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Powered by Guardian.co.ukThis article titled “Bank of England cuts growth forecasts and leaves rates on hold – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 4th February 2016 18.51 UTC

One last thing…The London stock market outperformed its French and German rivals today, to finish 61 points higher, or 1%, at 5898.

Mining shares led the way, with Anglo American surging by 19%, Glencore gaining 15% and Antofagasta jumping by 14%.

That followed the sudden weakening in the US dollar, as Wall Street and the City anticipated that US interest rates would not rise much this year, given recent weak data.

A cheaper dollar pushes up commodity prices, while looser monetary policy should be good for growth. Welcome news for miners, who had a torrid 2015.

Mining stocks have also been heavily shorted by hedge funds, so those bears will have been squeezed by the rising share prices.

Good night. GW

Updated

A late PS…

Larry Elliott, our economics editor, has summed up the message from the Bank of England today. Here’s his conclusion:

There are three conclusions to be drawn from the inflation report, the minutes and the governor’s letter.

The first is that it would now be a major surprise if interest rates rose this year.

The second is that the Bank’s credibility has been dented by its failure to call the economy right and the confused messages it has been sending out to the public.

Finally, the prospect of 0.5% interest rates extending into an eighth and perhaps a ninth year risks stoking up a housing boom. The Bank has so-called macroprudential tools that can be deployed to cool down the property market without damaging the rest of the economy. It is going to need them.

And finally, a couple of photos from today’s press conference just landed:

Mark Carney, the Governor of the Bank of England, speaks during the quarterly Inflation Report press conference, in London, Thursday, Feb. 4, 2016. The Bank of England policymakers have voted to keep interest rates at their record low of 0.5 percent as Governor Mark Carney unveils economic forecasts for Britain. (Niklas Halle’n, Pool Photo via AP)
Bank of England Inflation Report Press Conferenceepa05142914 Bank of England Governor Mark Carney speaks during a press conference at the Bank of England in London, Britain, 04 February 2016. The Bank of England has cut its prediction for growth for 2016 from 2.5 per cent to 2.2 per cent and has decided to keep interest rates at 0.5 per cent. EPA/WILL OLIVER

Ouch. The latest economic data from America is a reminder of why the Bank of England is worried about the global economy.

US factory orders shrank by 2.9% in December, according to new data – the biggest drop since the end of 2014.

Being criticised by journalists is an occupational hazard in central banking, but Mark Carney doesn’t appear to enjoy it.

So he may not particularly like this analysis of today’s inflation report, from Sky News’s Ed Conway.

Mr Carney’s problem is that every time he makes a big forecast he seems to get it wrong.

When he came into office, the Governor brought with him a whizzy new framework for setting UK interest rates. Under “forward guidance”, he would provide clarity about borrowing costs.

He promised, based on the Bank’s forecasts, that he and the Monetary Policy Committee would start to consider lifting them only when unemployment dropped beneath 7%.

Suddenly, within a few months, the jobless rate, hitherto stuck stubbornly above that level, started to come down. Within a year, forward guidance had to be dropped, replaced with a far more vague set of promises some nicknamed “fuzzy guidance”.

Not to be deterred, Mr Carney started to drop hints about when the first rise in rates would come. In a speech at the Mansion House in 2014 he signalled that rates would go up sooner than markets expected (which meant within a year). That was wrong.

Last summer he predicted the decision to raise rates would come into sharper relief “at the turn of the year”. That was wrong. Well, unless you’re being very literal indeed and think it could also entail not raising rates.

The one prediction he has stuck to that had, up until now, looked pretty uncontroversial was that the next move in rates would be up rather than down. But, in the past few weeks even that has now come into question….

More here:

The Independent’s Ben Chu flags up one curious moment in today’s press conference:

That’s a bit odd, as you might expect inflation to take off sharpish once spare capacity in the labour market has been sucked up.

As, indeed, a former Bank deputy governor pointed out:

Updated

Today was dubbed “Super Thursday”, but it was more like “Party pooper Thursday” as the Bank of England cut its growth forecasts.

Savers, who might wonder when they might get a higher interest rate, won’t be feeling particularly super, either.

Rohan Sivajoti, advisory services director at financial advisor eVestor, says:

“With a unanimous vote to keep interest rates unchanged, a mediocre global economic outlook and growing deflation fears, ‘Super Thursday’ has proved to be anything but.

“Beleaguered savers, who yet again will be inwardly groaning at the news, may also be resigned to the fact that they have limited options at present. However, now more than ever, savers need to make their investments work harder for them. Those looking to secure their financial future, should review deposits and options for investments and look at reducing debt while it is still relatively cheap to do so.”

There was quite a contrast between Mark Carney’s performance at the press conference, and the minutes of this week’s Monetary Policy Committee meeting released at noon.

Kallum Pickering, senior UK economist at Berenberg Bank, says the MPC are clearly worried.

The MPC cautioned on risk from financial market volatility, slowing global growth and now the EU referendum.

The committee noted that since the previous report other central banks including the European Central Bank had eased further, oil prices had fallen and financial market volatility had risen. This was linked to developments in China and other emerging markets and had ‘coloured’ the outlook for the global economy

Stephanie Flanders, JP Morgan’s chief market strategist for Europe (and former BBC economics editor), says weak wage growth could scupper a rate hike this year.

She writes:

The bottom line of today’s report is that the UK cannot ignore the weakening of global growth prospects – particularly the weakness of global trade – and neither can the Bank of England. But domestic consumption is driving the recovery in the UK and the US and the Bank of England can see little reason to expect domestic consumption to grind to a halt.

On balance, we still expect the US Federal Reserve to raise rates again over the course of 2016 as recession worries recede and sentiment in emerging market economics starts to stabilise. In that environment, we would expect the Bank of England also to raise rates by the end of 2016. However, much will depend on domestic wage pressures, which look somewhat weaker now than they did 6 months ago.

Whatever happens, the high level of UK household debt – much of it borrowed on adjustable or semi-adjustable mortgages – underscores that the rate increases that do happen will be gradual and modest relative to past cycles.“

Snap summary: Carney rails against the doubters

Back in 2014, Mark Carney was labelled the “unreliable boyfriend” for giving mixed messages about possible rate rise timings.

Today, it felt like the governor was playing a defensive husband, denying that he ever misled the public while insisting that he’ll still raise rates at the right time.

Anyway, a quick recap:

The prospects of an early UK interest rate rise have receded, after the Bank of England left borrowing costs at a record low of just 0.5%. The Monetary Policy Committee voted 9-0 to leave rates at 0.5%, with noted hawk Ian McCafferty abandoning his calls for a rise.

The BoE has slashed its growth forecasts. It now expects GDP to rise by just 2.2% this year, not 2.5%, as Britain is hit by the weakening global economy.

Mark Carney has insisted that interest rates are still more likely to rise, than fall. The governor faced down a sceptical press pack in London, who reminded the governor that his previous forward guidance on the path of interest rises has proved somewhat unreliable.

Asked if he sticks to his previous prediction that the next move will be upwards, he declared

“Absolutely. The whole MPC stands by that.”

Carney also rejected criticism for telling households recently that interest rates were “more likely than not” to rise in 2016. He said his original forward guidance, that rates would stay on hold until the economy improved, had given businesses and households confidence.

We are not going to tie our hands ever to raise interest rates or adjust policy in any way, shape or form to a certain date.”

Governor Carney warned that problems in the global economy could hurt Britain, saying:

The outlook for trade is particularly challenging, with net exports expected to drag on UK growth over the forecast period.

But he tried to play down the idea that Britain could follow Japan and the Eurozone into imposing negative interest rates.

Carney said a rate cut hasn’t even been discussed at this week’s MPC meeting, but the committee does keep its tools under review.

And asked about the EU referendum, Carney said the Brexit risk has had some impact on the pound.

“There is not yet a big risk premium built into business and household confidence around the referendum. We do see in th eexchange rate market, and it’s observed in the report, that there has been some buying of protection if you will, around the referendum.”

That’s the end of the press conference. The press pack are scrambling back to their newsrooms, and Mark Carney has headed back to his office to keep the monetary wheels in motion.

I’ll pull together a summary shortly.

Carney: We haven’t discussed negative rates

Q: Negative interest rates are now in place in Japan, the eurozone, and Switzerland, so are they within the Bank’s toolkit?

Carney replies that the bank thinks interest rates are “not at the lower bound” – in other words, they could be cut further.

We will review our toolkit, he continues. But we have not discussed negative rates, as monetary policy is pointing in a different direction.

He reminds the reporters that they saw the minutes of this month’s MPC meeting, while they were locked in a room “being treated pretty badly and forced to read a bunch of documents”*.

Those minutes show that negative interest rates weren’t discussed. You’ll know when they are…

[* - don’t worry, they probably get drinks and biscuits too]

Another questions about Brexit — what contingency plans have the BoE taken?

Carney declines to reveal any details, but suggests that – like with the 2014 Scottish referendum – the Bank will reveal its homework after the event.

Q: Are you worried, governor, that you might go through your entire tenure at the Bank without raising interest rates?

Carney insist he’s relaxed about this prospect.

He points out that former policymaker David Miles did two terms without raising interest rates, but did plenty of other things such as quantitative easing.

The important thing is that we set policy to maximise the changes that we meet our objectives. That’s how we’re going to be judged.

Carney sees downside risks from global economy

Q: How worried is the Bank of England about the global economy?

We do see some downside risks, Carney replies. Britain is a particularly open economy, so it’s very vulnerable to global problems.

That’s why the Bank of England usually has lower growth forecast than other bodies, such as the IMF.

He cites market fears over China, and its knock-on impact on other emerging markets.

And monetary policy could tighten more quickly, if those upside risks develop.

Updated

Q: When does low inflation start to become a worry for the Bank?

Carney bats this question over to Ben Broadbent.

Broadbent says there’s “no simple level when it becomes an over-riding concern”, but the bank is watching wages closely for signs that inflation is weakening.

Now deputy governor Ben Broadbent takes the microphone, insisting that there’s no ‘mechanical link’ between the UK output gap and any interest rate move.

You might remember that the output gap was one measure cited by Mark Carney in 2014, when he took his second stab at setting forward guidance on interest rates.

So, it’s still a factor, but don’t expect it to trigger an interest rate hike.

We won’t be “bound by past comments” when we decide it’s time to raise interest rates, says Carney.

He also denies that his forward guidance, various speeches, and wotnot have caused volatility. Short-term UK interest rates are half as volatile as before he was parachuted into the BoE

City experts aren’t very impressed with Mark Carney’s performance, as he tries to talk down the Brexit risk and talk up the chances of an interest rate hike:

Our economics editor Larry Elliott asks Carney when the decision about rate rises will come into “sharper focus” again.

Carney denies that the MPC are looking at monetary policy through bleary eyes. We take a decision at every meeting. This week’s decision was “easy”, though.

Carney gets a question about the European Union referendum.

He says the Bank of England isn’t modelling for ‘parallel universes”, so today’s report doesn’t estimate the impact of Brexit.

He argues that there isn’t yet a “big risk premium” due to the possibility of Britain leaving the EU.

However, there has been some impact on the pound as investors seek protection ahead of the referendum.

Mark Carney is trying to argue that the financial markets are underpricing the chances of a UK interest rate rise.

Paul Diggle, economist at Aberdeen Asset Management, isn’t sure Carney’s message will get through:

The Bank did send a signal that they think the market is wrong about when it thinks rates will rise. Investors think the first rate rise won’t come until February 2018 and the Bank has tried to say they should bet on it coming sooner.

But the way they send this signal is so opaque – a couple of graphs buried in chapter 5 of the Inflation Report – it’s not really clear whether anyone will pay attention. Carney’s forward guidance certainly hasn’t paid dividends for investors up until now.”

Carney is now warning that there could be more slack in the labour market than first thought.

That would mean wage growth might be disappointing (as firms wouldn’t have to fight for workers as much), meaning inflation remains weak.

But he also points to the introduction of the national living wage, which should raise inflation a bit.

(from April, workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will get a 50p per hour increase).

Updated

Q: Do you think the public gives your advice as much credibility as it used to, given previous guidance on rates?

Carney gives a long answer, defending his original forward guidance (he originally set a 7% jobless rate as a key target before considering a rate rise, only to backtrack when it was achieved sooner than planned).

The worst thing we can say about that guidance is that more people went to work earlier – and we’re not going to apologise for that, Carney smiles.

And he’s also happy that UK households believe rates may rise this year, as it means they are less likely to risk a credit splurge. Although households have made “great progress”, they are still pretty indebted.

Carney insists, though, that the MPC will never “tie its hands” to changing monetary policy at a certain time, or at certain events.

And in short, we have nothing to explain, he concludes — a classic central banker’s answer to criticism.

Carney insists rates more likely to rise than fall

Onto questions:

Q: Does Mark Carney still believe interest rate are more likely to rise, rather than fall?

Absolutely, the governor replies, and so does the monetary policy committee.

He reiterates that the market path of rates implies that inflation will overshoot the 2% target in the medium term unless borrowing costs are hiked.

Updated

Interest rates are more likely than not to rise during the forecast horizon, says Carney.

He points to the current “market path” for interest rates (where investors expect borrowing costs to be). On that path, inflation will hit its 2% target in the medium term, and then rise higher, meaning higher borrowing costs will be needed.

And Carney insists:

We’ll do the right thing at the right time, on rates.

Katie is tweeting the key points from Carney’s press conference:

Carney says the Bank of England expects real incomes in the UK to grow solidly this year, after several lean years.

And business investment should also continue to grow strongly.

Carney then warns that global financial conditions have deteriorated notably recently, with a “particularly challenging” outlook for trade.

That means Britain’s net exports will continue to drag on growth (ie, we’ll import more than we sell to the rest of the world)

Mark Carney’s press conference begins

The governor of the Bank of England is giving a press conference now, to discuss the quarterly inflation report.

Mark Carney begins by saying that the UK economy is in much better shape than in March 2009 when rates were first cut to 0.5%.

Seven years ago, the economy was in serious trouble at the height of the financial crisis, and heading into recession.

Today, we have sluggish global growth, turbulent financial markets, and a resilient UK economy.

And that’s why the Bank still expects the UK economy to keep growing.

The prospect of UK interest rates being cut to a new record low is looming over the City:

It’s staggering to think that UK interest rates have now been pegged at 0.5% for almost seven years (it started in the dark days of March 2009)

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says we could see a decade of ultra-low rates:

‘An interest rate rise is like the pot of gold at the end of the rainbow, the nearer you get to it, the further away it moves. A rise in rates now looks firmly in the long grass, with growth forecasts cut and cheaper oil putting downward pressure on inflation, which is already way below the Bank of England’s target.

Markets are currently pricing in a rate rise in the middle of 2017, though they have been consistently premature in their forecasts, and reaching the dubious milestone of a decade of ultra-low interest rates is now a distinct possibility.

The prospect of an early UK interest rate rise has receded into the distance, writes Katie Allen from the Bank of England.

She reports:

The Bank flagged the recent sharp sell-off in global stock markets and investors’ jitters about a slowdown in China as it revealed that policymaker Ian McCafferty dropped his recent call for a rate rise.

He had voted against the eight other members of the Monetary Policy Committee (MPC) since last August but this month agreed with his colleagues that it was too soon to raise interest rates from 0.5%, where they have been for almost seven years.

Wage growth has been weaker than the MPC had been expecting and minutes to its latest policy meeting suggested it was cautious about predicting any significant pick-up in pay over coming months.

“Against that backdrop, all members of the committee thought that maintaining the current stance of policy was appropriate at this meeting,” the minutes said.

Here’s Katie’s full story:

The pound has fallen almost half a cent against the US dollar, to $1.456.

Markets are concluding that interest rates won’t move for some time, given today’s gloomy inflation report and the news that Ian McCafferty has given up calling for a rate hike.

The Inflation report is online here, and full of interesting charts if you like that kind of thing.

This one shows how the oil price has fallen much further than the Bank expected:

BoE

And this shows how the markets are already expecting interest rates to stay lower, for longer.

BoE

This chart shows how the Bank of England has cut its growth forecasts for the next three years (the old forecasts are in brackets after the new ones)

BoE grwoth o

And the message from the BoE is that economic conditions have deteriorated over the last quarter:

Since the November Report, global output and trade growth have slowed further and the latest data suggest a softer picture for UK activity in 2015 than previously assumed, with four-quarter growth slowing to 2¼% by Q4 on the MPC’s backcast.

Updated

The Bank of England also points to the turmoil in the financial markets:

Developments in financial markets seem in part to reflect greater weight being placed on the risks to the global outlook stemming from China and other emerging economies.

BoE cuts growth forecasts

The Bank of England has also taken a knife to its growth forecasts, admitting that the UK economy is not expanding as fast as expected.

It now expects GDP to rise by just 2.2% this year, down from 2.5% three months ago.

And for 2017, it has cut its growth forecast to 2.3%, down from 2.6%.

The Bank of England says that economic conditions have deteriorated in the last three since its November quarterly inflation report:

Global growth has fallen back further over the past three months, as emerging economies have generally continued to slow and as the US economy has grown by less than expected.

There have also been considerable falls in the prices of risky assets and another significant fall in oil prices.

The 9-0 vote means that Ian McCafferty has abandoned his calls for interest rates to rise.

He had been the lone hawk on the MPC, arguing that borrowing costs should go up now before inflation took hold. But with oil so cheap, and growth weakening around the globe, he’s had a rethink.

Bank of England interest rate decision

Breaking: The Bank of England has voted to leave UK interest rates at their current record low of 0.5%.

And the decision was unanimous, with the Bank’s monetary policy committee voting 9-0 not to alter borrowing costs.

Updated

Super Thursday, a preamble

We have less than 30 minutes to go until Bank of England announces its interest rate decision, at noon in London.

It will also release its latest quarterly inflation report, with new forecasts for growth and inflation.

And half an hour after that, Mark Carney will hold a press conference to discuss the report.

This is the third “Super Thursday” — but frankly, the first two haven’t lived up to this billing, thanks to the lack of pressure to raise interest rates and the mediocre global economic outlook.

Alastair McCaig of IG reckons it needs rebanding:

How the department overseeing the trade descriptions act have not intervened in the use of the term ‘Super Thursday’ when the Bank of England posts its inflation report and interest rate decision, is somewhat baffling.

Anyway, the smart money is on another ‘no change’ in interest rates, followed by plenty of questions about the darkening global outlook, deflation fears, and whether Britain could follow Japan and the eurozone into imposing negative interest rates.

Ed Conway, writing for Sky News today, points out that borrowing costs could be cut this year.

Households should prepare themselves for a possible UK interest rate cut this year, with investors betting that there is now a greater chance that the next move in borrowing costs is down not up.

Money markets are now putting a one-in-four probability on the Bank of England reducing its official rates below the 0.5% level they have been sitting at since 2009.

It follows a dramatic shift in their expectations for interest rates.

For the majority of the post-crisis recovery, markets were betting that 0.5% would be the floor for borrowing costs, which would rise in the coming years. Now they are not pricing in a full increase in Bank rate until August 2018 – two months after Mark Carney’s five year term as Bank Governor is due to end…

Back in Brussels, Pierre Moscovici has explained that his latest forecasts don’t factor in the prospect of Britain’s leaving the EU.

Why not? Because everyone’s committed to avoiding such an outcome.

Moscovici has also defended the EC’s more rosy forecasts for Greece (well, less gloomy, anyway):

Shares in London have been lurching around like a well-refreshed journalist leaving The Inkwell after last orders (I imagine).

After jumping almost 90 points at the open, the FTSE 100 index slowly subsided until it was only up 20 points, before getting a second wind and romping ahead again.

Mining companies are still leading the way, with Anglo American leaping by 11%, BHP Billiton gaining 8% and Antofagasta up 7.5%.

The FTSE 100 this morning
The FTSE 100 this morning Photograph: Thomson Reuters

It makes for a tricky morning for traders:

So why the wild lurches? Investors are trying to decide how much optimism to take from the rally in the oil price, and the sudden weakness in the US dollar.

This could mean that the turmoil in the commodity market is reaching a bottom, especially if the US Federal Reserve is backing away from raising American interest rates several times this year.

The City is also waiting for the Bank of England to deliver its quarterly inflation report, in an hour’s time.

Ilya Spivak, currency strategist, at DailyFX, says markets expect a “dovish outcome”.

Traders are currently pricing in a 64% chance that rates remain unchanged over the next year, and a 36% probability that rates are cut to 0.25%, he adds.

Commissioner Pierre Moscovici is briefing the media now, about the EC’s new economic forecasts.

My colleague Jennifer Rankin is tweeting the key points:

I can’t believe *anyone* is euphoric, given the last few years. But do carry on, Pierre…

The FT’s Peter Spiegel is also ferreting out some important facts:

Despite those headwinds from China and refugees, the European economy is now entering its fourth year of recovery, says the EC.

Today’s report states:

Growth continues at a moderate rate, driven mainly by consumption. At the same time, much of the world economy is grappling with major challenges and risks to European growth are therefore increasing.

EC forecasts

EC slashes inflation forecast as headwinds grow

A flurry of news is flying our way from Brussels, as the European Commission releases its new economic forecasts.

The headline event is that the EC has slashed its forecast for inflation this year to just 0.5%, from 1% three months ago.

That’s partly because of the oil price, and also because “wage growth remains subdued”.

It has also trimmed its growth forecast for 2016 to 1.7%, down from an earlier forecast of 1.8%.

The EC still expects eurozone GDP to rise by 1.9% in 2017, as the slow recovery picks up pace (a little).

The Commission blames problems in emerging markets, and also points to the refugee crisis.

Commission Vice President Valdis Dombrovskis warns:

Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighbourhood.”

The EC has also revised up its Greek forecasts, saying the economy didn’t actually contract in 2015. It also expects a smaller recession this year.

Updated

Anti-austerity general strike brings Athens to a standstill

Greece is in the grips of a general strike today as demonstrators renew their protests against the country’s latest bailout deal.

Transport links are shut down, shops are closed, and thousands of people are marching through the Greek capital right now.

Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens today. Photograph: Petros Giannakouris/AP

Our Athens correspondent, Helena Smith, reports that the effects are withering.

She writes:

This is the fifth general strike since the leftist Syriza first came to power but none has been so fully endorsed. In a reflection of the growing anger at all embracing tax and pension reforms, the entire country appears to be paralysed by industrial action supported by every walk of life.

In Athens, where almost nothing is open, streets and central boulevards resembled a ghost town this morning with the shutters down on shops, offices and ministerial buildings. Small businesses, which usually turn a blind eye to the pleas of unionists to stay closed, have today heeded their call. “We have no choice,” said Lakis Antonakis who owns the popular Piazza Duomo café opposite the capital’s cathedral.

“If they pass these laws more than 50 percent of our earnings will be taxed and I am one of the lucky ones because I can depend on tourists. Other businesses are really struggling. It’s become unsustainable to keep them open. Everyone is very pessimistic.”

Unionists, who planned mass protest rallies, attributed the high turn out to the determination of Greeks to ram home the message that they will not accept pension and tax reforms as they now stand.

Members of the communist-affiliated PAME union march during a 24-hour general strike against planned pension reforms in Athens, Greece, February 4, 2016. REUTERS/Alkis Konstantinidis
Members of the PAME Communist-affiliated hold a banner reads in Greek ‘’Social Security’’ during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated hold a banner reading ‘’Social Security’’. Photograph: Petros Giannakouris/AP

International creditors, led by the IMF, are pushing prime minister Alexis Tsipras for further cuts in pensions to make up for a fiscal shortfall of up to €4.5bn over the next three years.

Grigoris Kalomoiris, of the civil servants union, Adedy, said he also thought Greeks had been encouraged by protesting farmers who have set up roadblocks nationwide. “Their action over the past two weeks has had a ripple effect. Everything is close even the state audit office,” he told me.

“Farmers are leading the way. People are very determined to stop this pillaging because pillaging is what it is. Greece and Greeks cannot go on being pushed like this in the name of debt.”

The strike, ironically, has the full support of Syriza – although government officials, who will soon be called to vote on the reforms, are keeping mum.

National wide strike in Athensepa05142365 Women stand in front of a closed suburban station at the Athens Eleftherios Venizelos airport during a 24-hour national strike, in Athens Greece, 04 February 2016. Greece’s largest private and public sector unions GSEE and ADEDY held a strike on 04 February to protest against the government’s planned pension reforms. Public transport was grinding to a halt, while trains were cancelled and ferries stayed put in harbours, also cutting off the Greek islands from the mainland. EPA/YANNIS KOLESIDIS
A closed suburban station at the Athens Eleftherios Venizelos airport. Photograph: Yannis Kolesidis/EPA

Apparently the solution to monetary policy paralysis is taller central bank governors:

Updated

You might have expected the euro to fall this morning, after Mario Draghi guilefully declared that central banks shouldn’t stop taking action to fight deflation.

But the single currency didn’t take the hint. Instead, the euro has hit a three-month high against the US dollar, at $1.116.

And that’s starting to weigh on European markets, pushing shares down from their earlier highs….

VW car sales fall 14% in Britain

FILE - In this Feb. 14, 2013, file photo, a Volkswagen logo is seen on the grill of a Volkswagen on display in Pittsburgh. New Mexico is suing Volkswagen and other German automakers over an emissions cheating scandal that involves millions of cars worldwide, the first state to do so but almost certainly not the last. (AP Photo/Gene J. Puskar, File)

Sales of Volkswagen cars slumped by almost 14% in the UK last month, suggesting that the company is still suffering from the emissions scandal.

Just 12,055 VW-branded cars were registered in January, down from 13,993 in January 2015, according to new figures from the Society of Motor Manufacturers and Traders.

That cuts VW’s market share to 7.1%, from 8.5%.

Other Volkswagen brands also had a bad month. Sales of Seat cars slumped by 25%, from 4,137 to 3,119.

This is the fourth month in a row that VW car sales have dropped, following last year’s revelations that it used cheat software to get around emissions tests.

Overall, the UK’s new car market got off to a positive start in January, according to the SMMT.

Registrations rose by 2.9% compared with the same month in 2015 to reach an 11-year high of 169,678 units.

SMMT car sales

Updated

Goldman Sachs has weighed into the Brexit debate, predicting that the pound would slump by around 15% if Britain vote to leave the EU.

In a new research note, it argues that investors would be put off from putting capital into the UK if the public reject David Cameron’s new deal.

And if the domestic economy also suffered, sterling would come under sustained pressure – due to the country’s current account deficit.

Goldman predicts:

In our framework, a decline of 2% in domestic demand would still see close to a 15% drop in the British pound to close the current account deficit.

Worth remembering that Goldman isn’t completely impartial in this fight. The Bank has apparently given a six-figure donation to the Britain Stronger in Europe campaign, which is fighting against Brexit.

Mario Draghi: No excuse for inaction

Mario Draghi Presents ECB Report At EU ParliamentSTRASBOURG, FRANCE - FEBRUARY 1: The governor of the European central Bank, or ECB Mario Draghi speaks to the plenary room in the European Parliament ahead of the debate on the ECB report for 2014 on February 1, 2016 in Strasbourg, France. During the last press conference in Frankfurt, Draghi indicated that the bank may review its course of action in March. (Photo by Michele Tantussi/Getty Images)

European Central Bank chief Mario Draghi has dropped a clear hint that the ECB embark on fresh stimulus measures next month.

Speaking in Frankfurt a few minute ago, Draghi insisted that central bankers can’t just stop trying to hit their inflation goals because “global disinflation” is dragging prices down.

He declared:

There are forces in the global economy today that are conspiring to hold inflation down. Those forces might cause inflation to return more slowly to our objective. But there is no reason why they should lead to a permanently lower inflation rate.

What matters is that central banks act within their mandates to fulfill their mandates. In the euro area, that might create different challenges than it does in other jurisdictions. But those challenges can be mitigated. They do not justify inaction.

The speech is online here.

Double ouch:

Ouch. Shares in Credit Suisse have tumbled by around 10% in early trading.

The Swiss bank is missing out on today’s rally, after hitting shareholders with a loss of 5.83 billion Swiss francs ($5.8 billion) in the last quarter. That drove the bank into its first annual loss since 2008.

Credit Suisse took a bigger-than-expected charge to cover restructuring its investment bank,. as new CEO Tidjane Thaim tries to turn the firm around.

Thaim was also quite gloomy about the situation today, warning that:

Market conditions in January 2016 have remained challenging and we expect markets to remain volatile throughout the remainder of the first quarter of 2016 as macroeconomic issues persist .

Oil is continuing to gain ground this morning, adding to last night’s 8% surge.

Brent crude has risen to $35.36, up another 1%.

European stock markets are a sea of green, as traders welcome the higher oil price and the weaker US dollar.

European markets jump in trading

Up we go!

European markets are rallying at the start of trading, breaking three days of declines during this volatile week.

The FTSE 100 index of blue-chip shares opened 80 points higher, at 5917. That’s a gain of 1.2%, clawing back Wednesday’’s losses.

The German, French, Italian and Spanish markets are also up at least 1%.

Mining companies are leading the recovery. The weaker US dollar should spur demand for natural resources, as it will take some pressure off emerging markets.

Top risers on the FTSE 100 today
Top risers on the FTSE 100 today Photograph: Thomson Reuters

And Shell’s shares are rising, despite the company posting an 87% drop in profits this morning. Investors may have feared an even worse performance, given the slump in the oil price.

The key to today’s market moves is that the US dollar took an almighty tumble overnight.

After strengthening for months, the greenback suffered its biggest one-day drop since 2011.

That followed Wednesday’s disappointing US services sector data, which made investors conclude that US interest rates are unlikely to be hiked anytime soon. Perhaps not until 2017?

Mike van Dulken of Accendo Markets says the dollar fell on hopes that the Federal Reserve will “reign in its over-egged hawkishness”.

This delivered a welcome overshadowing of global growth concerns for markets hooked on cheap money.

And this chart puts the dollar’s weakness into some contect:

Asian markets rallied as oil recovers

It’s been another day of wild market action in Asia.

Most stock markets have surged overnight, on relief that the oil price has climbed back to over $35 per barrel.

Australia’s S&P/ASX 200 index led the way, jumping by 2%, with investors hoping that the commodity crunch may be bottoming out.

Only Japan missed out, because the yen gained against the US dollar (bad news for Japanese exporters)

Asian markets today
Asian markets today Photograph: Thomson Reuters

From Melbourne, Chris Weston of IG calls it “an incredible night of moves in markets”. And the trigger was the oil price, which has gained almost 10% since yesterday afternoon.

What we have seen is one of the most amazing one day moves in oil one will ever see, with US and Brent oil rallying 9% and 8% from yesterday’s ASX 200 close.

Oil is benefitting from a weaker dollar, rumours that OPEC might pull an emergency meeting to cut production, and suggestions that the selloff has simply gone too far.

Updated

Introduction: Bank of England Super(?) Thursday

Bank of England Governor Mark Carney listens during an inflation report news conference at the Bank of England in London, Britain November 5, 2015. The Bank of England gave no sign that it was in any more of a hurry to raise interest rates on Thursday, predicting near-zero inflation would pick up only slowly even if borrowing costs stay on hold all of next year. REUTERS/Jonathan Brady/pool

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

It’s Bank of England Super Thursday — that time of the quarter when the UK central bank sets interest rates, and also releases its latest inflation report.

“Super” could be pushing it, though. We’re expecting rates to remain unchanged at 0.5% (of course). The BoE will probably also lower its forecasts for growth and inflation, reflecting recent turmoil and rising pessimism about the world economy.

Governor Mark Carney will then face the cream of the economic press pack, who will presumably try to get him to admit that interest rates are highly unlikely to rise this year (despite Carney’s recent pronouncements). Might they even be cut to fresh record lows, governor?…

Also coming up today…

It’s going to be another lively day in the markets. European shares are expected to rally strongly, after three days of falls, and oil is looking perkier too (more on that shortly)

European Central Bank chief Mario Draghi is giving a speech in Frankfurt this morning; could that include fresh hints about ECB stimulus in March?

In the corporate world, we’re getting results from oil group Shell and mobile network operator Vodafone, among others.

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

Updated

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So far, 2016 has seen some dramatic falls already, but Bank of Japan’s negative interest rates put some hope back into the global economy. The yen fell and markets reacted positively to the news of more support from a major central bank…

Powered by Guardian.co.ukThis article titled “Global markets end tumultuous month on a high” was written by Justin McCurry, Dominic Rushe and Katie Allen, for The Guardian on Friday 29th January 2016 20.24 UTC

Global markets have ended a difficult month on a stronger note after the Bank of Japan stepped in to boost its economy with negative interest rates.

However, weak economic growth figures in the US underscored the scale of a global slowdown that has rattled investors.

Policymakers at Japan’s central bank stunned markets with a narrow vote to impose a 0.1% fee on deposits left with the Bank of Japan (BoJ) – in effect a negative interest rate. The central bank was spurred into action as volatile markets, flagging global growth and a downturn in China threatened major economies around the world.

In the US, news that the economy barely grew in the final three months of 2015 prompted speculation that its central bank would rein in plans to raise interest rates this year, having tightened borrowing costs for the first time in almost a decade in December. GDP rose at an anaemic annual rate of 0.7% as consumers and businesses cut back on spending, while US exports were hurt by weaker overseas markets.

Rob Carnell, economist at ING Financial Markets, said: “All in all, these GDP data support the sense given by recent monthly numbers that the US economy lost momentum into the end of 2015. We are struggling to see how this story is reversed in the coming quarters.”

Stock market investors were cheered by the prospect of US interest rates rising at a slower pace and by the Japanese move, which followed the similarly aggressive precedent set by the European Central Bank (ECB) in June 2014. The negative rate is designed to encourage commercial banks to use excess reserves – which they normally keep with the central bank – to lend to businesses instead.

The radical intervention provided an immediate boost to stock markets around the world after a dramatic start to the year that saw trillions of dollars wiped off their value in a matter of days. On Friday, the FTSE 100 in London closed up 2.6% at 6,084, to be back within a whisker of its starting level for 2016 of 6,242. That rise was mirrored around European bourses and followed a rally in Asian stock markets, where Japan’s Nikkei jumped 2.8% to a two-week high. At the time of the London close, Wall Street was also higher, with the Dow Jones industrial average up 1.7%.

Chinese shares also rallied following the Japanese rate move but still suffered their biggest monthly fall for seven years. The Shanghai Composite Index has lost 22.6% since the start of the year.

The surprise negative rates decision came just days after the BoJ’s governor, Haruhiko Kuroda, suggested he had dismissed any drastic easing measures to boost business confidence.

On Friday, the bank said it had not ruled out a further cut. “The BoJ will cut the interest rate further into negative territory if judged as necessary,” it said in a statement.

It said the move was intended to lessen the risk to Japanese business confidence from turbulence in the global economy, a week after data showed the Chinese economy had grown at its slowest pace for a quarter of a century in 2015.

The ECB held back from injecting more electronic cash into markets at its meeting this month but it too fired up share prices with a promise to consider more action in March.

The prospect of central banks pumping more stimulus into a struggling global economy has also helped stabilise oil prices. Brent crude, which earlier in January hit a 13-year low below $28 a barrel, stood at about $33.86 on Friday. It is still down 30% from a year ago.

Highlighting global unease about the global outlook following China’s slowdown, gold prices have gained almost 5% in January.

Friday’s estimate of US GDP from the Commerce Department was less than half the 2% annual growth rate in the third quarter and was the weakest showing since a severe winter reduced growth to a 0.6% annual rate in the first quarter of 2015.

Economists cautioned that this early estimate could yet be revised but said it still pointed to global headwinds buffeting the world’s biggest economy and suggested the US Federal Reserve would not go ahead with all four interest rate rises slated for this year. Some said the latest signs of a US slowdown left the US central bank looking unwise after December’s rate rise.

“The GDP growth slowdown sheds a rather critical light on the Fed’s decision to raise interest rates in December,” said Nina Skero, economist at the Centre for Economics and Business Research.

“For the sake of credibility, it is unlikely that the Fed will reverse its December decision, but rates are likely to stay at their current level until 2017.”

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Powered by Guardian.co.ukThis article titled “Wall Street joins market selloff as £40bn is wiped off FTSE 100 – live updates” was written by Graeme Wearden, for theguardian.com on Thursday 7th January 2016 14.50 UTC

More reaction:

Updated

Here’s a reminder of how the Chinese circuit breaker kicked into action today, triggering the shortest trading session ever (just 29 minutes!)

Chinese stock market

China suspends stock market breaker rule – reports

Breaking news from China… the stock market regulator has apparently announced that it WILL suspend its stock market breaker rule.

A sensible decision, as the rule has been tested and found wanting this week.

Ouch. The Dow Jones industrial average has shed almost 300 points, or 1.7%.

Every share is in the red:

Wall Street tumbles at the open

Open of Wall Street

Hold onto your tin hats, folks.

The New York opening bell is ringing, and shares are tumbling sharply.

The Dow Jones industrial average has lost 1.25%, and the tech-heavy Nasdaq dropped over 2%.

It will take a few minutes for Wall Street to calm down. But the news that the Chinese stock market was suspended after just 30 minutes earlier today is clearly alarming investors.

Updated

Commodity prices are hitting new five-year lows, thanks to economic growth fears and the stronger dollar.

Palladium is down 5% at $482 per ounce, its lowest level since August 2010. Zinc has hit a six-year low, and copper is also down.

Could Beijing authorities ditch their circuit-breaker rule, following this week’s turmoil?

Something certainly needs to be done.

We saw today that the prospect of an immediate daily suspension if the market drops too much actually triggered a swift selloff (as investors dashed to get out while they can).

The 5% trigger was hit after just 14 minute, followed by the 7% time-out once trading resumed. That’s not a recipe for calm, rational trading.

Updated

Britain’s FTSE 100 is currently down 2.5%, or 152 points — on track to hit a three-week low.

If it falls much further, it would threaten the lows of last August, the last time China triggered a stock market rout:

The Footsie over the last 6 months
The Footsie over the last 6 months Photograph: Thomson Reuters

The US stock market is on track to hit a new three-month low, when trading begins in 40 minutes time:

US stock market futures
US stock market futures Photograph: Bloomberg TV

The China crisis is partly caused by Beijing’s policy of pegging its currency against the US dollar, argues economist Sean Richards.

A deeper analysis of the Chinese situation shows us that its own financial instabilities have been exacerbated by the strong US Dollar.

This has been made worse by its decision to set its exchange-rate against it. Thus rather than drifting lower like virtually everyone else instead the pressure builds up, which it has tried to resist, but even with its sizeable currency reserves it has to give way every now and then. This then adds to the pressure as everybody concentrates on the decline in the reserves rather than the large amount left.

Also I suspect that those in the “know” have been trying to get out of the Yuan before it falls further which only makes things worse.

Got it in one…

China’s international competitors will fear that Beijing is triggering a currency war, by allowing the yuan to hit a five-year low against the US dollar today.

Andy Yu, senior economist at MNI Indicators, says other emerging market currencies will probably also weaken in response (reminder, they’ve already weakened this year).

“A weaker yuan is a concern for emerging markets that compete directly with China in exports. The immediate upshot is that currencies in countries including South Korea, Thailand, the Philippines and Taiwan will continue to adjust downwards in response to yuan moves.

That would push up debt repayments for countries who have borrowed in US dollars. But encouragingly, Yu reckons emerging markets have the firepower to ride out the crisis:

On current evidence the risk of a full blown emerging markets crisis looks less likely with emerging economies having built up larger foreign exchange reserves and put in place far better external debt management. Still the situation bears close scrutiny and alongside continued Fed tightening this year will put pressure on emerging markets’ currencies over 2016.”

Updated

It’s a bad day for stock market bulls…..

A styrofoam bull figure lies on its side in front of DAX board at Frankfurt’s stock exchange<br />A styrofoam bull figure lies on its side on a counter in front of the German share price index DAX board at Frankfurt’s stock exchange in Frankfurt, Germany January 7, 2016. European shares fell sharply on Thursday after China accelerated the depreciation of the yuan, sending currencies across the region reeling and domestic stock markets tumbling. Germany’s DAX dropped 3.6 percent, while Britain’s FTSE 100 weakened by 2.7 percent. REUTERS/Kai Pfaffenbach” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=A styrofoam bull figure lies on its side in front of DAX board at Frankfurt’s stock exchange today. Photograph: Kai Pfaffenbach/Reuters

The Economist reckons China could trigger a repeat of the 1998 Asian crisis, rather than the 2008 vintage which George Soros fears.

Here’s its logic:

If China devalues, then other Asian nations will come under pressure to follow suit, for fear of losing competitive position. That will trigger worries about those Asian companies that have borrowed in dollars. there could be banking issues in Asia.

This is a potentially worrying scenario. Whether 2008 is the right parallel is another matter. If the bearish case does come true, then it sounds more like 1998 when a round of Asian devaluations was triggered by the realisation that growth had been fuelled by speculation. Western economies did manage to overcome that crisis. The real worry is that emerging countries are a lot more important for the global economy than they were back then.

More here: Is this really 2008 all over again?

Soros: It’s 2008 all over again

Hungarian-born US magnate and philanthropist George Soros attends an economic forum in Colombo on January 7, 2016. Sri Lankas new government is trying to woo investors after a year in office. AFP PHOTO / LAKRUWAN WANNIARACHCHILAKRUWAN WANNIARACHCHI/AFP/Getty Images
George Soros attending an economic forum in Colombo, Sri Lanka, today. Photograph: Lakruwan Wanniarachchi/AFP/Getty Images

Investor-turned-philanthropist George Soros has contributed to the gloom today, by claiming that we could face a repeat of the turmoil we experienced in 2008.

Soros, who famously beat the Bank of England on Black Wednesday, told an audience in Sri Lanka that the current situation reminded him of the financial crisis seven years ago.

He said:

“China has a major adjustment problem. I would say it amounts to a crisis.

When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Alarming stuff. However, before you sell everything, it’s worth remembering that Soros has previous form here. In 2011, he declared that the eurozone debt crisis was “more serious” than the 08 crash.

European policymakers managed to avoid a Lehman Brothers-style moment, although obviously Greece’s problems aren’t fixed. So Soros’s words are worth taking seriously…

Updated

Some Chinese companies could be forced into default if Beijing continues to devalue the yuan.

So argues Danae Kyriakopoulou, senior economist at the Centre for Economics and Business Research. She warns:

Many Chinese corporates have taken on a lot of debt, some of it dollar-denominated. This exposure creates an important risk as the People’s Bank of China PBOC continues to allow the yuan to weaken.

It is not far-fetched at this stage to draw comparisons with the Asian currency crises of 1998 that occurred as economies with high levels of dollar-denominated debts were forced to devalue. This, together with the commitment by the Chinese leadership to give market forces a greater say may mean that we will see many more corporate defaults in China this year.

As covered earlier, Beijing has already spent half a trillion dollars propping up the yuan this year. It still has more than $3trn left to help engineer an ‘orderly’ devaluation….

£40bn wiped off FTSE 100 this morning

What. A. Morning.

Nearly four hours after trading began, the FTSE 100 is still deep in the red as the latest crash in China spooks markets around the globe.

The blue-chip index is currently down 2.65% or 160 points at 5912, its lowest level since mid December.

That, by my calculations, wipes more than £40bn off the value of the 100 companies on the Footsie. A blow that will be shared by City traders, pension funds and small investors alike.

Mining companies continue to suffer, on fears that the crisis in China will cause serious harm to the global economy. Anglo American, which produces iron ore, copper, nickel and coal, has slumped to another record low.

Fund manager Aberdeen Asset Management is also being hit hard; it manages tens of billions of assets in emerging markets and in Asia.

The biggest fallers on the FTSE 100 today
The biggest fallers on the FTSE 100 today Photograph: Thomson Reuters

The news that the yuan hit a five-year low today – effectively a devaluation by Beijing – is also worrying investors.

Jasper Lawler, analyst at CMC Markets, says:

UK and European stocks are extending declines in one of the worst opening weeks for the year for stock markets in recent memory. China is at the top of a dizzying list of concerns for markets.

And with oil hitting a fresh 11-year low, and the pound at its weakest since 2010, there’s plenty for investors to fret about.

Connor Campbell of Spreadex sums up the mood:

There have been painfully few chinks of light this morning, the markets covered in an almost impenetrable cloud of bearish fog.

Updated

There are anxious faces on the Frankfurt stock market, as traders watched shares slide.

The DAX index fell by over 3% this morning, dropping through the 10,000 point mark for the first time since October.

A trader works in front of a board displaying the chart of Germany’s share index DAX at the stock exchange in Frankfurt am Main.
Stock exchange in Frankfurt - Dax drops below 10,000<br />07 Jan 2016, Rhineland, Germany — Traders look at their screens on the trading floor at the stock exchange in Frankfurt am Main, Germany, 07 January 2016. China’s ongoing stocks slump is continuing to affect the German stock market. Germany’s DAX stock market index dropped below 10,000 points. Photo: FRANK RUMPENHORST/dpa — Image by © Frank Rumpenhorst/dpa/Corbis” width=”1000″ height=”668″ class=”gu-image” /> </figure>
<p>German exporters such as <strong>BMW</strong>, <strong>Daimler</strong>, <strong>Volkswagen</strong> and <strong>ThyssenKrupp</strong> led the selloff, all falling by around 4%. They are all vulnerable to a sharp slowdown in the Chinese economy.</p>
</p></div>
</p></div>
<div id=

Wall Street is expected to join the selloff when trading begins in three and a half-hours.

The futures market suggest the Dow Jones industrial average will tumble by 2.5%, while the Nasdaq is heading for a 3.3% plunge.

The pound appears to be suffering from the uncertainty over Britain’s membership of the EU.

Andy Scott, economist at currency firm HiFX, reckons Brexit risks are compounding the impact of the China crisis on the UK currency.

He explains:

Sterling’s decline against a rising US Dollar has been accelerated by the risk-off mode this week that has investors seeking refuge in safe haven currencies including the US Dollar, Japanese Yen and the Swiss Franc. That can almost entirely be attributed to the Chinese central bank allowing its currency to weaken to its lowest level against the dollar in almost five years, fuelling speculation that the economy is slowing faster than official figures suggest.

“Concerns over a Brexit and reduced bets that the Bank of England will hike rates any time soon have also weighed on Sterling.

“The Bank of England and the Chancellor have been quite vocal about risks facing the UK economy this year and the early signs are that China’s economy is weakening further, putting a bigger question mark over global growth

And that’s why the pound is at a five and a half-year low of $1.456 today, as this chart shows:

Pound vs dollar over the last decade
Pound vs dollar over the last decade Photograph: Thomson Reuters


Veteran analyst David Buik, who has seen a few crashes in his time, says there is an “acrid stench of fear” in the City and Canary Wharf.

He adds:

The start to the year has been metaphorical carnage as far as equities are concerned. China has set the agenda with two gargantuan falls this year, aided and abetted by oil falling to its lowest level in 12 years (-4% today) suggesting that investors are not happy campers!

Updated

Panda bear market, anyone?

We have a glimmer of good news – Europe’s unemployment crisis has eased a little.

The eurozone’s jobless rate dipped to 10.5% in November 2011, according to eurostat, which is the lowest since October 2011.

That still leaves 16.924 million people out of work in the euro area, and 22.159 million in the wider European Union.

So, still too high – and at risk of rising again if the global economy hits serious problems again….

China isn’t the only developing economy to make a bad start to 2016.

A swath of emerging market currencies have weakened since the start of the year, as investors fear that their economies will falter.

Greece’s stock market is sharing the pain:

City workers crossing the Millennium footbridge at dawn.
City workers crossing the Millennium footbridge at dawn today Photograph: Toby Melville/Reuters

City traders may have now dried off after the early morning deluge, but their mood isn’t any sunnier.

Brenda Kelly of London Capital Markets says:

Not unlike the weather in London today, it never rains but it pours. While it’s said that the darkest hour is often before the dawn, nobody appears brave enough to involve themselves in risk assets this morning.

She explains how the Chinese market suspension, the slump in crude oil, and the big drop in China’s foreign exchange reserves are all causing alarm:

The drop in oil prices and China’s Shanghai Composite once again triggering circuit breakers sees major European indexes under pressure while government bonds strengthen across the board.

Trading in China stopped after 29 minutes amid the Shanghai’s Composite tumbled by 7.04%. Forex reserves in China are also lower than what were expected. At the end of December they stood at $3.33 trillion and given that the IMF has recently said that $2.6T is required to maintain the yuan fix, this worse than expected depletion is only bolstering negativity towards the world’s second biggest economy.

A reminder of what triggered today’s rout:

Record fall in China’s foreign exchange reserves

As if there wasn’t already enough to worry about, China has revealed a record drop in its foreign exchange reserves.

New data from the People’s Bank of China show that its FX reserves shrank by $107bn in December – the biggest monthly drop on record.

It suggests that China was forced to use more firepower supporting the yuan last month, as capital flows out of the Chinese economy:

Pound hits five-year low against the dollar

Sterling has just hit its lowest level against the US dollar since the middle of 2010.

The pound has lost half a cent against the greenback today, hitting $1.4561. That’s a five and a half-year low, taking us back to the uncertain times after the 2010 general election.

Worried traders are piling money into the relative safety of the dollar.

As this chart shows, the pound looks stronger against a basket of currencies:

China’s new ‘circuit breaker’ is meant to avoid market volatility. It clearly doesn’t work.

As it stands, if the market falls 5% then trading is suspended for everyone to calm down. It then reopens, allowing investors to recover their nerve.

But as we saw today, a second wave of selling can quickly push the market down by 7% – which is the signal to end trading for the day.

Mark Dampier, head of investment Research at Hargreaves Lansdown, says authorities need to accept that shares are simply overvalued:

Some amazing events on the Chinese stock markets overnight with trading halted for the second time in a week, the second time this year after just 870 seconds of trading…..

Clearly the circuit breaker is having the opposite affect to what is intended and is making things worse. It also stops the market having any chance of bouncing. Had it been introduced during 2015, it would have been triggered 20 times.

The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.

The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.

Today’s selloff is causing a lot of angst in the City, and sending investors running for cover.

Terry Torrison, managing director at Monaco-based McLaren Securities, says:

“The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment.”

Andreas Clenow, hedge fund manager and chief investment officer at ACIES Asset Management, is equally alarmed:

“It’s looking pretty ugly. We’ve been scaling down equity positions. It’s time to take a step back to re-evaluate the situation.”

(via Reuters)

The Financial Times has a rather smuttier take on Marc Bolland’s time at Marks & Spencer:

Good point, boss.

Updated

Marks and Spencer is defying the global rout!

Its shares are up 1.5%, making it the only riser on the FTSE 100. The City appears to be applauding the news that Marc Bolland is retiring.

Joshua Raymond Chief Marketing Officer at XTB.com explains why:

Bolland has been under intense pressure from major shareholders for his failure to grow the business. And when you look at their recent results, its easy to understand why Bolland had to go and the tough job his replacement, Mr Rowe now finds himself in. Somewhat paradoxically, I expect shareholders to react well to the news that Bolland will now depart after months of speculation.

A drop of 5.8% in general merchandise is simply awful and at the bottom of market expectations. Whilst the firm did enjoy what it claimed was its best ever Christmas week for food sales, like for like food sales over the Q3 period grew 0.4%, which is disappointing though shows M&S fared better than some of its competitors. Overall like for like UK sales fell 2.5%.

Here’s our news story on Bolland’s exit:

The Stoxx 600, which tracks the largest 600 companies across Europe, has fallen by 2.2% this morning.

By my reckoning, that’s a three-month low:

The Stoxx 600
The Stoxx 600 over the last year. Photograph: Thomson Reuters

European markets are also being hit hard, as fears over China’s economy ripple through global bourses.

Germany’s DAX is leading the selloff, tumbling by 2.75% or 281 points to 9,932. Every share in Frankfurt is down, as investors fear that the powerhouse Eurozone economy will suffer if China’s economy hits serious trouble.

The French CAC is close behind, down 2.2%.

FTSE 100 plunges 2% in early trading

The FTSE 100 has tumbled by over 100 points at the start of trading, shedding almost 2% of its value.

The blue-chip index is being dragged down by mining stocks, but every single share is in the red. It’s down 114 points, or 1.9%, right now.

London stock market
London stock market Photograph: Thomson Reuters

The slump in China’s stock market is one obvious factor – but it’s not the only one.

FXTM Research Analyst Lukman Otunuga says investors face a serious of concerns:

Equity markets are continuing their steep losses as we enter the final part of the trading week with investor sentiment being pressured by various different factors.

This includes the resumption of fears over global growth following weak data from China in the beginning of the year, while increased geo-political tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets like stocks. Another threat to investor sentiment is the persistent and continued weakness in the commodity markets, which only today saw the price of oil falling to a fresh 11 year lows of $32.70 for the first time since 2004.

Ding ding….. the European stock markets are open. Brace yourselves for a wave of selling…..

If you can’t sell shares, you may as well crack on with the knitting…..

China trading halted after shares plummet<br />epa05090894 Two stock investors knit in the brokerage house in Qingdao, Shandong province, China, 07 January 2016. Trading was halted for the day on the Shanghai and Shenzhen stock exchanges on 07 January after a steep drop in prices triggered an automatic ‘circuit breaker’ for the second time this week. Prices on the CSI 300 Index plummeted more than 7 per cent in the first 30 minutes of trading. EPA/YU FANGPING CHINA OUT” width=”1000″ height=”665″ class=”gu-image” /><br />
<figcaption> <span class=Two stock investors knitting in the brokerage house in Qingdao, Shandong province, China, today. Photograph: Yu Fangping/EPA

Oil hits 11-year low

Crude oil prices are taking another kicking, tumbling over 5% in early trading.

Brent crude has plunged below $33/barrel for the first time since 2004. It’s currently changing hands at just $32.25 per barrel, a new 11-year low.

And US crude oil has also slumped by 5%, to $32.10 per barrel.

Updated

The Chinese stock market really did suffer a precipitous decline today, triggering the circuit breaker that brought trading to a very early close:

City traders are bracing for a grim start to trading – once they’ve dried themselves (it’s wet today)

Heavy losses in Asia

Asian stock markets are a deep and grimy sea of red today, as fears over China rattle investors across the region.

  • Japan’s Nikkei fell over 2%, shedding 423 points to close at 17,767 points. It’s now down 6.65% since the start of the year.
  • The Hong Kong Hang Seng index is currently down 2.8%,
  • Australia’s S&P/ASX is down 2.2% ,
  • India’s Sensex has lost 1.9%.

Chinese regulators held an emergency meeting today to discuss the crisis — but they haven’t taken any decision on new action, Bloomberg reports.

Chinese trading halted within 30 minutes…

From Beijing, my colleague Tom Phillips sums up the dramatic action in China today:

China halted the day’s trading within 30 minutes of opening on Thursday morning as shares plunged by more than 7% – triggering an automatic “circuit breaker” – and authorities accelerated the devaluation of the Chinese yuan.

China’s recently installed “circuit breaker” mechanism paused trading for 15 minutes after the CSI300 index fell 5% in the first 13 minutes of trading. On resumption of trading it fell further, triggering the day’s halt.

The CSI300 index finished down 7.2%, the SSE composite index fell 7.3% and Shenzhen dropped by 8.3%.

Experts believe that the Chinese authorities may have to take fresh steps to prevent the rout deepening, Tom explains:

Christopher Balding, a professor of finance and economics at Peking University’s HSBC business school, said he expected more government action to halt the stock market drops, “whether it is changing the circuit breakers, whether it is again intervening in the market, whether it is extending the ban on large selling by institutions.”

“I’d be surprised if they let this continue going down. By almost any measure, the Chinese stock market is pretty over valued and so you would be looking at a pretty significant fall to get back to a reasonable valuation. I would be surprised if they allowed it to move back to more appropriate levels.”

“2016 in China is getting off on the wrong foot.”

Here’s Tom’s full story:

Introduction: China market shut again as yuan weakens further

China trading halted after shares plummet<br />epa05090899 Investors play a card game as an electronic board has halted display of stock market data at a securities brokerage house in Beijing, China, 07 January 2016. Trading was halted for the day on the Shanghai and Shenzhen stock exchanges on 07 January after a steep drop in prices triggered an automatic ‘circuit breaker’ for the second time this week. Prices on the CSI 300 Index plummeted more than 7 per cent in the first 30 minutes of trading. EPA/ROLEX DELA PENA” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=Investors play a card game at a brokerage house in Beijing today, after trading was halted for the day. Photograph: Rolex Dela Pena/EPA

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

There’s no escape from the China crisis. Trading in Shanghai has been suspended for the second time this week, after its stock market plunged at the start of trading.

Automatic circuit-breakers kicked in, leaving nervous investors cooling their heels, after shares in Chinese companies slumped by 7% at the start of trading.

The selloff came as the yuan weakened further against the US dollar, fuelling concerns over China’s economic situation.

From Melbourne, analyst Angus Nicholson of trading firm IG explains:

The great concern for global markets is that the dramatic pace of the currency devaluation seems to indicate a far greater weakness in the Chinese economy than is easily perceivable in its publicly released statistics.

A lot of people in the market are speculating that this is primarily about boosting exports and stimulating the slowing economy. While this no doubt will help, the primary concern for the government is deflation.

Asian markets tumbled following the developments in China, and European stocks are expected to fall heavily at the open too.

Britain’s FTSE 100 is expected to suffer a triple-digit loss:

All in all, it’s a great day for UK chancellor George Osborne is due to give a speech warning that Britain is vulnerable to problems in the global economy.

And we’ll also be digesting financial results from UK retailers Marks & Spencer and Poundland.

The big news at 7am is that M&S’s CEO Marc Bolland is stepping down, after six tricky years at the helm (statement here).

Today’s results don’t look great, frankly, with sales of general merchandise down 5% over the crucial Christmas period….

Updated

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Rolling coverage of the world’s financial markets, including disappointing results from the weak eurozone inflation report. Investors still seem nervous after Monday’s rout. Eurozone inflation gauge stubbornly stuck at just 0.2% y/y in December…

Powered by Guardian.co.ukThis article titled “European markets still fragile after euro inflation gloom – business live” was written by Graeme Wearden (until 2.15) and Nick Fletcher, for theguardian.com on Tuesday 5th January 2016 15.20 UTC

Given the backdrop of disappointing Chinese data and growing tensions in the Middle East, this week’s US main economic events – the minutes of the Federal Reserve’s rate-rising meeting and Friday’s non-farm payroll figures – will be closely watched. Christopher Vecchio, currency analyst at DailyFX, said:

Weak economic data from across the globe – particularly China and the Euro-Zone – has the US dollar on stronger footing ahead of key event risk this week. Despite some alarming signs coming from the US economy (soft consumption figures, mixed housing data, and recession-level industrial production), investors and traders alike remain focused on ‘the big picture’: how fast will the Federal Reserve tighten policy this year?

With the December Federal Open Market Committee minutes due on Wednesday and the December US non-farm payrolls report due on Friday, market participants – short- or long-term in nature alike – will have a fresh look at where the Fed stands…

Minutes of the last Federal Reserve meeting due on Wednesday.
Minutes of the last Federal Reserve meeting due on Wednesday. Photograph: Richard Drew/AP

Parsing the FOMC minutes and reviewing the details of the December labor reports should help provide enough clarity for judgement to be made on “who is wrong”: either the market, currently pricing in two rates hikes for this year (via Fed funds futures); or the Fed, currently suggesting it will hike rates four times this year.

In the event that the FOMC meeting and the US non-farm payrolls prove to be supportive of the US dollar, it will likely come at the detriment of higher yielding currencies and risk-correlated assets. Any signs that the Fed could tighten policy faster than currently expected, against a backdrop of rising tensions between Iran and Saudi Arabia as well as Chinese/emerging market growth concerns, would seem like a caustic mix of influences for the commodity currency bloc in particular.

US markets edge higher

Wall Street has followed other global markets in attempting to stage a rebound after Monday’s China-induced rout. But as in Europe, the rally is rather tentative.

The Dow Jones Industrial Average is up 42 points or 0.2% in early trading, while the S&P 500 has opened 0.16% better and Nasdaq is 0.3% higher.

In Europe, the FTSE 100 is currently up 0.79% while Germany’s Dax has added 0.33% and France’s Cac has climbed 0.48%.

Oil prices remain under pressure, on fears of falling demand in the wake of the poor Chinese data seen over the past few days. A stronger US dollar is not helping matters, since it makes holding dollar-denominated commodities more expensive. These factors are outweighing the growing tensions in the Middle East – especially between Saudi Arabia and Iran – which could hinder supply.

So Brent crude is currently down 1.2% at $36.77 a barrel, while WTI is nearly 1% lower at $36.40.

Accountancy group ICAEW reckons that British businesses are actually more worried about the domestic situation, rather than problems in China.

A survey of its members found that the the UK economy is the number one concern for 2016.

However, they’re less concerned about the eurozone economy, geopolitics, or the looming referendum on Britain’s membership of the European Union.

Here’s the details:

  • 41% of businesses feel that the growing uncertainty around the UK’s position in the EU could have a negative impact, compared with 50% a year ago
  • Businesses are less concerned about the negative impact of low economic growth in the Eurozone than they were two years ago (44% v 56% in 2014). Although exporters are displaying the same concern than they did last year, with 60% expecting a negative impact.
  • Low UK inflation is expected to have a positive impact on over a third of companies (36%) but over half (52%) would be negatively impacted by any interest rate rise in 2016
  • Instability in the Middle East and Ukraine is much less of a concern to business with 29% of respondents expecting a negative impact (down from 41%).

Midday summary: Markets remain nervous

Time for a quick recap.

European stock markets remain fragile today, after an early attempt to rally back from Monday’s slump floundered.

The main bourses are mixed as traders snatch lunch in the City. The German and French markets are down around 0.5%, while Britain’s FTSE 100 is managing a slight recovery, up 18 point, having been 70 points higher in early trading.

European stock markets, 1pm today
European stock markets, 1pm today Photograph: Thomson Reuters

Investors are bruised following yesterday’s slump, which was the worst start to a trading year since the dot-com crash.

China remains a big worry today.

Overnight, Chinese authorities intervened to prevent another slump on the Shanghai market. State-backed authorities bought up shares, in a bid to prop up values.

This helped the Chinese market to end the day roughly where it started. However, the intervention may also shows that Beijing is worried about future problems, given its slowing economy and the build-up of bad debts since the financial crisis began.

Chris Beauchamp of IG sums up the morning:

Early optimism on the London market has faded as investors continue to fret about the situation in Chinese markets. As in August, state-directed buying of stocks is competing with individual selling of equities, but China’s latest attempt to ‘buck the market’ is likely to end as well as its efforts last year.

The butterfly effect has been felt in Europe again this morning, with an initial bounce giving way to more selling, while in London the FTSE is fighting hard to hold on to small gains.

While Mike van Dulken of Accendo Markets warns:

…the prospect of another Summer-style Chinese rout (the one which made the Fed hold off from hiking) remains a real possibility.

There is disappointment that eurozone inflation remains at just 0.2%, despite the ECB’s stimulus measures.

And there’s also drama in the City. with Sainsbury’s threatening to pounce on Home Retail, the firm behind Argos and Homebase….

….while the unusually warm weather has hurt sales at high street chain Next:

Updated

If Sainsbury takes over Home Retail, it will reunite the company with the homes-and-gardens chain Homebase after a 15-year break.

Sainsbury’s reveals rejected takeover offer for Home Retail

Big news in the City….. supermarket chain Sainsbury’s has revealed that it made a takeover approach to Home Retail (which owns Argos and Homebase).

The offer was made, and rejected, in November, Sainsbury says. It is now considering its position, and has until February 2 to make a new bid.

Rumours have been swirling for weeks that Home Retail could be a takeover target. Sainsbury’s decision to out itself as a possible bidder has send Home Retail shares soaring, up 30%.

dec05hffina
Home Retails’ share price today Photograph: Thomson Reuters

More here:

William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London, sums up the situation well — it’s “really messy” in the markets right now.

He told Bloomberg that investors around the globe are on edge today, and fearing trouble ahead.

“Not much is expected of the world in terms of growth, risk appetite is biased to the downside and weak data from China to the U.S. hasn’t helped at all.

Plenty of people out there believe that the next global recession is imminent.”

US stock markets are expected to post fresh losses today, when they open in three hours time.

The Dow Jones industrial average is tipped to fall by around 100 points, adding to Monday’s 276 point slide.

The euro has lost ground against the US dollar since December’s inflation figures came out. It’s down over half a cent at $1.076.

Although eurozone inflation is clearly weak, it may not be bad enough to force more stimulus out of the European Central Bank, argues Teunis Brosens of ING.

While headline inflation was stuck at 0.2%, core inflation (stripping out energy and food) was also unchanged at 0.9% in December.

Brosens says:

Hawks may argue that weak core inflation is unsurprising given the still high unemployment in many Eurozone countries. Moreover, despite this month’s weakening of core inflation, the presence of second-round effects is not yet convincing.

We think that the ECB will hold its fire for now: it will take more convincing evidence of second round effects or other really disappointing economic news to stir the ECB into further action.

And that’s why shares have fallen back this morning:

So much for the bounce-back. European stock markets couldn’t even stay in the green until London’s pubs opened for the day.

The weak eurozone inflation reading has helped to pull the major indices into the red for the second day running.

The German Dax has shed another 1%, on top of Monday’s 4% slump. The Paris CAC is down another 0.8%, and London’s FTSE 100 is off eight points.

Ipek Ozkardeskaya of City firm London Capital Group says China is still worrying investors, even though Beijing’s central bank, the People’s Bank of China, stepped in overnight to prop up its stock market.

She writes that market sentiment is “very much fragile”:

The apocalyptic Chinese story keeps the headlines busy. The intervention from the PBoC eased tensions at the heart of the storm, yet the chaotic start to 2016 warned of a challenging year ahead of us. The first trading day of the year has clearly wiped away some of the optimism and the risk-off flows dominate.

Shanghai’s Composite opened the day 3.1% lower yet managed to recover later in the session. State-controlled funds bought equities to halt the $590bn worth of sell-off suffered on Monday, and a selling ban for investors would extend beyond a week according to several sources.

Updated

The European Central Bank will be concerned that inflation remained so low last month, says Howard Archer of IHS Global Insight:

Good news for Eurozone consumers but a headache for the ECB as consumer price inflation remained down at 0.2% in December, thereby defying expectations of a small uptick.

The failure of Eurozone inflation to pick up in December is good news for consumers’ purchasing power; but it will maintain ECB concern that prolonged very low inflation could lead to a renewed weakening in inflation expectations thereby making it harder still to get Eurozone consumer price inflation up to its target rate of close to 2%.

December’s unexpectedly weak inflation report is hurting the euro.

The single currency has hit its lowest level against the yen since April 2015. One euro is now worth ¥128.03, down from ¥129.33 earlier.

Eurozone inflation weaker than expected

Breaking: inflation across the eurozone remained uncomfortably weak last month.

Prices across the single currency region rose by just 0.2% annually in December, Eurostat has just reported.

That matches November’s reading, and dashes hopes of a rise to 0.3% or 0.4%.

Cheaper energy costs are partly to blame….. but food and service price inflation did also slow last month:

Eurostat says:

Food, alcohol & tobacco is expected to have the highest annual rate in December (1.2%, compared with 1.5% in November), followed by services (1.1%, compared with 1.2% in November), non-energy industrial goods (0.5%, stable compared with November) and energy (-5.9%, compared with -7.3% in November).

Eurozone inflation

The European Central Bank is meant to maintain inflation close to, but below, 2% — but we’re a long way from that despite the ECB’s quantitative easing stimulus measures….

Updated

UK building firms post stronger growth

UK standard building brick. Image shot 05/2006. Exact date unknown.<br />AWJRH5 UK standard building brick. Image shot 05/2006. Exact date unknown.

Britain’s builders didn’t get much rest over Christmas, judging by the latest healthcheck from the sector.

Data firm Markit reports that output jumped last month, pushing its PMI index up to 57.8 in December, up from a seven-month low of 55.3. That suggests the sector grew at a faster pace last month.

jan05pminew

Markit cited “favourable demand conditions”, with builders reporting that clients were more willing to commit to new projects.

Commercial construction had a particularly good month, with growth hitting its fastest rate since October 2014.

The unusually warm weather in December may also be a factor, as Britain didn’t suffer the kind of heavy snowfalls that can scupper construction work this time of year.

Firms who can build flood defences could be busy in 2016 too, as communities across the country try to shore themselves up.

Updated

This morning’s rally is looking a little fragile, after less than 90 minutes.

European stock markets have shed much of their early gains, and are now broadly flat.

European stock markets

Invesotrs

German unemployment beats expectations

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

Here comes the latest measure of German unemployment….. and it’s better than expected.

The number of people out of work across Germany fell by 14,000 last month, on a seasonally-adjusted basis. That smashes expectations of a 6,000 drop, and shows Germany is still outperforming many neighbours.

This leaves its unemployment rate unchanged at 6.3%, compared to a eurozone average of 10.7%.

Spain has also reported that its jobless total shrank by 8% last year:

Updated

Mining stocks are leading this morning’s rally in London.

Commodity giant Glencore is up over 4%, as fears over China ease a little (for the moment….)

Top risers on the FTSE 100
Top risers on the FTSE 100 today Photograph: Thomson Reuters

Tony Cross of Trustnext Direct says traders are taking their cue from Asia:

London’s FTSE-100 has recovered some of yesterday’s losses at the open, thanks in no small part to the fact that Asian equity markets appear to have stabilised overnight – at least for now.

The vast majority of blue chips are trading in positive territory although the handful of losing stocks are being dominated by clothing retailers with that trading update from Next this morning providing little reason to get excited about the sector.

Updated

High street chain Debenhams’ shares have fallen by 2% in early trading.

That reflects concerns that Next’s weak sales over Christmas could be mirrored across the sector. Marks & Spencer are down 0.5%.

Shares in Next are out of fashion this morning.

They’re down by 3% at the start of trading, leading the FTSE fallers, as the City digests this morning’s disappointing Christmas trading.

Here’s some reaction:

Updated

Market open: European shares bounce back

Shares are rallying across Europe at the start of trading, as investors recover their nerve after Monday’s heavy selloff.

In London, the FTSE 100 has jumped by 72 points, or 1.2%, to 6165 points. That claws back almost half of yesterday’s rout, when the blue-chip index shed 148 points.

The French CAC, German DAX, Spanish IBEX and Italian FTSE MIB are all up around 1.1%.

Yesterday, the DAX slumped by over 4%, so today’s rally is only a partial recovery.

Traders are encouraged by the news that Chinese authorities took action overnight to prevent their stock market tumbling again.

Jasper Lawler, market analyst at CMC Markets, explains:

In the aftermath of a global sell-off over China growth fears, UK and European stock index futures are taking their cues from the Chinese stock market on Tuesday.

After an initial wobble, shares in Shanghai and Shenzhen turned positive on Tuesday thanks to an injection of liquidity from the People’s Bank of China.

Next blames warm weather for weak Christmas

Next results<br />File photo dated 04/12/12 of a Next Retail store, as the High Street chain blamed unseasonably warm weather for a “disappointing” performance in the run-up to Christmas as it posted a fall in store sales and sharp slowdown in its Directory business. PRESS ASSOCIATION Photo. Issue date: Tuesday January 5, 2016. The retailer said full-price sales fell 0.5% across its stores in the 60 days to December 24, while sales across its Next Directory online and catalogue arm lifted 2%. See PA story CITY Next. Photo credit should read: Paul Faith/PA Wire

High street retailer Next has sent a shiver through the sector this morning, after posting weaker than expected results for the crucial Christmas period.

Full price sales rose by just +0.4% from 26 October to 24 December. That’s a serious slowdown, as Next sales grew by 6% between July and September.

And as Next is the first major European retailer to report Christmas trading figures, this may mean more trouble ahead…

Next pinned much of the blame on the unusually warm weather this autumn. This is a classic excuse for British retailers, who can often point to the skies to explain away a poor performance.

But to give Next credit, it also released a graph showing how sales did indeed shrink in weeks where the temperature was hotter than in 2014:

Next sales

And the weather isn’t the only culprit. The firm also admits that its catalogue shopping arm, NEXT Directory’s, suffered poor stock availability from October onward.

Updated

Spread-betting firm IG is predicting that European markets will bounce back when trading begins in a few minutes, clawing back some of Monday’s losses.

IG is calling the main markets up around 1%:

Chinese authorities intervene to prop up markets

Chinese shares make modest gains after Monday rout<br />epa05088128 Chinese investors look at a screen showing stock movements at a stock brokerage house in Beijing, China, 05 January 2016. Shares in China made modest gains 05 January morning, the day after a plunge in the market triggered a halt to trading. The CSI 300 Index was up 0.79 per cent when the market shut for its lunch break. The index comprises 300 shares from the biggest companies on the Shanghai and Shenzhen exchanges. EPA/HOW HWEE YOUNG
Chinese investors look at a screen showing stock movements at a stock brokerage house in Beijing. Photograph: How Hwee Young/EPA

It’s been a wild day in China, as Beijing tries to prevent a repeat of Monday’s rout.

Chinese authorities intervened in the markets today, buying up stocks to give investors confidence.

And it appears to have worked. The Shanghai composite index has closed for the day, down just 0.28%, having shed 3% at one stage today.

That’s rather better than Monday’s 7% slump, which forced trading to be halted.

That doesn’t address the underlying problems in China, such as the build-up of bad debts and its slowing economy. And it suggests Beijing isn’t prepared to allow market forces to take their natural course….

Updated

Introduction: Markets could stabilise after Monday’s rout

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

It’s day two of the trading year, and investors around the globe will be hoping for a better performance than on day one.

There’s a nervous air in the markets today, after yesterday’s selloff wiped hundreds of billions of dollars off bourses worldwide. Britain’s FTSE 100 lost £38bn in a blink of an eye:

But unlike vanishing candyfloss, market value can reappear.

And European stock markets are expected to recover some ground today. But it could be another volatile session, with concerns over China’s economy looming over markets.

Also on the agenda today, we get the first estimate of eurozone inflation for December. Economists predict it will rise to an annual rate of 0.4%, from 0.2% in November.

We also get the latest German unemployment data for December, and an estimate of how UK builders fared last month.

  • 8.55am GMT: German unemployment report
  • 9.30am GMT: UK construction PMI
  • 10am: Eurozone inflation for December

And high street retailer Next is reporting its financial results for the last quarter. That will give us an insight into how the crucial Christmas trading season went…..

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U.S. dollar strengthens along with emerging market currencies, euro and pound fall, and Wall Street extends gains following better-than-expected U.S. consumer confidence numbers, as markets reopen after the Christmas holiday break…

Powered by Guardian.co.ukThis article titled “Global markets climb on rising US confidence and higher oil prices – live” was written by Katie Allen and Julia Kollewe (now), for theguardian.com on Tuesday 29th December 2015 16.17 UTC

On Monday, the rouble hit its lowest level this year, pressured by sliding oil prices. The Russian economy is heavily reliant on crude and natural gas, which together account for almost half of state revenue.

But today, the Russian currency has recovered, boosted by higher oil prices and a Bloomberg report that former Russian finance minister and investor favourite Alexei Kudrin is in talks with Vladimir Putin about returning to a senior post to help deal with the country’s worsening economic troubles.

Let’s take a look at currency markets. The US dollar is up against the euro and other major currencies, but has slipped against the Russian rouble, which has been been lifted by higher oil prices. Brent crude is nearly 3% higher on the day.

Investors are snapping up riskier assets, including stocks and emerging market currencies, on the back of the rally in oil prices. This has hurt the euro, which is regarded as a safer currency, given its low yield.

Away from the markets, here’s some good news for UK consumers. Companies that plague householders with nuisance phone calls and texts face fines totalling more than £1m this year and next, a government watchdog has warned after tripling the financial punishment for rogue callers in 2015, our consumer affairs correspondent Rebecca Smithers writes.

The information commissioner’s office received about 170,000 complaints in 2015 from people who had received nuisance calls and texts – a slight decline on last year, when the total was 175,330.

You can read our full story here.

Nuisance call firms

Nuisance call firms Photograph: Richard Pohle/The Times/PA

The most recent fine came earlier this month when the ICO fined the Telegraph Media Group £30,000 for sending hundreds of thousands of emails on the day of the general election urging readers to vote Conservative, breaking the rules around direct marketing.

Here is a list of other fines imposed this year:

  • A record £200,000 fine in September to Home Energy & Lifestyle Management Ltd (Helms), a solar panels company that made 6m nuisance calls to householders.
  • A £130,000 fine in October to Pharmacy 2U Ltd, a company that was selling customer details to postal marketing companies. Buyers of the details included a health supplements company cautioned for misleading advertising.
  • A £90,000 fine in November to Nuisance Call Blocker Ltd for making unsolicited marketing calls to sell cold-call-blocking devices. The Poole-based company was telephoning people to sell a call-blocking service and device to stop the same type of calls the company itself was making.
  • A £80,000 fine to UKMS Money Solutions Ltd, a PPI claims firm that sent 1.3m spam text messages to mobile phone numbers it had bought from list brokers.

Updated

Gold has benefited from the rally in oil prices, but gains were limited by a stronger dollar. Spot gold edged up 0.1% to $1,070.05 an ounce in thin trading.

The precious metal is still on course for its third year of losses, pressured by the prospect for more rate hikes in the US. It is likely to end the year nearly 10% lower from the previous year, mainly due to expectations that higher US interest rates will hit demand for gold.

ABN Amro analyst Georgette Boele said:

Gold’s down trend is likely to continue throughout 2016…. there are going to be more US rate hikes than the market is anticipating the next year.”

Brent crude is nearly 3% higher, rising more than a dollar to $37.70, after hitting 11-year lows.

Here is Connor Campbell again, financial analyst at Spreadex:

A slightly better than expected goods trade deficit (at $60.5bn against the $60.9bn anticipated, but still greater than last month’s $58.4bn) and a much better than forecast CB consumer confidence figure helped the Dow Jones open at, and maintain, a 170 point jump this Tuesday. That leaves the US index at a 12 day high, and with a slim chance of edging into the green in terms of year-long growth before the end of trading on Thursday.

This has given a further boost to eurozone stocks, already buoyant on the rising oil price. Germany’s Dax is nearly 180 points, or 1.66%, ahead, while France’s CAC has gained almost 70 points, or 1.45%.

The FTSE 100 index in London is some 33 points ahead, or 0.5%.

Campbell says:

The FTSE likely would have been higher if wasn’t for the gains made by its housing sector being effectively negated by the Scrooge-like commodity stocks and a renewed slide from the supermarket sector. News that the sale of its pharmacy business to Celesio would be undergoing an in-depth investigation, as ordered by the CMA, caused a specific headache for Sainsbury’s [down 1.2%].

More generally, news that Amazon intends to substantially expand its grocery delivery service Pantry in the New Year caused the likes of Tesco and Morrisons to tumble, with the online-only Ocado Group [plunging more than 4%] especially spooked by the announcement.”

Here is our story on Amazon.

Adam Button, currency analyst at Forex Live, says about the rise in US consumer confidence:

It’s strong but still well below where it was in September. The revision to the November reading meant it was the worst since July, not the worst since Sept 2014.”

Stocks on Wall Street are extending gains on the better-than-expected US confidence numbers, with the Nasdaq and the Dow Jones up around 1% and the S&P 500 0.8% ahead.

Lynn Franco, director of economic indicators at the Conference Board, said:

Consumer confidence improved in December, following a moderate decrease in November. As 2015 draws to a close, consumers’ assessment of the current state of the economy remains positive, particularly their assessment of the job market.

Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market. Expectations regarding their financial outlook are mixed, but the optimists continue to outweigh the pessimists.”

The monthly survey is conducted for the Conference Board by Nielsen. The cutoff date for the preliminary results was 15 December.

You can read the full consumer confidence report here.

US confidence improves

The latest US consumer confidence numbers are out. The Conference Board consumer confidence index improved to 96.5 in December, from a revised 92.6 in November, beating expectations of a reading of 93.5.

Updated

Barclays Capital agrees $13.75m US settlement over mutual funds

Staying on the other side of the Atlantic for the moment, the US regulator FINRA has settled with Barclays Capital over mutual funds. The Financial Industry Regulatory Authority has ordered Barclays Capital to pay $13.75m for unsuitable mutual fund transactions and related supervisory failures.

The British bank’s investment banking arm will have to pay more than $10m in compensation, including interest, to affected customers, and has been fined a further $3.75m by the regulator. It said in a statement:

FINRA found that from January 2010 through June 2015, Barclays’ supervisory systems were not sufficient to prevent unsuitable switching or to meet certain of the firm’s obligations regarding the sale of mutual funds to retail brokerage customers….

In concluding this settlement, Barclays neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”

You can read the statement in full here.

Updated

Wall Street opens higher

Shortly after the opening bell on Wall Street, shares are higher, mirroring a rally in oil prices.

The tech-heavy Nasdaq index is up 0.7%, the Dow Jones industrial average is up 0.9% and the S&P 500 has added 0.8%.

In the UK, the FTSE 100 is up 0.6% while Brent crude is up 2% at $37.4, creeping further asway from an 11-year low hit last week.

US house price inflation edges up

Homes for sale

Figures just out in the US suggest home prices there rose at a slightly faster pace in October compared with September and a touch above economists’ forecasts.

The S&P/Case Shiller index of 20 metropolitan areas rose 5.5% on a year earlier in October. That was faster than 5.4% inflation for single-family home prices in September and beat the forecast for 5.4% in a Reuters poll of economists.

The survey authors said San Francisco, Denver and Portland continue to report the highest year-over-year gains among the 20 cities with another month of double-digit price increases of 10.9% for all three.

Commenting on the latest report [PDF], David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices says:

“Generally good economic conditions continue to support gains in home prices.

“Among the positive factors are consumers’ expectations of low inflation and further economic growth as well as recent increases in residential construction including single family housing starts.”

He also highlights the impact on sentiment among potential homebuyers from the US central bank’s move to raise interest rates earlier this month – the first increase for almost a decade:

“The recent action by the Federal Reserve raising the Fed funds target rate by 25 basis points and spreading expectations of further increases during 2016 are leading some to wonder if mortgage interest rate might rise. Typically, increases in short term interest rates lead to smaller increases in long term interest rates … From May 2004 to July 2007, the Fed funds rate moved up from 1.0% to 5.25%; over the same period, the mortgage rate rose from about 6% to 6.75% during a sustained tightening effort by the Federal Reserve. The latest economic projections published by the Fed following the recent rate increase suggest that the Fed funds rate will be around 2.6% in September 2017 compared to a current rate of about 0.5%. These data suggest that potential home buyers need not fear runaway mortgage interest rates.”

US mortgage rates and the Fed funds rate

Competition watchdog to probe Sainsbury’s pharmacy sale

Tablets

The Competition and Markets Authority (CMA) in the UK has confirmed it is referring the sale of Sainsbury’s pharmacy business for an in-depth investigation.

In a statement, the CMA says the proposed acquistion of the business by Celesio, the owner of Lloyds Pharmacy, will be probed further after Celesio had failed to address the watchdog’s concerns about competition being affected.

The CMA says:

The CMA’s initial investigation identified 78 local areas where customers may be affected by a loss of competition between Lloyds Pharmacy (a Celesio subsidiary) and Sainsbury’s pharmacies. The CMA also indicated that in other local areas it had been unable to reach a positive conclusion on whether the merger gives rise to a realistic prospect of a substantial lessening of competition.

Celesio has not offered any undertakings in lieu and the CMA will therefore now refer the merger.

A decision on the merger will be made by a group of independent panel members supported by a case team of CMA staff. The deadline for the final report will be 13 June 2016.

Sainsbury’s announced back in July that it had sold its 281-store pharmacy business to Celesio for £125m.

Under the deal, Lloyds will rent out and run Sainsbury’s 277 in-store pharmacies and take over four located in hospitals.

More pressure on Britain’s big supermarkets

Groceries

The focus will be firmly on retailers’ shares in coming days as the trading updates from the crucial Christmas season roll in.

We already know Britain’s supermarkets have been struggling as shopping habits change and as discounters like Lidl and Aldi take market share and intensify a fierce price war. Now Amazon is preparing to crank up the pressure on grocers by dramatically expanding the range of food products it sells.

My colleague Graham Ruddick has been talking to Christopher North, UK boss of the online retailer. North says Amazon plans to expand its Pantry service rapidly in the new year.

Here’s the full story:

Markets edge up, Wall St looks to open higher

On Wall Street the US futures market is pointing to a higher open, helped by a modest rise in oil prices, traders say.

In the UK, the FTSE 100 is up 0.4%, or 24 points, at 6278. Housebuilders are among the biggest risers while the miners again feature among the biggest fallers as aluminium and copper prices head lower.

Connor Campbell, analyst at spread betting company Spreadex highlights that the FTSE is underperforming its European peers:

“Whilst thin(ish) trading volumes appear to be enhancing whatever nascent positive sentiment there is in the eurozone, allowing the DAX and CAC to stretch out their legs to hit fresh 20-day highs, the FTSE hasn’t been so lucky this Tuesday morning.

“Despite a strong set of housing stocks (Persimmon and Berkeley Group leading the charge), lifted by both news of record high UK prices and the potential windfall from the cost of rebuilding and repairing the numerous homes damaged in the northern floods, and a stable oil price, the UK index is struggling to match its Eurozone peers, hampered by a still grumpy mining sector. There are no real signs that the latter issue could turn around this afternoon… As ever those same commodity stocks that have plagued the FTSE throughout 2015 are trying to ensure it ends the year not with a bang but a whimper.”

Saudi stocks hit after oil plunge swells deficit

Aramco Oil Refinery in Saudi Arabia.

Aramco Oil Refinery in Saudi Arabia. Photograph: MyLoupe/UIG via Getty Images

The plunge in oil prices this year has taken its toll on Saudi Arabia’s state coffers and today the fallout is being fell in its stock market.

Late on Monday, Saudi Arabia announced plans to cut government spending and reform its finances after the drop in oil prices resulted in a record annual budget deficit of nearly $98bn (£66bn).

The the world’s top crude exporter ran a deficit of 367bn riyals ($97.9bn) in 2015, or 15% of gross domestic product, officials said.

Today, the Saudi stock index dropped 3% in early trading and is currently down around 1.5% as traders digest the prospect of spending cuts and tax rises in the biggest shake-up to economic policy there for more than a decade. The finance ministry is also changing subsidies for water, electricity and petroleum products over the next five years.

Saudi Arabia’s stock index:

Saudi Arabia's stock market

Brent crude is still just about eking out some gains today after Monday’s sell-off. It is currently up around 0.3% or 0.1 cents to $36.7 per barrel. It is not far off an 11-year low of $35.98 hit last week.

There are signs that the global glut of oil will deepen in 2016 as a market already awash with oil from the two biggest suppliers – Saudi Arabia and Russia – receives additional supply from the lifting of sanctions against Iran and the ending of a 40-year US export ban.

Time for a quiz?

A turkey sandwich with cranberry sauce.

A turkey sandwich with cranberry sauce. Photograph: Graham Turner for the Guardian

Trading volumes are particularly thin on European markets today and it seems many (sensible) people have taken a few days off between Christmas and the New Year. For those who are in the office today, dare we suggest the holiday lull might offer a chance to take an end of year quiz or two while you tuck into your turkey sandwiches.

We’ll keep it strictly business-related:

There is, of course, our own very broad business quiz covering (almost) everything from Cadbury’s Fruit and Nut bars to Libor-rigging and Greece’s brush with Grexit:

If central banks are your thing, this is from Bank Underground, a blog for Bank of England staff:

Deloitte’s chief economist, Ian Stewart, set the quiz for newspaper City AM. The questions are notably offbeat, including one on the world’s “most sleep-friendly airport”:

The BBC’s business team has put together these 10 questions, including some typically flowery Yanis Varoufakis quotes:

New floods threaten the UK with Storm Frank on the way and as we reported earlier, estimates of the costs so far are already in the billions.

For live coverage of the flooding and its fallout, you can follow our blog here:

While accountants have sought to put a figure on the cost of damage so far, economists note that counting up the economic impact overall is a very tricky task.

Howard Archer, economist at the consultancy IHS Global Insight, sends through these comments explaining that damage from extreme weather can dent some spending in the short term but then boost other areas of spending, notably repair work, further out:

https://twitter.com/HowardArcherUK/status/681082677676621824

“In purely economic/GDP costs, the net overall impact of the floods will be limited. There will be some near-term hit to the economy (but even this will be relatively limited given the overall size of the economy) but this will be offset by some gains further out). But this will not tell the whole story by a long way – especially for the poor individual people and businesses that are affected.

“Looking at the extent of the flooding, it could well shave 0.2-0.25 percentage point off GDP growth in the near term. As the flooding is occurring late on in the fourth quarter, some of this negative impact is likely to occur in the first quarter of 2016.

“This is the consequence of businesses not being able to open, loss of agricultural output, people not being able to get to the shops, travel etc. There is also the cost to insurance companies. There is also the loss of work from those people not actually able to get to work.

“However, damage to personal property does not affect GDP growth, although it is obviously a disaster for the poor people involved. And GDP measures do not capture the stress that the people/businesses affected incur.

“Further out there will be some boost to GDP growth through the construction work that will be generated by major repair work to buildings and infrastructure and replacement buildings. There will also be a positive impact to growth coming from the replacement purchases of furnishings, household goods etc lost or damaged during the flooding.

“The boost to growth from the construction work and replacement purchases will be spread out, but some will likely start occurring in the first quarter of 2016 which will at least partly offset the hit to activity at the start of the quarter.”

New record for UK house prices

  • The prospect of stamp duty changes in April has prompted a rush into the UK property market from buy-to-let investors and helped lift the average UK house price above £230,000 mark for first time, according to one estate agent chain today.
  • Haart, the UK’s largest independent estate agent, says the average UK house price was up 3.7% in a month and 13.4% on the year to reach £231,857 in November.
  • London property prices saw the fastest monthly increase for six months, up 3.4% to £525,780.
  • Overall, the number of new buyers rose 7.5% on a year earlier. There were signs, however, that the buy-to-let rush and related price rises were deterring first-time buyers from the housing market. The number of first-time buyers declined 7% on the month, haart said, using figures from some 100 branches around the UK.

Its chief executive Paul Smith comments:

“UK house prices rose 13.4% annually and 3.7% on the month to break records again in November. This is the steepest monthly and annual increase on record and follows a surge in registrations from buy-to-let investors since the Autumn Statement in anticipation of the 3% stamp duty surcharge which is effective from the 1st of April 2016. This could mean the stamp duty payable on a property worth £275,000 could rise from £3,750 to £12,000.

“Although first-time buyer house prices have remained relatively stable, up just 1.1% in the last month, I expect these to shoot up over the coming months as first-time buyers face fierce competition from buy-to-let investors. The pressure is already being felt by many with demand among first-time-buyers already down 7% in the last month alone. While first-time buyers may face a tough couple of months, once the stamp duty changes come into effect in April, demand from buy-to-let investors is likely to recede so we should see a recovery in prices at this level.”

Deutsche Bank shares are up this morning after news it is selling its 20% stake in Beijing’s Hua Xia Bank, making it the latest Western business to pare back its links to China.

As Reuters reports, Deutsche is selling the stake to Chinese insurer PICC Property and Casualty Co in a deal worth up to $4bn (£2.69bn).

It is the latest move in the German bank’s drastic restructuring by new chief executive, John Cryan.

Shares in Deutsche are up 2.4% while the wider German Dax index is up 1.6%.

High street banks.

As Britain’s big banks carry on with long task of patching up their reputations, they have new report cards to pore over from the body set up to improve standards in the wake of the Libor-rigging crisis.

Dame Colette Bowe, chair of the Banking Standards Board (BSB), has likened the assessments of the behaviour and culture inside the major banks to the reports delivered by auditors, which are signed off by the partner at the accountancy firm which has assessed their books and is included in their annual reports. The BSB will publish its own annual report in the spring.

The first such set of report cards have been sent to the founder members: Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander and Standard Chartered and Nationwide Building Society.

There is also talk of making bankers swear an hippocratic oath in the way that doctors do but that seems to be some way off.

My colleagues Jill Treanor and Larry Elliott have the full story:

Fitness trackers

Fitness trackers Photograph: Katherine Anne Rose for the Observer

It looks like it was a very merry Christmas for Fitbit, the US-listed maker of wearable health monitors. Reports that its app topped download charts on 25 December suggest plenty of people were unwrapping new gadgets from the firm on Christmas day and that helped lift its shares on Monday. They closed up 3.3%.

Back in November, Fitbit reported a 168% surge in revenues in its third-quarter earnings report.

In the UK, department store chain John Lewis recently highlighted Fitbits as it reported record Black Friday sales. Overall sales of wearable technology such as fitness monitors up 850%. Sales of Fitbit trackers were up 1,200%.

Puts a whole new spin on new year’s healthy living resolutions when your wristband can tell you when you are cheating…

Markets update: Oil steadies, FTSE bobs around unchanged mark

After its little Christmas break the FTSE 100 has re-opened this morning and struggling to find some direction. The bluechip index of London-listed shares is up around 8 points, that’s just 0.1%, at 6263.

That is down around 5% from where the index started 2015 at 6,566. With a sharp sell-off in global commodities, from copper to oil, providing much of the FTSE’s direction this year, it had climbed to a 2015 high of 7122.7 on 27 April but hit a low for 2015 of 5768.2 on 24 August. The index’s average level for the year is 6,592.6, according to Thomson Reuters.

Here’s how the FTSE looks for the year:

The FTSE 100 in 2015

The FTSE 100 in 2015 Photograph: Thomson Reuters

Oil prices meanwhile look set for further falls after already plunging this year. Brent crude shed another 1.3% on Monday but this morning the price per barrel has edged back up 0.5% to $36.8 with traders citing colder temperatures in Europe as boosting demand prospects.

Brent crude in 2015:

Brent crude in 2015

Brent crude in 2015 Photograph: Thomson Reuters

Elsewhere, Asian stock markets edged up overnight on the steadier oil price, there is a small boost to European stock markets from firmer financial stocks this morning and copper prices are falling again.

Introduction: Floods impact, FTSE re-opens

Good morning and welcome back to our live blog covering financial markets and business and economics news from around the UK and the world.

As the north of England and Scotland brace for the arrival of yet another storm later, towns, households and businesses are counting the cost of the flood damage so far.

The morning newspapers put varying figures on the devastation, citing estimates from insurers, accountants and economists.

Here is our own main story overnight that the cost of the winter floods across the UK will breach £5bn, with about a fifth of the bill falling on those with inadequate or non-existent insurance policies.

That’s according to accountants at KPMG, who warn the insurance policies of many of the worst hit would not cover the full losses. Here’s the full story:

As pressure mounts on the UK government over its spending on flood defences, the Mirror condemns a “£6bn Floods Shambles”:

The i newspaper goes with the £5bn figure and like others, highlights pressure on prime minister David Cameron:

We’ll be following updates on the expected economic impact of the storms throughout the day.

Also on the agenda, the FTSE 100 re-opens after the Christmas break and it is looking like the bluechip index will end the year pretty close to where it started it, after gains in the first half were wiped out by losses for heavyweight commodity-related stocks since the summer. The FTSE 100 has just opened up 0.1%.

After some choppy trading sessions for global oil prices, Brent Crude is fairly flat this morning, at $36.7, and its movements today will again be providing some direction to stock markets. It’s worth keeping in mind that thin holiday trading could make for some volatile moves.

We will also be keeping an eye out for updates from retailers as they tot up takings from the all-important Christmas shopping and sales season.

In the US later there are a handful economic releases: November’s trade balance (at 1.30pm GMT), October home prices from Standard & Poor’s/Case-Shiller (at 2pm GMT) and consumer confidence figures from the Conference Board (at 3pm GMT).

Updated

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Lagarde says she wants Britain to stay in the EU as IMF publishes upbeat assessment of UK economy. Stock markets are down for seventh trading day, with oil prices near seven-year lows. All eyes on the Fed interest rate decision in the week ahead…

 

Powered by Guardian.co.ukThis article titled “Markets tumble as oil falls; IMF chief Lagarde highlights Brexit risk – live” was written by Julia Kollewe (until 2.00) and Nick Fletcher, for theguardian.com on Friday 11th December 2015 16.11 UTC

There is a chance the current market slump could persuade the US Federal Reserve not to raise rates next week, suggests Chris Beauchamp, senior market analyst at IG, but this would undoubtedly damage the central bank’s credibility. He said:

Once again China concerns have spiked just as a Fed rate decision looms. Continued yuan devaluation has been the main driver this time, but it has combined with the ongoing rout in oil and other commodity prices to produce a week of losses for equities.

Just a week ago the situation had seemed relatively calm, but it now appears that many investors have been trying to put a brave face on the situation. Now that mask has slipped.

It goes without saying that the Fed is not meant to take notice of market turmoil in its decisions, but if it feels that the international situation once again calls for it to stay its hand next week, then we could be witnessing a re-run of September. Leaving aside the damage that this will do to the Fed’s credibility (potentially putting Janet Yellen into the ‘unreliable partner’ category currently only occupied by Mark Carney), it will be hard for the central bank to put a positive spin on any decision not to increase rates.

Seasonality suggests the Santa rally will finally start to kick in from next week, but the strength and duration of that depends largely on Janet Yellen. She has a big week ahead of her.

Here’s our economics editor Larry Elliott’s report on the market declines:

A week of turmoil on the world’s financial markets has ended on a downbeat note after a fresh plunge in oil prices triggered sharp stock market falls.

Amid fears that a glut in crude oil will persist for another 12 months, the cost of a barrel of benchmark Brent crude slid by more than 2% on Friday to trade at just under $39 a barrel – its lowest for almost seven years.

In London, the FTSE 100 index crashed through the 6,000 barrier, and was down by more than 100 points in early afternoon trading.

The gloomy mood in the City was echoed on Wall Street, where the Dow Jones industrial average opened more than 250 points lower. Mining shares were among the hardest hit as stock exchanges fell for the seventh day in a row.

Stock markets have been affected by renewed weakness in the price of oil caused by fears that global demand is insufficient to soak up the supply of crude from oil producing countries.

The International Energy Agency, which advises developed states on energy policies, said the glut was likely to continue. “World oil markets will remain oversupplied at least until late 2016 … although the pace of global stock builds should roughly halve next year, ” the IEA said in its monthly report.

Full story here:

Updated

The rout on stock markets could get worse, certainly as far as the FTSE 100 is concerned, says analyst Connor Campbell at Spreadex:

[This is] the first time the UK index has been below 6000 since the end of September and marks the end of one of the worst weeks for the commodity-laden index in an already trouble-filled 2015. What is worrying is that this weekend brings with it the latest Chinese industrial production data, the kind of figure that, if it underperforms expectations, may only help escalate this current commodity collapse.

US consumer confidence has come in slightly lower than expected in the preliminary data for December, but still increased from last month’s figure.

The University of Michigan consumer sentiment index rose from 91.3 in November to 91.8 so far this month. This was below the 92 figure expected by economists.

Wall Street opens sharply lower

US shares have followed other global markets lower in early trading on Wall Street, and the commodity crunch continues to unnerve investors.

With oil tumbling again – Brent crude is currently down nearly 2% to $38.99 a barrel after the International Energy Agency warned of oversupply until at least the end of next shares – shares are following suit.

The Dow Jones Industrial Average is down 223 points or 1.27% while the FTSE 100 has fallen 1.9% to 5972, its lowest since late September. Shares with connections to South Africa are among the fallers in London following the departure of the country’s finance minister earlier in the week, while mining shares continue to be weak amid concerns about falling demand from China.

Investors are also remaining cautious ahead of the probable US interest rate hike next week

VW sales down 4.5% on a year so

The effects of the emissions scandal on Volkswagen sales are shown by new sales figures from the company.

So far this year – from January to November – the company has sold 5.34m passenger cars, down 4.5% on the same period last year.

The fall in November was 2.4% compared to the same month in 2014. Board member Jürgen Stackmann said the current trend was expected to continue for the rest of the year:

Developments in world markets, which are in some cases tense, and their effects on the Volkswagen Passenger Cars brand will continue until the end of the year…

In view of the situation of the brand, which is currently challenging, I do not expect that we will be able to compensate for this fall in the remaining days of the year.

Last VW sold 6.12 million cars across the world.

VW sales
VW sales Photograph: VW

As far as the emissions scandal was concerned, Stackmann said that the main focus was on solutions which were as customer-friendly as possible. The implementation of the measures is to start in January and will probably continue throughout 2016. “For our customers, we want to keep the time needed to implement the technical measures as short as possible. Via our dealers, we will be contacting each of our customers and will do everything in our power to take individual customers’ needs into consideration in the implementation of the technical measures in order to avoid any disadvantages such as possible mobility restrictions.”

On Thursday VW said the scandal was the result of a collection of failures within the company.

Despite the US retail sales making a rate rise from the Federal Reserve next week even more likely, the underlying trend may be weakening, according to Chris Williamson, chief economist at Markit. He said:

Core retail sales, which strip out volatile spending on cars and fuel, as well as building and food services, rose 0.6% to register the largest monthly increase since May. Overall retail sales rose 0.2% in November, missing expectations of a slightly stronger 0.3% rise but nevertheless signalling the best increase since July.

The data will no doubt be seen as further encouragement to policymakers who have already signalled their intent to hike interest rates next week for the first time in nine years. However, the data also suggest that the underlying spending trend could be waning, which adds to the view that spending is not galloping away and the Fed will need to be cautious in timing future hikes, pointing to a gently rate trajectory path.

The 0.7% rise in sales so far on the fourth quarter compares with a 1.1% rise in the third quarter and a 1.2% increase in the second quarter. In fact, barring the weather-torn first quarter, core sales growth is on course to be the weakest for almost two years. Markit’s PMI data also show a deteriorating trend in new orders at factories that produce consumer goods, suggesting retailers are buying few goods from wholesalers, most likely due to weaker than expected sales.

While consumer have benefitted from low inflation and falling fuel prices, the prospect of higher interest rates may be starting to have an impact on people’s propensity to spend.

US retail sales
US retail sales Photograph: Ecowin

ING economist Rob Carnell said the US retail sales numbers were “better than good enough for a December rate hike”.

Markets are already pricing in a very high chance of a hike at next week’s meeting, so we anticipate that impacts on the dollar, and bond yields will be minor, even though the result was on balance a little better than expected.

But it was given an extra nudge in the same direction by slightly stronger November producer price data, perhaps an indicator of what we might expect at next week’s consumer price index release too.”

Producer price figures, also out just now, showed a 0.3% gain in November after a 0.4% decline in October, as the cost of services increased. They were stronger than expected, and the dollar rose on both sets of figures.

Updated

Overall retail sales increased only 0.2%, with automobile sales down and cheaper petrol also having an impact.

Clothing retailers reported 0.8% sales growth, the biggest increase since May, as did sports and hobby stores. Sales at online retailers, and at electronics and appliance chains, were up 0.6%.

US retail sales stronger than expected

The holiday shopping season got off to a good start in the US. Retail sales excluding automobiles, gasoline, building materials and food services rose 0.6% in November from the month before, more than expected. In October, core retail sales rose by 0.2%, according to the Commerce Department.

Consumer spending surprisingly slowed in September and October. The latest figures will bolster expectations of a Fed rate hike next Wednesday.

Shares in the UK and Europe have fallen further.

FTSE 100 index down 1.3% at 6008.18

Dax down 1.9% at 10,398.46

CAC down 1.5% at 4563.56

US retail sales figures are due shortly.

Tesco UK personnel director quits

Tesco has just announced that its UK personnel director Judith Nelson has left the supermarket chain, the second veteran director to resign this week.

Nelson quit after 22 years at the retailer. She will be replaced by Natasha Adams, the business support director. Nelson’s departure comes after the resignation of Jill Easterbrook, the group business transformation director, on Monday.

Tesco’s woes continue to deepen. Its shares hit an 18-year low this week as investors fretted about the strength of its Christmas trading. In October, Britain’s biggest retailer posted a 55% fall in first-half pretax profits.

Here is our full story on the IMF.

Osborne was delighted with the IMF’s latest assessment of the UK, saying it “could hardly be more positive”. Using one of his favourite catchphrases, he said:

I take this as an endorsement of our plan to fix the roof while the sun is shining.”

Updated

My colleagues on the economics desk Larry Elliott and Katie Allen, who are at the Treasury, write:

IMF managing director Christine Lagarde said she wanted Britain to stay in the European Union as the Washington-based organisation highlighted a looming Brexit referendum as a risk to the strongly performing UK economy.

In an upbeat assessment, the Fund said the UK was enjoying strong growth, record employment and had largely repaired damage from the global financial crisis.

Presenting the IMF’s annual healthcheck of the UK economy alongside chancellor George Osborne, Lagarde said there were risks to the outlook, including from the housing market, but she was generally positive.

“The UK authorities have managed to repair the damage of the crisis in a way few other countries have been able to do,” she said.

Lagarde said the IMF will work through various scenarios for the EU referendum outcome in its next assessment of the UK due in May 2016. But she added: “On a personal basis… I am very very much hopeful that the UK stays within the EU.”

The fund called on the Bank of England to keep interest rates at their record low of 0.5% until signs of stronger inflationary pressures emerge.

It suggested property tax reform to the government to ease Britain’s chronic housing shortage.

For example, rebalancing taxation away from transactions and towards property values could boost mobility and facilitate more efficient use of the housing stock. Reducing council tax discounts for single-occupant properties could also increase the utilization of these properties.”

The IMF praised George Osborne’s envisaged path to deficit reduction as “smoother” than at this time last year. The fund says:

The autumn statement appropriately targets steady declines in the deficit and the achievement of a small surplus by 2019/20.

However, it warned the chancellor:

In the event of an extended period of sluggish demand growth, the flexibility in the fiscal framework should be used to modify the pace of structural adjustment.

In addition, the envisaged reductions in some categories of expenditure remain sizable, and the government may need to show flexibility in finding alternative fiscal measures if anticipated efficiency gains fail to materialize.”

IMF: UK’s economic performance strong, but highlights risks

Here is the IMF’s latest assessment on the UK economy. The Washington-based fund concludes that

The UK’s recent economic performance has been strong, and considerable progress has been achieved in addressing underlying vulnerabilities.

Steady growth looks likely to continue over the next few years, and inflation should gradually return to target.”

However, the IMF highlights several risks, namely

  • Housing market: It says that while house price growth has eased somewhat over the past year, it remains high. The share of households borrowing at high loan to income multiples has come down, but after initial declines the household debt to income ratio has stabilised at a high level, “leaving some households vulnerable to income and interest rate shocks”
  • The current account deficit is “strikingly large”. “Confidence shocks could reduce external capital flows into the UK, which could adversely affect growth”
  • The 2014/15 fiscal deficit was nearly 5% of GDP, with government debt at 87% of GDP. “While the UK continues to benefit from record low interest rates, maintaining deficits and debts at these levels would constrain the space to respond proactively to future large negative growth shocks.”
  • Productivity growth: the expected pick-up to nearer its historical average rate “may fail to materialise”.
  • Uncertainty over the planned referendum on EU membership

Here’s our full story on Sports Direct. Sports Direct shares have fallen for a second day after the Guardian’s investigation into its pay and working conditions and poor financial results, my colleague Nick Fletcher writes. This has wiped millions of pounds more off the value of the company and founder Mike Ashley’s stake.

Newcastle United owner Mike Ashley is seen at St James’ Park in Newcastle, Britain in this November 24, 2015.
Newcastle United owner Mike Ashley is seen at St James’ Park in Newcastle, Britain in this November 24, 2015. Photograph: Lee Smith/Reuters

Chris Williamson, chief economist at industry survey compiler Markit, says:

The October upturn goes some way to bringing the recent official data more into line with the Markit/CIPS PMI data, which have shown the construction sector enjoying a good year so far in 2015, albeit with the rate of expansion cooling in recent months, led by a slowing of house building.

The official construction data are notoriously volatile and prone to revision, so we treat the numbers with due caution.”

UK construction output
UK construction output Photograph: ONS/Markit

UK construction output weaker than expected

Meanwhile, the official UK construction figures for October were weaker than expected. Output rose by 0.2% from September, far less than the 1% increase City analysts had predicted.

Britain’s construction industry accounts for 6% of total economic output and was a drag on growth in the third quarter, when the economy was powered entirely by the services sector.

The Office for National Statistics revised up its estimate for construction output in the third quarter to show a drop of 1.9% compared with a 2.2% fall previously, but this will have little impact on the overall GDP numbers.

More worryingly, housebuilding has been revised lower to show a quarterly decline of 5.6% in the third quarter – its biggest drop since early 2009.

UK housebuilder Bellway has seen its shares jump 4.3%, making it the best performer on the FTSE 250 index, after the company said it would build 10% more homes in the year to 31 July. Broker Peel Hunt raised its target price on the shares to £28.90 from £28.20. Numis raised its target price to £28.60.

IEA sees oil glut worsening in coming months

Back to oil prices: the International Energy Agency sees the oil glut worsening in coming months as demand growth slows. It is predicting that global oil markets will remain oversupplied until at least the end of next year.

Additional output from Iran when/if western sanctions on the country are removed will put more oil on the market. Oil prices have fallen to near seven-year lows, below $40 a barrel, this week after the oil cartel OPEC failed to cap its output.

The IEA, which advises developed nations on energy policies, said in its monthly report:

World oil markets will remain oversupplied at least until late 2016… although the pace of global stock builds should roughly halve next year.”

Banks including Goldman Sachs believe oil prices could fall to as low as $20 a barrel, as the world might run out of capacity to store unused oil. But the IEA said:

As extra Iranian oil hits the market, inventories are expected to swell by 300m barrels. Concerns about reaching storage capacity appear to be overblown.

Much of the excess oil will be soaked up by 230m barrels of new storage capacity additions, while US inventories are only 70% full. As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market.”

Joint house brokers Citigroup and Goldman Sachs have both cut their target price on Sports Direct shares.

Citigroup cut its target price to 800p from 900p, while Goldman Sachs went to 725p from 850p, as reported earlier.

Sports Direct shares are now down 3.2% at 573.6p, making it the second-biggest faller on the FTSE 100 index, and wiping more than £100m off the company’s market value. Founder Mike Ashley, who owns a 55% stake in the retailer, took a further £54m hit, following his £237m loss on Thursday.

Updated

The stock market as a whole is down in London, by 0.5%. Elsewhere in Europe, shares have fallen near two-month lows on the pan-European FTSEurofirst 300 index, which has lost 0.7%. Stock markets are falling for the seventh day in a row.

Weak commodity prices, in particular oil, are putting pressure on markets ahead of the US Federal Reserve’s meeting next Wednesday when it is widely expected to hike interest rates.

Updated

Bubb added:

When we got to the presentation room [yesterday] there was no sign of Mike Ashley! Last time the great man was himself late arriving, after a late night session with his property adviser, but he did eventually turn up to delight analysts with his views on online retailing and Europe.

This time he seemed to be keeping a low-profile, for perhaps understandable reasons, given the recent bad press, although he apparently was in London for investor meetings later in the day.

In Ashley’s absence, the managing director Dave Forsey, along with the new finance director Matt Pearson, tried to explain the weak first-half sales performance.

Amazingly, he insisted that even though H1 retail sales were only up by 2.5% on a constant currency basis, UK store LFL sales had been “positive”, despite an increase in UK selling space of over 10%…but that could only be true if new UK store space has been remarkably unproductive and Europe has been remarkably weak, notably Austria, and if there has been much slower Online growth (down from +14% to +7%, in fact).

Asked about the success of rival JD Sports, he envied their ability to get the best new ranges from the branded suppliers…Asked about the lack of more acquisitions in the pipeline, he said that it’s hard to do deals because people know that Sports Direct is a buyer and the asking prices are too high…Asked about the disastrous experience in Austria, he refused to break out the performance, but tried to point people to the much more successful Baltics acquisition.”

Sports Direct Derby
Sports Direct Derby Photograph: Alamy

Updated

Independent City analyst Nick Bubb said this morning:

Well, the poor PR about Sports Direct’s corporate ethics and governance isn’t helping their cause, but the main reason for the slump in the share price yesterday was concern about weak UK sales and the problems with the recent acquisition in Austria…”

Sports Direct shares fall 3.1% after Goldman Sachs target price cut

Shares in Sports Direct, the retail chain controlled by the billionaire Mike Ashley, have fallen another 3.1% this morning, after Goldman Sachs cut its target price on the stock.

The shares tumbled 11% on Thursday, wiping more than £400m off the market value of Britain’s biggest sportswear retailer. City investors and MPs turned on the company following disappointing financial results and revelations over pay and working conditions unearthed by a Guardian investigation.

Updated

UK transport secretary Patrick McLoughlin has been on BBC Radio 4 defending the government’s postponement of its decision on whether to allow a third runway at Heathrow airport until next summer, over environmental concerns.

Pressed why the government wasn’t making a decision by the end of the year as promised, McLoughlin said that a decision had been made – of sorts.

We’ve come to the conclusion that extra airport capacity is needed.”

He said the Airports Commission had looked at 52 different options and three were deemed workable. While the commission’s report recommended a third runway at Heathrow, “it said all three options are viable options,” he noted.

The transport secretary said that with regard to air quality, the changes since the report was published needed to be taken into account.

Gatwick is still on the table. There could be a second runway at Gatwick.”

He added that a decision would be made “hopefully in the summer of next year” and this “would still allow us to get extra capacity by 2030.”

An aircraft flies over residential houses in Hounslow as it prepares to land at London Heathrow airport.
An aircraft flies over residential houses in Hounslow as it prepares to land at London Heathrow airport. Photograph: Leon Neal/AFP/Getty Images

Our political correspondent Rowena Mason wrote:

Although the delay was widely expected, Cameron immediately faced fury from business groups and accusations from Labour that he had ducked a difficult decision on infrastructure to help the chances of Zac Goldsmith, the Tory London mayoral candidate, who is a fierce opponent of Heathrow expansion.

Updated

UK and European stocks have opened lower, as expected:

  • FTSE 100 index down 0.2% to 6073.1
  • Germany’s Dax down 0.2%
  • France’s CAC down 0.5%
  • Italy’s FTSE MiB down 0.3%
  • Spain’s Ibex down 0.2%

Crude oil prices are hovering near levels not seen since early 2009, with Brent crude at $39.65 a barrel (after falling to $39.38 earlier) and US crude at $36.65 a barrel.

Richard Gorry, director of consultancy JBC Energy Asia, told Reuters:

Can you rule out $20 per barrel? No, you can’t.”

An oil pump works at sunset Monday, Dec.7, 2015, in the desert oil fields of Sakhir, Bahrain.
An oil pump works at sunset Monday, Dec.7, 2015, in the desert oil fields of Sakhir, Bahrain. Photograph: Hasan Jamali/AP

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

The head of the International Monetary Fund, Christine Lagarde, is in London and due to meet the UK chancellor, George Osborne, to present the fund’s latest assessment of the British economy (the concluding statement of the regular Article IV consultation). It will be released at 11.30 GMT.

Stock markets in the UK and Europe are set for another weak start to the day, with oil prices still weak and the Chinese yuan at four and a half year lows.

OPEC’s monthly report published on Thursday predicted a fall in oil supply from non-OPEC countries next year coupled with an increase in global demand that should underpin prices. The market however was more focused on the short term fact that oil production from OPEC itself hit the highest level in three years in November.

Jasper Lawler, market analyst at CMC Markets UK, says

The near-term outlook for the stock market looks a lot less rosy while oil prices are tanking. Oil prices fell 40% after OPEC’s meeting in November last year, a similar decline this time would mean Brent crude at $25 per barrel.

An additional cause for concern over the drop in crude this time is that it may cause a policy error by the Federal Reserve. The Fed looks set to raise interest rates at a time when a fall in the oil prices means inflation could be about to take another leg lower. The Bank of England just highlighted exactly this same risk factor in its meeting minutes.”

The main data releases today are UK construction figures at 9.30am GMT and US retail sales at 1.30pm GMT.

Lawler says

The US retail sales report is the penultimate piece of data that could derail a Fed rate hike with CPI [inflation] released next week. Expectations are for a rise of 0.2% in November up from 0.1% in October with sales ex-autos to rise 0.3%, up from 0.2%.

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Investors believe Mario Draghi could impose deeper negative interest rates and unleash more QE tomorrow. UK construction growth hits seven-month low. Latest: eurozone inflation just 0.1%. Citi predicts big moves from Draghi tomorrow…

Powered by Guardian.co.ukThis article titled “Euro weakens as eurozone inflation boosts stimulus hopes – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 2nd December 2015 17.01 UTC

After a fairly undramatic day, London’s stock market has closed higher:

In 24 hours we’ll know exactly what Mario Draghi and co have decided.

In the meantime, City analysts continue to speculate — and perhaps prepare the ground for some ‘I told you so’ action.

Capital Economics have nailed their trousers to the mast, forecasting steeper negative interest rates on banks, and a serious QE boost.

Brian Davidson says:

We have long argued that the ECB would need to add more stimulus before long, and the consensus has come round to this view following a series of dovish signals by the ECB. Accordingly, markets are now pricing in a cut of around 10bp to the deposit rate and polls show that most economists expect a €15bn increase in monthly asset purchases. We think the ECB will cut the deposit rate by 20bp, and increase its monthly asset purchases by €20bn.

Updated

Thursday’s ECB meeting could be quite combative, as some central bank governors are reluctant to provide more stimulus.

The German contingent are particularly concerned, as the Wall Street Journal explains:

Several officials have expressed skepticism that more stimulus is needed at this time, led by the ECB’s two German officials, Bundesbank President Jens Weidmann and ECB executive board member Sabine Lautenschläger. Central bankers from Baltic euro members have also signalled resistance, making it unlikely that Thursday’s decision will be a unanimous one.

More here:

Newsflash from Ontario: The Bank of Canada has left interest rates unchanged at today’s policy meeting.

Money is also flowing into eurozone government bonds today, on anticipation that the ECB will boost its QE programme.

This has driven the yield, or interest rate on German two-year bonds deeper into negative territory – which means the price is at a record high.

The pound is tumbling on the FX markets today.

It just hit a new seven and a half-month low against the US dollar at $1.4979.

Sterling is being hit by two events

Back to the eurozone.

Swiss bank UBS have produced a nifty chart showing the main options which the ECB could deploy tomorrow…..and the likely impact on the markets.

ECB policy options

Updated

US private sector job creation hits five-month high

A strong dose of US employment data has just increased the chances that the Federal Reserve raises interest rates in two weeks time.

A total of 217,000 new jobs were created by US companies last month, according to the ADP Research Institute.

That’s the biggest rise in private sector payrolls since June, and beats forecasts for a 190,000 increase. It also beats October’s reading of 196,000, which was revised up from 182,000.

It suggests that the wider Non-Farm Payroll will show a robust labour market. The NFP is due on Friday, and is the last major data point until the Fed’s December meeting.

US ADP Payroll

US ADP Payroll Photograph: ADP / fastFT

As fastFT puts it:

Although the ADP survey has not proved a consistent forecaster of the official monthly government jobs numbers, they may soothe investors nerves ahead of an important period for economic data and central bank decisions.

The euro has fallen back today, in another sign that Draghi is expected to announce new stimulus measures tomorrow.

The single currency dropped back through the $1.06 mark against the US dollar today, which is a near eight-month low.

Euro vs US dollar today

Euro vs US dollar today Photograph: Thomson Reuters

This is a handy chart, showing the three main options in the ECB’s toolbox, and the way they could be deployed:

There’s no realistic chance that eurozone inflation will hit the forecasts drawn up by the ECB’s own economists three months ago.

That’s the view of Timo del Carpio, European Economist, RBC Capital Markets, who told clients:

The most recent staff projections from the ECB (published in September) revealed an expectation for HICP [inflation] to average 0.4% y/y over Q4/15 as a whole.

Taking into account today’s outturn, this would require the headline rate to rise to at least 0.8% y/y in December in order for those forecasts to still be valid. Suffice to say, we think that is too tall an order, even taking into account the expected base effects from last year’s oil price declines (expected to come into force primarily in December and January).

In other words, this outturn should represent further downside news for the ECB.

And that’s why del Carpio predicts a further 20 basis point cut to the deposit rate, and a 6-month extension to the QE asset purchase programme .

It’s all systems go for more ECB stimulus, says Jonathan Loynes, chief European economist at Capital Economics:

“November’s weaker-than-expected eurozone consumer prices figures give a final green light for the ECB to both increase the pace of its asset purchases and cut its deposit rate at tomorrow’s policy meeting.”

Loynes is also concerned the core inflation – which excludes volatile components such as energy prices – dropped from 1.1% in October to 0.9% in November.

(FILES) A picture taken on August 7, 2014 shows the Euro logo in front of the European Central Bank, ECB in Frankfurt am Main, western Germany. Financial markets are looking to the European Central Bank to open the cash floodgates next week after consumer price data showed the 18-country eurozone is flirting with deflation, analysts said. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images

Ruben Segura-Cayuela, a euro zone economist at Bank of America Merrill Lynch, believes the weak inflation report will have surprised the European Central Bank, in a bad way.

With inflation stuck at just 0.1%, Segura-Cayuela believes the ECB will boost its bond-buying QE programme from the current rate of €60bn per month.

I’ve taken the quotes off Reuters:

“It [the inflation report] is not consistent with the trend that the ECB was expecting.

We are expecting a one year extension on QE purchases and quantities to go up to as much as €70bn a month.”

Segura-Cayuela is also in the ‘deeper negative rates’ camp — he reckons the deposit rate on bank deposits at the ECB could fall from -0.2% to -0.3%.

European stock markets are still rallying after the inflation data reinforced hopes of more eurozone stimulus:

European stock markts

Bloomberg’s Maxime Sbaihi also expects significant action from the European Central Bank tomorrow:

Updated

Economist and ECB watcher Fred Ducrozet has found a chart showing how weak inflation will prompt extra QE from the European Central Bank.

The x-axis shows the forecast for inflation — the ECB’s target is just below 2%.

The y-axis shows how much extra bond-buying would be needed if inflation is falling short — red if the ECB is struggling to push funds into the real economy, and grey if the ‘transmission mechanism’ is working well.

And as Fred tweets, today’s poor inflation data suggests anything between €400bn and one trillion euros of extra QE could be required.

Citi predicts lots more QE.

Citigroup has predicted that Mario Draghi will make two serious announcements tomorrow.

1) They expect him to hit the banks with more severe negative interest rates, by cutting the deposit rate at the ECB to minus 0.4% (compared with minus 0.2% today).

2) In addition, they suspect Draghi will boost the ECB’s bond-buying programme from €60bn per month to €75bn per month….

…and also run the quantitative easing programme for another six months. So rather than ending in September 2016, it would continue to March 2017.

That adds up to around €585bn of extra QE, I reckon.

City traders are predicting that Mario Draghi will announce a significant increase in the ECB’s stimulus measures on Thursday:

This weak inflation report could provoke the ECB into a more dramatic stimulus boost at tomorrow’s governing council meeting, says Jasper Lawler of CMC Markets:

He believes Mario Draghi could announce plans to buy more assets with newly printed money each month, rather than just run the quantitative easing programme for longer.

The euro plunged after data showed Eurozone inflation was stuck at a meagre 0.1% year-over-year in November, missing estimates of a slight rise to 0.2%.

The inflation miss adds to the case for stronger action from the ECB tomorrow. The data could be the difference-maker for the ECB choosing to increase the size of monthly asset purchases over just extending the end-date of the QE program.

Currently the ECB is buying €60bn of assets each month with new money, to expand its balance sheet and push more cash into the economy.

Updated

The euro has fallen sharply, as investors calculate that the ECB is very likely to announce new stimulus measures tomorrow:

Eurozone inflation: the detail

Eurozone’s inflation rate was, once again, pegged back by cheaper oil and petrol.

Here’s the detail, explaining why inflation was just 0.1% last month.

  • Energy prices slumped by 7.3%
  • Food: up 1.5%
  • Service: up 1.1%
  • Other goods: +0.5%
Eurozone inflation

Eurozone inflation, November 2015 Photograph: Eurostat

Another blow – core inflation, which excludes energy, food and tobacco, only rose by 0.9%.

That’s down from 1.1% a month ago, suggesting that inflationary pressure in the eurozone is actually weakening….

Eurozone inflation stuck at 0.1%

Here comes the eagerly-awaited eurozone inflation data!

And it shows that consumer prices only rose by 0.1% year-on-year in November.

That’s a little weaker than the 0.2% which economists had expected.

It raises the chances of significant new stimulus moves from the European Central Bank tomorrow (as explained earlier in this blog)

More to follow….

Updated

The pound has been knocked by the news that UK construction growth has hit a seven-month low:

Pound vs dollar today

Pound vs dollar today Photograph: Thomson Reuters

Updated

Britain’s construction sector is suffering from a lack of skilled builders, warns David Noble, CEO at the Chartered Institute of Procurement & Supply.

He says this is a key factor behind the sharp drop in growth last month:

“Suppliers continued to struggle this month, citing shortages in key materials, supply chain capacity and skilled capability as the causes.

But there is a question mark over the coming months as the housing sector, normally the star performer, may drag back on recovery along with the lack of availability of skilled staff.”

Maybe George Osborne should get back to that building site….

Britain’s Chancellor of the Exchequer George Osborne lays a brick during a visit to a housing development in South Ockendon in Essex, Britain November 26, 2015. REUTERS/Carl Court/Pool

Construction recovery is ‘down but not out’

The slowdown in housebuilding growth last month means that it was overtaken by the commercial building sector, as this chart shows:

Construction PMI by sector

Tim Moore, senior economist at Markit, explains:

“The UK construction recovery is down but not out, according to November’s survey data. Aside from a pre-election growth slowdown in April, the latest expansion of construction activity was the weakest for almost two-and-a-half years amid a sharp loss of housebuilding momentum.

“Residential activity lost its position as the best performing sub-category, but a supportive policy backdrop should help prevent longer-term malaise. Strong growth of commercial construction was maintained in November as positive UK economic conditions acted as a boost to new projects, while civil engineering remained the weakest performer.

UK construction growth hits seven-month low

Breaking — growth across Britain’s construction sector has slowed to a seven month low, as builders suffer an unexpected slowdown.

Data firm Markit reports that house building activity expanded at the lowest rate since June 2013 in November.

Markit’s Construction PMI, which measures activity across the sector, fell to 55.3 last month from 58.8 in October.

That is the weakest reading since the pre-election slowdown in April, and the second-weakest since mid 2013.

The slowdown was particularly sharp in the house-building area – which is particularly worrying, given Britain’s desperate need for more homes.

Markit says:

All three broad areas of construction activity experienced a slowdown in output growth during November. Residential building activity increased at the weakest pace since June 2013, while civil engineering activity rose at the slowest rate for six months and was the worst performing sub- category.

UK construction PMI

More to follow…

Yannis Stournaras governor of Bank of Greece shows the new 20 euro note in Athens, Tuesday, Nov. 24, 2015. The new 20 euro notes will circulate in the 19 Eurozone countries on Wednesday. Greece was formally cleared Monday to get the next batch of bailout loans due from its third financial rescue after the cash-strapped country implemented a series of economic reform measures that European creditors had demanded. (AP Photo/Thanassis Stavrakis)

A new survey of Europe’s businesses has found that, for the first time since 2009, they aren’t struggling to get credit.

That suggests the ECB’s policy measures are having an effect — and also indicates that perhaps more stimulus isn’t needed after all….

The ECB surveyed more than 11,000 companies across the eurozone. And most reported that they have no concerns over their ability to borrow. Instead, the main problem is a lack of customers.

It’s six weeks since the last ECB meeting, when Mario Draghi dropped a loud hint that the central bank was ready to do more stimulus if needed.

Since then, European stock markets have climbed steadily, and are heading for a three-month high today.

Latvia’s central bank governor has apparently told a local newspaper that the ECB’s quantitative easing programme is “better than doing nothing”.

That’s via Bloomberg. The interview took place with the Neatkariga Rita Avize newspaper – but there’s only a teaser online.

There’s a bit of edginess in the markets this morning, as investors wait for November’s eurozone inflation data to arrive in 70 minutes time.

Economists expect a small uptick, from 0.1% to 0.2% — while core inflation (which strips out volatile factors like energy and food) might hover around 1.1%.

A poor reading would surely seal fresh stimulus measure at tomorrow’s ECB meeting. But a stronger inflation report might cause jitters, as Conner Campbell of Spreadex puts it:

Given that the region’s failure to reach its inflation targets is one of the main reasons the Eurozone’s central bank is considering another injection of QE, this Wednesday’s figures perhaps carry slightly more weight than they have of late.

European stock markets

European stock markets in early trading Photograph: Thomson Reuters

This chart shows how investors expect the ECB to impose deeper negative interest rates on commercial banks.

That would discourage them from leaving money in its vaults rather than lending it to consumers and businesses:

Ramin Nakisa of UBS

Ramin Nakisa of UBS Photograph: Bloomberg TV

It’s possible that the European Central Bank disappoints the markets tomorrow.

Ramin Nakisa, global asset allocation manager at UBS, believes the ECB will not boost its quantitative easing programme tomorrow, despite a general belief that more QE is coming.

He also reckons the deposit rate paid by banks who leave cash at the ECB will only be cut by 10 basis points, from minus 0.2% to minus 0.3%.

Nakisa tells Bloomberg TV:

If that happens, there could be some disappointment in the markets.

But in the long-term, Nakisa adds, the eurozone economy is recovering. More stimulus isn’t really needed.

Ding ding – European markets are open for trading, and shares are rising.

The German DAX, French CAC, Italian FTSE MIB and Spanish IBEX are all up around 0.4%, ahead of tomorrow’s ECB meeting.

The FTSE 100 is lagging, though – up just 0.1%. It’s being dragged down by Saga, the travel and insurance group, which has shed 5% after its biggest shareholder sold a 13% stake.

The Bank of England printing works, now De La Rue, in Debden Newly printed sheets of 5 notes are checked for printing mistakes<br />B81HM8 The Bank of England printing works, now De La Rue, in Debden Newly printed sheets of 5 notes are checked for printing mistakes

You’d think that printing banknotes would be a safely lucrative business (losing money? Just make some more!).

But De La Rue, the UK-based printer, has just announced that it’s cutting around 300 staff and halving its production lines from eight to four.

The axe is falling sharply on its Malta plant, which is to close.

De La Rue prints more than 150 national currencies, and has suffered from falling demand for paper notes. There had been chatter that it might pick up the contract to produce new drachma for Greece, but that particular opportunity appears to have gone…..

Updated

VW shareholders to face workers

There could be ructions in Wolfsberg his morning, as the billionaire owners of Volkswagen face workers for the first time since the emissions cheating scandal broke.

The Porsche-Piech have been criticised for keeping a low profile since the VW crisis erupted. But today, several members of the group will make the trip to the carmakers headquarters to show solidarity with workers – who are being forced to down tools over Christmas because sales have weakened.

Bloomberg has a good take:

Wolfgang Porsche, chairman of family-owned majority shareholder Porsche Automobil Holding SE, will address thousands of workers in hall 11 of Volkswagen’s huge factory in Wolfsburg, Germany. He’ll be flanked at the 9:30 a.m. staff meeting by the other three supervisory board members who represent the reclusive clan: Louise Kiesling, Hans-Michel Piech and Ferdinand Oliver Porsche.

The Porsche-Piech family has been asked by labor leaders to signal their commitment to workers, now facing two weeks of forced leave during the Christmas holidays as the crisis begins to affect sales.

Labor chief Bernd Osterloh, who has pushed to shield workers by focusing cutbacks on Volkswagen’s model portfolio, will host the assembly. It comes amid mixed news for Volkswagen: though the company has made progress toward a simpler-than-expected recall of 8.5 million rigged diesel cars in Europe, plummeting U.S. sales show the impact of the crisis on the showroom floor.

Updated

The Agenda: Eurozone inflation could seal stimulus move

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

There’s a ‘calm before the storm’ feeling in the markets today. Investors are bracing for Thursday’s European Central Bank meeting, where it is widely expected to boost its stimulus programme.

European stock markets are tipped to rally at the open, on anticipation that Mario Draghi will step up to the plate again and announce something significant.

It could be a new cut to borrowing costs, hitting banks with harsher negative interest rates to force them to lend money. Or it could be an extension to the ECB’s QE programme – a commitment to pump even more new electronic money into the economy.

Or both.

Or something else entirely. With ‘Super Mario’, you never know for sure.

The ECB is under pressure to act, because inflation in the eurozone is so weak.

At 10am GMT, the latest eurozone prices data is released — it’s expected to show that prices rose by just 0.2% annually in November. That would be an improvement on October’s 0.1%, but still far short of the target (just below 2%).

Also coming up today….

  • Market releases its UK construction PMI report at 9.30am GMT. That will show how the building industry fared last month -
  • The latest measure of US private sector employment is released at 1.30pm GMT. That will give a clue to how many jobs were created across America last month, ahead of Friday’s non-farm payroll report.
  • Federal Reserve chair Janet Yellen is speaking at the Economics Club of Washington on Wednesday at 5:25pm GMT.
  • And Canada’s central bank sets interest rates at 3pm GMT – we’re expecting no change.

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

Updated

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Eurozone ministers are expected to refuse to hand over €2bn in new loans to Greece today, as a row over bad loans deepens. Officials: Eurogroup won’t release €2bn to Greece. France: We want a deal with Greece. OECD warns on global trade slowdown…

Powered by Guardian.co.ukThis article titled “Greece battles with creditors over new bailout payment – business live” was written by Graeme Wearden, for theguardian.com on Monday 9th November 2015 13.57 UTC

Wolfgang Schauble also flagged up that Greece has not yet implemented its new privatisation fund.

This was a key part of July’s bailout deal, under which €50bn of Greek assets will be sold off to cover the cost of recapitalising its banking sector.

Wolfgang Schauble

Germany’s Wolfgang Schäuble has arrived at the meeting.

He sounds fairly relaxed as he speaks to reporters.

Schäuble says that Greece has not yet taken all the required steps to qualify for its next aid tranche (according to his knowledge anyway).

Here’s the key quote from Eurogroup chief Dijsselbloem, confirming that Greece won’t get its €2bn today:

“The 2 billion will only be paid out once the institutions give the green light and say that all agreed actions have been carried out and have been implemented. That still has not happened.”

Some reaction to Jeroen Dijsselbloem’s comments as he arrived at the eurogroup meeting:

Dijsselbloem: Greece must complete first milestones very soon

Eurogroup president Jeroen Dijsselbloem
Eurogroup president Jeroen Dijsselbloem Photograph: EbS

An official limo has just deposited Eurogroup president Jeroen Dijsselbloem at today’s meeting.

He gave a brief ‘doorstep’ to reporters — it sounds like he’s not expecting to sign off Greece’s next aid tranche today.

Dijsselbloem says progress has been made in recent weeks regarding Greece’s banks and reform programmes.

But there are still open issues, and a lot more work needs to be done in the next two weeks.

The first set of milestones must be completed soon, he adds (which would pave the way to disbursing that €2bn in new loans).

And Dijsselbloem says he can’t speculate about the political crisis in Portugal where left-wing parties could soon win power.

My understanding is there will be debate today and tomorrow, says Dijsselbloem. There is always a legitimate government in each country, and that’s the government we work with….

Updated

Moscovici: Still a little way to go on Greece

Pierre Moscovici

Ministers are starting to arrive at today’s Eurogroup meeting in Brussels.

Commissioner Pierre Moscovici has told reporters gathered outside that he hopes Greece will receive its €2bn aid tranche this week, if not today.

Moscovici says he had “very positive, very fruitful meetings” in Athens last week with prime minister Alexis Tsipras and finance minister Euclid Tsakalotos.

The moves are positive. Most of the milestones are already adopted or decided. There is still a way to go.

We are not yet completely there, but I am hopeful and confident that with the spirit of compromise, with good co-operation with the authorities we can make it… if not today then in the days to come.

We are not far from that, but obviously there is a little way to go.

Moscovici then vanished inside, where he (or his team) tweeted this optimistic message too:

Shares are falling sharply on the Lisbon stock market, as investors react to the latest political upheaval in Portugal.

The main stock index, the PSI 20, has shed more than 2%, as the country’s socialist parties prepare to oust the centre-right administration sworn in two weeks ago.

Portuguese sovereign bonds are also continuing to fall, showing greater anxiety over the prospect of an anti-austerity government taking over.

The 10-year Portuguese bond is now yielding nearly 2.9%, a jump of 23 basis points. That’s a four-month high.

Over the weekend, four left-wing parties put aside their differences to support a legislative programme. They collectively hold a majority of seats in the parliament, following October’s election.

Analysts at the Royal Bank of Scotland Group have already warned that the Socialist-led program “is clearly less market-friendly than the one of the incumbent government,” Bloomberg flags up.

More here:

Updated

Greece “plans return to capital markets” in 2016

Now here’s a thing. Greece is apparently hoping to return to the financial markets next year.

Government insiders have told the Financial Times that plans are afoot to sell debt in the capital markets in 2016.

Despite the wild drama this year (capital controls, failing to repay the IMF, nearly leaving the eurozone), Athens hopes that investors will put their faith in them.

The FT says:

It won’t be in the first quarter but summer has been talked about,” said a person familiar with the situation.

“It depends on a positive chain reaction of events but discussions have been held.”

Full story: Greece plans a return to capital markets

Experienced City investors may raise their eyebrows….

On the other hand, Greece hasn’t actually defaulted on the three-year debt it issued last summer:

Updated

European Commissioner president Jean-Claude Juncker has just welcomed eurogroup president Jeroen Dijsselbloem to his office, for talks ahead of this afternoon’s meeting of finance chiefs.

Dijsselbloem got the tradition greeting:

Analyst: Greek crisis is repeating

Peter Rosenstreich, head of market strategy at Swissquote Bank, says investors need to pay attention to Greece again:

Rosenstreich is worried that Athens and its eurozone neighbours couldn’t reach agreement on how to handle the repossession of houses from people who are in default on their mortgages.

It suggests the whole third bailout deal, agreed after so much angst in July, may be in early trouble.

Rosenstreich says:

Left-wing Syriza is concerned that the high threshold will expose too many Greece citizens to the loss of their primary properties. In addition, Athens is balking at a 23% take rate on private schools.

This feels like a repeat of 8-months ago. The whole world understood that the third bailout agreement made was unsustainable. It was only a matter of time before it unraveled.

Getting back to Greece…

AFP’s man in Brussels, Danny Kemp, has heard that the outstanding issues between Greece ands its creditors *might* be resolved in a few days.

The OECD has also cut its forecast for global growth this year to 2.9%, down from 3%, due to the sharp slide in trade.

It also predicts growth of 3.3% in 2016, down from 3.6% previously.

The two demonstrators who disrupted David Cameron’s speech have revealed they created a fictitious company to get into the CBI’s flagship event:

Perhaps the CBI should get some advice from the European Central Bank, which upgraded its own security systems after a protester jumped on Mario Draghi’s desk this year…

The OECD’s latest economic outlook is online here.

OECD sounds alarm over global trade

The OECD has just released its latest economic projections.

And the Paris-based thinktank has warned that global growth is threatened by the impact of China’s slowdown on world trade, but raised its forecast for US growth.

It also urged richer countries to step up investment while keeping monetary policy loose, as my colleague Katie Allen explains.

The thinktank’s twice-yearly outlook highlights risks from emerging markets and weak trade.

Presenting the Outlook in Paris, OECD Secretary-General Angel Gurría said:

“The slowdown in global trade and the continuing weakness in investment are deeply concerning. Robust trade and investment and stronger global growth should go hand in hand.”

The thinktank edged up its forecast for economic growth in the group of 34 OECD countries this year to 2.0% from 1.9% in June’s outlook, when it had noted a sharp dip in US growth at the opening of 2015. For 2016, it has cut the forecast for OECD countries’ growth to 2.2% from 2.5%.

The OECD left its forecasts for the UK little changed with growth of 2.4% this year and next, compared with a forecast for 2016 growth of 2.3% made in June. The US economy, the world’s biggest, is now seen growing 2.4% this year and 2.5% in 2016, compared with June’s forecasts of 2.0% and 2.8%.

On the UK, the OECD said economic growth was projected to “continue at a robust pace over the coming two years, driven by domestic demand.”

Updated

Greece’s economy minister, George Stathakis, has suggested that eurozone governments might have to take a ‘political decision’ on whether Greece should get its €2bn aid tranche.

Stathakis told Real FM radio that talks with officials over how to enforce foreclosure laws have run their course:

The thorny issue is the distance that separates us on the issue of protecting primary residences.

“I think the negotiations we conducted with the institutions has closed its cycle .. so it’s a political decision which must be taken.

Updated

WSJ: Eurozone won’t release Greek loan today

Two eurozone officials have told the Wall Street Journal that there’s no chance that Greece will get its €2bn bailout loan at today’s eurogroup meeting.

That won’t please Michel Sapin, given his optimistic comments earlier. But it appears that Greece simply hasn’t done enough to satisfy lenders….

…in particular, over how to treat householders who can’t repay their mortgages. Athens and its creditors are still divided over which householders should be protected from foreclosure.

The WSJ’s Gabriele Steinhauser and Viktoria Dendrinou explains:

Senior officials from the currency union’s finance ministries were updated on Greece’s implementation of around 50 promised overhauls, known as milestones, during a conference call Sunday afternoon. While progress has been made on some issues—including measures to substitute a tax on private education, the governance of the country’s bailed-out banks and the treatment of overdue loans—Athens and its creditors will need more time to sign off on all overhauls, the officials said.

Greece needs the fresh loans to pay salaries and bills and settle domestic arrears. However, the government faces no immediate major payments to its international creditors, reducing the sense of urgency.

There will be “no agreement on [the] €2 billion,” one official said.

Updated

Drama at the CBI conference!

David Cameron’s speech has been briefly disrupted by protesters, chanting that the CBI is the “voice of Brussels”.

They’re clearly unhappy that Britain’s top business group is firmly in favour of EU membership:

Cameron handles it pretty well – suggesting they ask him a question rather than looking foolish.

Updated

Another important meeting is taking place in Brussels today.

UK business secretary Sajid Javid will discuss the crisis in Britain’s steel works with EU economy and industry ministers this afternoon.

Steel unions have urged Javid to demand a clampdown on cheap steel imports from China, which they blame for triggering thousands of job cuts across the UK steel industry:

Cameron at the CBI

David Cameron at the CBI
David Cameron at the CBI Photograph: Sky News

David Cameron is telling the CBI that he’s met business concerns, by cutting red tape and corporate taxes.

On infrastructure, he says the government has made progress – citing the planned HS2 railway – but admits there’s more to do.

We want to the most business friendly, enterprise friendly, government in the world, he adds. But the PM also acknowledges that Britain must do better on exports.

And he’s now outlining a new plan to give everyone guaranteed access to broadband, by 2020.

My colleague Andrew Sparrow is covering all the key points in his politics liveblog:

Heads-up: prime minister David Cameron is addressing the CBI’s annual conference in London. There’s a live feed here.

He’s expected to warn that he could consider campaigning to leave the EU, if his attempts to reform Britain’s relationship with Brussels is met with a ‘deaf ear’.

Updated

The prospect of yet another tussle over Greece’s bailout programme is casting a pall over Europe’s stock markets this morning.

The main indices are mainly in the red, as investors prepare to hear the dreaded phrase ‘eurogroup deadlock’ again.

European stock markets, early trading, November 09 2015
European stock markets this morning Photograph: Thomson Reuters

Conner Campbell of SpreadEx says that Greece’s “sluggish progress” over implementing foreclosure rules is an unwelcome reminder of the eurozone’s lingering issues.

The country’s next €2 billion tranche, which should be signed off at today’s Eurogroup meeting, is currently being withheld by Greece’s creditors, who are dissatisfied with the way the region’s hot potato has (or hasn’t) implemented the required reforms.

It’ Déjà vu all over again, as China’s stock market is pushed up by stimulus hopes, and Greece’s bailout hits a snag.

Open Europe analyst Raoul Ruparel points out that today’s dispute is small potatoes, compared to the big challenge of cutting Greece’s debt pile.

Greece is also clashing with its creditors over plans to hike the tax rate for private education, as the Telegraph’s Mehreen Khan explains:

That’s a slightly unusual issue for a hard-left party to go to the barricades over, when it needs agreement with its lenders to unlock the big prize of debt relief.

Updated

France: We want a Greek deal today

French Finance minister Michel Sapin.
Michel Sapin. Photograph: Lionel Bonaventure/AFP/Getty Images

France is playing its traditional role as Greece’s ally, ahead of today’s meeting of eurozone finance chiefs.

French finance minister Michel Sapin has told reporters in Paris that he hopes an agreement can be reached today over the main outstanding hurdle — how to handle bad loans at Greek banks (as explained earlier).

Sapin offered Athens his support, saying:

Greece is making considerable efforts. They are scrupulously respecting the July agreement.

One thorny issue remains: the seizure of homes for households who can’t pay their debts. I want an agreement to be reached today. France wants an agreement today.

(thanks to Reuters for the quotes)

Updated

Greek journalist Nick Malkoutzis of Kathimerini tweets that the gloss is coming off Alexis Tsipras’s new administration:

Portuguese bond yields jump as leftists prepare for power

The prospect of a new anti-austerity government taking power in Portugal is hitting its government debt this morning.

The yield (or interest rate) on 10-year Portuguese bonds has risen from 2.67% to 2.77%, a ten-week high.

That’s not a major move, but a sign that investors are anxious about events in Lisbon.

Portuguese 10-year bond yields

Updated

This new dispute over Greece’s bailout comes three days before unions hold a general strike that could bring Athens to a standstill.

The main public and private sector unions have both called 24-hour walkouts for Thursday, to protest against the pension cuts and tax rises contained in its third bailout deal.

ADEDY, the civil servants union, accused the government of taking over “the role of redistributing poverty”.

Just six week after winning re-election, Alexis Tsipras is facing quite a wave of discontent….

Dow Jones: Ministers won’t release Greek aid today

The Dow Jones newswire is reporting that eurozone finance ministers definitely won’t agree to release Greece’s next aid tranche at today’s meeting, due to the lack of progress over its bailout measures:

Updated

Updated

Greek officials have already warned that the argument over legislation covering bad loans won’t be resolved easily.

One told Reuters that:

There is a distance with lenders on that [foreclosure] issue, and I don’t think that we will have an agreement soon.

Prime minister Alexis Tsipras discussed the issue with Commission chief Jean-Claude Juncker yesterday.

The official added that those talks were a step towards resolving the issue at “a political level”; Greek-speak for a compromise hammered out between leaders, rather than lowly negotiators.

Updated

Greek debt talks hit by foreclosure row

University students holding flares burn a European flag outside the Greek parliament during a protest in central Athens last Thursday.
University students holding flares burn a European flag outside the Greek parliament during a protest in central Athens last Thursday. Photograph: Petros Giannakouris/AP

After a couple of quiet months, Greece’s debt crisis has loomed back into the spotlight today.

A new dispute between Athens and her creditors is holding up the disbursement of Greece’s next aid tranche, worth €2bn.

Athens spent last weekend in a fevered attempt to persuade its creditors that it has met the terms agreed last summer, to qualify for the much-needed cash.

But it appears that lenders aren’t convinced, meaning that the payment won’t be signed off when eurogroup ministers meet in Brussels at 2pm today for a Eurogroup meeting.

The two sides are still arguing over new laws to repossess houses from people who are deep in arrears on their mortgage payments.

Athens is trying to dilute the terms agreed in July’s bailout deal, but eurozone creditors are sticking to their guns. They insist that Greek residences valued above €120,000 should be covered by the foreclosure laws, down from the current level of €200,000.

The Kathimerini newspaper explains:

The key stumbling block is primary residence foreclosures.

Greece has put forward stricter criteria that protects 60 percent of homeowners, while suggesting that this is then gradually reduced over the next years.

With a deal unlikely today, officials are now racing to get an agreement within 48 hours or so:

Greece told to break bailout deadlock by Wednesday

And Greece certainly needs the money, to settle overdue payments owed to hundreds of government suppliers who have been squeezed badly this year.

Updated

The Agenda: Markets see Fed hike looming

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

Across the globe, investors are finally facing the prospect that the long run of record low interest rates is ending, at least in America.

There’s now a 70% chance that the US Federal Reserve hikes borrowing costs in next month’s meeting, according to this morning’s data.

This follows Friday’s strong US jobs report, which show 271,000 new positions created last month. With earnings rising too, Fed doves will probably be tempted to finally press the rate hike button at December’s meeting.

That is pushing up the dollar this morning, and weakening the euro. That will please the European Central Bank, as it ponders whether to launch its own new stimulus measures.

European stock markets are expected to inch higher at the open:

Also coming up….

  • The OECD will issue new economic forecasts at 10.30am GMT.
  • Britain’s business leaders are gathering in London for the CBI’s latest conference. The event is dominated by the UK’s “Brexit” referendum, and claims that the CBI is too pro-EU.
  • Eurozone finance ministers are holding a eurogroup meeting in Brussels this afternoon.

And there is fresh drama in the eurozone.

In Portugal, three left-wing parties have agreed to work together in a new “anti-austerity government”.

That will bring down minority administration created by Pedro Passos Coelho two weeks ago, after October’s inconclusive election.

And with Greece struggling to implement its own austerity measures, Europe’s problems are pushing up the agenda again.

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

Updated

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The US economy created 271,000 new jobs in October, almost 100,000 more than expected, while the unemployment rate remained unchanged at 5%. US dollar rallies in the aftermath of the report as December rate hike looks like a done deal…

Powered by Guardian.co.ukThis article titled “US jobs data smash forecasts and send dollar soaring – as it happened” was written by Julia Kollewe, for theguardian.com on Friday 6th November 2015 14.45 UTC

Here is our full story on the US jobs data, which smashed expectations.

On that note, we are closing up for the day. Have a great weekend. We will be back on Monday.

Stock markets turn positive

European stock markets have turned positive, led by Germany’s Dax which is up 1.3%, while France’s CAC is 0.45% ahead. The FTSE 100 index in London has gained more than 23 points to 6389.25, a 0.4% rise.

On Wall Street, stocks opened slightly lower, but the Dow is now in positive territory, up 0.15% while the Nasdaq is flat.

Updated

David Lamb, head of dealing at forex specialists FEXCO, says:

The prospect of the Fed raising interest rates in December is now on a par with turkey on Thanksgiving – all but certain.

Such clarity, and the bullish euphoria of such an expectation-smashing number, have propelled the Dollar to multi-month highs.

With concern lingering about the strength of the global economy, such titanic performance from the US economy has turned the Greenback into a beacon of hope for investors. With a December rate hike now seemingly a done deal, huge inflows into the dollar should drive it even higher in the coming weeks.”

The 271,000 increase in jobs in October was the biggest since last December.

US unemployment rate

US unemployment rate Photograph: Bureau of Labour Statistics
US non-farm payrolls

US non-farm payrolls Photograph: Bureau of Labour Statistics

US stock futures point to a slightly lower open on Wall street after the non-farm payrolls data smashed expectations and made a December rate hike from the Fed highly likely.

Fed chair Janet Yellen hinted on Wednesday that the Fed could move at next month’s meeting if data showed that the economy was strong enough to cope with higher interest rates.

The dollar rallied on the jobs report, hitting a session high against the yen and rising 1.5% against the euro and 1% against sterling, to $1.5038. The pound is already under pressure because yesterday’s inflation report from the Bank of England was more dovish than expected.

Updated

Paul Ashworth, chief US economist at Capital Economics, agrees.

The much bigger than expected 271,000 surge in non-farm payrolls in October confirms that the weakness in August and September was just a temporary blip and, given the circumstances, a December interest rate hike would now appear to be the most likely outcome.

The rest of the employment report was encouraging too, with the unemployment rate falling to 5.0%, from 5.1%, the broader U6 measure of unemployment dropping to 9.8%, from 10.0% and the share of involuntary part-time workers dropping to a seven-year low.

Unquestionably, that will be enough to convince Fed Chair Janet Yellen and Vice Chair Stanley Fischer to vote for a rate hike at the next FOMC meeting in mid-December. Other voting members, particularly Fed Governor Lael Brainard, remain skeptical that the improvement in thelabour market will necessarily lead to higher wage growth and price inflation. But October’s report also provides some evidence that the demise of the Phillips curve might have been exaggerated. Average hourly earnings increased by 0.4% m/m in October and the annual growth rate climbed to 2.5%, from 2.3%. 2.5% is still relatively modest, but it is nonetheless a six-year high.

Regardless of the exact timing of the first rate hike, we still believe that the big story next year will be an unexpectedly strong pick-up in wage growth and price inflation, which will force the Fed into a much more aggressive policy tightening cycle than the Fed’s projections currently suggest.”

Updated

“We would need to see a catastrophically bad November labour report for the Fed to sit on their hands again in December. We do not anticipate that” says ING economist Rob Carnell says

Following a disappointing run of labour reports, the October figure substantially surpassed the consensus view in nearly all respects.

This 5.0% unemployment rate is well within the Fed’s range for full employment, and this was, for once, nicely reflected in the wages component… The last time wages growth was this good was back in 2009, when it was on the way down during the financial crisis. And although this is by no means a runaway rate of growth for wage inflation, it does mark a clear improvement from recent trends, and could hint that the Fed is now behind the curve as far as policy setting goes.

The next question is, if the Fed has left it too long before hiking, will forecasters have to ramp up their expectations for Fed tightening in 2016 and 2017, and start to question the view that future rises will be “cautious”? It is too early to say with any certainty. Next month’s labour report, especially the wages series will shed more light on this. But we might see some substantially more aggressive pricing of Fed tightening next year, with consequent support for the USD and bond yields, especially at the front end.”

Tanweer Akram, senior economist at Voya Investment Management says:

The strong job growth in October paves the way for the Fed to hike the fed funds target rate in December… Job growth occurred in a range of industries last month, including professional/business services, health care, retail trade, food services, and construction.

Job growth has been strong for the past several years, while inflationary pressures remain subdued. In the past 12 months, job growth has averaged 230K per month. Average hourly earnings rose 2.5% year over year.

The Fed is very likely to raise the fed funds target rate in December. The strong of job growth implies that there is no reason to keep the fed funds target rate at near zero level. However, the pace of tightening is likely to restrained and gradual going forward as inflationary pressure remain subdued. Long-term interest rates should still stay at historically low levels, after rising slightly with monetary tightening, due to still low short-term interest rates, subdued inflationary pressures, elevated size of the Fed’s balance sheet, continued strong demand for safe assets, low long-term interest rates in overseas advanced economies and quantitative easing in the euro zone and Japan.”

Instant reaction on Twitter suggests that a Fed rate hike in December is now a done deal.

We will get another non-farm payrolls report before the meeting on 15-16 December, though (on 4 December).

The dollar is rallying, as the strong jobs data tip the odds in favour of a December rate hike.

The September increase in jobs was revised down to 137,000 from 142,000 but the August number was revised higher to 153,000 from 136,000.

Average hourly earnings arose 0.4% in October from the previous month and 2.5% year-on-year – also much stronger than expected.

Updated

The unemployment rate has dipped to 5% from 5.1%.

Non-farm payrolls smash expectations

News flash: the American economy created 271,000 new jobs last month, versus expectations of 180,000.

Updated

Non-farm payrolls are less than ten minutes away now. This is what we are expecting:

  • A rise of 180,000 to 190,000 in the headline number for October (up from September and August, but a bit below the 200,000 plus monthly increases seen over the last couple of years)
  • An unchanged unemployment rate at 5.1%
  • A small pick-up in average hourly earnings growth to 2.3% from 2.2% year-on-year in September

European stock markets are still in the red ahead of the US jobs data. The FTSE 100 index has also slipped, trading down 7.6 points at 6357.29, a 0.1% fall.

Wall Street is expected to open lower after Walt Disney missed sales estimates.

The non-farm payrolls data, out at 1.30pm UK time, are seen as one of the last few make-or-break data points before the Federal Reserve’s next monetary policy meeting in December.

Bank of England deputy governor: focus on date of rate rise is misleading

Back to the UK, where Bank of England deputy governor Nemat Shafik has said that knowing precisely when interest rates will rise is not what really matters. (Britain’s homeowners and businesses may disagree with that.) Shafik, a former deputy managing director of the International Monetary Fund, also insisted that the central bank’s system of “forward guidance” was not failing.

Shafik, known as Minouche, defended the Bank’s failure to give any clearer signal as to when the first rate hike in years will come, and rejected claims that it was failing to give promised advance notice. She told BBC Radio 4’s Today programme:

No, I don’t think that’s the case. Isn’t it better that the Bank of England give the public and the markets a sense of what our best collective judgment is of what is going to happen in the economy than to catch people by surprise?

The consistent message that we have given is that future interest rate rises will be limited and gradual and I think everybody on the monetary policy committee signs up to that guidance and so far that has proven to be right. Even though I understand why people are concerned about the actual date of the first rate rise, what really matters to the economy is the path, and the path will be limited and gradual.”

Nemat Shafik

Nemat Shafik Photograph: STRINGER/ITALY/STRINGER/ITALY/Reuters/Corbis

Updated

China to lift IPO freeze by year end

China will lift a freeze on initial public offerings by the end of the year, removing one of its key measures of support for the stock market as equities recover from a $5 trillion rout, Bloomberg reports.

Ronald Wan, Hong Kong-based chief executive officer told the news agency:

There will be short-term damage to sentiment in the market. But the government has to proceed with market reform and the timing for IPOs will be better now than next year as the market seems to have some strength.”

You can read the full story here.

Liam Neeson calls for help for laid-off Michelin workers

Meanwhile, Hollywood star and Ballymena’s most famous son Liam Neeson has called for help for the workers who are going to lose their jobs at the Michelin tyre plant in the North Antrim town, writes Henry McDonald.

The actor expressed outrage today over the 860 redundancies at the factory which were announced earlier this week. “It’s tragic and the fallout will be felt throughout the whole community,” Neeson said on Friday.

The star of ‘Schindler’s List’ and the ‘Taken’ series added:

I am a great believer in the character and worth ethic of my people in the North. I’ve always maintained that our wee corner of the globe is one of the world’s best kept secrets, not least in its potential for developments in all areas of industry.”

Neeson urged the semi-dysfunctional power sharing executive in Belfast alongside Invest Northern Ireland to “get to work now and promote the ‘hell’ out of the province. They have and always will have my full support.”

After the loss earlier this year of 800 jobs at the JTI Gallaghers tobacco plant in Ballymena coupled with Tuesday’s Michelin’s grim announcement the Co. Antrim town is going to need plenty of star-quality support in its quest to bring in new employment.

Actor Liam Neeson.

Actor Liam Neeson. Photograph: Pablo Cuadra/Getty Images

Updated

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said:

While manufacturing contracted in the last quarter there are signs that some parts of industry were at least were mounting a comeback after a summer lull. Together with the sharp rebound in October’s PMI, we may yet see some more positive data readings in the remainder of 2015 but the risks, reinforced in yesterday’s Inflation report, from weaker activity in emerging markets are likely to present some headwinds for manufacturers into next year.

Indeed, another disappointing set of trade figures for manufacturing show that these effects are already being felt with a significant fall in goods exports to China over the past three months.”

However, despite the latest improvement the ONS said trade was likely to make a negative contribution to Britain’s economic output in the third quarter.

And while manufacturing was strong in September, a weak start to the third quarter meant that over the quarter as a whole the sector disappointed with a 0.4% decline, and remained in recession.

Ruth Miller, UK economist at Capital Economics, says:

September’s trade and industrial production figures provide further signs that the UK’s economic recovery remained unbalanced in the third quarter…

Looking ahead, the improvement in August’s Markit/CIPS report on manufacturing in October has offered some hope that the sector may now have passed the worst. But it is still early days and we will need to see some more upbeat data before a renaissance in UK manufacturing can be declared. Accordingly, while we expect the overall economic recovery to maintain a solid pace, it is set to remain unbalanced in the near term at least.

Updated

There is more good news from the ONS: the UK’s trade deficit narrowed more than expected in September to £9.4bn, from a revised £10.8bn in August.

Updated

UK factory output posts biggest rise since April 2014

Here in the UK, factory output has come in stronger than expected. Manufacturing rose 0.8% in September, the biggest monthly increase since April 2014. City economists had expected a rise of 0.4%.

Overall industrial production, which also includes mining and utilities, fell 0.2% on the month after rising 0.9% in August.

Over the third quarter, industrial output was up 0.2%, down from a 0.7% gain in the second. This was a tad below the 0.3% rise that the Office for National Statistics assumed in its initial estimate of third-quarter GDP growth.

The ONS said the figures will have a negligible impact on the third-quarter GDP figures. The statistics office’s first stab at the numbers showed economic growth slowing to 0.5% between July and September from 0.7% in the previous quarter.

Updated

The dollar is rallying again boosted by comments from Atlanta Fed president Dennis Lockhart yesterday. Seen by many as a swing voter at the US central bank, he left the door wide open to a rate rise at the December meeting.

He said at a speech in Bern, Switzerland.

Going into that [October] meeting, I felt a successful outcome would be expectations aligning with the view that ‘liftoff’ at our upcoming December meeting is a possibility, but not a certainty. I am satisfied that was accomplished.”

He reckons the case for what will be the first rate hike in about a decade will continue to strengthen before the Fed’s December meeting.

At this juncture, it’s my assessment that the US economy is likely in an above-potential growth phase, with labor markets continuing to improve, and with an underlying inflationary trend that, if not rapidly moving toward the [Fed’s] objective, is at least not moving away from that objective. I think the case for liftoff will continue to firm up.”

The pace of rate hikes after that “will most appropriately be very gradual.”

… and the dollar could push the euro below $1.08 for the first time since April if we get a strong US jobs report at lunchtime, which would tip the odds in a favour of a Fed rate hike next month. It is currently down 0.1% at $1.0870.

Updated

Disappointing open for European markets

The FTSE 100 index has started Friday flat. It’s up just 3.6 points at 6368.53 ahead of industrial output and trade figures at 9.30am.

Eurozone indices have slipped into the red following weak German industrial production data. Germany’s Dax is down 0.2% and France’s CAC has lost 0.55%, prompted by a widening French trade deficit.

The pound has hit a one-month low of $1.5169 against the dollar, down 0.3% on the day.

Updated

Talk Talk has released on update on last month’s Cyber attack. Sean Farrell writes:

Almost 157,000 TalkTalk customers had their personal details hacked in last month’s cyber-attack on the telecoms company.

Talk Talk said the total number of customers affected by the attack two weeks ago was 156,959, including 15,656 whose bank account numbers and sort codes were hacked.

The total is 4% of TalkTalk’s 4 million customers and is a small fraction of the number feared when news of the attack broke. The number of customers whose bank details were stolen is lower than an estimate of less than 21,000 released a week ago.

The company said 28,000 credit and debit card numbers, with some digits obscured, stolen by the hackers cannot be used for payment and customers cannot be identified from the data.

Read the full story here.

The Talk Talk Headquaters in west London.

The Talk Talk Headquaters in west London.
Photograph: John Stillwell/PA

Updated

AstraZeneca buys US biotech ZS Pharma

A day after releasing better-than-expected third-quarter results and upgrading its annual forecasts, British drugmaker AstraZeneca has unveiled a sizeable acquisition. It has agreed to buy Californian biotech ZS Pharma for $2.7bn (£1.8bn), beating off competition from Swiss firm Actelion.

ZS Pharma is working on novel treatments for hyperkalaemia, a serious condition of elevated potassium in the bloodstream, which is typically associated with chronic kidney disease and chronic heart failure. Peak sales of the firm’s ZS-9 potassium-binding compound, which is under review by US regulators, are forecast to top $1bn.

It is the latest deal in a bumper year for mergers and acquisitions in the pharmaceutical world. New York-based pharma giant Pfizer is courting Allergan and is reportedly hoping to get a deal done by Thanksgiving. A deal would unite the US makers of Viagra and Botox and create a drugs giant worth more than $300bn.

Pfizer has turned its attention to Allergan after being rebuffed by the UK’s GlaxoSmithKline this year and its spectacular failure to acquire AstraZeneca for £70bn last year. It wants to shift its tax base abroad to lower its tax bill. Allergan is domiciled in Dublin and its tax rate is far below Pfizer’s in the US.

Chancellor George Osborne is with shown around by staff member Jan Milton-Edwards during a visit to the Macclesfield AstraZeneca site in Cheshire.

Chancellor George Osborne is with shown around by staff member Jan Milton-Edwards during a visit to the Macclesfield AstraZeneca site in Cheshire. Photograph: Peter Byrne/PA

Updated

…and you can watch the John Lewis Christmas ads from the last few years here, including Monty the Penguin (2014), the Bear & the Hare (2013), the Journey (2012) and The Long Wait (2011).

World markets rise as investors welcome boost from cheaper credit in China and prospects for further delay to Federal Reserve rate hike in US. The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%…

 

Powered by Guardian.co.ukThis article titled “China interest rate cut fuels fears over ailing economy” was written by Phillip Inman Economics correspondent, for The Guardian on Friday 23rd October 2015 13.24 UTC

China fuelled fears that its ailing economy is about to slow further after Beijing cut its main interest rate by 0.25 percentage points.

The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%. The one-year deposit rate will fall to 1.5% from 1.75%.

The move follows official data earlier this week showing that economic growth in the latest quarter fell to a six-year low of 6.9%. A decline in exports was one of the biggest factors, blamed partly by analysts on the high value of China’s currency, the yuan.

The rate cut sent European stock markets higher as investors welcomed the boost from cheaper credit in China, together with the hint of further monetary easing by the European Central Bank president, Mario Draghi, on Thursday.

Investors were also buoyed by the likelihood that the US Federal Reserve would be forced to signal another delay to the first US rate rise since the financial crash of 2008-2009 until later next year.

The FTSE 100 was up just over 90 points, or 1.4%, at 6466, while the German Dax and French CAC were up almost 3%.

The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value. Shocked at the prospect of a slide in the Chinese currency, investors panicked and sent markets plunging.

Some economists have warned that the world economy is about to experience a third leg of post-crash instability after the initial banking collapse and eurozone crisis. The slowdown in China, as it reduces debts and a dependence for growth on investment in heavy industry and property, will be the third leg.

World trade has already contracted this year with analysts forecasting weaker trade next year. The International Monetary Fund (IMF) in July trimmed its forecast for global economic growth for this year to 3.1% from 3.3% previously, mainly as a result of China’s slowing growth. The Washington-based fund also warned that the weak recovery in the west risks turning into near stagnation.

At its October annual meeting, it said growth in the advanced countries of the west is forecast to pick up slightly, from 1.8% in 2014 to 2% in 2015 while growth in the rest of the world is expected to fall from 4.6% to 4%.

Sanjiv Shah, chief investment Officer of Sun Global Investments, said: “The Chinese decision indicates that the authorities are clearly worried about the slowdown in the pace of economic growth and have decide to engage in more pre-emptive action. The [People’s Bank of China] has cut benchmark rates and reduced banks’ reserve requirements as well as scrapping deposit controls.”

But Mark Williams, chief Asia economist at Capital Economics, remained upbeat about the prospects for China’s sustained growth, arguing that the cut in interest rates was part of a longer-term strategy and not a reaction to deteriorating growth.

“The key point is that we shouldn’t take today’s announcement as evidence that policymakers have grown more concerned about the economy. Instead, this is a controlled easing cycle that underlines how China’s policymakers, unlike many of their peers elsewhere, still have room for policy manoeuvre,” he said.

“Admittedly, we’re still waiting for clear evidence of an economic turnaround – September’s activity data still don’t show any great improvement. Nonetheless, with more stimulus in the pipeline, we still believe the economy will look stronger soon.”

Corporations considered bellwethers of the global economy have also warned of a sharp slowdown. Caterpillar, the industrial equipment manufacturer, has seen profits slide over the last year. AP Moller-Maersk, the shipping firm cut its 2015 profit forecast by 15% on Friday, blaming a slowdown in the container shipping market.

The Danish conglomerate operates Maersk Line, the world’s largest container shipping company which transports roughly 20% of all goods on the busiest routes between Asia and Europe.

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