United States

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

 


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

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

Fab Goria tweets the key points:

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

Updated

Greek government pleads for more time over public sector layoffs

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

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

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

Helena writes:

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

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

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

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

He said:

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

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

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

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

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

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

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

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

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

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

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

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

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

Video: Top banker under fire over Libor answers

The Libor scandal has taken another twist this afternoon. 

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

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

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

Here’s the full email chain

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

Greece threatened with demotion, again

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

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

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

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

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

Updated

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

Here’s a flavour:

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

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

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

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

Updated

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

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

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

No rush for the Bank’s probing Paul Tucker

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

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

Katie writes:

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

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

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

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

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

Tucker adds:

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

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

Tucker again:

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

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

Tucker says:

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

And where does all that leave policymaking?

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

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

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

Updated

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

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

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

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

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

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

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

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

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

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

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

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

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

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

More here.

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

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

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

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

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

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

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

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

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

Updated

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

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

Here’s the lunchtime prices:

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

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

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

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

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

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

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

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

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

OECD chief: global economy is slowly recovering

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

Kathimerini explains:

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

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

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

Here’s AP’s take:

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

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

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

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

Reminder — there’s analyst reaction here.

Updated

UK mortgage approvals at highest since December 2009

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

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

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

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

Houses beating households, London edition

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

Updated

IFO: What the experts say

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

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

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

I’ve taken the quotes off the Reuters terminal:

Thomas Gitzel, VP Bank:

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

Ralf Umlauf, Helaba:

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

Christine Volk, KfW

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

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

Ben May, Capital Economics

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

Updated

German business climate improves, but misses forecasts

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

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

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

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

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

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

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

Reaction to follow….

Updated

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

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

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

Morning all.

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

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

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

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

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

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

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

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

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

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

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

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

Merkel’s coalition struggle

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

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

Seehofer told reporters last night that:

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

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

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

As Bloomberg puts it:

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

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

Updated

Caution over German coalition talks

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

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

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

As Michael Hewson of CMC Markets puts it:

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

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

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

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

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

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

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

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

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.


USA 

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

 


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

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

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

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

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

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

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

Markets fall

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

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

Here’s the details:

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

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

Other analysts reckon it might not happen until 2014….

Updated

JP Morgan: Coalition talks will take some time

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

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

JP Morgan said:

The process will take some time…

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

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

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

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

Here’s the full research note

Updated

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

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

Updated

Draghi: too early to discuss another Greek bailout

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

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

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

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

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

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

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

Updated

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

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

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

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

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

Updated

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

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

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

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

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

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

Open Europe explains:

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

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

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

Updated

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

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

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

Updated

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

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

Updated

Protests over closure of Greek police service

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

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

She writes:

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

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

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

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

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

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

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

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

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

Updated

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

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

Here’s the Reuters newflash:

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

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

Updated

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

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

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

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

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

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

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

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

So she chose a “neutral” colour instead.

Updated

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

Updated

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

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

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

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

Updated

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

Updated

Merkel: Europe must become more competitive

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

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

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

Merkel press conference highlights

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

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

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

More to follow …

Updated

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

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

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

Updated

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

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

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

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

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

Updated

Video: Inside the campaign headquarters

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

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

Updated

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

He warned:

The formation of a government is not straightforward at all.

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

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

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

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

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

Updated

Merkel’s win: what the analysts say

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

Jonathan Pryor of Investec Corporate Treasury:

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

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

 Steven Englander of Citigroup:

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

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

Barclays:

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

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

Kit Juckes of Société Générale:

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

The outcome leaves markets somewhat in limbo.

Monex Capital Markets:

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

And here’s some more media reaction:

Updated

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

China’s manufacturing activity hits six-month high.

Updated

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

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

The future of AfD

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

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

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

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

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

Market update

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

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

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

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

Hardy writes:

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

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

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

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

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

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

Graph: Eurozone recovery gathers pace

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

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

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

• Flash Eurozone Manufacturing PMI(3) at 51.1 

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

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

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

Eurozone business activity at highest since June 2011

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

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

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

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

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

More to follow….

Updated

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

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

The Wall Street Journal has a good take:

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

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

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

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

More here: Greece, Creditors Begin Talks on New Bailout

Meanwhile, Greek journalist Kostas Karkagiannis sums up the mood:

Updated

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

Updated

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

Here’s some instant reaction:

German private sector picks up speed

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

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

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

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

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

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

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

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

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

French private sector returns to growth

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

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

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

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

Jack Kennedy, senior economist at Markit, explained:

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

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

Updated

European markets open

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

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

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

Via FT Alphaville:

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

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

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

Gary Jenkins of Swordfish Research agrees:

Updated

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

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

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

Updated

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

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

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

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

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

Angela smashes her rivals

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

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

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

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

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

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

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

As Reuters sums up:

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

Don’t expect a decision imminently, though.

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

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

From the City, Michael Hewson writes:

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

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

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

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

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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

 


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

Here’s some Friday night ratings action:

On Malta Fitch said:

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

And on Croatia being cut to junk:

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

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

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

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

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

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

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

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

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

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

Dow Jones opens lower after Fed taper comments

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

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

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

Updated

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

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

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

Updated

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

Reuters writes:

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

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

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

That’s the spirit.

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

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

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

Updated

Forsa: German election is neck-and-neck

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

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

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

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

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

My colleague Katie Allen explains all:

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

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

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

Katie continues:

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

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

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

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

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

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

Or as one fund manager puts it:

Updated

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

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

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

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

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

Updated

Speaking of eurosceptics….

Italy cuts growth targets

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

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

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

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

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

On that point….

Updated

AP: Tight fight in Germany

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Updated

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

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

Updated

Corporate news

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

More here: OFT probes sports bra price fixing

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

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

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

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

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

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

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

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

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

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

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

Updated

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

Anjali Verma, chief economist at PhillipCapital:

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

Anubhuti Sahay, economist at Standard Chartered:

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

Abheek Barua, chief economist at HDFC Bank:

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

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

India battles inflation with surprise rate hike

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

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

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

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

As Rajan put it in today’s statement:

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

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

Updated

On the campaign trail….

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

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

Updated

German election looms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

Larry Elliott: It is hard to see how the Fed can start to scale back its quantitative easing program this year. Nobody is sure any longer what the Fed is really up to. What will it take for the Fed to start winding down the stimulus?…

 


Powered by Guardian.co.ukThis article titled “Federal Reserve tapering decision has baffled the markets” was written by Larry Elliott, economics editor, for The Guardian on Thursday 19th September 2013 17.19 UTC

The dust was still settling on Thursday after the Federal Reserve delivered one of the biggest surprises to financial markets in many a year. This was a return to the central banking practices of the past when policymakers liked to keep people guessing about their intentions. These days central bankers pride themselves on their transparency.

But nobody is sure any longer what the Fed is really up to. Clearly it got cold feet about announcing even the most modest reduction in the amount of stimulus provided to the US economy through its long-term asset purchase programme, but both the decision and the way it was announced raised more questions than they answered.

Why was there no warning to the markets that the Fed was worried about the slowdown in growth? Why, in the absence of such a warning, did it not go ahead with a tokenist reduction in the stimulus, of say $5bn (£3.17bn) a month, that would have made good the commitment to start tapering but had no material impact on growth? What will it now take for the Fed to start winding down the stimulus?

But although the Fed’s communications strategy now lies in tatters, some conclusions can be drawn from the postponement of the taper. Firstly, policy is going to remain loose for longer than the markets envisaged. It is hard to see how the Fed can start to scale back its quantitative easing programme this year, and the prospect of the process being completed in 2014 – as originally envisaged – is as good as dead.

Secondly, the Fed is even more doveish than the markets thought. When Ben Bernanke first floated the idea of the taper back in May, the notion was that the trigger for the taper would be falling unemployment. But despite a continued moderate improvement in the labour market, the Fed still feels the time is not ripe to act. It took fright when speculation about the taper led to rising bond yields, making mortgages more expensive. It looked askance when share prices fell. And it is worried about the possible consequences of the looming budget showdown between Democrats and Republicans in Washington. So when the time came to act, it blinked.

Thirdly, the Fed has provided a respite – albeit probably temporary – to emerging markets that had seen their currencies fall against the dollar in anticipation of a gradual withdrawal of the stimulus.

Finally, the muted second day reaction to the decision was the reaction to one final unanswered question: does the Fed have the remotest idea how to unwind the stimulus? As Stephen Lewis of Monument Securities put it: Bernanke has given the “impression of being astride a tiger he dare not dismount.”

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

Published via the Guardian News Feed plugin for WordPress.

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

 


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

Summary

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

Bernanke says there are signs quantitative easing is working: 

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

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

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

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

Then easing can end.

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

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

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

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

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

The markets really like it. 

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

Bernanke is asked whether he’s leaving:

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

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

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

The criteria include an improved labor market including lower unemployment.

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

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

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

Updated

Bernanke says low job market participation is partly cyclical:

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

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

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

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

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

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

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

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

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

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

Bernanke says there are signs the economy is improving.

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

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

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

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

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

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

Updated

Bernanke is speaking. Watch live on CSPAN here.

Anything to instill confidence?

Updated

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

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

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

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

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

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

Try, try again. And again. And

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

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

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

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

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

Read the full Fed statement here.

The markets like it.

Updated

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

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

Reactions

No taper. More to come. 

And …

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

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

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

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

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

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

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

Read the full piece here.

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

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

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

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

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

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

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

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

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

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

Published via the Guardian News Feed plugin for WordPress.

New governor tells MPs his pledge to keep interest rates at record lows for up to three years has reinforced recovery. Carney points out that he is the only serving central bank governor among the G7 countries to have increased rates while heading the Bank of Canada…

 


Powered by Guardian.co.ukThis article titled “Bank of England governor Mark Carney rattled as he defends forward guidance” was written by Heather Stewart, for theguardian.com on Thursday 12th September 2013 11.17 UTC

The Bank of England governor, Mark Carney, has launched a staunch defence of his pledge to keep interest rates at record lows for up to three years, claiming that it has “reinforced recovery”.

Carney faced tough questioning from the cross-party Treasury select committee of MPs about the likely consequences of the monetary policy committee’s new “forward guidance” strategy.

But he insisted: “Overall, my view is that the announcement has reinforced recovery. It’s made policy more effective, and more effective policy is stimulative at the margin.”

The new governor also stressed that despite the MPC’s expectation that rates will remain on hold for up to three years, he would be ready to push up borrowing costs if necessary.

“I’m not afraid to raise interest rates,” he said, pointing out that he is the only serving central bank governor among the G7 countries to have increased rates – in his previous post, in Canada.

City investors have pushed up long-term borrowing costs in financial markets sharply since the MPC announced its new pledge to leave borrowing costs unchanged at 0.5%, at least until unemployment falls to 7%.

But Carney, who was handpicked by George Osborne to kickstart recovery and took over in Threadneedle Street at the start of July, at times appeared rattled. He said the recent increase in long-term rates, which sent 10-year government bond yields through 3% last week for the first time in more than two years, was “benign”.

He also repeatedly refused to be drawn on whether the new approach represented a loosening of policy – equivalent to a reduction in interest rates – in itself.

Carney denied that the new framework, involving “knockouts” if inflation appears to be getting out of control, is too complex. But Andrew Tyrie, the committee’s Tory chairman, complained that Carney’s account of the Bank’s new approach would be difficult to explain “down the Dog and Duck”.

Asked about the plight of savers, whose savings are being eroded by inflation with interest rates at rock bottom, the governor said he had “great sympathy”, but the best thing the Bank could do to help was to generate a sustainable economic recovery.

“Our job is to make sure that that’s not another false dawn, and ensure that this economy reaches, as soon as possible, a speed of escape velocity, so that it can sustain higher interest rates.”

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

Published via the Guardian News Feed plugin for WordPress.

FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria…

 


Powered by Guardian.co.ukThis article titled “FTSE hits four week high as Syrian tensions ease, but GlaxoSmithKline falls on competition fears” was written by Nick Fletcher, for theguardian.com on Tuesday 10th September 2013 16.01 UTC

Leading shares moved higher on more good economic data from China and hopes of a resolution to the Syrian dispute.

But GlaxoSmithKline missed out on the gains, falling 41.5p to 1598.5p on the prospective arrival of generic copies of its lung treatment Advair in the US, after draft guidance from regulators set out requirements for competitors.

Savvas Neophytou at Panmure Gordon said Glaxo’s prospects were still dependent on Advair, which accounted for around 18% of revenues and 25% of profits. He said:

Following the investigation on selling practices in China and the failed trial on cancer candidate MAGE-A3 last week, the group’s risk profile is increased with news overnight that the FDA had published draft guidance for the development of substitutable generic copies of combination inhaled drugs. This may result in increased competition to Glaxo’s biggest selling product Advair. In recent years, the risk of a directly substitutable generic in the US had subsided, with a number of draft recommendations withdrawn. To boot, GSK’s management has been more confident in dismissing the risk as relatively low probability.

Clearly generics will have to still undertake some sort of clinical trial (the length of which is yet to be determined) and that is onerous in the case of many generic manufacturers. Thus, in a worst case scenario, more competitors may enter the market but this is unlikely to become an 80%-90% discount generic market which is often the case when multiple generics are launched in pharmaceutical markets.

He kept his buy recommendation and £18.50 target:

Although not the cheapest, the company has been through the majority of its patent expiries, big liability settlements and boasts a strong balance sheet and very little M&A risk. With shareholder returns remaining strong, we remain buyers.

Reckitt Benckiser rose 81p to £44.45 despite a sell note from Liberum on worries about competition for its suboxone heroin substitute. Liberum said:

Orexo’s Zubsolv tablets, competition for Reckitt’s Suboxone film, will start retailing on September 16 with list prices as much as 25% below the price of Suboxone. We think consensus is wrong to assume no impact on Suboxone film earnings by 2014.

Overall the FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria. The other major concern troubling the market – when the US Federal Reserve might end its bond buying programme – could become clearer after next week’s Fed meeting.

Airlines benefited from the relaxation of Syrian tensions, as the oil price dipped. British Airways owner International Airlines Group climbed 14.3p to 319.8p while easyJet jumped 81p to £13.58.

A fall in precious metal prices – a traditional haven in times of worry – saw Randgold Resources lose 225p to £46.89 and Mexican miner Fresnillo fall 44p to £12.25.

But Glencore Xstrata added 7.45p to 328o.75p after revealing higher than expected cost savings from its recent merger.

Glencore finally completed its $46bn takeover of Xstrata four months ago and promised last year the deal would provide $500m of synergies, partly through selling Xstrata’s minerals and metals through Glencore’s marketing outlets. In a presentation to the City, the company said the savings would be quadrupled to $2bn. Not only will it cut costs, it will shelve risky projects and reduce capital expenditure.

Elsewhere Whitbread dropped 78p to £31.38 after investors took profits following signs of a slowdown at its Costa Coffee chain.

BG continued to slide after Monday’s production warning which accompanied a City presentation. Its shares fell another 12p to £12.05, and Neill Morton at Investec said:

This interesting seminar essentially expanded on themes set out in BG’s recent strategy presentation in May. As such, there was little to change our earnings forecasts. Unfortunately, the ‘new news’ on the day was the production warning for 2014 (Egypt, Norway, US) with possible knock-on effects into 2015. We lower our earnings forecasts by around 4% and expect BG’s latest warning to cast a cloud over near-term share price performance.

Among the mid-caps fund management group Ashmore was 19.3p better at 382.2p after full year profits rose 6% to a better than expected £257.6m. Chip designer Imagination Technologies rose 14.9p to 302p ahead of the launch of the new Apple iPhone while larger rival Arm added 23.5p to 941p.

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

Published via the Guardian News Feed plugin for WordPress.

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

 


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

Key event

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

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

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

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

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

Our correspondent in Athens, Helena Smith, reports:

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

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

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

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

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

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

The group also predicted slower growth in the months ahead:

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

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

Updated

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

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

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

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

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

Updated

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

He told Reuters:

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

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

Updated

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

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

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

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

As our G20 live blog explains:

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

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

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

Updated

Our Wall Street correspondent Dominic Rushe writes:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Taper off?

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

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

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

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

Market reaction

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

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

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

Some instant reaction:

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

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

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

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

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

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

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

US Non Farm Payroll released

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

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

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

More to follow!

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

G20 statement released

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

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

Updated

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

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

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

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

Updated

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

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

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

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

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

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

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

Non-farm payroll coming soon…

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

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

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

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

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

Updated

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

Updated

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

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

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

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

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

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

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

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

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

Greece’s Kathimerini newspaper has more details:

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

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

Updated

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

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

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

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

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

Updated

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

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

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

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

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

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

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

The disappointing UK trade and industrial production data this morning have prompted experts to warn that economic conditions in Britain, and beyond, may not be as rosy as hoped

Britain’s widening trade gap in July (9.40am )was primarily caused by a sharp drop in exports to countries outside the EU. Exports of all commodities except fuel fell during the month, the Office for National Statistics reported, led by a decrease in exports of “finished manufactures”.

Here’s the key points from the ONS release:

  • Seasonally adjusted, the UK’s deficit on trade in goods and services was estimated to have been £3.1bn in July, compared with a deficit of £1.3bn in June.
  • There was a deficit of £9.9bn on goods, partly offset by an estimated surplus of £6.8bn on services.
  • Exports of goods fell 7.6% on the month to £24.8bn for July 2013. Imports for the same period fell 1.0% to £34.7bn
  • In July 2013, exports of goods to countries outside of the European Union (EU) decreased by £2.2bn to £11.8bn. Exports to countries within the EU increased by £0.2bn over the same period to £13bn.

On a slightly longer-term view, imports outstripped exports over the last three months:

  • The deficit on trade in goods increased £0.3bn to £26.8bn in the three months to July 2013 from £26.5bn in the three months to April 2013. Exports of goods in the three months to July 2013 increased to £77.4bn and compared to the previous year, increased by 1.6%. Imports of goods also increased over the same period to a record high of £104.2bn and compared to the previous year, increased by 3.1%.

Updated

UK trade deficit widens and industrial production stays flat

Britain’s trade deficit more than doubled in July, and industrial production failed to grow as expected.

The data, just released, is a rare reversal for the UK after recent strong economic statistics that have suggested the recovery has legs.

The UK trade deficit in goods and services widened to £3.085bn, the worst monthly reading since October 2012. Twice as wide as June’s figure, it doesn’t suggest that that UK economy has moved into a more robust, manufacturing led revival as hoped (although these monthly readings are rather volatile).

Industrial production, meanwhile, was flat month-on-month in July, dashing hopes of a 0.1% rise. Within the data, manufacturing rose by 0.2% month-on-month, compared with hopes of a 0.3% rise.

More to follow……

There was drama in the Cyprus parliament last night where MPs rejected crucial legislation related to its bailout package, before eventually falling into line. 

A vote on laws to bring its ‘co-operation banks’ under the control of the Cypriot central bank was narrowly defeated, raising the sudden threat that its aid programme could be derailed. But after meeting late into the night, the legislation was finally approved:

Reuters reports:

 In a marathon voting session, legislators agreed to a clause enabling co-op banks to receive €1.5bn ($1.97bn) in bailout money.

In an earlier vote, it had been narrowly rejected by lawmakers from the island’s opposition left-wing parties, who oppose any bailout conditions.

Parliamentary approval for restructuring co-ops, which are small commercial lenders, is crucial to Cyprus receiving the next aid installment of €1.5bn from international lenders. The money will be ploughed into the lenders to recapitalise them. In a second vote in the early hours of Friday, parliament approved the restructuring of the co-ops, finance ministry sources said.

The second vote was in the great traditions of European Union democracy, argues Michael Hewson of CMC Markets:

There was two votes in the Cypriot parliament before politicians arrived at the “right” decision with respect to the latest bailout package in what has become a very European past time. If you don’t get the result you want in the first vote, vote again until you get the right outcome.

One more gobbet of economic news — UK house prices are rising at their fastest rate since 2010.

Halifax reported that prices jumped by 5.4% in the three months to August, compared with a year ago. However, the lender argues that the trend is slowing, as prices were only up by 0.4% last month compared with 0.9% in July.

Halifax housing economist Martin Ellis reckons:

Relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market. Overall, house prices are expected to rise gradually over the remainder of the year.

But while prices keep rising, critics of George Osborne will probably keep warning that the chancellor is fueling a dangerous housing bubble with his ‘help to buy’mortgage subsidy scheme.

French consumer confidence is also up, rising from 82 in July in 84 in August.

Best reading since April, showing a recovery from the record low of 79 high in May and June. Still some way to get back to the long-term average of 100, though…

There’s good news for Germany’s banks this morning. Moody’s has raised its outlook on the sector from negative to stable, which removes the threat of a downgrade.

The ratings agency said the move reflected “ a year of reduced crisis-related losses and improved capital strength”. It cited four reasons for the upgrade:

  • prospects of a stable operating environment due to an improving economy and benign credit environment;
  • continued strengthening of the banks’ capital buffers due, in part, to more stringent capital requirements;
  • the stabilising effect of an ongoing reduction in high-risk assets and deleveraging; and
  • improved refinancing structures and ample liquidity buffers, which imply low funding risk.

Here’s the full statement.

Another encouraging signal for the eurozone. Worth noting, though, that we’re still waiting for the ECB’s next stress test, or asset quality review, of euro area banks…

This morning’s early trade data shows that Germany’s trade surplus has shrunk, and France’s trade deficit has widened.

German exports dropped by 1.1 % in July, dashing economist expectations of a 0.8% rise. And with imports up by 0.5%, the German surplus narrowed to €14.5bn, from €15.8bn in June.

Stefan Schilbe at HSBC Trinkaus told Reuters it was “a disappointment”, adding:

But we can be hopeful that the picture will change for the better in coming months. Leading indicators in industrial states – from the United States to Britain and the euro zone states – are pointing upwards.

Arguably a Germany that imports a little more, and exports a little less, is good for the rest of the eurozone as it tries to rebalance its economy.

Over in France, the trade deficit widened to €5.109bn in July, from €4.484bn in June. The French Customs Office blamed a jump in imports due to higher energy costs, and supplies for its aerospace industry.

Waiting for Non-Farm

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

Today’s big event in the financial world is the latest US jobs data, which will be unleashed on an expectant financial world after lunchtime in Europe (1.30pm BST, or 8.30am New York time).

The non-farm payroll always makes a splash, as it shows how many new jobs were created (or lost) in the world’s biggest economy the previous month. Today’s number is pretty special – it could prompt America’s Federal Reserve central bank to start slowing its stimulus package, if it judges that the US economy is finally strong enough to take it.

Economists expect around 180,000 new jobs were created in the US last month (excluding the agriculture sector), up from 162,000 in July. But non-farm is notoriously tricky to predict….

This graph from Marketwatch shows the monthly non-farm payroll since the start of last year — job creation has been generally steady, rather than spectacular…

The implications of the Fed ‘tapering’ its $85bn bond-buying programme are significant for the world economy. Taper anticipation is one factor pushing up government borrowing costs (the UK 10-year gilt yield hit 3% yesterday, while 10-year bund yields are over 2%).

Also coming up today, we have trade data from key European countries and the latest UK industrial output stats. Germany has already reported a surprise drop in exports in July (more to follow…)

I’ll also be watching the eurozone closely, as speculation mounts over a future aid package for Greece in 2014….

Updated

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

Published via the Guardian News Feed plugin for WordPress.

According to the FOMC meeting minutes, “a few” officials were keen to make a move sooner and “a few” urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery…

 


Powered by Guardian.co.ukThis article titled “Fed minutes show cautious move towards end of economic stimulus” was written by Dominic Rushe in New York, for The Guardian on Wednesday 21st August 2013 19.56 UTC

The Federal Reserve inched nearer to reining in its bn-a-month economic stimulus programme last month, according to the minutes of its last meeting which were released on Wednesday. But the central bank did not give any clear indication about when that scaling back might begin.

The minutes of the Federal Open Market Committee (FOMC) meeting which took place late last month offered a mixed view on committee members’ willingness to ease back on the so-called quantitative easing (QE) programme. According to the minutes, “a few” officials were keen to make a move sooner and “a few” urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery. US stock markets were largely unchanged after the news was released.

Most FOMC members felt that growth in the economy would pick up in the second half of the year and further strengthen in 2014. According to the minutes: “A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June.” The minutes described recent economic data as “mixed”.

The Federal Reserve chairman, Ben Bernanke, indicated in June that the stimulus programme could be scaled back later this year, if economic data continued to be positive. The news sparked a sell off in the equity markets but despite some volatility they have remained close to record highs.

The QE programme, the Fed’s third round of bond buying, is intended to keep rates low and encourage investment in the economy in the hopes of driving jobs growth. Bernanke has given no clear indication when any tapering in the massive bond-buying programme could begin; economists have speculated that it could come as soon as September or be delayed until next year.

The summary of the 30-31 July meeting said that while “a few [committee] members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases”, a few others “suggested that it might soon be time to slow somewhat the pace of purchases”.

The signals from the US economy are broadly positive but there are still many concerns. Unemployment rates continue to inch down but remain relatively high. The Fed minutes said: “Private-sector employment increased further in June, but the unemployment rate was still elevated.” The US housing market appears to be on the mend but some have worried that a recent rise in interest rates could have an impact. “While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates,” the minutes said.

Bernanke is widely expected to announce his decision to resign as Fed chair. His third term comes to an end at the end of January 2014 and President Barack Obama has said that he will appoint a successor this autumn. Bernanke will hold a press conference after the FOMC’s next meeting, in mid-September.

The two most likely candidates to take over Bernanke’s job at present are the Fed vice-chair Janet Yellen and Larry Summers, a former Treasury secretary who is one of Obama’s closest economic advisers.

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

Published via the Guardian News Feed plugin for WordPress.

Eurozone inflation hits 1.6% y/y below 2% ECB target. Trade surplus in the 17-nation single currency area up to €16.9bn. Markets remain jittery despite end of eurozone recession. China and Japan revealed as biggest sellers of US Fed bonds…

This article titled “Stock markets jittery over fears Federal Reserve set to taper stimulus – as it happened” was published by and theguardian.com,

European markets are expected to open lower this morning, as investors remain jittery that the US Federal Reserve will start to cut its massive stimulus programme from September.

Asian markets are slightly down today, after the biggest one-day selloff in the Dow Jones and S&P 500 since June.

Investors remain fretful although members of the Fed say they are still making up their minds about cutting the $85bn bond-buying programme. A voting member of the monetary-policy-setting Federal Open Market Committee, James Bullard, said yesterday that he would like to see more data before reaching a decision.

As the Wall Street Journal (paywall) reports, he said:

We don’t have to be in a hurry to taper.

But as Michael Hewson of CMC Markets observes, this is not stopping investors from selling stocks:

It would appear that the weight of expectation surrounding an imminent tapering of asset purchases, along with a host of disappointing company earnings announcements, has prompted markets into thinking that a September taper is pretty much a done deal.

What makes this conclusion all the more surprising is that apart from yesterday’s weekly jobless claims, the economic data was by and large pretty disappointing, coming in below expectations across the board.

We are also expecting European inflation data at 10am.

I’ll be following all the latest developments today …

Updated

Oil prices ease off 4-month high

Investor worries over stimulus have also helped to bring down oil prices. Bloodshed in Egypt had sent the price of a barrel of Brent Crude to a four-month high of $111 on Thursday, but it has slipped back to $110.

Egypt is not a major oil supplier, but investors are worried that the unrest could destablise oil transport throughout the Middle East.

Egypt produces 728,000 barrels if oil a day, about 0.9% of global output, and accounts for 1.8% of the world’s gas supply. BP has said their oil production in Egypt is unaffected, although Shell has closed its office for a few days.

Meanwhile Tunisia, the north African country that was the cradle of the Arab Spring, has had its credit rating cut. As Fast FT reports, Standard and Poors have downgraded Tunisia’s sovereign rating by two notches from BB to B.

The rating agency said fears of terrorist attacks threatened Tunisia’s vital tourist industry.

We view the popular legitimacy of Tunisia’s transitional institutions as increasingly contested, jeopardizing the approval of a new constitution, holding of elections, and implementation of growth-promoting economic reforms.

Quote via Fast FT (metred paywall)

Updated

European markets flat

European markets have opened flat after yesterday’s losses.

UK FTSE: +0.09% at 6489 points

France’s Cac +0.19% at 4101

German Dax: -0.03% at 8374

Italy’s FTSE MIB: – 0.01% at 17,461

Spain’s Ibex: -0.01% at 8736

Updated

Shanghai market swings

Strange goings on on the Shanghai stock market today. The Shanghai Composite index closed 0.6% down, but not before an unexpected 6% surge in value earlier in the day.

Shanghai-listed Everbright Securities suspended trading of its shares and said it was investigating a problem with its operating system.

This morning, Everbright Securities strategic investment department’s proprietary trading bureau had a problem when using its own arbitrage system. The company is investigating and dealing with the issue.

Market watchers are blaming a lone trader with a “fat finger”.

Maersk cuts shipping forecast

Maersk is a bellweather for global trade.
Maersk is a bellwether for global trade. Photograph: Soren Lund Hviid/Alamy

Another sign of slowdown in the global economy? Maersk Line, the world’s biggest container shipper, has cut its forecast in demand for containers to 2-3%, down from 2-4%.

The Danish company accounts for 15% of the world’s shipping container capacity. Maersk’s profits still look healthy: it reported a $439m (£281m) profit for the second quarter of 2013, up from $227m a year earlier.

Updated

Money flows into the eurozone

The euro area notched up a trade surplus of €16.9 bn (£26.bn) in June 2013, the European Central Bank reported this morning.

This reflected €11.8 bn surplus for goods€8.7 bn services and €6.4 bn income. This was partly offset by a €10.1 bn deficit for current transfers . Figures are seasonally adjusted.

Updated

Eurozone inflation hits 1.6%

Eurozone inflation data is in, and was in line with expectations at 1.6% for July, making it the sixth straight month the rate has been below the ECB’s 2% target.

And below is a chart showing how the trade surplus has increased to €196.1bn compared with €66.1bn last year

Eurozone foreign trade for June
The eurozone’s current account balance has steadily increased over the last 12 months as the trade surplus hit €196.1bn or 2.1% of euro area GDP. Photograph: /ECB

Today’s excitement has got a bit much for Jennifer, who had to head off.

Simon Neville will now be taking over the blog for the rest of the day and attempt to bring you the rest of the day’s events.

Updated

Imports and exports continue to fall

While the trade surplus may have widened in June from last year, imports continue to fall.

Imports to the 17 countries using the euro fell 6% on the year for a second consecutive month in June, while exports extended their fall to 3% – a second monthly drop in a row.

Consumer prices fell by 0.5% on the month in July, with prices falling in all areas except services and energy costs.

New car sales up

Another sign of the unsteady recovery in Europe comes in the form of the car market, which recorded another mixed message.

Registrations of new cars in Europe jumped 4.8% in July compared with the same month a year ago, to 1.02m vehicles.

However, registrations in the first seven months of the year fell 5.2% to 7.46m.

One reason for the slight year-on-year increase was an extra working day in Germany’s motoring sector.

More euro-denominated bonds from Asian issuers?

Suggestions of a reduction to the US Fed’s quantitative easing programme has pushed five-year yields to 1.53% today, from 0.65% in May. By comparison the yield on a five-year euro mid-swaps has gone to 1.19% from 0.61%.

Some Asian bond issuers are now suggesting more euro-denominated bonds could be issued as a result.

One banker told Reuters: “There is no talk of tapering in Europe, so interest rate volatility should be smaller than in the [US] Treasury market.”

Cross currency basis swaps from euros to dollars has also improved, meaning that funding in euros is becoming cheaper for the many Asian issuers that routinely swap back to dollars.

China and Japan lead US Treasuries exodus

China and Japan have emerged as the leaders of an exodus from US Treasuries in June following the first signals from the US central bank that it could end its stimulus packages, new data shows.

The two nations accounted for nearly all the record $40.8bn of net foreign selling.

The sales were part of a $66.9bn of net sales by foreigners of long-term US securities in June – the fifth straight month of outflows.

China, the largest foreign creditor reduced its holdings to $1.276tn and Japan reduced its holdings for the third month in a row to $1.08tn.

Merkel win good for business

An interesting piece by Public Service Europe suggesting a Merkel win in the upcoming elections on September 22 will be good for business.

The article says:

The quarterly FT/Economist Global Business Barometer revealed that 60 per cent of 1,500 top business people polled believe the re-election of the centre-right leader would improve their confidence in Europe’s economic prospects. Just 16 per cent would be less confident in the region’s financial future following a Merkel victory.

It quotes Merkel telling German television:

I believe that in Europe at the moment we have to take care to coordinate our competitiveness more closely. We don’t have to do everything in Brussels. We can also consider whether we can give something back.

US housing starts rise

US housing starts and permits for future homes rose less than expected in July, suggesting higher mortgage rates could be slowing the housing market’s momentum.

Housing starts increased 5.9% to 896,000 units in July and June’s starts were revised up to 846,000 from 836,000.

However, the rise was lower than the expected 900,000.

Permits rose 2.7% in July to 943,000, slightly below the 945,000 expected.

Mortgage rates have risen in anticipation at the Fed’s tapering of its quantatative easing, expected to start next month. Builders have also complained that there is a shortage of labour and building materials.

One US residence with no problem finding building materials is the White House, which is installing solar panels on the roof.

An official told the Wall Street Journal the panels:

will help demonstrate that historic buildings can incorporate solar energy and energy efficiency upgrades.

Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha's Vineyard.
Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha’s Vineyard. Eva Hambach/AFP/Getty Images

Germany immigration

Contributor BigBlue80 points out the graph tweeted by @russian_market is from 2011 and points out emigration in Germany has actually fallen.

Emigration in 2008 was 734k while it was only 679k in 2011. Over the last decade the amount of people leaving Germany has been relatively steady at 600-700k.
Immigration has however increased: From 682k in 2008, 960k in 2011 and 2012 it was 1.1 million (net migration 400-500k).

Updated

US markets open

  • Dow Jones down 12.6 (0.08%) at 15100
  • S&P 500 down 2.3 (0.14%) at 1659
  • Nasdaq down 2.1 (0.06%) at 3604

US markets all open down slightly, after the largest decline on Wall Street in nearly two months yesterday.

If they close down today it would be the first back-to-back weekly decline since late June.