Allegations of secret payments to Spanish politicians have brought the eurozone crisis back into focus this week. El Pais newspaper’s latest on anti-corruption probe. PMI data suggests euro-zone is healing, but December retail sales disappoint…
3.23pm GMT
Goodwill hunting
Here’s an interesting graph that shows how large US companies have been running up more and more goodwill (the amount they pay in an acquisition above and beyond the face value of the company). It’s doubled, on a per-share basis, over the last decade:
What does that mean? One possibility is that this goodwill, currently sitting as an asset on the company’s balance sheet, is going to be written off in the years ahead.
Analyst Louise Cooper, of Cooper City, explains:
What this chart then tells us is that in the boom years, many companies over paid for acquisitions and that they are going to have to reappraise the values of those assets. In reality, more write-downs to come, following the example of the mining sector, hurting profits.
Cooper dubs this practice as “skinny dipping” – chasing easy profits available in the boom times rather than building solid companies. That was fuelled by central bankers’ collective failure to “take away the punch bowl just as the party gets going” (Warren Buffett)
Central bankers did not follow this advice and are now trying to medicate the aftermath with hospital strength QE painkillers. But significantly their actions are not masking the underlying hangover which is gaining momentum…
There is more painful exposure to come.
Perils of skinny-dipping after a night on the punch (Louise assures me!)
Updated at 3.24pm GMT
1.56pm GMT
Ex-PP treasurer to be questioned tomorrow
The former treasurer of Spain’s ruling People’s Party (PP), Luis Barcenas, is to be questioned by the country’s anti-corruption prosecutor tomorrow, over the allegations of illicit payments, according to reports from Madrid.
This follows the news that the prosecutor was stepping up the investigation (see opening post).
Barcenas who is accused of running a secret accounting system, was mobbed by reporters in Madrid this morning — seeking his views on the scandal.
The anti-corruption prosecutor may be harder to shake off….
Especially as El Pais says it has handed over all the so-called “secret papers” which appear to show the names of party officials and money they received.
Spanish prime minister Mariano Rajoy, though, has repeatedly insisted that the allegations are false.
Updated at 2.10pm GMT
1.26pm GMT
UK stands firm over EU budget
The UK government has hit back at François Hollande over the EU budget, after the French president criticised countries who want to cut spending and also keep their remit (see 11.27am).
A spokesman for David Cameron told lobby hacks in Westminster today that:
We are working with a number of our allies, who all believe that spending needs to come down further…
If it doesn’t budge, then a deal isn’t going to be do-able.
The next chance of a deal is the summit which begins on Thursday afternoon…..
12.22pm GMT
Markets bounce back
In the financial markets, shares have clawed back some of Monday’s losses. Spanish government bonds are also recovering.
Here’s the latest:
FTSE 100: up 43 points at 6290, + 0.7%
German DAX: up 13 points at 7651, + 0.17%
French CAC: up 37 points at 3697, + 1%
Spanish IBEX: up 154 points at 8074, + 2%
FTSE MIB: up 227 points at 16766, + 1.3%
And Spanish 10-year bond yields are down 5 basis points, or 0.06 percentage points, at 5.4%.
Traders are encouraged by this morning’s economic data, suggesting the eurozone and UK are in better shape than expected.
Alastair McCaig, market analyst at IG, commented:
Following yesterday’s broadly disappointing news flow, European markets are showing some real resilience….
Fears over Spanish political corruption and the destabilising effect it will have on its government debt, along with the pre-election soundbites coming from Italian prime minister hopeful Silvio Berlusconi, continue to hang over the eurozone. European markets however are predominantly up this morning, confirming the popularity of equity markets for investors and traders alike.
11.27am GMT
Hollande jabs at Cameron over EU budget
French president François Hollande has thrown down the gauntlet to the UK prime minister, David Cameron, in a speech at the European Parliament today.
In his first speech as French leader to the European Parliament in Strasbourg, Hollande appeared to take a pop at Britain ahead of this week’s EU summit – where leaders will again try to agree a seven-year budget.
Hollande declared that:
there are those who want to see cuts, others possibly the same, who want guarantees on their own rebate.
And there are some who don’t want the Common Agricultural Policy changed too much (although might have to swallow some cuts).
Hollande insisted that leaders must make progress on the budget, saying that “our political credibility is at stake” otherwise. He also called for a new ‘exchange rate policy” to protect the euro from “irrational swings”.
As he put it:
Europe… is leaving the euro vulnerable to irrational movements in one direction or the other.
That’s one problem with floating currencies, of course – made worse when you’re talking about a single currency covering 17 divergent nations. As Alice Ross of the FT points out:
Weird that Hollande is talking about an exchange rate that matches “true state” of ezone economy. The rate will never fit everyone.
— Alice Ross (@aliceemross) February 5, 2013
Here are some more highlights of the Hollande speech via our Europe editor, Ian Traynor:
#HollandePE no cherrypicking, no a la carte on treaties. 4th dig at cameron
— Ian Traynor (@traynorbrussels) February 5, 2013
#HollandePE “we want a big european debate” next year. about time he started it at home…
— Ian Traynor (@traynorbrussels) February 5, 2013
#HollandePE on europe hollande sounds deeply conservative, key defender of the status quo
— Ian Traynor (@traynorbrussels) February 5, 2013
#HollandePE smallish standing ovation for french president
— Ian Traynor (@traynorbrussels) February 5, 2013
Updated at 1.01pm GMT
10.27am GMT
Eurozone retail sales drop
Just when the eurozone was looking a little healthier (see this morning’s PMI data), the latest retail sales data comes along…
Eurozone retail sales fell by 0.8% in December on a month-on-month basis, meaning takings were 3.4% lower than a year earlier. A less festive Christmas for many Europeans, as recession, austerity and unemployment bites.
Howard Archer of IHS Global Insight said the data was “very disappointing”, adding:
Furthermore, Eurozone retail sales volumes plunged 1.6% quarter-on-quarter in the fourth quarter of 2012, which reinforces suspicion that consumer spending contracted appreciably over the quarter and contributed to a third successive decline in Eurozone GDP.
10.15am GMT
Over in the UK parliament, the chief executive and chairman of Barclays are being grilled by the Treasury Committee — live stream here.
Committee chairman Andrew Tyrie has been giving chairman Sir David Walker a tough time over issues such as fixed pay and bonuses. The session started well, Tyrie waving Barclay’s submission to the committee – liberally smeared with black redactions.
Tyrie shows heavily redacted Barclays docs,to laughter -they had change of heart overnight & gave to committee in full twitter.com/jessbrammar/st…
— Jess Brammar (@jessbrammar) February 5, 2013
Walker conceded that the Barclays board will give “more explicit and deliberate attention” to issues of conduct in future.
Later, Jenkins (who waived his bonus last week) told the committee that too many bad things have occurred at Barclays in the past. His goal is to stop those bad things happening and encourage more virtuous behaviour in future, he explained.
Updated at 10.20am GMT
9.49am GMT
Surprise expansion for UK service sector
Some good news for the UK – Britain’s service sector grew in January, suggesting the dreaded triple-dip could be avoided.
Markit (yup, them again) just reported that the UK Services PMI rose to 51.5 last month (showing it expanded), up from December’s mildly contractionary 49.5.
It’s early days, but it suggests chancellor George Osborne may avoid presiding over another recessionary period.
Markit’s Chris Williamson said today’s data “greatly reduces” the chances of GDP falling in this quarter. He added that the results would have been even better without the snow which briefly brought Britain to its knees last month.
The pound has jumped on the back of the data too:
Sterling rising on better than expected UK Services #PMI. Reuters consensus had been for 49.5 twitpic.com/c11x9c
— Markit Economics (@MarkitEconomics) February 5, 2013
Updated at 10.13am GMT
9.33am GMT
And this graph from Markit shows how eurozone PMI data (the blue line) has recovered in recent months:
9.26am GMT
Here’s the winners and losers in today’s PMI data from Markit
Ireland: 54.9 2-month high – solid growth
Germany: 54.4 19-month high – solid growth
Spain: 46.5 19-month high – a slower contraction
Italy: 45.4 2-month low – a deeper contraction
France: 42.7 46-month low – the sharpest contraction since the euro crisis began
Updated at 12.02pm GMT
9.12am GMT
PMI data suggests eurozone is healing
Just in – new survey data suggests that the eurozone’s bruised economy has turned a corner.
Marki’s Eurozone Composite PMI, which measures business activity across thousands of companies, hit a 10-month high of 48.6 In January, up from 47.2 in December
Markit reported that businesses were more optimistic about the future. However there are sharp differences between countries.
Reuters has the early details:
While still signalling a contraction as the index has been below the 50 mark that signifies growth since February last year, it has risen consistently in the last three readings.
Private industry makes up nearly two-thirds of the euro zone’s economy and worryingly for policymakers, the data showed a widening chasm between Germany – Europe’s largest economy – and France, the bloc’s second biggest.
Chris Williamson, chief economist at Markit, said the eurozone is showing “clear signs of healing”, having entered recession last year,
However, there were stark differences between Germany and France: Markit’s composite German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011. But in neighbouring France it plummeted to its lowest in nearly four years.
At 43.6, France’s services PMI was even below readings from Spain and Italy.
More to follow
Updated at 10.07am GMT
9.01am GMT
El País: Anti-corruption prosecutor hard at work in Spain
Good morning, and welcome to our rolling coverage of the eurozone financial crisis, and other key events in the world economy.
The unfolding corruption allegations in Spain continue to dominate the agenda, after helping send European stock markets sliding yesterday.
El País, which broke the story last week, reports this morning that Spain’s anti-corruption prosecutor is holding a wide-ranging investigation into claims that senior members of the ruling People’s party, including prime minister Mariano Rajoy, received secret, illegal payments over many years.
The prosecutor, it says, is comparing the PP’s last 13 years of public accounts with the ‘secret accounting system’, which El Pais claims was created by treasurer Luis Bárcenas.
According to El País the investigation will consider whether any individuals, or the PP, committed tax fraud by not declaring secret payments, and whether limits on political donations were breached.
The full story is online here in Spanish (or there’s a Google translation into English here)
With Rajoy insisting yesterday the allegations are untrue, the scandal could loom over the eurozone for some time.
The financial markets are calmer this morning. But there’s plenty of chatter about how the eurozone crisis has returned – if indeed it ever went away.
I’ll be tracking the latest developments in Spain, and beyond, including the latest service sector data for many European countries – and a speech by French president François Hollande.
Updated at 10.05am GMT
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