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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

European shares hit by worries over Greece and Italy, as US confidence dips – as it happened

A cafe in central Athens.
A cafe in central Athens. Photograph: Yannis Kolesidis/EPA

European shares fall as geopolitical fears grow

Europe’s stock markets have closed for the night, with the main indices losing ground.

The FTSE 100 and German DAX both fell by around 0.25%, while France’s CAC shed 0.5%.

Worries over Greece’s bailout haven’t faded, despite Alexis Tsipras hitting the phones in an attempt to reach a political solution with Angela Merkel and Emmanuel Macron.

Bild’s report that Greece might simply decline its next bailout loan, triggering a new debt repayment crisis this summer, has alarmed some traders - even though it has been robustly denied by Athens today. It’s a reminder that Greece’s debt crisis hasn’t gone away, with no sign of a serious debt relief deal.

Predictions of an early general election in Italy has also given investors some concerns.

Jasper Lawler of London Capital Group explains:

Talk that Italy will spice up Europe’s political landscape again with its own snap election is unsettling the idea that Europe is now free of populist risk in 2017. Former Italian Prime Minister Renzi has suggested Italy could hold simultaneous elections with Germany in September. Not to be left out, Greece may opt out of its next bailout if debt relief deal isn’t struck, adding to the potential for market disruption.

European assets need the three pillars of stronger economic data, higher political risk in the US and reduced political risk in Europe to outperform. Italy and Greece could are holding the sledgehammer that could knock down one of those three pillars.

European stock markets tonight
European stock markets tonight Photograph: Thomson Reuters

On Wall Street, the Dow Jones is down 0.2% following the drop in US consumer confidence this month.

But Amazon’s burst over the $1,000/share mark has pushed the Nasdaq a little higher.

Chris Beauchamp of IG says the tech stock boom has further to run.

Momentum traders clearly still think that the likes of Facebook and Amazon can go higher, however, with the Nasdaq 100 having gained almost a fifth so far this year.

Amazon has surpassed the $1000 mark this afternoon, an event that would mark the top in the market perfectly, but one that probably won’t. There seems to be no shortage of investors willing to jump on board this bandwagon.

After an early wobble, the pound is higher tonight after a new poll gave Theresa May a 12-point lead ahead of next week’s election.

Traders are also digesting an interesting research note from JP Morgan, which suggests that a hung parliament could actually be good for sterling.

Strategist Paul Meggyesi argued that a centre-left coalition could be welcomed by the City, if it would aim for a softer Brexit.

As he put it:

In the post-referendum world, all political developments need to be viewed through a Brexit prism and an argument can be made that a hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties (Labour/Lib Dems/SNP) might actually be sterling positive.”

And on that note, it’s time to wrap up. Thanks for reading and commenting. GW

Here’s some reaction to the US consumer confidence report, from Patrick Chovanec, chief Strategist at Silvercrest Asset Management.

Updated

US consumer confidence misses forecasts

Just in: US consumer confidence has fallen, raising concerns that the Trump Bump may be fading.

The monthly measure of consumer morale, from the Confidence Board, fell to 117.9 from 120.3 in April.

The survey found that consumers are less optimistic about future economic prospects, but also a little happier about the current conditions.

Analysts at Danske Bank say it’s a sign that confidence may have peaked:

But....Michael Pearce of Capital Economics says it’s “nothing to be worried about”.

He points out that consumer confidence is still high by historical standards, suggesting the economy is in decent health.

The index is still consistent on past form with consumption growth rising to over 4% annualised in the second quarter. Meanwhile, the current conditions index edged up in May, and is close to a 16-year high.

The details of the survey highlight that labour market conditions remain exceptionally tight. The balance of consumers reporting that jobs are easy to find remains high, and is consistent with the unemployment rate falling below 4% in the months ahead. Meanwhile, the net balance expecting their incomes to rise points to wage growth accelerating to around 3% annualised by the end of the year.

Amazon shares hit $1,000 mark

Amazon has just smashed another stock market landmark, as its surging rally continues.

Shares in the e-commerce, web streaming and cloud computing giant have just hit $1,000 for the first time ever.

Amazon share price

Astonishingly, Amazon’s shares have gained around 33% since the start of 2017 -- helping to drive the Nasdaq to a series of record highs.

Shares have dipped on Wall Street at the start of trading, as the New York stock market follows Europe’s lead.

Energy companies are under some pressure, after Goldman cut its oil price forecasts. It now expects Brent crude to average $55.39 per barrel this year, down from a previous estimate of $56.76/barrel.

Greek PM appeals to Merkel and Macron

The Greek prime minister’s office is reporting that Alexis Tsipras has hit the phones in calls aimed squarely at putting across Greece’s desire for some sort of debt agreement at the next euro group meeting on June 15.

The prime minister Alexis Tsipras spoke yesterday with the German chancellor Angela Merkel and the French president Emmanuel Macron, and just a little while earlier he had a telephone discussion with European Council president Donald Tusk.

A statement released from Tsipras’s office says:

The prime minister conveyed the position of the Greek side of the need for a clear solution to the issue of Greek debt and everyone agreed they would continue to work ahead of the euro group on 15 June.”

When the going has got tough, Tsipras has often tried in the past to bypass creditor institutions by seeking a political solution at prime ministerial level .....

Updated

Newsflash: US house prices are rising at their fastest pace in almost three years.

Prices across 20 key US cities jumped by 5.9% year-on-year in March, with low supply helping to keep prices buoyant.

That’s according to the S&P/ Case-Shiller index, which also found that overall prices rose by 5.8%.

Associated Press adds:

Home values are increasing at more than double the pace of average hourly earnings, making it more difficult for many people to afford to buy a home.

A steady job market has bulked up demand among many would-be buyers, but there are fewer properties on the market. Sales listings have plummeted 9 percent over the past year to 1.93 million, according to the National Association of Realtors.

Back in Athens, a government official has told my colleague Helena Smith that Greece “is not threatening anyone” over its bailout deadlock.

He reiterated Euclid Tsakalotos’s comments this morning, saying:

“There is no risk of default and please don’t make it seem as if there is one.

“Everyone is talking about Greece and so we felt that it was necessary to talk ourselves,” the official added, referring to the Greek finance minister’s decision to speak directly to foreign correspondents on Monday.

Tsakalotos also told the Guardian on the sidelines of Monday’s hastily arranged press conference that “we want to tell our side of the story.”

Asked if Greece could possibly reject the €7bn bailout loans due to be released, Tsakalotos insisted that “no-one” expected the disbursement to be a problem.

“It is already on a path ... it is already moving.”

But the Oxford educated economist had also said he did not want “to go into the tactics” Greece’s leftist led government might pursue.....

Updated

German inflation rate plunges to 1.4%

The German flag.

We have good news for German shoppers -- inflation in the eurozone’s largest economy has hit a five month low.

Germany’s Consumer Price Index rose by just 1.4% in May, sharply down from 2.0% in April.

That’s a bigger fall than expected, and means the cost of living is rising by less than the European Central Bank’s target of just below 2%.

This takes some of the pressure off the ECB to start unwinding its stimulus programme, says ING’s Carsten Brzeski.

The FT’s Mehreen Khan points out that German’s economy is enjoying a purple patch, with unemployment low and inflation so modest.

Greek finance minister blasts Bild over bailout report

Greece’s Finance Minister Euclid Tsakalotos last week
Greece’s Finance Minister Euclid Tsakalotos last week Photograph: Emmanuel Dunand/AFP/Getty Images

Greece’s finance minister has hit back at claims that Athens might waive its next bailout payment, a move which would trigger a new summer debt crisis.

Euclid Tsakalotos told Reuters that Bild, the German tabloid, had misinterpreted his call on Monday for Greece’s creditors to reach a deal next month or risk a new economic crisis.

Tsakalotos insisted that Athens is not considering waiving the €7bn loan which is due....over once all sides are happy about Greece’s economic reforms, and have agreed a debt relief strategy.

But Tsakalotos also stuck to his guns on debt relief, saying his government can’t support a deal that doesn’t tackle this issue.

He said:

“Bild has distorted what I said yesterday.

“What I did say is that the disbursement (of bailout money) was not an issue, because all sides agreed that we have kept to our commitment.

But the Greek government feels that a disbursement without clarity on debt is not enough to turn the Greek economy around.”

In the roundabout world of Greek bailouts, Athens needs to persuade its creditors to hand over this €7bn aid tranche in June, so that it can hand it straight back to its lenders in July when various bonds mature.

So if it were to ‘waive’ this loan, it would find itself in a very sticky situation this summer....

Updated

JP Morgan: Centre-left coalition could be positive for the pound

The threat of a “coalition of chaos” has been a major factor in Theresa May’s election campaign, as she urges voters to trust her to negotiate Brexit.

But JP Morgan have argued that a centre-left alliance could actually be positive for the pound, if it steered Britain towards a softer exit from the EU.

In a new research note, strategist Paul Meggyesi estimates that there is an 86% chance of a Tory majority, despite the “almost continuous decline” in the party’s lead over Labour since the election was called.

Meggyesi also believes that sterling wouldn’t necessarily crash if May suffered a shock rejection at the ballot box. Instead, the pound could actually rally if Jeremy Corbyn, Tim Farron and Nicola Sturgeon hammered out a coalition.

JP Morgan research

Meggyesi says:

A hung parliament would in more normal circumstances be viewed as quite negative for the British pound [GBP] – that was very much the experience of the 2015 election when GBP was braced for one of a myriad of potential coalition permutations only for GBP to jump by 3% once David Cameron secured an improbable narrow majority.

But in the post-referendum world, all political developments need to be viewed through a Brexit prism and an argument can be made that a hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties (Labour/Lib Dems/SNP) might actually be GBP positive.

FX investors might not exactly embrace various aspects of the Labour party’s domestic policy agenda (the renationalisation of certain sectors, a large fiscal expansion), but they could potentially live with these as the price of a less disruptive Brexit under a government that was more willing to preserve the status quo on free movement of labour and trade (the Lib Dems have also committed to holding a second referendum on the final terms of a Brexit deal)

Eurozone confidence drops, but remains high

Eurozone economic confidence remains close to its highest level since the financial crisis, new figures show, despite a dip this month.

The European Commission’s eurozone economic sentiment index fell to 109.2 in May, down from 109.7 in April, dragged down by a drop in service sector confidence

Economists had expected it to rise to a new 10-year high of 110.

But more encouragingly, confidence within the manufacturing industry rose, from 2.6 to 2.8.

Investors are blaming Mario Draghi, head of the European Central Bank, for the euro’s weakness this morning.

Draghi’s dovish appearance before the European Parliament yesterday are dragging on the single currency, despite the better economic news from France today.

Paresh Davdra, CEO of RationalFX, cites Draghi’s reluctance to unwind the ECB’s stimulus programme:

The euro has seen a difficult start to the week as it was hurt by fears over Greek debt, the prospect of an early Italian election and comments from ECB President Mario Draghi suggesting continued monetary support for the Eurozone.

It is Draghi’s comments in particular that have led the currency to slip, as increasing signs of economic recovery including positive data releases have led to analysts hoping that the ECB’s dovish policies may be narrowed down. After Macron helped the shared currency to rally, investors would have been hoping for the euro’s good fortunes to continue. Just as it is with the pound, political uncertainty has made the euro volatile, and analysts will be hoping that more stability lies ahead for the euro as events continue to develop.”

Sweden’s economy had a disappointing start to this year, new GDP figures show.

The Swedish economy grew by 0.4% in January-March, down from 0.7% in Q4 2016, and only half as fast as expected.

More here.

Here’s some reaction to this morning’s upbeat French economic data:

New inflation figures how that consumer prices across Germany rose at a slower rate this month:

We get the overall German inflation report at 1pm BST. And a low reading will strengthen the European Central Bank’s determination not to end its monetary stimulus programme too soon.

European stock markets have fallen in early trading, putting them on track for their fourth day of losses.

Worries over Greece’s bailout, a possible early Italian general election, and Mario Draghi’s cautious comments about the eurozone recovery are all weighing on shares.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Britain’s FTSE has lost 0.5%, partly thanks to IAG’s 4% slide. Mining stocks and banks are also losing ground:

Connor Campbell of SpreadEx says:

The FTSE was one of the worst performers after the bell, plunging more than half a percent to lurk just above 7500.

A 1% drop from copper – the metal is now at its worst price in a week and a half – weighed on the index’s mining stocks, while the ongoing British Airway’s chaos is hurting its parent IAG, which fell 3.5% as the session got underway. The UK banks were also all in the red, taking their cue from their Italian counterparts, which plunged on early election fears.

This morning’s selloff has wiped around £500m off IAG’s market capitalisation.

Updated

British Airways IT crisis hits IAG shares

Shares in British Airways’ parent company have slumped to the bottom of the London stock market this morning, after a long weekend of disruption.

International Airlines Group’s shares fell by 4% at the start of trading, as investors try to calculate the cost of the IT problems that disrupted hundred of flights.

IAG’s share price
IAG’s share price Photograph: Thomson Reuters

BA cancelled all its flights from Heathrow and Gatwick (London’s two largest airports) on Saturday, and there were further delays on Sunday as the airline battled to recover the situation.

Experts reckon the compensation bill could hit £100m, but the long-term impact of the crisis is hard to assess.

BA blamed a power supply outage, and denied that a cyberattack was to blame. But unions pointed out that BA has made hundreds of IT staff redundant recently.

Kathleen Brooks, research director at City Index, believes BA’s reputation could be significantly damaged by the crisis:

Even if you give BA the benefit of the doubt it still looks bad, if their systems are not strong enough to withstand a power surge, then this sort of thing could happen again, which could add downward pressure to the IAG stock price.

Although cost cutting has been good for the share price in the last year, it will come back to bite IAG if it stops them from doing what they are supposed to do: fly passengers to their destinations.

Greece’s government has scrambled to deny Bilt’s report that it might default on its next debt repayment in July.

Reuters has the details:

A Greek government spokesman denied a German newspaper report on Tuesday that it was considering opting out of a loan repayment in July if lenders could not agree on debt relief.

“It is not true,” government spokesman Dimitris Tzanakopoulos told Reuters. “There will be a solution on June 15.”

French growth revised up to 0.4%

Newsflash: France’s economy is growing faster than first estimated.

Statistics body INSEE has reported that French GDP expanded by 0.4% in January-March, up from the 0.3% first estimated.

That means France grew twice as fast as the UK in the first three months of this year.

And in another boost for new president Emmanuel Macron, French consumer confidence is now rising at its fastest rate in a decade.

INSEE’s index of consumer morale has jumped to 102 in May, up from 100 in April, wth households saying they’re more optimistic about the economic situation.

Euro falls as Greek debt fears mount

Growing concerns over Greece’s bailout programme are weighing on the euro this morning.

The European single currency has shed almost 0.5% to $1.113, on concerns that Athens and its creditors may not reach an agreement over its bailout programme in time.

Overnight, finance minister Euclid Tsakalotos warned that Greece’s delicate recovery would be derailed if eurozone finance ministers didn’t agree to release its next loan in June.

Tsakalotos told journalists in Athens that Greece deserves to be given the debt relief promised by its lenders, if it stuck to its austerity programme.

He said it is now vital that a real is reached on June 15, adding:

“We can’t accept a deal which is not what was on the table.

What was on the table was if Greece carried out its reform package then creditors would ensure that there would be a clear runway through clarity for debt.”

Greece had hoped to receive its latest bailout payment this month, but eurozone ministers couldn’t reach an agreement with the International Monetary Fund.

Athens faces €7bn of debt repayments this summer, so there is concern that the eurozone debt crisis could flare up again soon.

Germany’s Bilt newspaper is claiming this morning that it might ‘skip’ its next bailout payment, if a deal on debt relief hasn’t been reached. That’s added to the anxiety this morning:

The euro is also suffering from worries over Italy, where former prime minister Matteo Renzi is pushing for early elections - perhaps in September.

Updated

The agenda: Election weighs on the pound; eurozone data

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

The pound is dipping in early trading today as anxiety over next month’s general election continues to build.

Sterling is down 0.2% this morning at $1.281, after a new opinion poll showed that the Conservatives have a lead of just six percentage points over Labour.

After a similarly tight YouGov poll last week, City investors are less confident

Last night, prime minister Theresa May and Labour leader Jeremy Corbyn both faced off against veteran political journalist Jeremy Paxman.

Both sides are (predictably) claiming victory, after a robust (but not desperately enlightening) encounter that saw Corbyn deny being a dictator, and May accused of being “a blowhard who collapses at the first sign of gunfire”.

The London stock market is expected to drop a little when trading resumes after the Bank Holiday weekend, having hit a record high on Friday night.

We also get a raft of new eurozone economic data this morning, that may show if the European recovery is on track.

Here’s the agenda:

  • 7.45am: The second estimate of French GDP for Q1 2017 is released.
  • 10am: Eurozone economic confidence figures for May are published; economists expect another strong reading
  • 1pm: German inflation figures for May are published, and may show that the CPI rate fell to 1.6%, from 2% in April
  • 2pm: The S&P/Case Shiller index of US house prices is released
  • 3pm: US consumer confidence figures for May

Updated

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