 100 slump<br />A city worker walks past a stock ticker screen at the London Stock Exchange in the City of London. PRESS ASSOCIATION Photo. Picture date: Tuesday August 25, 2015. The FTSE 100 Index bounced back above the 6,000 mark after surging by nearly 2% as it recovered following one of its worst sessions in recent years. See PA story CITY FTSE. Photo credit should read: Philip Toscano/PA Wire

World stock markets have hit their highest levels since August, driven by predictions that US interest rates are staying low for a while yet.

The main European indices have all gained nearly 1% this morning, following those gains in Asia overnight and a rally on Wall Street yesterday.

That has pushed the MSCI World Index up by 1.38% to levels not seen since August 21.

MSCI World Markets index

MSCI World Markets index Photograph: Thomson Reuters

Global markets have now gained 6% in October. So unless there’s a major reverse next week, the MSCI will post its best month since 2011.

That’s quite a bounceback from this summer’s turmoil, which saw around $11 trillion wiped off global stocks.

The prospect of more ultraloose monetary policy, plus a little more calm over China’s slowdown, are pushing shares up.

Jasper Lawler of CMC Markets says traders are anticipating more stimulus in Europe and China, rather than worrying about the Fed whipping away the punchbowl with an early rate hike:

Hopes of a delayed rate hike in the US and additional stimulus from Europe and China is helping global stock markets finish the week on a high. Shares across Asia have hit a two month high while the Shanghai Composite is setting up for its best weekly performance since early June.

Weak US inflation data, albeit above expectations, further bruised the case for a Federal Reserve rate rise. Markets are looking ahead to next week when the ECB meeting and China’s GDP report provide opportunities for the European Central Bank and the People’s Bank of China to increase stimulus.

Here’s the situation.

  • FTSE 100: up 0.8% or 49 points at 6,388
  • German DAX: up 0.86% or 86 points at 10,151
  • French CAC: up 0.8% or 38 points at 4,713
  • Japan’s Nikkei: Closed up 1.1% or 194 points at 18,291
  • China’s Shanghai Composite: Closed up 1.6% or 53 points at 3,391.

Uber is not illegal, rules High Court

Minicab-hailing app Uber has just won a victory in the high court.

A judge has ruled that its GPS technology does not break violate the Private Hire Vehicles (London) Act 1998 bans private hire cars from being equipped with taximeters.

My colleague David Hellier explains:

Had it lost the case, the company would have been forced to change its service to comply with rules that protect traditional black-cab drivers.

Here’s the full story:

Eurozone back in negative inflation

It’s official, the eurozone has slumped back in negative inflation again, intensifying pressure on the European Central Bank to act.

Eurostat has confirmed that prices across the euro area fell by 0.1% in September, down from an inflation rate of +0.1% in August.

Eurozone deflation

Eurozone deflation Photograph: Eurostat

The decline is mainly due to weak energy prices. Cheaper oil is driving down the costs of fuel — good news for consumers and business, but it does drag the eurozone inflation rate further from the 2% target.

Howard Archer of IHS Global Insight explains:

This marked the first deflation since March and was down from consumer price inflation of 0.1% in August and 0.3% in May.

A marked relapse in oil prices and very weak commodity prices first undermined and then reversed the upward trend in Eurozone consumer prices that had seen it move from deflation of 0.6% in January to inflation of 0.3% in May.

The ECB has already said it could boost its bond-buying stimulus programme if needed. And with prices falling in many eurozone countries, it could be prompted to act soon:

Britain’s John Lewis has reported underwhelming sales for the last week – with takings at its department store flat year-on-year.

But within the figures, there’s a trend of customers revising the horrors delights of the 1970s, with strong demand for knitted pouffes and platform shoes. Homeowners are even painting their rooms in brown and orange, risking terrifying flashbacks for those of a certain age.

Hugo Boss shop. Shopping. Glasgow, Scotland, UK 15th February 2005 COPYRIGHT PHOTO BY MURDO MACLEOD menswear clothes All Rights Reserved Tel + 44 131 669 9659 Mobile +44 7831 504 531 Email: m@murdophoto.com STANDARD TERMS AND CONDITIONS APPLY see for details: http://www.murdophoto.com/T%26Cs.html No syndication, no redistrubution, repro fees apply.

Hugo Boss shares are being bashed this morning, after it become the latest fashion chain to suffer from the Chinese slowdown.

They fell by 8.5% in early trading, after the German fashion firm cuts its profit and sales outlook. It blamed a slowdown in China, echoing Burberry on Thursday.

Hugo Boss also revealed that sales growth in the US has dropped too, due to weaker spending by tourists. That suggests the strengthening dollar is hurting, leaving overseas visitors with less to spend.

Nestlé hit by noodles recall

Nestle Chief Financial Officer Francois-Xavier Roger addresses a news conference at the company headquarters in Vevey, Switzerland, October 16, 2015. Nestle, the world’s largest packaged food company, lowered its full-year outlook on Friday, as a Maggi noodle recall in India knocked sales and undercalculated U.S. Skin Health rebates weighed on the Swiss company’s profits. Sales dropped 2.1 percent to 64.9 billion Swiss francs ($68 billion) in the nine months through September, missing analysts’ average forecast of 65.9 billion in a Reuters poll. REUTERS/Denis Balibouse

Food giant Nestlé is missing out on today’s rally, after missing sales forecasts and cutting its outlook.

Shares in Nestlé are down 2% today, with investors disappointed that revenue has fallen by 2.1% in the first nine months of the year.

The Swiss firm also cut its 2015 outlook to around 4.5%, below its long-term target of between 5% and 6%.

Nestlé suffered emerging market from weakness in China, and also a major food recall in India. In June, Indian regulators slammed its Maggi instant noodle products as “unsafe and hazardous”.

Updated

TO GO WITH AFP STORY BY JEAN-MICHEL HAUTEVILLE (FILES) A photo taken on March 7, 2012 shows partly built Volkswagen cars are seen traveling overhead at the assembly line for the VW Tiguan and Touran models in Wolfsburg, central Germany. German multinational automotive manufacturing group is headquartered in Wolfsburg. Three weeks after the Volkswagen pollution cheating scandal the companies supplying parts to VW and also the Association of German Metal Traders VDM are fearing consequences for their business. AFP PHOTO / ODD ANDERSENODD ANDERSEN/AFP/Getty Images

A Volkswagen assembly line in Wolfsburg, central Germany. Photograph: Odd Andersen/AFP/Getty Images

The diesel emissions scandal appears to have cost Volkswagen some ground in the European auto sector.

New figures released this morning showed that car registrations rose for the 29th month running, as the industry continued to recover from the dark days of the eurozone debt crisis.

European car sales

European car sales Photograph: Thomson Reuters

Total sales jumped by 9.8% in September, but Volkswagen only sold 8.3% more cars compared to a year ago.

This cut VW’s market share to 23.3%, down from 23.7%.

That’s not a major decline – but remember that the emissions scandal only broke in mid-September, so this could be just the start….

Back in Shanghai, the Chinese stock market has hit a seven-week high as fears over its economy recede a little.

The Shanghai Composite jumped 1.4% today, suggesting traders aren’t too worried about Monday’s growth figures:

European stock markets are putting recent turbulence behind them.

The main indices are all up in early trading, with Britain’s bluechip FTSE 100 index jumping by 34 points of 0.5%. That means the Footsie has gained over 5% in October.

Here’s the situation:

European stock markets, October 16 2015

European stock markets, October 16 2015 Photograph: Thomson Reuters

European markets are now on track for their longest series of gains since April, points out Mike van Dulken of Accendo Markets.

He adds:

This remains driven by weak/mixed macro data from China, US and Europe delaying expectations for a Fed rate hike and high hopes of additional global stimulus which is considered positive for risk appetite.

Yesterday’s US inflation data is also helping to push money into shares.

Prices fell by 0.2% month-on-month in September, leaving the price of living unchanged year on year.

“Money managers are saying it looks increasingly like the Fed will not hike because the data around the world is coming in weak,” Mads Pedersen, head of global asset allocation at UBS Wealth Management, told the Wall Street Journal.

“Lukewarm data is good for equities again, just like it has been for most of this recovery.”

A flurry of weak corporate data in recent days has left most economists convinced that the Fed won’t raise interest rates at its monetary policy meeting later this month.

This week we’ve seen falling profits at Goldman Sachs, a profit warning from Walmart, and even falling demand for high end Winnebagos as US consumers cut back.

And earlier this month, the US employment figures were a big disappointment – with much fewer new jobs created than expected (just 142,000).

That doesn’t add up to the first rise in US interest rates since the financial crisis began.

David Levy, portfolio manager at Kenjol Capital Management, explains:

“Investors are reacting to the increasing likelihood that the Fed rate hike, which had been expected just a month ago in September, now likely won’t happen during the course of this year.”

There’s also talk in the markets that the Chinese government could announce fresh stimulus measures soon.

Pressure on Beijing could grow on Monday, when Chinese GDP figures are released. Economists predict that growth slowed to 6.8% in the last quarter, down from 7% in Q2.

Asian markets hit two-month highs

Asia-Pacific stock markets have hit their highest level in two months, as traders in Tokyo, Shanghai and Melbourne anticipate that the era of ultra-low global interest rates isn’t over yet.

Japan’s Nikkei jumped 1%, on hopes that the US Federal Reserve isn’t going to end the party this month. Other stock markets in the region are also showing gains:

Asian stock markets, October 16 2015

Asian stock markets right now. Photograph: Thomson Reuters

The Agenda: Markets to rally on US Fed hopes

(FILES) This May 4, 2008 file photo shows the US Federal Reserve Building in Washington, DC. The Federal Reserve kept its benchmark federal funds interest rate unchanged at near zero percent as expected July 29, 2015, providing no fresh hints on when a long-awaited rate rise might come. The Federal Open Market Committee said the US economy has expanded “moderately” in recent months and the jobs market has strengthened, but noted continued “soft” business investment and exports. AFP PHOTO/Karen BLEIERKAREN BLEIER/AFP/Getty Images

The US Federal Reserve Building in Washington, DC. Photograph: Karen Bleier/AFP/Getty Images

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

Investors will be watching the US economy closely today, for signs that the world’s largest economy may be slowing. There are two pieces of economic data on the agenda:

  • US industrial production, at 2.15pm BST
  • The Michigan Consumer Confidence report, at 3pm BST

Economists reckon the figures might be weak, as Michael Hewson of CMC Markets explains:

Today’s US industrial and manufacturing production data for September are expected to reinforce the disappointing narrative with declines in both of -0.3% and -0.2% respectively, both of which would be negative for the second month in succession.

And negative economic data looks good for stocks right now….

…so shares in Europe are expected to rise, as traders bet that the US Federal Reserve could leave interest rates unchanged for the rest of the year.

As Hewson puts it, with the data so mixed….

…. is hard to see how policymakers can arrive at a consensus for what would be a momentous decision of being the first rise in US rates for 9 years. No-one will want to be remembered for getting a call of that magnitude wrong.

There’s also financial results from foodmaker Nestlé, French supermarket Carrefour, and UK retailer John Lewis (of which more shortly….).

Updated

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A £500m rise in cars shipped abroad fails to ease prospects of huge UK trade deficit in third quarter fueled by strong pound plus eurozone woes and declining oil industry. The significant improvement seen in Q2 now considered as “only temporary”…

 

Powered by Guardian.co.ukThis article titled “Car exports cut monthly UK trade deficit but quarterly gap is growing” was written by Phillip Inman Economics correspondent, for theguardian.com on Friday 9th October 2015 11.47 UTC

A rise in car exports helped improve Britain’s trade deficit in August, according to official figures.

The monthly shortfall in the trade balance for goods narrowed to £3.3bn from £4.4bn in July. However, the UK was still heading for a huge deficit in the third quarter of the year after an upward revision to July’s shortfall.

Paul Hollingsworth, UK economist at Capital Economics, said: “Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”

He said this suggests that net trade is probably making “a significant negative contribution to GDP” at the moment.

Hollingsworth warned that the strong pound and weakness in demand overseas as the US economy stuttered and the eurozone remained in the doldrums meant the government’s hopes of a significant rebalancing towards manufacturing exports would be dashed in the near term.

Alongside the £500m rise in car exports in August, the chemicals industry sent more of its production to the US, the ONS said. Total goods exports increased by 3.5% to £23.6bn in August 2015 from £22.8bn in July 2015.

But this positive news was offset by the continued decline in Britain’s oil industry, which has been a major factor holding back progress this year.

Lower production and the lower oil price have dented exports, and though oil imports are likewise cheaper, they continue to rise in volume.

The mothballing and subsequent closure of the Redcar steel plant could also have had an impact as the export of basic materials dived in August by more than 10%.

The services sector recorded an improvement in its trade balance, but the ONS pointed out that the UK continued to rely heavily on the financial services industry to pay its way in the world.

Figures for the second quarter showed that the surplus on trade in services was £22.8bn, of which almost half – £10.1bn – was contributed by banks, insurers and the fund management industry.

David Kern, chief economist at the British Chambers of Commerce, said the narrowing of the deficit in August was welcome, but taking the July and August figures together pointed towards a deterioration.

“This confirms our earlier assessment that the significant improvement seen in the second quarter was only temporary.

“The large trade deficit remains a major national problem. This is particularly true when we consider that other areas of our current account, notably the income balance, remain statistically insignificant.”

Kern urged the government to adopt measures that will “secure a long-term improvement in our trading position”.

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Britain’s economy remains fragile but ‘improvements are beginning to be seen’ says OECD chief economist. According to OECD, the UK is expected to show annualised growth of 0.5% in the first quarter, and 1.4% in the second quarter of 2013…

 


Powered by Guardian.co.ukThis article titled “UK economy should avoid triple-dip recession, OECD forecasts” was written by Josephine Moulds and Phillip Inman, for The Guardian on Thursday 28th March 2013 20.17 UTC

Britain's economy is getting stronger and should avoid a triple-dip recession, according to the Organisation for Economic Co-operation and Development. The Paris-based thinktank sounded a positive note as official figures showed that the services sector, which contracted at the end of last year, returned to growth in January.

Barring changes in government policy, the UK is expected to have grown at an annual rate of 0.5% in the first quarter and to grow at 1.4% in the second.

Pier Carlo Padoan, the OECD's chief economist, said: "The situation [in the UK] is still fragile. I think the policy course, both in terms of monetary and fiscal policy, is going in the right direction and improvements are beginning to be seen."

Until recently, the OECD and the International Monetary Fund had been warning George Osborne that his austerity policies risked prolonging the longest economic depression in 100 years. Padoan had called on the chancellor to relax spending cuts and put forward growth policies, in a shift to a Plan B for the economy.

But the more upbeat outlook from the OECD was reinforced by a survey of the UK's services industry that showed an improvement during January, offsetting a weakening picture in the construction and manufacturing sectors. The Office for National Statistics said the services sector, accounting for three-quarters of economic activity, expanded by 0.3% on the previous month and was 0.8% ahead of the same month a year earlier.

Unfortunately for ministers hoping to see an improvement across the private sector, the strongest element of the services index in recent years has proved to be government spending. The financial services sector has almost recovered to its pre-recession peak, along with business services, leaving the distribution, hotels and restaurants, transport, storage and communication sectors well below their high-water mark.

Chris Williamson, chief economist of financial data provider Markit, said the services data combined with strong retail sales would persuade the Bank of England to stay its hand when it meets next week.

Capital Economics said an increase in quantitative easing from the current £375bn the Bank of England had pumped into the economy would probably need to wait until at least the autumn, when incoming governor Mark Carney would have established a new remit focused on growth.

The OECD said activity was picking up in many major economies, with the global outlook improving since its last update in November. It expected the US to rebound in the first three months of this year, while Japan had been boosted by a new growth strategy and stimulus package. But it said improvements in financial markets around the globe had not been fully reflected in real economic activity, in part because confidence remained low.

Padoan warned that the flood of cheap money into the system, via generous stimulus packages, had also led to some "excessive risk-taking". "We have now learned that imbalances build up in a way we tend to ignore," he said. "Let's watch prices of assets going up which are not warranted by fundamentals. Let's be very careful. At the same time, let's be careful of not putting a brake on the recovery that is slowly materialising. It's a delicate balancing act."

The OECD said a meaningful recovery in Europe would take longer than in the rest of the G7. It blamed this on a deteriorating jobs market, which had depressed consumer confidence. "Especially in Europe, the rise of long-term unemployment, with more of the unemployed moving off unemployment insurance on to less generous social benefits, is worsening poverty and inequality," it said.

The thinktank also highlighted the growing divergence between Germany, which it expects to pick up strongly in the first half of this year, and other economies, which are forecast to either contract or show minimal growth.

Germany is expected to grow by 2.3% on an annual basis in the first quarter, and then 2.6% in the second. By contrast, France is forecast to shrink by 0.6% on an annual basis in the first quarter, followed by 0.5% annualised growth in the second quarter.

Growth in emerging markets is still much faster than in the G7 and these countries will drive the global economy this year. The OECD said annualised growth in China was expected to continue to be well above 8% in the first half of 2013.

US economy perking up

The number of Americans filing new claims for unemployment benefits rose last week, but not enough to suggest the labour market recovery was taking a step back.

Other data showed the economy expanded at an annual rate of 0.4% in the fourth quarter, more than the government had estimated.

The reports reinforced the view that the US economy perked up in the first quarter, although it still appeared vulnerable to fiscal austerity measures that kicked in early in the year.

"The underlying growth trend is showing some encouraging signs, but the key risk is how much fiscal tightening we'll see this year," said Laura Rosner, economist at BNP Paribas in New York.

While jobless claims increased more than expected last week, they have trended lower this year and remain near five-year lows. Last week, initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 357,000, the labor department said.

The four-week moving average for new claims, a better measure of labour market trends, rose 2,250 to 343,000.

Still, for many economists a trend reading below the 350,000 level points to a firm pace of hiring in March. Reuters, Washington

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Cyprus in crisis meetings as levy on savers’ deposits fails to pass parliamentary vote. Church offers assets to help financial crisis. German Greens warn on Cyprus taking Russian help. ECB aid not available unless Cyprus banks become solvent…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Cyprus scrambles to secure new bailout” was written by Nick Fletcher, for guardian.co.uk on Wednesday 20th March 2013 15.43 UTC

3.43pm GMT

Here’s an interesting chart breaking down Cyprus bank deposits:

3.19pm GMT

More speculation:

Updated at 3.23pm GMT

3.12pm GMT

Interesting piece here from Euromoney earlier this month, talking about the prospect of depositors in Cyprus taking a hit, and the possibility of capital flight to avoid this…

3.04pm GMT

Eurozone consumer confidence improves

Eurozone consumer confidence edged up in March, it appears.

The European Commission said the index improved to -23.5 from -23.6 in February. Still negative though, and presumably taken before the latest blow-up in Cyprus.

2.57pm GMT

Bit more detail from Dow Jones on what Cyprus plan might involve:

Of course, if previous reports are true, the troika wants nothing to do with the proposals.

Updated at 3.01pm GMT

2.45pm GMT

Troika reportedly set to reject Cyprus’s new plan

But this alternative plan may not pass muster:

2.42pm GMT

Cyprus official says still working on alternative plans

If the Cyprus/Russia talks have ended for the day without resolution, there could still be some action on the island itself. AP reports:

A Cypriot financial official said authorities were working on bills which would need parliamentary approval aiming to limit the amount of money leaving the country, and that a decision would be announced later on how long the banks would remain closed. The official spoke on condition of anonymity as they were not authorized to release the information.

A government official said an alternative plan to raise the €5.8bn [orginally to have come from bank savings] had been drafted and was to be presented to the troika, most likely on Wednesday. The plan would raise money from domestic sources, including pension plans and subsidiaries of foreign banks active in Cyprus.

One of those domestic sources may be the country’s influential Orthodox church. Its head, Archbishop Chrysostomos II, said he would put the church’s assets at the country’s disposal, saying the church was willing to mortgage its assets to invest in government bonds.

2.33pm GMT

European Council President Herman Van Rompuy is speaking at the European parliament:

Updated at 2.35pm GMT

2.17pm GMT

Another direct consequence, along with shut banks and queues for ATMs, of Cyprus’s financial crisis:

Updated at 2.18pm GMT

2.07pm GMT

Cyprus deposit levy plan “Orwellian vision” says Pimco’s Bill Gross

Pimco’s Bill Gross, who runs the world’s largest bond fund, is far from impressed with what has been happening with the Cyprus bailout:

1.57pm GMT

Saris says Russian talks constructive but no concrete deal yet

Cyprus finance minister Michalis Sarris has admitted there were no concrete offers from Russia after his first day of talks in Moscow, but plans to stay until a deal is done. Miriam Elder, the Guardian’s Moscow correspondent, writes:

Sarris met his Russian counterpart, Anton Siluanov, before holding higher-level talks with Igor Shuvalov, a deputy prime minister and close ally of Vladimir Putin, the Russian president. The talks ended at about 4pm Moscow time and Sarris cancelled a planned press conference because of the lack of results.

Cyprus turned to Russia for a lifeline, seeking a five-year extension on a €2.5bn loan granted in December 2011 that is due to mature in 2016. It has also asked Russia to refinance the loan and lend an additional €5bn.

“We had a very good first meeting, very constructive, very honest discussion,” Sarris said after meeting Siluanov. “We’ve underscored how difficult the situation is.” However, he said there were “no offers, nothing concrete”.

Sarris said he would stay in Moscow until a deal was reached. “We’ll now continue our discussion to find the solution by which we hope we will be getting some support,” he said. Asked by reporters whether that meant simply renegotiating a loan, Sarris said: “No, we are looking at things beyond that.”

Full story here.

1.50pm GMT

There is much agreement that the Cyprus situation needs to be resolved quickly.

But perhaps there are different definitions of “quickly.” Some would take that to indicate today or maybe tomorrow. But perhaps not:

Because last weekend’s agreement worked out so well…

1.42pm GMT

Abandoning tough reforms not the answer, says ECB’s Asmussen

More from ECB board member Joerg Asmussen who warned about the (lack of) solvency of Cypriot banks earlier.

Speaking at conference he said abandoning the tough reforms and raising spending instead would not solve the debt crisis and would merely shift the problems to the future. He said:

It is an illusion to think that more debt is the answer to this debt crisis. Recent research has shown that high public debt levels in the euro area hamper growth, with a serious negative effect starting when debt exceeds 90% of GDP.

1.36pm GMT

Updated at 1.45pm GMT

1.07pm GMT

Cyprus so far today

Here’s a handy Reuters roundup of Cyprus developments so far today:

Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, after the island’s parliament rejected the terms of a bailout from the EU, raising the risk of default and a bank crash.

Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting with his Russian counterpart Anton Siluanov in Moscow, but talks there would continue.

Russia’s finance ministry said Nicosia had sought a further €5bn, on top of a five-year extension and lower interest on an existing €2.5bn loan.

Cyprus is seeking Moscow’s help after parliament voted down the euro zone’s plan for a €10bn bailout on Tuesday.

Cypriots balked at EU demands for a levy on bank deposits to raise €5.8bn, an unprecedented measure that opponents said would have violated the principle behind an EU-wide guarantee on deposits of up to €100,000.

Moscow has its own interests in ensuring the survival of banks in Cyprus, a haven for billions of euros squirreled abroad by Russian businesses and individuals.

The European Central Bank’s chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.

“We can provide emergency liquidity only to solvent banks and… the solvency of Cypriot banks cannot be assumed if an aid program is not agreed on soon, which would allow for a quick recapitalization of the banking sector,” Asmussen told German weekly Die Zeit in an interview conducted on Tuesday evening.

Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the eurozone, although he hoped its leaders would find a solution for it to stay.

Full story here.

Updated at 1.46pm GMT

1.00pm GMT

…this may not be completely implausible.

12.39pm GMT

French authorities search Christine Lagarde’s flat

Away from Cyprus and indeed the UK Budget, it seems French authorities have searched the Paris flat of IMF boss Christine Lagarde.

The move is part of an investigation into her handling of a 2008 compensation payment of €285m to businessman Bernard Tapie. There are claims that Lagarde, then finance minister, acted illegally in approving the payment. She denies any wrongdoing.

12.36pm GMT

UK Budget speech begins

A reminder that our live coverage of the UK Budget – George Osborne is now speaking – is here.

12.31pm GMT

Confusion over reported Cyprus bank sale

As mentioned BTL, there are reports that Cyprus Popular Bank has been sold to Russian investors, something which has gave a lift to markets and the euro.

However, in this atmosphere of speculation and rumour, it may not be correct:

Updated at 12.34pm GMT

12.17pm GMT

Deposit protection scheme should be respected, says Cameron

David Cameron repeated his promise that any Briton in Cyprus sent by the government (foreign office, ministry of defence etc) would not lose out in terms of their savings.

Nor would they be short of cash, thanks to the plane full of euros sent out to the island, he said at prime minister’s question time in response to Labour leader Ed Milliband.

As for the many thousands of British citizens in Cyprus, he said the government could not insure them against any losses in their Cyprus bandk accounts. But they would get the benefits and payments they were entitled to.

Asked how much the UK government knew and when, Cameron pointed out that the UK was not involved in the bailout discussions since it was not in the euro. Nor would it be contributing up to £1bn which it would otherwise have been liable to.

On the issue of bank trust – potentially damaged by any raid on savings – Cameron said:

We made it very clear to Cyprus… when you have a deposit protection scheme…[it] should be respected.

12.06pm GMT

There’s a bit of the blame game going on, it would appear.

The European Commission has said the weekend deal was unanimous and it felt it had to support the proposals even though it did not agree with all aspects of them (which, I do wonder? Could it be the hit to smaller depositors?)

Meanwhile there was this reported from the French:

Meanwhile EC vice president Olli Rehn will apparently not join President Jose Manuel Barroso’s mission to Russia but will instead stay in Brussels to deal with the Cyprus problem.

11.51am GMT

Cyprus Russia talks reportedly end

Reports are emerging that the talks between Cyprus and Russia have ended without a deal, and will continue tomorrow.

On the other hand:

11.30am GMT

It’s not just a gas deal Russia wants apparently:

11.27am GMT

Spain likely to change economic forecasts, says Rajoy

Spain is likely to change its economic forecasts, prime minister Mariano Rajoy said earlier.

In his weekly appearance in parliament he said (quotes from Reuters):

International organisations have changed their forecasts on a number of occasions and there are factors that, no doubt, will oblige us to do that… I believe we will change our forecasts.

The current prediction is for a 0.5% contraction in GDP but analysts believe this could be revised to 1.5% in April when Spain gives its new forecasts to Brussels.

11.19am GMT

A host of speculation is emerging about what Cyprus might actually plan in plan B:

Meanwhile:

And:

11.05am GMT

German and Portugal in successful bond sales

Staying with Germany, the country earlier sold €3.3bn of 10 year government bonds.

No surprise there was strong demand, given events elsewhere. The sale attracted 1.6 times the amount on offer, up from 1.2 times at a similar sale in February.

The average yield was 1.36%, the lowest at a 10 year auction since July 2012.

Meanwhile in Portugal, the country sold €1.5bn of Treasury bills, including €1.2bn of 18 month bills. The yield on these fell to 1.506% from 1.963% at a similar sale in January. Yields on the remaining €300m of three month bills edged up from 0.737% in February to 0.757%.

So not a bad result all round, under the circumstances.

10.58am GMT

Merkel regrets Cyprus vote decision and awaits new proposals

Angela Merkel regrets the outcome of last night’s vote in the Cypriot parliament, according to snaps on Reuters.

But the German chancellor accepts the decision and now awaits a proposal from the Cypriot government to the Troika. She will look at all the proposals the government makes.

Hammering home the point made by the ECB earlier, she said Cyprus does not have a sustainable banking sector.

Savers in Cyprus with more than €100,000 in the bank should be ready to contribute to any bailout (it was the plan to hit savers with more than €20,000 that scuppered the vote).

10.54am GMT

Cyprus banks update

No real surprise, I suppose, if true:

10.44am GMT

More thoughts on Russia’s possible involvement in easing Cyprus’s financial woes. Norman Villamin, chief investment officer for Europe at Coutts said:

Russia, with probably the greatest direct economic interest and social and historical connection to the island, is at this point a passive participant in plan to save Cyprus. The challenge will be to bring the Russians to the table and get them to share the burden.

Having displayed the stick (deposit levy) to get Russia to the table, the most obvious next step would be to dangle some carrots (such as offshore drilling rights) to facilitate a solution. This is not without precedent, as part of the Greek bailout programme included asset sales/privatisation.

The challenge is that this needs to be completed today, or authorities need to extend the bank holiday. With this in mind, it seems to me the Russians have a bit of an advantage in the negotiation. The only real pressure the troika could exert would be to cut off funding for the Cyprus central bank, which is reliant on the emergency liquidity assistance scheme (ELA). This would potentially raise the cost to Russia for not stepping in.

What are the near-term implications for asset markets? We have seen the euro push to recent lows, Spanish and Italian stocks sell off and yields on their government bonds rise (prices fall). Further downside from here requires a policy error, which though not impossible, I would be hesitant to suggest is the base-case scenario. Like flare-ups in the eurozone before, I believe a face-saving agreement will be found. It’s not likely to solve the broader crisis, but once again kick the can a bit further down the road.

10.31am GMT

No ECB liquidity without bailout, says Bank’s Asmussen

The statement from the European Central Bank following the Cyprus parliament’s rejection last night of a savings levy was not exactly clear about what it meant.

The ECB reaffirmed “its commitment to provide liquidity as needed within the existing rules”, but at Swordfish Research’s Gary Jenkins said earlier, these rules seem to be made up as they go along.

Now come some newspaper comments from ECB board member Joerg Asmussen, from Die Zeit via Reuters.

Asmussen said Cyprus’s banks were not solvent unless they were recapitalised quickly, and the ECB can only provide liquidity to solvent banks. He said:

We did not threaten (to cut off liquidity), but just pointed out as a matter of fact that we can provide emergency liquidity only to solvent banks and that the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector.

He was also quoted as saying that no other country in the eurozone had a banking sector crisis comparable to Cyprus.

Updated at 10.31am GMT

10.16am GMT

German Greens warn on Cyprus seeking Russian aid

Germany’s Green party is not happy at the idea of Russia helping to prop up Cyprus. According to Reuters, co-chair of the Greens Cem Oezdemir told German radio:

I would probably not have voted ‘no’ if I’d been in the southern Cypriot parliament because of the possible consequences and because I don’t think Cyprus should align itself with Russia.

We know this is not just about Russian money but Russia’s geostrategic interest in the island. It can’t be in the interests of Europe for it to have a foot in the door of an EU member state and thereby have an influence on the expansion of the European Union.

Oezdemir, of Turkish extraction, is clearly worried about the outlook for Turkey’s membership of the EU. He has proposed making a bailout for Cyprus conditional on reviving talks about reunification of the island, which has been divided since 1974.

10.08am GMT

Meeting at Cyprus central bank on Plan B

More on Cyprus’s Plan B discussions, courtesy of AP:

Government spokesman Christos Stylianides says a meeting was under way at the central bank to discuss a ‘Plan B’ for raising funds, but also for reducing the €5.8bn that must be found domestically.

Central Bank deputy governor Spyros Stavrinakis says no decision had been taken on when banks, which have been shut since the weekend, would reopen.

The new plan being worked on Wednesday has not yet been presented to the EU and International Monetary Fund, he said.

Updated at 10.28am GMT

10.01am GMT

Here’s some video from yesterday’s vote in Cyprus and the subsequent celebrations, as well as the church’s offer to support president Nicos Anastasiades.

9.35am GMT

Bank minutes and UK unemployment

Breaking news:

Members of the Bank of England’s monetary policy committee voted 9-0 to keep interest rates on hold.

They also voted 6-3 against more quantitative easing, with Mervyn King, Paul Fisher and David Miles wanting a further £25bn to take the total to £400bn.

Meanwhile UK unemployment figures showed a 1,500 fall in the claimant count to 1.542m, the lowest since June 2011. But the fall was less than the 5,000 drop expected by economists. The jobless rate was steady at 7.8%

9.28am GMT

George Osborne’s budget

For those interested in the UK chancellor’s set piece, my colleagues Graeme Wearden and Andrew Sparrow are providing full coverage of the budget on a live blog here.

Updated at 10.25am GMT

9.22am GMT

Markets calm as Cyprus talks continue

Time for a quick look at the markets, and the mood seems fairly calm so far.

Ahead of UK unemployment and Bank of England minutes, not to mention the budget, the FTSE 100 is up 0.32% at 6463. Germany’s Dax is up 0.55% while France’s Cac has climbed 0.6% and Italy’s FTSE MIB has added 0.44%. Spain’s Ibex is up 0.51%, while Athens is effectively unchanged.

Updated at 10.28am GMT

9.11am GMT

And here comes Plan B…whatever that might turn out to be.

Updated at 9.39am GMT

9.07am GMT

Russia’s role in the Cypriot financial crisis is one of the more intriguing aspects of the whole situation. With some €20bn of Russian money estimated to be in Cyprus bank accounts, you can see why Russia was unhappy about the prospect of any levy on deposits. But quite how the country will assist Cyprus is still unclear. Carsten Brzeski at ING Bank said:

There were several reports that Cyprus was trying to get financial support from Russia. Other options could be the increase of other taxes or privatisations. A combination of several options has recently been proposed by Russian energy giant Gazprom which according to media reports has offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus. Clearly an option with far-reaching geopolitical consequences.

8.53am GMT

Sarris says no loan deal with Russia yet but talks continue

Cyprus’s finance minister Michalis Sarris has said there has been no decision on a loan from Moscow yet but talks are continuing, according to Reuters.

Last night an idea circulating was that Russia would help out financially in return for some of the island’s energy rights.

Meanwhile Austrian finance minister Maria Fekter said the European Central Bank would not provide liquidity indefinitely to Cypriot banks. The banks, currently closed, are dependent on emergency funding from the ECB and last night it said:

The ECB takes note of the decision of the Cypriot parliament and is in contact with its troika partners

The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.

But Fekter told reporters (quotes from Reuters):

[If Cyprus does not come up with a new plan] then the banks won’t open on Friday because the ECB will not provide any more liquidity. That is a more horrible scenario than what is on the table now.

We will certainly help out the Cypriots but only under conditions that make sense. Certainly neither the ESM [bailout fund] nor the ECB can allow a bottomless pit.

Updated at 10.24am GMT

8.32am GMT

Church offers its assets to help Cyprus out of financial crisis

From the profane to the sacred. It seems everyone is pitching in to help Cyprus out of its crisis, with the church now offering its worldly goods. According to an AP report:

The head of Cyprus’ influential Orthodox church, Archbishop Chrysostomos II, says he will put the church’s assets at the country’s disposal to help pull it out of a financial crisis, after lawmakers rejected a plan to seize up to 10%t of people’s bank deposits to secure an international bailout.

Speaking after meeting President Nicos Anastasiades on Wednesday, Chrysostomos said the church was willing to mortgage its assets to invest in government bonds.

The church has considerable wealth, including property, stakes in a bank and a brewery. Tuesday’s rejection of the deposit tax has left the future of the country’s international bailout in question.

Updated at 10.25am GMT

8.22am GMT

And here’s Michael Hewson at CMC Markets:

The Cypriot MP’s obviously didn’t get the EU memo that states that you must vote yes, and if you don’t, you keep voting until you do.

The saga has now moved onto the next stage of what is turning into a high stakes game of Russian roulette, quite literally, as the Cypriot finance minister Sarris flies off to Moscow in the hope of some better terms, perhaps in exchange for gas exploration rights and future revenues given the fairly sizeable amount of Russian money (about €20bn) frozen in Cyprus’s banks. All the while Cyprus banks remain closed, probably until next week, while contingency plans for capital controls are being prepared for when they re-open to prevent a haemorrhaging of cash in the event a deal is done.

As things stand a deal with Russia may be the most likely option for Cyprus, unless the EU blinks and softens the terms of the deal, which could be a tough sell for the German parliament in particular in an election year. In the absence of a deal a number of Cyprus MP’s have said they will leave the euro.

8.18am GMT

The unprecedented attempt to seize savers’ cash as part of the bailout of Cyprus and the subsequent failure to get it through parliament has caused much comment. Here’s Gary Jenkins of Swordfish Research:

On Monday I said that I wouldn’t vote for the Cyprus bailout as initially proposed (at least I wouldn’t do so and remain in the country) and even though the proposal was amended to exempt all deposits under €20,000 it did not receive a single vote in favour. The ECB responded by confirming its commitment ‘to provide liquidity as needed within the existing rules,’ which of course they tend to make up as they go along. The Luxembourg Finance Minister Luc Frieden said that it was necessary that Eurozone finance ministers meet ‘as soon as possible’ to negotiate a new rescue package. One could argue that as they were the lot who negotiated the last one that maybe they should try and find someone else to do it for them.

He went on to say that: ‘What matters now is to undertake all necessary measures to ensure the stability of the Eurozone.’ Maybe they could think about some kind of deposit guarantee scheme, or even a banking union? Oh, wait a minute…

In an alternative universe the initial deal did protect all deposits under €100K, the bailout has been agreed and all is well with the (alternative) world. (By the way, Wales won the 6 Nations in this universe as well…).

But in this universe they have opened Pandora’s Box and we now know that deposit guarantee schemes are potentially worthless. Now here I must stop myself for a minute because of course such schemes are only of value when the sovereign is independently solvent. It’s not as if some friendly civil servant cycles up to your door the next morning with a suitcase containing your cash.

So what happens next? There are a myriad of potential outcomes which range from Cyprus raising money from elsewhere (Russia being the hot favourite), a renegotiation of the terms with the Eurozone all the way to a disorderly default and an exit from the Euro. At this stage any renegotiation would probably only be at the margins. Maybe the eurozone would make up the difference to allow deposits of, say under €50K to be protected.

From a Eurozone perspective a default and an exit would lead to some immediate volatility and some doubts about the solidity of the eurozone. Ironically however the biggest risk to the eurozone would probably be the medium term one of the ‘new’ Cyprus recovering economic wise quicker than the stressed countries remaining in the eurozone.

8.14am GMT

Today’s schedule

Aside from the many meetings in and concerning Cyprus, here are some of the other things to look out for today:

9.00 Eurozone current account

9:30 UK Bank of England Minutes

9.30 UK average earnings

9:30 UK unemployment

10:30 Germany to Sell €4bn 10-Year Notes

10:30 Portugal Holds Auctions for Three-, 18-Month Bills

10:30 Portugal to Sell 546-Day Bills

10:30 Portugal to Sell 91-Day Bills

12.30 UK Budget

15:00 Eurozone consumer confidence

18:00 US Federal Reserve rate decision and economic projections

18:30 Fed’s Bernanke Holds Press Conference in Washington

Updated at 10.47am GMT

8.03am GMT

Cyprus in crisis talks as savings levy rejected

Good morning and welcome back to our rolling coverage of the latest developments from Cyprus and the rest of the eurozone and beyond.

The Mediterranean island is in the spotlight after Tuesday’s rejection by its parliament of the controversial levy on savers’ deposits. Finance minister Michalis Sarris – who tendered his resignation only to have it rejected by the island’s president Nicos Anastasiades – is in Russia for talks to drum up financial help.

It has asked Russia for a five year extension of an existing loan of €2.5bn and a reduction in the 4.5% interest rate.

Sarris told reporters in Moscow, according to Reuters:

We’re hoping for a good outcome but we cannot really predict.

The president, who let’s not forget is barely a month into the job, is holding a meeting with party leaders and the governor of the central bank. He is also due to hold a cabinet meeting as well as talks with officials from the Troika – the EU, European Central Bank and International Monetary Fund.

The country is desperately trying to fill a €5.8bn gap now the savings levy has been voted down. Banks remain closed, but may or may not open on Thursday. There have been suggestions that – given next Monday is a bank holiday – things may remain closed until at least next Tuesday.

Details of yesterday’s developments are in our story here.

Meanwhile there is a busy day ahead elsewhere, not least for the UK with the Bank of England minutes, unemployment and the Chancellor’s setpiece, the Budget.

Updated at 8.54am GMT

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Britain’s factory output drops 1.5% unexpectedly painting a grim picture of the economy. Greek international lenders to discuss reforms with Samaras. Carney meets treasury officials to discuss bank remit. Cyprus and the Troika negotiate a small bailout…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: UK manufacturing slump raises risk of triple-dip” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 12th March 2013 16.19 UTC

4.16pm GMT

Cyprus and troika reportedly negotiating small bailout

Meanwhile Cyprus and the troika are negotiating a smaller bailout package, Dow Jones is reporting:

Earlier of course German finance minister Wolfgang Schaeuble was saying the Bundestag could vote on a bailout package for Cyprus next week. If the deal gets done this week, that timetable looks plausible.

Updated at 4.19pm GMT

4.09pm GMT

Samaras and troika meeting reportedly delayed

Still with Greece, the meeting between prime minister Antonis Samaras and visiting troika officials, due to take place this evening has now apparently been postponed until tomorrow…

3.59pm GMT

ECB funding to Greek banks rises in January

Greek banks turned to cheaper ECB funding in January, new figures have shown.

ECB funding to the country’s banks rose from €19.35bn in December to €76.22, while emergency liquidity assistance from Greece’s central bank fell from €101.85bn to €31.42bn. Tapping European Central Bank funds is around 2 percentage points cheaper than the ELA.

3.27pm GMT

Germany’s second largest bank, Commerzbank, is preparing a capital increase of between €700m and €800m, according to a report in Manager Magazin.

Updated at 3.35pm GMT

3.23pm GMT

Germany could vote on Cyprus package next week

Germany could vote on an aid package for Cyprus as early as next week.

That is what finance minister Wolfgang Schaeuble has told conservative politicians, although that is dependent on a decision from eurozone finance ministers that the country require financial assistance.

The Bundestag lower house of parliament would be deciding on a €17bn aid package for Cyprus, mainly to help recapitalise its banks.

Updated at 3.27pm GMT

3.01pm GMT

And with that I’ll hand the blog over to my colleague Nick Fletcher.

3.01pm GMT

UK GDP forecast to drop by 0.1% in February

Respected forecaster NIESR estimates that the UK economy declined by 0.1% in February. That would point towards a 0.1% decline in GDP over the three months to February.

But the thinktank would not be drawn on whether the economy will shrink over the three months to March and therefore slide into a triple-dip recession.

Simon Kirby of NIESR said:

It’s going to be a very close run thing. The obsession with triple-dip distracts us from the more important point that the UK has been effectively flat for over two years. The real risk for the economy is an absence of growth throughout 2013. It’s the risk that this trend of stagnation will continue through 2013.

He said the trade figures today may have looked positive but, in fact, demonstrated the weakness of imports, which highlighted the lack of domestic demand.

NIESR defines a period of depression as one in which the economy languishes below its pre-recession peak, which they pinpoint as January 2008. The UK economy is still 3.25% below that level and NIESR says this period of depression is likely to continue until 2015.

But he notes the disputes over the term ‘depression’.

Quite often people think about a depression in terms of a very, very, very severe recession, like the experience of Germany in 1930s. That is quite clearly not the case for the UK at the moment.

Updated at 3.28pm GMT

2.15pm GMT

Greek PM gears up for meeting with troika

Over in Greece, our correspondent Helena Smith says officials are putting on a brave face ahead of prime minister Antonis Samaras’ crunch meeting with visiting troika mission chiefs.

She writes:

Ahead of the talks, which begin at 6pm local time, Greece’s technocrat finance minister Yannis Stournaras today held back-to-back meetings with technical teams representing foreign lenders at the EU, ECB and IMF.

As the debt-stricken country’s next €2.8bn installment of aid depends on the outcome of tonight’s discussions, the rush to reach consensus on a series of outstanding issues has assumed what one official described as “dramatic proportions.”

Although the climate between Greece and its creditors has much improved since the conservative-led coalition assumed power last June, more divides the two than unites them, say analysts who agree that a breakdown would be a severe blow.

Far away from the optimism expressed by Stournaras in his interview with the Guardian, few observers in Athens believe the eurozone’s weakest link has overcome the crisis. Most see the autumn as a make-or-break time following general elections at the end of September in Germany.

Taxes, debts and public sector lay-offs have topped the list of disagreements with visiting troika inspectors. Creditors are pushing for the highly controversial property tax, levied through electricity bills, to be extended through 2013.

At a time when liquidity has all but dried up and Greece is undergoing a form of internal default, with no one paying anyone else, the prospect of the measure being prolonged has been met with protests and derision.

Auditors are also demanding faster implementation of civil servant staff reductions – a demand that has elicited fierce opposition from Samaras’ two junior leftwing partners at a time when unemployment is nudging towards a European high of 27%. What compromises are made – and more importantly how they are made – will determine tonight’s result.

Updated at 3.28pm GMT

1.40pm GMT

Banking union vital for eurozone – ECB board memeber

A banking union is “vital” for better financial integration of the eurozone, ECB board member Benoît Coeuré said today.

A highly integrated financial system is necessary to ensure that the impulses coming from our monetary policy diffuse homogeneously through financial markets across the euro area as a whole.

He said a “strong and independent supranatural supervisor” for the banking sector would help the monetary union function more smoothly and aid the restoration of confidence in the banking sector.

Regaining such confidence, in turn, is also key to reversing financial fragmentation and restarting fully functioning cross-border markets.

You can read the full speech here.

Updated at 1.42pm GMT

1.30pm GMT

Carney meets UK treasury official to discuss bank remit

The incoming governor of the Bank of England, Mark Carney, has met the UK treasury’s top civil servant to discuss changes to the central bank’s remit, according to Bloomberg.

Carney and Nicholas Macpherson are reported to have discussed the options in Ottawa ahead of the budget next week, when it is thought chancellor George Osborne may announce changes to the Bank of England’s role. (Cynics might suggest this would be an interesting diversionary tactic.)

Theophilos Argitis of Bloomberg reports:

Carney has signaled support for allowing the bank more flexibility in meeting its 2% inflation goal and promoted the idea of issuing guidance on longer-term policy.

In a speech in December, Carney put forward the idea of targeting nominal GDP rather than inflation. He then said in a treasury select committee.

The benefits of any regime change would have to be weighed carefully, not only against the potential risks but also against the effectiveness of other unconventional monetary measures under the proven, flexible inflation-targeting framework.

This was particularly notable as Carney was the first to suggest the inflation-targeting framework was “flexible”.

12.04pm GMT

UK industrial production hits lowest point in two decades

Despite the focus on today’s manufacturing data out of the UK, it is worth pointing out just how bad the industrial production figures were, falling to their lowest level since May 1992, a near 21-year low.

11.59am GMT

UK in danger of falling into depression – economist

With all the talk of the UK dropping into an economic depression in the comments below, it may be worth looking at how significant a threat this is.

First off, Investopedia defines an economic depression as follows:

A depression is a sustained and severe recession. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years.

Shaun Richards, an independent economist who writes the blog Mindful Money, says the UK is in danger of falling into a depression and blames it on “a clear policy error in the UK to emphasis monetary policy as a response to the credit crunch”.

The “quick fix” has not worked and indeed it cannot now be quick and it plainly is not working either. Splashing money into the system and devaluing the currency are not working and yet we get more of it.

He cites the possible expansion of quantitative easing, plans to put Funding for Lending on steroids, and the decline of the pound. Instead, he says, the government should be concentrating on reforming the banks.

11.30am GMT

EC’s Rehn accuses Krugman of lying

The claws are out. The EU’s top economic official Olli Rehn has hit back at critics of austerity and called US economist Paul Krugman a liar in the process.

The fight between the two bubbled up last month when the European Commission published forecasts showing the recession in southern European countries applying tough austerity policies would be deeper and last longer than previously projected.

At the time, Krugman accused the commissioner for economic and monetary affairs of a “Rehn of Terror” for arguing that EU countries’ austerity policies had restored market confidence.

Rehn responded in an interview in a Finnish newspaper this morning, using a parliamentary euphemism for a lie:

Krugman put words in my mouth that would be termed in the Finnish Parliament a modified truth.

Reuters reports that Rehn said Krugman and other critics had distorted the findings of an International Monetary Fund study published last year on so-called “fiscal multipliers” and the consequences of austerity policies to attack European policies.

In the paper, IMF economists acknowledged they may have underestimated the impact of government spending cuts in dampening growth.

Rehn said:

It is essential that the IMF paper does not give rise to the conclusion that economic adjustment would not be desirable.

He added that Brussels and the IMF agree on the importance of structural economic reforms to boost growth.

Responding to those who argued for a slower pace of fiscal consolidation to ease the pain on citizens, Rehn said that might have been possible if unlimited cheap funding had been available from either the private sector or other euro zone countries.

What I don’t understand is where on earth the stimulus money could have come from,” he said, adding: “I sincerely hope that people who are cleverer than me will suggest alternative ways of getting credit flowing into Europe.

So far, distinguished economic experts had not suggested any financially or politically realistic alternatives, Rehn was quoted as saying.

Updated at 2.22pm GMT

11.12am GMT

UK data – Guardian wrap

Here’s our economics correspondent Philip Inman on the UK data.

The UK’s third recession since the financial crash is almost certain after a dive in manufacturing in January.

According to official data, a sharp fall in the production of pharmaceuticals and building materials pushed manufacturing 1.5% lower than December and 3% lower than the same month last year.

A wider measure of industrial production fell 1.2% compared with a poll of economists for Reuters that showed they expected a 0.1% rise.

Alan Clarke, UK economist at Scotia Bank said only a strong rise in the services sector could rescue the economy from a triple dip recession. “It is looking unlikely,” he said.

Critics of the government’s economic policies blamed the fall on a slump in demand that followed the UK and continental Europe’s pursuit of austerity before growth has regained momentum.

Manufacturing employers group EEF warned that many firms were holding back production and investment while customers at home and abroad remained “jittery”.

The figures are likely to increase pressure on the Bank of England to inject further funds into the economy. Last month the central bank’s monetary policy committee balked at boosting the total spent as part of its quantitative easing policy from £375bn.

Full story here.

11.09am GMT

Spanish borrowing costs fall

While Italian borrowing costs are rising (see 10.12am), Spain’s have dropped to their lowest level since April 2010 – just before the international rescue was announced for Greece.

The Spanish treasury sold €5.8bn of six and 12-month treasury bills, beating the target amount of €5.5bn.

The one-year debt came in at an average yield of 1.363% – compared with 1.548% in February.

Six month-debt came in at an average yield of 0.794%, compared with 0.859% a month earlier.

Jose Luis Martinez at Citi said:

It was a very positive auction, with strong underlying demand… with lower yields. What more can you ask for?

10.56am GMT

Trends in the UK trade balance

This is interesting. Markit shows how the increase in the UK’s trade of services has been more than offset by the decline in the UK’s trade of goods since the year 2000, with little sign of a change in the trend any time soon.

10.45am GMT

Bank of England under pressure to do more QE – economist

There’s a growing chorus of economists calling for more stimulus from the Bank of England and the government, following the poor UK data.

Here’s Chris Williamson of Markit:

The data will pile more pressure on the Bank of England, to inject more stimulus into the economy at its next policy meeting, and on the chancellor, to accept that more needs to be done to boost growth in next week’s budget. With such a weak start to the year, the economy is facing an increased risk of falling into a triple-dip recession and the much-vaunted rebalancing remains elusive. In fact, recent data suggest the UK is moving in the opposite direction: away from goods production and is becoming ever-more dependent on consumer spending.

10.40am GMT

UK needs export strategy – BCC

Britain needs a national export strategy says the British Chambers of Commerce, following poor manufacturing data.

David Kern chief economist BCC said:

More effective action is needed to ensure that the considerable untapped potential of many British exporters can be used to drive a sustainable recovery. The government must implement the measures it has already announced to support companies seeking to break into new markets. We clearly need a national export strategy that focuses on key areas such as trade finance, promotion, and insurance, and would enable British companies to compete in the global arena.

Updated at 10.40am GMT

10.34am GMT

German central bank chief says inflation risks declining

Meanwhile, the head of Germany’s central bank says the risk of inflation in the eurozone is declining.

Germany is seen as the main impediment to the European Central Bank cutting rates because of its fear of inflation. But Jens Weidmann, who is a member of the ECB’s governing council, said in a statement this morning there was no reason to stir up concerns about inflation.

In the short term, we in the euro area have, if anything, declining inflation risks.

He said Germany’s economy is still shaken by the eurozone crisis, which poses the biggest risk to the outlook for the country’s economy.

Only some of the confidence lost as a result of crisis has been recovered so far.

But he expects Germany’s growth to strengthen as the year progresses.

10.25am GMT

UK manufacturing down but trade balance improves – Reuters wrap

Here’s the Reuters report on the UK data:

British manufacturing output fell in January at the fastest pace since June, wiping out the previous month’s gains and reinforcing fears that the economy made a weak start to the year.

Manufacturing output dropped 1.5% on the month, the Office for National Statistics said on Tuesday, noting that snowy weather at the end of January had had little impact.

The wider reading of industrial output, which includes energy production and mining, fell 1.2% after a 1.1% rise in December, partly due to a shutdown of a North Sea oil field that typically accounts for 3%-6% of Britain’s oil production.

Economists had predicted broadly steady readings for both manufacturing and industrial production. The latest figures will worry finance minister George Osborne as he prepares to deliver his annual budget to parliament next week.

The sluggish trend may persist. A survey of purchasing managers revealed earlier an unexpected contraction in the manufacturing sector in February, raising the risk that Britain is entering its third recession since the 2008 financial crisis.

However, separate ONS data released at the same time showed a rare improvement in Britain’s trade position. The goods trade deficit shrank to £8.195bn in January from £8.738bn in December, versus forecasts for a modest deterioration to £9bn.

10.20am GMT

Here’s a graph of the plunge in sterling on the UK data, courtesy of CMC Market’s Michael Hewson.

10.14am GMT

The change in the UK’s inflation basket (see 9.46am) prompts the inevitable horsemeat jokes…

10.12am GMT

Italy’s borrowing costs rise

Over to Italy, where there is more bad news. Hit by the political instability in the country, its borrowing costs have risen in the latest auction of one-year debt.

Italy paid a yield – effectively the interest rate – of 1.28% in an auction of €7.75bn of one-year debt, the highest rate since December.

But it could be a lot worse. After an initial shock, the markets recovered and appear relatively sanguine about the current political impasse.

10.07am GMT

British manufacturing slides back

Here’s a chart from the ONS that shows the slide in industrial production and manufacturing, despite the odd bounce.

10.03am GMT

Here’s Howard Archer of IHS Global Insight on the “worrying” set of UK data.

The manufacturing figures are awful even if it is possible that the snow had more of a negative impact than the Office for National Statistics indicate and are a real blow to first quarter growth prospects.

A rebound in manufacturing output in December and some reasonable survey evidence for January had lifted hopes that the manufacturing sector could be emerging from a torrid time but the January output figures and a poor purchasing managers’ survey for February indicate that manufacturers are still finding life very tough.

On the face of it, the sharply reduced trade deficit in January is better news for hopes that the economy can grow in the first quarter. But even here the headline figure masks some worrying trends as the reduced deficit occurred because UK imports fell more than exports. This indicates that UK exporters are currently still finding life very tough while domestic demand is weak

All in all, a pretty worrying set of data for both the Bank of England and the Chancellor to contemplate.

Updated at 10.24am GMT

10.02am GMT

UK sliding towards triple-dip – economist

David Tinsley at BNP Paribas, meanwhile, says the UK is headed for its third recession in four years.

They are extremely disappointing manufacturing production numbers. Perhaps the story is not the weather behind the overall picture and it’s not just down to oil output that has led to distortions in the data over the last six months or so. Basically it’s a very bad start to January and therefore the first quarter. Unless the service sector delivers solid growth, we are likely to see a contraction in the first quarter.

Updated at 10.02am GMT

10.01am GMT

Osborne under pressure to deliver stimulus – economist

Here’s Philip Shaw of Investec on the “appalling” manufacturing data, which he says piles pressure on George Osborne to announce some kind of stimulus in next week’s budget.

The manufacturing figures are appalling. They represent a very poor start to 2013 for the factory sector. This may be a snow story once again, but one should be wary about putting too much of the blame onto weather conditions.

Our view is that the UK will probably avoid a triple-dip recession but these figures hardly inspire confidence in that view.

The softness of the numbers, irrespective of special events really puts the pressure on the chancellor to deliver some sort of stimulus to the economy.

Clearly on the fiscal side, there is no room to relax policy, either by cutting taxes or raising spending. What he seems likely to do would be to give the monetary policy committee more licence to be aggressive on policy as suggested by newspaper headlines last week. And there remains the question of trying to channel credit to SMEs.

Updated at 10.23am GMT

9.58am GMT

Britain’s trade position improves but points to weak demand

To recap, UK manufacturing output fell in January at its fastest pace since 2009 (ignoring the Jubilee weekend last year), wiping out December’s gains.

Separately, the ONS said Britain’s trade position showed a rare improvement in January, driven by a drop in oil imports.

Some instant reaction to the data, courtesy of Reuters:

James Knightley economist at ING:

With the February PMI manufacturing index coming in so weak and with orders numbers also disappointing it looks as though this sector is going to be a major drag on growth in the first quarter of 2013.

We have already has poor construction numbers for the start of the quarter so the prospect of yet another return to technical recession is very real.

This will intensify the pressure on the Bank of England to do more to help support the economy, given government officials suggest they have no intention of letting up on austerity.

Admittedly the trade balance has improved, but this is more to do with weakness in imports than a pick-up in exports. As such it underlines the weak domestic demand story in the UK.

9.50am GMT

FTSE rises on hopes of more stimulus

The UK stock market rose on the poor data, which commentators put down to hopes that the Bank of England will pump more money into the economy to revive the economy, via its quantitative easing programme.

9.46am GMT

Blueberries drop into the inflation basket

On a lighter note, the Office for National Statistics has updated the basket of goods it uses to calculate inflation.

In come… ebooks, set-top boxes, white rum, hot chocolate, deli type meats and blueberries, and packets of daily disposable contact lenses

Out go… on-sale champagne and (inexplicably) basin taps.

Updated at 9.47am GMT

9.40am GMT

Steve Collins of London & Capital Asset Management notes that the last time UK manufacturing was this bad was a result of the many bank holidays over the Jubilee weekend. Ignoring that, this is the worst showing from the sector since the dark days of 2009.

9.38am GMT

Pound tumbles on poor UK data

The pound dropped to a new two-and-a-half year low on the miserable UK data, down by half a cent against dollar to $1.4854 (and still falling).

9.35am GMT

UK industrial output misses forecasts

Taking a closer look at the figures, the 1.5% month-on-month decline in manufacturing output is the steepest drop since June last year.

Industrial output also missed forecasts of a 0.1% increase, to drop 1.2% in January.

9.31am GMT

UK manufacturing slump raises prospect of triple-dip

UK manufacturing figures are in and they look bad. Economists were expecting factory output to be flat in January, but instead it dropped 1.5%, according to the Office for National Statistics.

January was blighted by snow, but these figures will all be fed into the GDP calculator and suggest the UK could be headed for its third recession in four years.

Just to recap, the UK economy shrank by 0.3% in the last quarter of 2012. A technical recession is defined as two consecutive quarters of contraction, so a decline this month would push the UK into a dreaded triple-dip.

The news will come as a blow to the chancellor, George Osborne, who is due to present his budget next week.

We’ll have analyst reaction on those figures as it comes in.

Updated at 10.20am GMT

9.12am GMT

Stournaras says Greece is out of the woods

The Greek finance minister Yiannis Stournaras says Greece is close to overcoming its financial crisis and can look forward with optimism, in the Guardian this morning.

Speaking to our correspondent in Athens, Helena Smith, Stournaras said:

To a large extent, Greece is out of the woods. No one talks about Grexit now – even economists who advocated Grexit have apologised for it.

As far as fiscal adjustment is concerned, we have covered two thirds of the goal. As far as competitiveness is concerned, we have covered three quarters of the distance to the goal. Greece has paid a very high price in terms of austerity … But I think the worse is behind us and we can look at the future with hope.

Prompting some derision on Twitter…

Updated at 10.19am GMT

9.06am GMT

Denmark’s triple-A status confirmed

Denmark’s triple-A rating was confirmed this morning by ratings agency Fitch, with a stable outlook.

Fitch said Denmark merited the top-notch rating because of its…

Track record of macro-financial stability reflected in low and stable inflation, current account surpluses and the stable banking sector despite a high level of household indebtedness and weakening housing market.

Eurozone outsider, Denmark is one of the few European countries to retain its triple-A rating. But the country of bicycles crime dramas has not been completely impervious to the crisis. The Danish economy shrank more than expected at the end of last year, putting government forecasts for growth in doubt.

A burst property bubble hit confidence and private consumption and put the banking sector under pressure. Sluggish exports also hampered economic recovery, as demand in the eurozone stayed weak.

Fitch remained unworried, saying this morning:

Concerns for the banking sector arising from the bursting of the
housing bubble in 2008 and the global financial crisis in 2009 have eased, and large Danish banks in particular have improved balance sheets and capitalisation.

Though it notes the country’s sensitivity to the eurozone crisis, as a potential risk.

As a small open economy with extensive trade and financial linkages to the rest of the world and eurozone, a material worsening of the global economic outlook and/or intensification of the eurozone crisis would affect Denmark’s economic recovery and potentially place pressure on public finances and the financial sector.

8.33am GMT

German inflation hits two-year low

Inflation in Germany slowed to its lowest level in more than two years in February, according to official data.

The statistics office confirmed previous estimates that the cost of living in Germany increased by just 1.5% on a 12-month basis this month, down from 1.7% in January.

That could help pave the way for an ECB rate cut. IMF chief Christine Lagarde said last week that the ECB should cut rates and noted that restoring the balance in the EU might mean allowing somewhat higher inflation and wage growth in countries like Germany.

8.17am GMT

Hollande hits the road

In France, embattled president François Hollande is attempting to reverse a vertiginous decline in his popularity with a road trip around the country.

Our Paris correspondent Angelique Chrisafis reports:

François Hollande tried today to reverse his record unpopularity by embarking on old-fashioned, lingering trips to the provinces in the style of Charles de Gaulle, whose made-to-measure bed he will pointedly be sleeping in on his first trip in Dijon.

Several polls have shown Hollande’s approval ratings to be the lowest of any modern French leader 10 months into a presidency. French military intervention in Mali, which the Socialists hoped would improve his presidential stature and neutralise the right’s charges of dithering, produced only a slight, short-lived bounce.

The latest TNS-Sofres poll found only 30% of French people had confidence in him to solve France’s problems. An Ifop poll for Paris Match found only 37% of the French approved of his politics.

Hollande’s unpopularity is linked to the growing economic crisis and rising unemployment. No French leader has ever managed to climb in the popularity stakes while joblessness was rising fast. French unemployment is at a 14-year high and has steadily grown for almost two years. It threatens soon to reach the 1997 record of 3.2 million without work.

Updated at 8.19am GMT

7.57am GMT

Today’s agenda

We’ve got industrial and manufacturing data out of the UK today. And respected thinktank NIESR will make its estimate of UK GDP in February, which will be closely watched for indications that the economy is sliding into a triple-dip recession.

As Michael Hewson of CMC Markets notes:

With the pound continuing to sink on the currency markets and investors continuing to focus more on the UK’s fragile fundamentals every piece of economic data is being subject to greater and greater scrutiny ahead of next week’s budget, as the pressure continues to build on the Chancellor to come up with some creative measures to help boost the UK’s struggling economy.

  • Germany inflation (February): 7am
  • France current account (January): 7.45am
  • UK industrial and manufacturing data (January): 9.30am
  • UK trade balance (January): 9.30am
  • Germany Bundesbank’s annual report for 2012: 10am
  • UK GDP estimate from NIESR (February): 3pm

In the debt markets, Spain and Italy are selling short-term debt, and Germany is selling €1bn of a bond due in 2023.

Updated at 10.15am GMT

7.54am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis and other global economic events.

Greek prime minister Antonis Samaras will meet the troika mission chiefs in Athens this afternoon in an attempt to agree on key reforms. The result of the meeting will decide whether Greece’s international lenders release the next installment of the country’s €173bn bailout.

The meeting comes at the end of a marathon visit from the troika, which has been extended after officials got bogged down in a spat over public-sector layoffs.

Greece has promised to cut the civil service by 150,000 workers by the end of 2015. So far, it is on track to meet that target through attrition but the government has yet to actually sack anyone.

We’ll have updates on that meeting later today and other economic events from around the world.

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Draghi says “we considered a rate cut”. ECB press conference highlights. Pound rallies after Bank of England’s MPC votes against more QE. Bank of Japan rejects a call to start open-ended asset purchases immediately. US jobless claims drop…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Bank of England and ECB leave rates unchanged” was written by Graeme Wearden, for guardian.co.uk on Thursday 7th March 2013 15.00 UTC

3.00pm GMT

2.51pm GMT

It’s over

And that’s the end of the press conference.

The euro has gained almost one and a half cents against the US dollar, to $1.313.

Against the pound, the euro is up 0.7p at 87.04p – so one pound is worth €1.148.

2.47pm GMT

Draghi is also asked is he worried that Italy, his native land, will leave the path of austerity. Or even the single currency?

The ECB president won’t speculate over the election results, but is adamant that the country must stick to the path of structural reforms.

2.45pm GMT

Channel 4′s Faisal Islam suggests Draghi was looking at Spain when he spoke about youth unemployment a few minutes ago:

2.42pm GMT

Draghi: negative interest rates would have serious consequences.

A question about negative interest rates – did the European Central Bank consider cutting its deposit rate (levied on the deposits held by commercial banks at the ECB) below its current rate of 0.0%

Draghi replies: We’ve looked at the idea of a negative deposit rate, but unintended consequences could be serious. We’d be in uncharted waters.

2.39pm GMT

2.36pm GMT

Is the ECB worried that the euro is too high?

Draghi won’t be lured into firing a salvo in the currency wars – pointing out that the G8 released a statement last month in which they pledged not to talk down their currencies.

I won’t be the first person to break it, he says.

2.34pm GMT

Draghi: we’re still working on the legal side of OMT

Michael Steen of the Financial Times just stepped into the lion’s den.

He explains to Draghi that, contrary to what the ECB president has said during the press conference, we do not all understand how the Outright Monetary Transactions programme would work in practice.

All we’re seen, says Steen, is a 440-word statement released last summer. It’s not clear whether a country needs to still have access to the borrowing markets, for example, to sign up to OMT (at which point the ECB would start buying their bonds).

Draghi replies that countries “should be on the market by themselves”, but even admits that the ECB is “still working” on the legal documentation.

Updated at 2.48pm GMT

2.26pm GMT

Tweet of the day:

2.23pm GMT

On Cyprus…..

Asked about Cyprus’s bailout (still not agreed), Draghi warns that while Cyprus is small, the systemic risk is poses is not.

He adds that it is important that Cyprus accepts “international oversight” over how effectively its anti money-laundering legislation has been implemented in practice.

2.20pm GMT

A question about the slow march towards a single eurozone banking supervisor (at the ECB). Is Draghi worried that the pace is too slow?

Apparently not.

Progress in building the single supervisory mechanism (SSM) is continuing, says Draghi, adding that:

People underestimate amount of political capital that European leaders have invested in the euro.

2.16pm GMT

Draghi is asked about the recent nationalisation of Dutch bank SNS Reaal after it was unable to find private investors.

Isn’t that a reason for angst? Draghi says No:

2.12pm GMT

Next question – is the ECB worried that recent optimism over the crisis has pushed stock markets too high, which could lead to a crash?

Draghi replies that it is “very hard to say” whether stock prices are correct, but suggests that the rally is driven by hopes that the situation in the world economy is improving.

2.10pm GMT

Mario Draghi’s “Angst of the Week” joke (which didn’t actually split any sides in Frankfurt) has split opinion:

2.04pm GMT

Draghi: It’s Angst of the Week time

Draghi is asked about reports that the European Central Bank might quit the Troika (the group made up of the ECB, the IMF and the EU).

He starts with a joke — telling the press conference that:

Each week we have an angst.

citing recent fears over the Long Term Refinancing Operations loans.

New angst, every week or two.

And usually the fears are misplaced.

My suggestion to you is that, once you get gossip from friendly fire…. come and check with us before you write something that doesn’t exist.

Draghi goes on to point out that the ECB, like the IMF, predeced the Troika – which was created to tackle the ‘emergency’ in Europe.

We believe the ECB has some added value, and competence, in its sector, which it can provide to the Troika, Draghi says.

And he ends by insisting that the ECB remains free of political interference.

Updated at 2.05pm GMT

1.56pm GMT

Draghi continues to explain that the ECB sees weak consumption, weak demand, and high unemployment, but in the medium term “we see the start of a recovery.”

Thus, no rate cut today.

1.55pm GMT

ECB considered rate cut

INTERESTING: Draghi tells the room that the ECB governing council considered cutting rates.

Asked about the weakness in the eurozone economy, the ECB president explains that the possibility of a rate cut was discussed. but the “prevailing consensus” was to leave borrowing costs unchanged.

1.52pm GMT

On his OMT bond-buying programme: Draghi also says that it is there if a eurozone country decides it needs more help.

The rules are what they are… the ball is in the governments’ hands

1.50pm GMT

Read Draghi’s statement in full

Mario Draghi’s opening statement is now online here: Introductory statement to the press conference

1.49pm GMT

Question: what about Italy?

QUESTION TIME: and the first inquiry is based on the Italian election.

Draghi responds that markets have calmed down after their initial wobble, and have recognised that elections are a regular feature of the European landscape (he suggests that around 34 elections take place over a four-year cycle).

Markets understand that we live in a democracy….

adding that democracy and elections are very precious to everyone.

Draghi also suggests that much of the fiscal adjustment in Italy will continue, regardless of the election.

And he cracks a rather good joke – that the markets were less impacted by the Italian results than the journalists in the room (and beyond!)

1.45pm GMT

Draghi ends by repeating his line that European leaders must take decisive action to mend the imbalances in the region – and cites youth unemployment as a top priority.

1.44pm GMT

Draghi says inflation risks are broadly balanced, with the risk of higher inflation (perhaps from oil prices) balanced by the downside risk of weaker economic growth.

1.43pm GMT

Here are the ECB’s new inflation forecasts,

2013: between 1.2% and 2% (from 1.1% to 2.1%)

2014: between 0.6% to 2.0% (from 0.6% to 2.2%)

1.40pm GMT

The ECB has also cut its growth forecast for 2014, to between 0.0% to 2.0% (down from +0.2% to +2.2% back in December).

1.39pm GMT

ECB cuts growth forecasts

The ECB has revised down its economic forecasts, Draghi confirms.

It now expects eurozone GDP in 2013 to shrink, by between -0.1% and -0.9% (from a previous range of +0.3% to -0.9%). So no hope that the region will avoid contracting through during the year.

1.37pm GMT

Draghi repeats his line that it is “essential” for governments to implement structural reforms.

He also points to evidence that banks have repaid around €200bn to the ECB, by repaying their LTRO loans (made just over a year ago when the ECB pumped more liquidity into the euro economy)

Our monetary policy stance remains firmly accommodative, Draghi states. So no plans to tighten yet.

1.34pm GMT

Draghi’s statement

Mario Draghi starts by confirming that the ECB voted to leave interest rates unchanged at 0.75%.

He cited the latest inflation data, and evidence that inflation expectations remain firmly anchored.

However, there is also evidence that the ‘economic weakness’ (ie the recesssion) has extended into early 2013

Adjustments in the public and private sector will continue to weigh on the economy, he adds — but Draghi still sees a recovery later this year.

1.32pm GMT

And we’re off.

1.30pm GMT

ECB press conference starting now

You can watch the European Central Bank press conference streamed live on its website, just click here.

Among other issues, Mario Draghi should release the ECB’s latest economic forecasts….

1.25pm GMT

Incidentally, Portugal has warmly welcomed S&P’s decision to raise its rating outlook from negative to stable (see 11.40am), calling it “excellent”.

It’s a change to see rating agencies getting some love….

12.50pm GMT

And across the City traders, economists, and pundits race to grab some lunch before Mario Draghi’s press conference at 1.30pm GMT, or 2.30pm local time.

12.49pm GMT

As well as leaving the main refinancing rate unchanged at 0.75%, the ECB will continue to charge commercial banks a ‘marginal lending rate’ of 1.5%, and also pay zero interest on its deposit facility*.

* – money left with the ECB by commercial banks.

Updated at 12.49pm GMT

12.48pm GMT

The euro has risen a smidgen – to $1.3036, on the back of that news (reflecting the small chance of a rate cut).

12.45pm GMT

ECB: no change

The European Central Bank has voted to leave its benchmark interest rate unchanged, at 0.75%.

No other shocks either.

Updated at 12.46pm GMT

12.44pm GMT

The euro has been rising today – can the ECB rate decision (due in one minute) change it?…

12.31pm GMT

Cameron defending economic policies

UK prime minister David Cameron is giving a major speech on the British economy now. My colleague Andrew Sparrow has been live-blogging it here: Politics live blog.

He’s been defending his economic strategy, and criticising calls for him to relax his deficit reduction targets:

Andrew reports:

Cameron says there is no choice between tackling debts and promoting growth.

As the independent Office for Budget Responsibility has made clear…

…growth has been depressed by the financial crisis…

…the problems in the Eurozone…

…and a 60% rise in oil prices between August 2010 and April 2011.

They are absolutely clear that the deficit reduction plan is not responsible.

In fact, quite the opposite.

Tackling the deficit is the first essential step for growth.

And if we don’t do it, we’ll end up facing even greater austerity.

Moody’s rating agency says “the UK’s creditworthiness remains extremely high”…

…thanks in part to a “strong track record” of dealing with our debts and our “political will”.

But they also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of “reduced political commitment to fiscal consolidation

More here.

Updated at 12.40pm GMT

12.26pm GMT

Early reaction

Here’s some early reaction to the Bank of England’s decision to leave interest rates at 0.5%, and the quantitative easing programme at £375bn.

Stephen Gifford, CBI Director of Economics. reckons the vote on QE was very close:

A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction, is likely to have made this decision a close call.

With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.

Capital Economics suspects we’ll see more QE soon:

We expect that it will not take much to swing a majority of members in support of more stimulus in the near future

Howard Archer of IHS Global Insight believes the Bank is feeling the pressure to do more to help the UK economy.

We expect the Bank of England to deliver one £25bn portion of QE in the second quarter (taking the stock up to £400 billion) with another £25bn portion (taking the stock up to £425 billion) occurring shortly after Mark Carney takes over as Bank of England Governor in July.

It is also evident that the Bank of England is looking for other ways of helping the economy, particularly in trying to get more working capital through to smaller companies. Further measures seem highly likely in this area.

Jeremy Cook, chief economist at foreign exchange company, World First, reckons the Bank might now wait for Mr Carney.

“Data coming out of the UK has not got materially worse since the most recent decision, but the relative weakness of the Funding for Lending Scheme had prompted many to forecast that the BOE would ‘pull the lever’.

However, I think the Bank will now hold on policy until Mark Carney takes the reins of the MPC in July…”

12.17pm GMT

Just to clarify the situation with quantitative easing.

• The Bank of England has already created £375bn of “new” electronic money, in a programme dating back four years.

• This money (known as the asset purchase scheme) has been used to buy British government bonds from UK banks.

• The funds, the Bank of England says, should then flow into the wider economy through increased lending, stimulating economic growth. Critics question whether that actually happens in practice – but it has certainly helped push down UK borrowing costs.

• The MPC could have decided to increase the programme again, most likely in a £25bn slug of new money.

Updated at 12.42pm GMT

12.08pm GMT

The minutes of today’s meeting will be released on Wednesday 20 March, which by delicious timing is also Budget Day.

That’s when get the details of the voting, and find out how many doves pushed for more QE.

Updated at 12.42pm GMT

12.04pm GMT

The pound has jumped by half a cent, to $1.505, while UK gilts are falling in value. That’s pushed the yield on 10-year gilts up to 1.98%, from 1.95% this morning.

Updated at 12.05pm GMT

12.01pm GMT

There’s no further statement from the Bank of England – but you can see the decision itself here: Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

Updated at 12.06pm GMT

12.00pm GMT

Bank of England: No change

BREAKING: The Bank of England has voted to leave its quantitative easing budget unchanged at £375bn.

Interest rates remain at their record low of 0.5%

More to follow!

11.40am GMT

S&P raises Portugal’s rating outlook

Standard & Poor’s has just revised UP its outlook on Portugal, from negative to stable.

It issued the vote of confidence after concluding that Portugal is likely to persuade its lenders to give it more time to pay its bailout loans.

Here’s S&P’s logic:

• We expect Portugal’s official European lenders to lengthen the maturity profiles of their loans to Portugal. In our view, this should reduce Portugal’s public sector refinancing risks.

• We also expect the “Troika” to adjust Portugal’s fiscal consolidation path to allow for weaker-than-previously-assumed economic performance. In our opinion, this makes Portugal’s adjustment process more sustainable, both economically and socially, and reduces the risk that it will not comply with the program.

• We are therefore revising our outlook on the rating on Portugal to stable from negative.

This leaves Portugal with a junk rating of BB, though (two notches below investment grade).

Updated at 11.40am GMT

11.29am GMT

Greek unemployment rate falls

Greece’s unemployment rate has actually fallen, for the first time since its economic downturn began five years ago.

In what could be a much-needed encouraging sign, the country’s jobless rate dropped to 26.4% in December, from 26.6% in November.

It appears that Greek companies may have been encouraged to take on more workers as the long saga of Greece €34bn aid tranche was finally resolved at the end of 2012.

It’s only a glimmer of hope, at best – Greece still has the highest jobless rate in the eurozone (ahead of Spain’s 26.2%), and it’s economy is still shrinking.

Updated at 12.33pm GMT

11.17am GMT

Berlusconi sentenced to jail (but not jailed) over wiretap charges

Speaking of Silvio Berlusconi … he’s just been sentenced to a year’s imprisonment following a trial for leaking the contents of a wiretapped phone call to his brother’s newspaper.

Berlusconi had denied pushing Il Giornale to publish the transcript of the call to damage a political opponent, but the court has just issued its ruling.

However, the handcuffs are not coming out. Berlusconi can’t actually be jailed until the appeal’s process has been concluded – so this doesn’t appear to have a major impact on the political situation in Italy.

Updated at 12.01pm GMT

11.09am GMT

Albert Edwards, the notoriously bearish City analyst, isn’t impressed to see the Dow Jones industrial average at record levels – and reckons it means trouble ahead:

In a new note sent to his Société Générale clients, Edwards said:

As the Dow surges to all time highs it feels eerily similar to the prior mid-2007 peak. Exactly the same jitters abound of a bond bear market and true to form Ben Bernanke is making the same complacent comments.

(mind you, Edwards was predicting a 70% stock market tumble in July 2011, and that forecast remains unfilled)

Edwards also touches on the Italian election:

I believe the electorate were right to reject further austerity. There will be more such electoral revulsion on the way, but for Italy it doesn’t really matter anyway. They can remove the horse-hair shirt forced on them by the ECB/Germany/European Commission and these dreary architects of depression can be told to take a very large running jump.

Buy Italy!

We’ve explained before that the motives behind Beppe Grillo’s rase were more complex than a simple austerity backlash, but it’s true that Silvio Berlusconi’s popularity was swelled by his airy promises to cut taxes.

Edwards also produces a graph of on and off-balance sheet liabilities to illustrate that Italy’s debt problems as less alarming then other countries. Such as the UK:

10.35am GMT

Reassuring news for Spain – it successfully sold €5bn of bonds at auction this morning, its maximum target.

It also paid lower borrowing costs, with investors accepting yields of 4.917% on Spanish 10-year debt, down from 5.2% in February.

It suggests calm is returning to the bond markets after the excitement caused by the Italian election.

10.12am GMT

French finance minister issues austerity warning

France’s finance minister has warned of a social crisis and a surge in popularity for extremist political groups unless Europe ends its focus on austerity and fiscal cuts.

Speaking in Brussels this morning, Pierre Moscovici said continuing on the current course would ultimately “nourish a social crisis that leads to populism”. His solution – “more Europe” – with closer ties between its members to help each other back to growth.

He argued that the “existential” eurozone crisis is over (ie, the risk of the euro breaking up), but a crisis remains with the single currency region.

Moscovici conceded that countries couldn’t simply ignore their debt levels, saying that national debts were “a challenge for any country” regardless of their situation. But he argued that measures such as eurobonds, and a new fund to tackle Europe’s jobless crisis, would be a much better approach.

France isn’t expected to hit the EU’s target of a deficit no bigger than 3% of GDP this year. But with French unemployment over 10%, the view in Paris is that growth is more important then debt levels.

Moscovici was speaking at a conference called Failed austerity in Europe – the way out (so I don’t expect he was heckled!).

My former colleague David Gow is attending the event, and tweeted the main highlights:

Updated at 10.23am GMT

9.51am GMT

Pound down

The pound is weakening this morning, dropping below the $1.50 mark (seen a test of the nation’s economic virility) again.

Traders say sterling is being pushed down by speculation that the Bank of England will announce more QE, as well as the FT’s report that its mandate will be widened (see 9.35am)

9.35am GMT

FT: New powers for Mark Carney

The Bank of England could be about receive sweeping new powers to help drive the UK out of its economic stagnation.

The Financial Times has splashed on the news that the new Bank of England governor will be given a new brief, to help stimulate growth in the UK.

It claims that George Osborne will announce a new era of looser monetary policy in the budget in two weeks time, by changing the Bank’s mandate.

This could mean a new inflation target (currently 2%), or asking the Bank to also target unemployment (as the US Federal Reserve now does).

Another option is to get the Bank to target nominal GDP (the cash value of the economy). Carney himself hinted last December that it could make more sense to get central banks to push for economic growth rather than just encouraging a low-inflation environment (in which growth would bloom).

The story goes on to say that Treasury officials are “discussing proposals” – so it’s not clear that Osborne has made his mind up (and, to be fair, the “dual mandate” issue has been kicked around in economics circles for some time).

Something for the MPC to get their teeth into this morning as they discuss the state of the UK economy.

Updated at 9.50am GMT

9.09am GMT

Rate expectations (2)

With the eurozone recession continuing, some members of the European Central Bank may be pushing for a rate cut in Frankfurt today. Most economists expect them to be outvoted, though.

Just  four out of 76 economists polled by Reuters reckons we’ll see a cut today, with 22 expecting borrowing costs to be cut from their current level of 0.75% at some stage.

Eurozone inflation has fallen to 1.8%, which is bang in line with the ECB’s target of just below the 2% mark.

Updated at 9.50am GMT

9.02am GMT

Rate expectations (1)

City economists are split over whether the Bank of England will take the plunge and increase its QE budget by another £25bn, to £400bn.

A Reuters roll last week found that 40% of economists expected an increase, but since then there’s been growing speculation of action. So it’s too close to call.

Michael Saunders of Citigroup is in the ‘more QE’ camp:

A majority of the MPC have reached the point where they agree that the economy needs more stimulus…Now they have to agree on how to do it.

The MPC does appear to be divided over the way forward, though. Last month deputy governor Paul Tucker caused a storm by discussing imposing ‘negative interest rates’ on commercial banks to force them to lend – an idea swiftly shot down by colleague Charlie Bean.

This gives the impression of two camps in the Bank – one who thinks the existing levers of monetary policy are sufficient, and one which believes more radical action is needed.

8.28am GMT

A busy day for central bankers

Good morning, and welcome to our rolling coverage of the latest developments in the eurozone financial crisis and across the global economy.

It’s a big day for central banking, with the Bank of England and the European Central Bank holding their monthly meetings to debate monetary policy and set interest rates.

Both meetings promise to be really rather interesting.

In the Bank of England’s case, there’s a real chance that the Monetary Policy Committee (MPC) will vote to pump another dose of electronic money into the system through its quantitative easing programme.

Last month the MPC was split 6-3 over QE – so can the three doves (which including governor Sir Mervyn King) persuade at least two more colleagues over to their perch?

The ECB isn’t expected to cut its interest rates (but, as with the BoE, you never know).

The excitement could come Mario Draghi holds his press conference this afternoon. Expect a grilling on the situation in Italy — where the political deadlock has raised questions over the effectiveness of Draghi’s pledge to buy unlimited government bonds if a country seeks help.

How, reporters in Frankfurt will doubtless ask, could the ECB take the risk of loading itself up with, par exemple, Italian debt when a maverick like Beppe Grillo is calling the shots? Not to mention Silvio Berlusconi….

That Outright Monetary Transactions (OMT) programme isn’t full-blown QE, but it’s the best weapon in the ECB’s locker to control, tame and fix the crisis.

Draghi’s comments will also be scrutinised for signs that the ECB might cut interest rates in the coming months — which would bring some relief to struggling firms and households across the eurozone.

Timings:

Bank of England rate/QE decision: noon GMT

European Central Bank rate decision: 12.45pm GMT

European Central Bank press conference: 1.30pm GMT

…….

We’ll also be tracking other events across the eurozone and the wider economy. That will include the situation in Greece, where Troika officials continue their latest visit to Athens to check the country’s progress against its bailout targets.

Updated at 8.37am GMT

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In the broadcast today: EUR, GBP and JPY Outlook ahead of ECB, BOE & BOJ Meetings. Ahead of the upcoming European Central Bank, the Bank of England and the Bank of Japan meetings, we explore what could be the next moves of these major central banks and examine the outlook for  the EUR, the GBP and the JPY, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the tests of important support levels in the EUR/USD and the GBP/USD currency pairs, we take a look at the renewed strength of the USD vs JPY, we highlight the market’s reaction to the Japanese CPI, the Euro-zone Manufacturing PMI and Unemployment Rate, the U.K. Manufacturing PMI, and the U.S. ISM Manufacturing Index, we discuss new forecasts from Bank of New York-Mellon, Bank of Tokyo-Mitsubishi and Citigroup, and prepare for the trading session ahead.

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