World news

Upbeat mood in Britain contrasts with pessimistic eurozone surveys. Fears of recession in France grow. Eurozone composite PMI remains in expansion territory above the 50 mark at 51.5, but declines from October’s level of 51.9…

 


Powered by Guardian.co.ukThis article titled “UK manufacturing expands at fastest rate since 1995″ was written by Heather Stewart, for theguardian.com on Thursday 21st November 2013 13.32 UTC

Britain’s manufacturing sector is expanding at its fastest pace for 18 years as new orders pour in, according to a new survey, rekindling hopes for a rebalancing of the economy.

The Confederation of British Industry’s monthly industrial trends survey shows manufacturing orders and output both at their highest level since 1995.

The CBI said that 36% of firms reported their order books were above normal, with 25% saying they were below normal. The resulting balance of +11% was the strongest since March 1995. Similarly, the positive balance for firms’ level of output, at +29%, was the strongest since January 1995.

Stephen Gifford, the CBI’s director of economics, said: “This new evidence shows encouraging signs of a broadening and deepening recovery in the manufacturing sector. Manufacturers finally seem to be feeling the benefit of growing confidence and spending within the UK and globally.”

The coalition will be encouraged to see signs of a revival in British industry, after fears that the economic recovery has so far been too reliant on consumer spending and an upturn in the housing market.

The chancellor of the exchequer, George Osborne, has said he would like to see a “march of the makers”, helping to double exports by the end of the decade, so that Britain can “pay its way in the world”.

Business surveys have been pointing to a revival in manufacturing for some time, but it has only recently begun to be reflected in official figures, which showed a 0.9% increase in output from the sector in the third quarter of 2013, driven primarily by the success of carmakers. However, output from manufacturing remains more than 8% below its peak before the financial crisis.

News of the upbeat mood among manufacturers in the UK contrasts with more pessimistic surveys from the eurozone where the so-called “flash PMIs” suggest that the economic recovery is petering out in several countries, including France.

While the composite PMI for the eurozone remains above the 50 mark at 51.5, this is a decline from October’s level of 51.9, suggesting that while the eurozone economy as a whole has not slipped back into recession, the pace of growth appears to have slowed.

Chris Williamson, of data provider Markit, which compiles the survey, said: “The fall in the PMI for a second successive month suggests that the European Central Bank was correct to cut interest rates to a record low at its last meeting, and the further loss of growth momentum will raise calls for policy makers to do more to prevent the eurozone from slipping back into another recession.”

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USA 

Pressure mounting on Republicans to make deal. Investor confidence appears to hold. Senate action expected. Live blog coverage of Congress’ attempt to reopen the US government and steer the world’s biggest economy clear of the default cliff…

 


Powered by Guardian.co.ukThis article titled “US pushed to brink of default as hopes hang on bipartisan Senate deal – live” was written by Tom McCarthyin New York, for theguardian.com on Wednesday 16th October 2013 13.26 UTC

The Senate convenes at noon today. The House is scheduled to meet at 10am. President Obama is scheduled to have lunch with vice president Biden and has meetings today with his secretaries of treasury and state.

Good morning and welcome to our live blog coverage of Congress’ attempt to reopen government and steer clear of the default cliff.

Tuesday was a bad day on Capitol Hill. It began with hopes for a bipartisan Senate deal. Then House Republicans announced they were going to make a deal of their own. ”Whatever proposal we move forward will reflect our emphasis on fairness,” majority leader Eric Cantor said. But there was no proposal to follow. The leadership could not bring the hard-right faction on board.

Today begins with hopes for a bipartisan Senate deal. The Wall Street Journal has published an editorial telling Republicans that enough is enough: “Republicans can best help their cause now by getting this over with and moving on to fight more intelligently another day,” the paper concludes. The conservative National Review reports that GOP members indeed are ready to just “get it over with”.

The markets showed a bit of queasiness in yesterday’s tumble-jumble, but declined to panic.

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Senate leaders join struggle to find passable bill. Stock markets only mildly perturbed. “Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports…

 


Powered by Guardian.co.ukThis article titled “US shutdown: Congress reconvenes after weekend of choppy talks – live” was written by Tom McCarthyin New York, for theguardian.com on Monday 14th October 2013 15.31 UTC

Texas Senator Ted Cruz, whose quixotic campaign to “defund” Obamacare was the stick in the spokes that got us here, could – could – cause a default all by himself, Joshua Green reports in Bloomberg BusinessWeek:

How could this happen? Because the Senate can move quickly when necessary–but only by unanimous consent. Let’s say Harry Reid and Mitch McConnell strike a deal today (that’s looking unlikely). Cruz surely won’t like it and has said repeatedly, “I will do everything necessary and anything possible to defund Obamacare.” If he’s true to his word, he could drag out the proceedings past Thursday and possibly well beyond. “If a determined band of nut jobs wants to take down the global economy, they could do it,” says Jim Manley, a former top staffer for Reid. “Under Senate rules, we are past the point of no return–there’s not anything Reid or McConnell could do about it.”

Read the full piece here. There’s no indication that Cruz is that crazy?

“Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports.

Updated

Congress won’t act until markets panic, they say. Comforted by the implication that Congress can and will act, markets don’t panic. But Congress won’t act until markets panic. Comforted by…

Anatomy of a deal

How might an eventual deal look? What are the sticking points?

Congress must decide how long to extend the debt limit and how long to fund the government for. Legislators must also decide the level at which to fund government – whether or not to retain the deep “sequester” cuts that took effect on March 1, and for how long.

Republicans would like a shorter debt limit extension in order to maintain leverage in budget negotiations. Democrats would like a shorter-term funding bill in order to accelerate the end of the sequester, which chunked $85bn off the budget between March and October.

At the end of September, Senate Democrats passed conciliatory legislation that would have funded the government at sequestration levels through November – but the bill was rejected by House Republicans. Token Conservative New York Times columnist Ross Douthat retold the history in a recommended Twitter lecture on Sunday:

But now the “original” potential deal to keep government open over the short term at sequester levels is gone, and everything seems back in play. The distance between the two sides on the debt limit extension and the term of the spending bill is a matter of months, NBC’s John Harwood reports:

The Washington Post’s Greg Sargent sees a possible deal by which Democrats would demand the destruction of the debt ceiling as a counterweight to Republican demands on spending:

So here’s what Dems should do. If Republicans refuse to budge off their insistence on lower spending levels, Dems should call their bluff by demanding a permanent disabling of the debt limit as an extortion tool as part of any short-term compromise. (Yes, Republicans will say No. But bear with me.)

If, somehow, a deal is reached this week in the Senate that involves Republicans giving ground on spending levels, Dems should make the push for a permanent disabling of the debt limit a key goal in the next round of formal, long term negotiations.

In the short term, if Dems accept sequester level spending into early next year in exchange for permanent disabling of the debt limit, it would not be an awful outcome.

Read the full piece here.

Senator Joe Manchin of West Virginia, a centrist Democrat, offered a relatively optimistic view of the negotiations this morning on CNN. Talking Points Memo caught the spot:

“I think we’re 70-80% there, putting the extra 20-25% to it,” Sen. Joe Manchin (D-WV) said Monday on CNN.” “When should the (continuing resolution) come due, when should the debt ceiling come due, and does that give that time for the budget conference, the budget committees to sit down and work through this? Those are the details that have to be worked out.”

Updated

Leaders of the World Bank and IMF warned at a meeting in Washington DC Sunday of the disastrous consequences of a US default, the New York Times reports. Some damage has already been done, as borrowing costs for the United States – over the short term, at least – are creeping up.

Christine Lagarde, managing director of the International Monetary Fund, warned of “massive disruption the world over” if the United States plunges into default. At the start of the month she said it is “‘mission-critical’ that [the US default risk] be resolved as soon as possible.”

From the Times report on the Washington meeting:

Participants at the meetings remained on edge, given the gravity of the threat. Ms. Lagarde said “that lack of certainty, that lack of trust in the U.S. signature” would disrupt the world economy.

Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. “The fiscal standoff has to be resolved without delay,” he said in a statement released by the I.M.F.

Read the full piece here.

The Dow Jones Industrial Average opens the day down just a bit, about a half-percent. The bets are still on, for now.

President Obama spoke yesterday with House minority leader Nancy Pelosi, and the two party leaders in the Senate – Democrat Harry Reid and Republican Mitch McConnell – have been holding talks through the weekend that were expected to resume this morning.

Talks between the president and the House Republican leadership – so hopeful as of Friday evening – foundered on Saturday. “No deal” Wisconsin Rep. Paul Ryan told reporters at the Capitol.

The needle they’re collectively trying to thread is legislation raising the debt ceiling that would be acceptable to both Senate Democrats and House Republicans. The current legislation thought to be under discussion would also provide for reopening government and settle a budget through the New Year.

If a catchall deal proves unworkable, Congress may have to pass the debt limit bill separately. However it may actually be easier to pass a catchall deal, because there are more variables and thus more room for negotiation – and compromise.

Guardian Washington correspondent Dan Roberts (@RobertsDan) is tracking the action:

Democrat majority leader, Harry Reid, appeared briefly in the Senate to say he had a “productive and substantive” discussion with Republican Mitch McConnell and was optimistic about a deal, but suspended public proceedings until 2pm on Monday while his backroom talks continued.

The only outward sign of movement from the White House came in a Sunday afternoon phone call with House minority leader Nancy Pelosi, in which President Obama reiterated his insistence on Republicans agreeing to end a government shutdown and extend the debt ceiling before he would negotiate any budget concessions.

Read the full piece here.

Early Halloween.

Good morning and welcome to our live blog coverage of yet another moment of truth in Washington. If the nation’s legislators can’t cut a deal soon – they have a day or two; just exactly how long is a matter for debate – then we get to find out if Warren Buffett was just being a hysterical ninny when he compared default to “a nuclear bomb”.

Negotiations through the weekend failed to produce a deal, or clear a pathway to a deal. Since Friday, talks between House Republican leaders and the White House have fallen apart, and talks between the party leaders in the Senate have sprung up. The House is scheduled to convene today at noon, the Senate shortly thereafter.

The top priority for Congress is to pass legislation that would raise the debt limit sufficiently to fund the Treasury’s accounts payable. They also need to pass a bill to reopen the federal government, which has been partially shuttered for 14 days now (it closed on 1 October). In the current environment, having the government closed is only Code Orange. The debt limit is the Code Red bit.

Investors are holding their breaths to see what the stock market will think of the weekend’s dithering. Knowledgable analysts have suggested that a stock market crash may be the most likely spur to get Congress to actually act. The bond market is closed Monday for the Columbus Day holiday, but stocks are open. The Dow still was relatively unbothered by the crisis on Friday.

The Treasury has said the “extraordinary measures” it has taken since May to cover expenses will be exhausted Thursday, at which point the government will be operating on about $30bn cash on hand and a prayer, with neither expected to last long

Updated

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Meetings intensify as shutdown enters 11th day. Public blames unpopular Republicans, poll shows. Negotiations thought to include larger budget issues. Senate majority leader Harry Reid proposed to vote on a bill to extend the debt ceiling until the end of 2014…

 


Powered by Guardian.co.ukThis article titled “Senate Republicans meet with President Obama for shutdown talks – live” was written by Tom McCarthy, for theguardian.com on Friday 11th October 2013 16.00 UTC

No votes are scheduled in the House today. But it’s open. They could ramp up any time.

In the Senate, majority leader Harry Reid moved Thursday evening to vote on a bill to extend the debt ceiling until the end of 2014. That legislation, or a version of it, could work its way into a broad agreement between the sides, although Republicans have rejected the idea of adding so much headroom.

The headroom, lest anyone needs reminding, is currently running out fast:

What’s a “spending cut”? 

Updated

The Republicans have arrived to the White House, CBS News reports.

Anatomy of a deal

The White House has said repeatedly that the president will not enter budget negotiations until Congress reopens the government. Those negotiations now appear to be happening.

The question is, if a deal emerges, will it require Republicans to pass the stopgap spending bill the Senate passed on 27 September with no add-ons pertaining to Obamacare or anything else – “clean,” as they say?

And what will the Republicans require in return for doing so? “We need to get something for the [continuing resolution] and something for the debt ceiling,” Rep. Raul Labrador of Idaho has explained.

One of the leaders of the negotiations on the Republican side is Paul Ryan, the former vice presidential candidate and reputed budget wonk. “Suddenly a man who seemed in danger of being eclipsed as the face of his party has re-emerged as essential to its rescue,” New York Times congressional reporter Jonathan Weisman writes. So what does Ryan want?

Ryan laid out areas for negotiation in a Wall Street Journal editorial Tuesday. They are Medicare (means-testing for relatively affluent recipients); federal pensions (cutting them) and taxes. He also alluded to the Keystone pipeline which would connect Canada “tar sands” oil deposits to the Gulf coast with dire environmental implications.

Ryan did not mention Obamacare, significantly, meaning a plan he brokers could encounter resistance from the hard-right House faction for whom destroying the law is a top priority. The health care law is partially paid for by a tax on medical devices. The deletion of the tax as part of a deal would allow the Tea Party to claim it had dealt the law a blow.

Democrats have been insisting all week that even a “clean” stopgap spending bill is not great for Democrats because it extrapolates from base spending levels that take into account the “meat-cleaver” sequester cuts. When sequestration becomes part of the new normal, there’s an argument to be made that the Republicans have won, no matter how bad their numbers are.

The chairman of the House appropriations committee said Republicans will test the president on his vow only to cut a budget deal on the condition that government reopens, Bloomberg Business week reports (via @robertcostaNRO):

Obama “would like the shutdown stopped,” Representative Hal Rogers, a Kentucky Republican, said after the White House session. “We are trying to find out what it is he would insist upon” in a spending measure to open the government.

What will they get?

Guardian Washington bureau chief Dan Roberts says Senator Ted Cruz, the grandstanding outspoken Tea Party standard-bearer, will be among Senate Republicans attending today’s meeting with the president.

Invited to horse-trade with the president. Not bad for someone who’s only held national elected office for 10 months.

Welcome to our live blog coverage of renewed activity on Capitol Hill to end the government shutdown and lift the debt ceiling. 

They seem serious this time. A meeting Thursday afternoon between House Republican leaders and the president produced late-night talks on what could be a broad deal. Big budget questions appeared to be on the table, in addition to the two emergencies. A pair of influential House Republicans, the chairmen of the appropriations and budget committees, said publicly that the talks had legs. The White House said the president “looks forward to making continued progress.”

Shelved was the Republican “offer” of Thursday morning to temporarily raise the debt limit. Gone was the notion that the Tea Party would redouble its fight to cripple Obamacare. House Republicans left a Friday breakfast talking about passing a stopgap spending bill to reopen the government, according to Robert Costa of the National Review. That step previously seemed beyond reach because of the strength of hard-right resistance.

Coincidentally, NBC News and the Wall Street Journal released one of their regular polls Thursday evening showing that the Republican party had, through the shutdown and default brinksmanship, achieved its worst rating in the history of the poll: 24% positive, 53% negative. The poll said the public blames Republicans more than the president for the shutdown by a margin of 53-31. The poll showed that Obamacare is rising in popularity.

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Greece ‘backsliding in democracy’ in face of joblessness, social unrest, corruption and disillusion with politicians, says thinktank. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc…

 


Powered by Guardian.co.ukThis article titled “Greece’s democracy in danger, warns Demos, as Greek reservists call for coup” was written by Helena Smith in Athens, for The Guardian on Thursday 26th September 2013 19.27 UTC

No country has displayed more of a “backslide in democracy” than Greece, the British thinktank Demos has said in a study highlighting the crisis-plagued country’s slide into economic, social and political disarray.

Released on the same day that judicial authorities ordered an investigation into a blog posting by an elite reservist group linked to Greece’s armed forces calling for a coup d’etat, the study singled out Greece and Hungary for being “the most significant democratic backsliders” in the EU.

“Researchers found Greece overwhelmed by high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” it said. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc and voiced fears over the rise of far-right extremism in the country.

The report was released as the fragile two-party coalition of the prime minister, Antonis Samaras, admitted it was worried by a call for a military coup posted overnight on Wednesday on the website of the Special Forces Reserve Union. “It must worry us,” said a government spokesman, Simos Kedikoglou. “The overwhelming majority in the armed forces are devoted to our democracy,” he said. “The few who are not will face the consequences.”

With tension running high after a crackdown on the neo-Nazi Golden Dawn party, a supreme court public prosecutor demanded an immediate inquiry into who may have written the post, which called for an interim government under “the guarantee of the armed forces”.

The special forces reservist unit who issued the social media call – whose members appeared in uniform to protest against a visit to Athens by the German chancellor, Angela Merkel – said Greece should renege on the conditions attached to an international bailout and set up special courts to prosecute those responsible for its worst financial crisis in modern times. Assets belonging to German companies, individuals or the state should be seized to pay off war reparations amassed during the Nazi occupation.

Underscoring the social upheaval that has followed economic meltdown, the blog post argued that the government had violated the constitution by failing to provide adequate health, education, justice and security.

Insiders said the mysterious post once again highlighted the infiltration of the armed forces by the extreme right. This week revelations emerged of Golden Dawn hit squads being trained by special forces commandos.

Fears are growing that instead of reining in the extremist organisation, the crackdown on the group may ultimately create a backlash. The party, whose leaders publicly admire Adolf Hitler and have adopted an emblem resembling the swastika, have held their ground in opinion polls despite a wave of public outrage over the murder of a Greek rap musician, Pavlos Fyssas, by one of its members. Golden Dawn, which won nearly 7% of the vote in elections last year and has 18 MPs in Athens’ 300-member parliament, has capitalised more than any other political force on Greece’s economic crisis. “Much will depend on how well it will withstand the pressure and they are tough guys who seem to be withstanding it well,” said Giorgos Kyrtos, a political commentator.

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

 


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

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

Fab Goria tweets the key points:

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

Updated

Greek government pleads for more time over public sector layoffs

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

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

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

Helena writes:

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

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

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

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

He said:

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

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

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

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

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

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

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

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

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

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

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

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

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

Video: Top banker under fire over Libor answers

The Libor scandal has taken another twist this afternoon. 

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

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

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

Here’s the full email chain

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

Greece threatened with demotion, again

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

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

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

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

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

Updated

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

Here’s a flavour:

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

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

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

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

Updated

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

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

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

No rush for the Bank’s probing Paul Tucker

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

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

Katie writes:

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

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

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

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

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

Tucker adds:

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

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

Tucker again:

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

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

Tucker says:

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

And where does all that leave policymaking?

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

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

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

Updated

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

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

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

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

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

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

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

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

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

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

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

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

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

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

More here.

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

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

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

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

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

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

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

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

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

Updated

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

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

Here’s the lunchtime prices:

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

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

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

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

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

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

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

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

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

OECD chief: global economy is slowly recovering

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

Kathimerini explains:

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

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

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

Here’s AP’s take:

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

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

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

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

Reminder — there’s analyst reaction here.

Updated

UK mortgage approvals at highest since December 2009

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

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

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

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

Houses beating households, London edition

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

Updated

IFO: What the experts say

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

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

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

I’ve taken the quotes off the Reuters terminal:

Thomas Gitzel, VP Bank:

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

Ralf Umlauf, Helaba:

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

Christine Volk, KfW

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

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

Ben May, Capital Economics

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

Updated

German business climate improves, but misses forecasts

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

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

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

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

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

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

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

Reaction to follow….

Updated

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

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

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

Morning all.

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

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

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

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

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

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

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

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

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

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

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

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

Merkel’s coalition struggle

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

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

Seehofer told reporters last night that:

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

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

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

As Bloomberg puts it:

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

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

Updated

Caution over German coalition talks

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

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

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

As Michael Hewson of CMC Markets puts it:

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

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

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

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

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

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

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

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

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

Updated

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

 


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

Here’s some Friday night ratings action:

On Malta Fitch said:

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

And on Croatia being cut to junk:

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

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

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

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

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

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

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

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

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

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

Dow Jones opens lower after Fed taper comments

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

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

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

Updated

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

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

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

Updated

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

Reuters writes:

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

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

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

That’s the spirit.

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

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

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

Updated

Forsa: German election is neck-and-neck

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

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

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

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

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

My colleague Katie Allen explains all:

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

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

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

Katie continues:

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

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

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

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

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

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

Or as one fund manager puts it:

Updated

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

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

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

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

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

Updated

Speaking of eurosceptics….

Italy cuts growth targets

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

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

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

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

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

On that point….

Updated

AP: Tight fight in Germany

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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

Updated

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

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

Updated

Corporate news

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

More here: OFT probes sports bra price fixing

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

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

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

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

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

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

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

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

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

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

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

Updated

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

Anjali Verma, chief economist at PhillipCapital:

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

Anubhuti Sahay, economist at Standard Chartered:

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

Abheek Barua, chief economist at HDFC Bank:

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

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

India battles inflation with surprise rate hike

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

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

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

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

As Rajan put it in today’s statement:

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

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

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

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

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

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

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

Updated

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

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

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

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

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

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

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

Updated

On the campaign trail….

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

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

Updated

German election looms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated

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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.”

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

 


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

Summary

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

Bernanke says there are signs quantitative easing is working: 

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

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

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

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

Then easing can end.

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

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

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

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

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

The markets really like it. 

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

Bernanke is asked whether he’s leaving:

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

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

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

The criteria include an improved labor market including lower unemployment.

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

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

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

Updated

Bernanke says low job market participation is partly cyclical:

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

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

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

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

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

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

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

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

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

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

Bernanke says there are signs the economy is improving.

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

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

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

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

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

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

Updated

Bernanke is speaking. Watch live on CSPAN here.

Anything to instill confidence?

Updated

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

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

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

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

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

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

Try, try again. And again. And

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

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

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

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

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

Read the full Fed statement here.

The markets like it.

Updated

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

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

Reactions

No taper. More to come. 

And …

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

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

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

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

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

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

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

Read the full piece here.

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

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

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

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

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

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

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

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

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

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

 


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

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

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

She writes:

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

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

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

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

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

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

Updated

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

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

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

It’s been a huge success.

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

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

Market update: European share at five-year high

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

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

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

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

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

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

Stephen Lewis of Monument Securities thinks not.

Here’s his reasoning:

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

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

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

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

Updated

Helena Smith: Anger on the streets of Athens

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

One police official told Reuters:

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

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

Here’s Associated Press’s early take:

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

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

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

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

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

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

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

More details here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As Draghi puts it:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

From his morning note to clients:

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

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

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

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

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

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

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

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

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

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European markets hit five-year high

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

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

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

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

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

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

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

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

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Summers end drives European markets higher

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

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

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

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

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

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

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

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

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

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

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

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

More here: Larry Summers withdraws name for Federal chairmanship

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…while fastFT have swiftly rounded up the currency movements:

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

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

The agenda

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

Here’s an agenda:

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

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

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

• Greek teachers strike over austerity cutbacks – all day

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

Markets to surge on Summers withdrawal

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

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

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

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

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

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

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

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

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

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

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

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