And finally, the head of Europe’s bailout mechanism is dropping some hints that Greece could potentially return to the financial markets.
Klaus Regling, head of the European Stability Mechanism, says it would be wise for all involved to remember that Greece hopes to finance itself once its bailout ends.
But speaking after the eurogroup meeting wrapped up in Brussels, Regling also warned Athens that investors will need confidence that it is sticking to its economic reforms.
#ESM #Regling: It’s important to have a long term strategy for the market return as a regular issuer and to communicate it. #Greece
— ESM (@ESM_Press) July 10, 2017
#ESM #Regling: Investors need to know that #Greece will remain committed with the current policy agenda of reforms
— ESM (@ESM_Press) July 10, 2017
#ESM #Regling: #Greece has a primary surplus of 0.7% of GDP and will not need to tap the markets for budget financing
— ESM (@ESM_Press) July 10, 2017
And that’s all for tonight. GW
After a less than riveting session, European stock markets closed a little higher tonight.
In London the FTSE 100 ended 19 points higher at 7370. The smaller FTSE 250 finished in the red, though, dragged down by poor old Carillion (which lost 40% after that dire profits warning).
The German DAX closed almost 0.5% higher, thanks to those trade surplus figures, while the French, Spanish and Italian markets also gained ground.
European Closing Prices:#FTSE 7370.03 +0.26%#DAX 12445.92 +0.46%#CAC 5165.64 +0.40%#MIB 21190.67 +0.84%#IBEX 10509.5 +0.20%
— IGSquawk (@IGSquawk) July 10, 2017
Greece celebrates feta-ccompli!
Back in Greece, prime minister Alexis Tsipras has been sounding a triumphant note at the victory the country has secured in its battle to ensure that feta is sold as a purely Greek product
Under the Economic Partnership Agreement the EU has signed with Japan, production of the white briny curd like cheese has been included in the 205 protected “geographical indications”, meaning only feta from Greece will now be sold under that name.
“Whoever negotiates with a plan, achieves his goals,” the leftist leader said after holding talks with the national economy and development minister Dimitris Papadimitriou and the Agriculture and Food Minister Vangelis Apostolou.
Με σχέδιο, σοβαρότητα και επιμονή πετύχαμε την προστασία της ονομασίας προέλευσης για την ελληνική φέτα. https://t.co/ADcPHq6k5S
— Prime Minister GR (@PrimeministerGR) July 10, 2017
Updated
Greece gets its aid tranche at last
Newsflash from Brussels: the Eurozone’s bailout vehicle has finally disbursed Greece’s long-awaited loan tranche.
That facility, worth €7.7bn, is needed by Athens to repay earlier borrowings that mature this summer.
But as Helena Smith reports, Greece’s finance minister isn’t actually attending today’s euro group meeting ....
She writes:
Tongues are wagging in Athens at the rare sight of a euro group starting without a Greek finance minister attending.
Never mind that it is one hundred plus euro groups into the Greek crisis, today’s is being noticed precisely because Euclid Tsakalotos, the country’s finance minister, will not be attending. Instead it is George Chouliarakis, the Greek minister’s deputy, who has shown up for the meeting. Tsakalotos is said to have come down with a painful ear infection.
The Greek finance minister @tsakalotos will not attend the #Eurogroup cause he suffers painful otitis
— Thanasis Koukakis (@nasoskook) July 10, 2017
But there is talk that the Oxford-educated economics professor may also have decided to stay away because Greece, for once, is not on the agenda. After year of waiting for a long-stalled compliance review to be completed, the debt-stricken country just received €7.7bn today – the first instalment of a third tranche of financial assistance approved by the European Stability Mechanism (ESM) on Friday.
What comes in, of course, will go straight out with €6.9bn being used for debt serving needs and €0.8bn for arrears clearance. Athens will receive a further €800m “subject to Greece making significant progress on arrears clearance” by September 1st bringing the total amount of assistance the nation has received from the ESM to €181.2bn.
Updated
A quick recap
Time for a quick summary:
Germany’s trade surplus has widened to €22bn in May, thanks to a jump in exports.
Some experts say the figures will cause fresh tensions with the US government, given Donald Trump’s trenchant criticism of German trade policy.
But German analysts pointed out that imports and exports have both risen this year; proof that the world economy was in decent shape.
So far this year, German has grown its exports by 7.2%, and its imports by 10.3% (here’s the full chart)
Eurozone investor confidence remains solid, according to the Sentix research group. However, worries over central banks are building, as policymakers prepare to unwind their stimulus programmes.
Speaking of central banks.....The Bank of England has warned lender not to repeat the mistakes that led to the financial crisis in 2008.
Deputy governor Sam Woods flagged up several areas of concern, as he urges banks, building societies and insurers to respect the spirit of the rules.
Travelling by train in Britain could be stressful next month; UK commuters have been warned to expect serious disruption in August, due to a massive rail improvement programme.
And the value of British infrastructure and construction firm Carillion has plunged by a third, after a shock profits warning.
It’s been a desperately quiet day in the markets.
Wall Street just opened flat, matching the UK FTSE 100 which is now up just 10 points.
Opening Bell: Stocks flat; Amazon rises ahead of Prime Dayhttps://t.co/RMnHKeO4NF pic.twitter.com/yyW9unZ1Fn
— CNBC Now (@CNBCnow) July 10, 2017
The pound has dipped a little, to $1.2873 (down 0.1%), in rather subdued summer trading.
Abandon hope all ye who enter Britain's rail network in August
Railway commuters, take a deep breath.
Britain is facing an ‘unprecedented’ summer of disruption on its rail network, with major delays expected on key lines.
It’s all because Network Rail is planning a massive engineering works programme, that will leave some passengers queuing just to get into their station.
London commuters will be particularly badly affected; Waterloo will be half-closed for three weeks, while 26-27 August will see the biggest bank holiday engineering work ever.
Our transport correspondent Gwyn Topham explains:
The worst of the disruption will be felt by passengers using Waterloo, the UK’s busiest station, which will see about half its platforms closed for more than three weeks from 5 August, meaning many South West trains will not run. Passengers have been warned to expect queues of up to half an hour just to enter suburban stations on the network, such as Wimbledon and Surbiton, during summer rush hours.
Euston will close entirely on the 26-27 August bank holiday weekend, affecting some services on the West Coast main line to Birmingham and cities north to Glasgow. London Bridge and Charing Cross will be closed to Southeastern services for a week from the same weekend.
London Paddington and Liverpool Street will also be affected, with only King’s Cross St Pancras, Victoria and Marylebone operating normally in the capital, although all are expected to be busier than usual to accommodate alternative journeys.
Network Rail says the work will help deliver much-needed capacity; but it’s going to be a painful time for passengers....
Here’s the full tale:
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The Bank of England is also concerned that lenders are offering longer and longer mortgages.
Deputy governor Sam Woods warns that some borrowers could find themselves still paying off their debts when they reach retirement.
He says:
I would highlight a recent trend in increasing loan terms: where 25 years might once have been the normal maximum term for a mortgage, now 35 years or even longer seems to be increasingly common.
Of course, increasing the term reduces the level of each monthly instalment and makes the loan more affordable in the short term; however, it also increases the total amount of interest paid over the life of the loan quite significantly, and it increases the possibility that the final instalments may have to be met from post-retirement income.
That should not be a problem if lenders can be confident about the availability of such retirement income, or about the scope for the borrower to downsize and use the sale proceeds to pay off the balance of the loan. But if lenders become too narrowly pre-occupied with the profile of the loan in the first 5 years (in line with MMR [mortgage market review] affordability rules), this could store up a problem for the future.
Updated
Sam Woods’ speech also includes a brief history of the Barings crisis of 1890, when the prestigious City institution found itself dangerously exposed to losses in Argentina.
Deputy governor Woods (whose first job involved calculating Nick Leeson’s losses a century later) explains how Barings came unstuck when Russia’s government started withdrawing funds.
Fortunately for Barings, the City rallied round, but it highlighted the challenge of the Bank of England’s light-touch approach to regulating the sector, as Woods explains:
Rumours began to circulate that the firm might not have any surplus left after payment of its liabilities. The Governor was alerted given the “almost unthinkable consequences should Barings go down: not only would the failure of the City’s leading accepting house inevitably bring down a host of other firms… but the very status of London would be threatened and thus the pre-eminence of the City as an international financial centre” .
Amidst much to-ing and fro-ing between the Bank of England (hereafter “the Bank”), the Treasury and Downing Street, it was becoming apparent that the crisis at Barings was one not only of liquidity but also of solvency, and that there was now a palpable loss of confidence in the institution throughout the City.
The Bank alone could not afford to act as lender of last resort so eventually the Governor of the day – Lidderdale – announced the establishment of a guarantee fund for Barings; within half an hour, the City’s top institutions rushed to contribute – the likes of Raphaels (£250,000), Antony Gibbs and Brown Shipley (£200,000 apiece) and Smith Payne & Smiths, Barclays, Morgan and Hambros (each contributed £100,000). Indeed, the leading joint-stock banks had put themselves down for £3.25m and by mid-afternoon the fund was up to £10m and climbed further to £17m by the following week
Barings was saved. But the crisis revealed something about the relationship between the state and industry at the end of the nineteenth century. Indeed, the institutional set-up explains quite a lot about the approach taken towards the oversight of financial institutions at this time....
The full speech is on the Bank of England’s website, here:
Updated
BoE: Lenders must respect spirit of the rules
One of the Bank of England’s top policymakers has fired a warning shot at Britain’s lenders not to take undue risks.
Sam Woods, the Deputy Governor for Prudential Regulation, has urged banks, building societies and insurers to stick to the spirit of financial regulation, as well as the letter.
It’s the latest sign that the BoE is concerned that credit is being doled out in a dangerous way, just as real wages fall and consumers are squeezed.
Woods is concerned that some are indulging in “pure regulatory arbitrage” -- using questionable measures that make them look more secure.
In particular, he highlights four ways that lenders could pull the wool over the regulator’s eyes:
- Off-balance sheet leverage. Some special purpose vehicles, derivatives, agency structures or collateral swaps carry material credit risk which escapes the detailed aspects of the capital framework.
- Treatment of liquid assets. Firms can account for the value in their liquid assets buffer on a “hold to maturity” basis. This raises the risk that – especially if gilt yields should rise – market price movements in liquid assets buffers could lead to unrealised losses.
- Liquidity horizon. Some banks are seeking out funding that matures just beyond the time horizon used to calculate regulatory liquidity requirements.
- For insurers, the Solvency II contract boundary. Firms cannot recognise future premiums on unit-linked savings policies that do not include any insurance cover or financial guarantee of benefits. Some have sought to amend existing contracts to extend the contract boundary and recognise more future profit.
Woods also warns that some lenders are pushing the boundaries of prudent lending, hinting that some may have crossed the line.
He says:
Across the wider market, we are observing – not from all firms, but definitely from a few (and some of them building societies) – a shift in credit risk appetite as lenders compete with each other to find ways of widening the pool of available borrowers, increasing the size of loans available to them, or reducing the credit premium.
This search for marginal borrowers is a normal function of competitive markets, and does not imply that all resulting loans will turn out to be poor quality.
Woods was meant to give these comments in a speech to the Building Society Association (BSA) Annual Conference in May, but had to pull out because of general election purdah rules.
Had Woods been been there, he’d have also delivered this warning....
That part of the reason why only 44 societies are attending this conference rather than the 60+ that came to its equivalent in 2004 lies in the fact that many of those societies were unaware of, or failed to control, the risks they were taking.
Updated
Germany Trade & Invest, the federal economic development agency, is hanging out the bunting on the back of today’s trade figures.
It has sent round a press release jauntily titled “German trade gets summer feeling”, arguing that the increase in German imports and exports in May shows the global economy is chugging along nicely.
Thomas Bozoyan, Senior Manager of Economic Research, says:
“Germany’s strength as a manufacturing location is well-known, but the faith in that is reinforced by these export statistics.
“The import statistic is perhaps more significant though, as it shows not only that German companies are manufacturing and doing good business, it is also creating wealth for its residents and increasing consumer demand.
This increase in demand is being felt in other countries as well as Germany, a very good situation.
“This all has a long-term value-creating effect for the country and will contribute to the stability of the nation and its economy, both as a residential and business location.”
This week’s Economist has a good piece on Germany’s trade surplus (and a rather clever front page, see below).
It explains that there are good, admirable reasons for Germany’s modern competitiveness, not merely unfair tactics as some claim.
For example:
Underlying Germany’s surplus is a decades-old accord between business and unions in favour of wage restraint to keep export industries competitive. Such moderation served Germany’s export-led economy well through its postwar recovery and beyond. It is an instinct that helps explain Germany’s transformation since the late 1990s from Europe’s sick man to today’s muscle-bound champion.
There is much to envy in Germany’s model. Harmony between firms and workers has been one of the main reasons for the economy’s outperformance. Firms could invest free from the worry that unions would hold them to ransom. The state played its part by sponsoring a system of vocational training that is rightly admired.
But.... Germany’s whopping surplus inevitably causes ructions elsewhere in the system, with other countries inevitably running deficits:
For a large economy at full employment to run a current-account surplus in excess of 8% of GDP puts unreasonable strain on the global trading system. To offset such surpluses and sustain enough aggregate demand to keep people in work, the rest of the world must borrow and spend with equal abandon. In some countries, notably Italy, Greece and Spain, persistent deficits eventually led to crises.
Their subsequent shift towards surplus came at a heavy cost. The enduring savings glut in northern Europe has made the adjustment needlessly painful.
In the high-inflation 1970s and 1980s Germany’s penchant for high saving was a stabilising force. Now it is a drag on global growth and a target for protectionists such as Mr Trump.
Why Germany’s current-account surplus is bad for the world economy: it saves too much, spends too little — Economist https://t.co/ObEVCXSilX pic.twitter.com/7TaBXdN16R
— Robert Went (@went1955) July 7, 2017
Associated Press have a good quick take on today’s German trade figures, for anyone just tuning in.
German exports higher in May, trade surplus widens
German exports were up 1.4 percent in May compared with the previous month, outpacing import growth and pushing the country’s trade surplus higher.
The Federal Statistical Office said Monday that imports to Europe’s biggest economy were up 1.2 percent in May. The seasonally adjusted trade surplus was up to 20.3 billion euros ($23.1 billion), from 19.8 billion euros in April.
The figures follow data last week showing that factory orders and industrial production both increased in May.
ING-DiBa economist Carsten Brzeski said that:
“strong domestic demand has already been around for a long while but the former growth engines, industrial production and exports have also started to gain momentum.”
But he cautioned that the increasing value of the euro could affect German exports in the coming months.
Overnight, credit card firm Visa has provided fresh evidence that UK households are being squeezed by rising inflation.
Visa’s ‘consumer spending index’ fell by 0.3% between April and June compared with the same period a year earlier.
That’s the biggest drop since the third quarter of 2013, indicating that shoppers are cutting back now that inflation (2.9% in June) is rising rather faster than pay rises (2.1% in the March-May quarter).
Data firm Markit shows how spending has fallen sharply in the last few months:
June completes worst quarter for #UK consumer spending since Q3 2013 - inflation eats into h'hold disposable income. https://t.co/yE0nVrKm9m pic.twitter.com/kbs4NFn9GB
— Markit Economics (@MarkitEconomics) July 10, 2017
Here’s the full story:
Carillion shares slump
Back in the City, shares in infrastructure and construction firm Carillion have slumped by a third to their lowest in over 13 years.
Carillion’s shares plunged after the company announced that results would be below expectations, and that CEO Richard Howson was stepping down.
Carillion has suffered a “deterioration in cash flows on a select number of construction contracts”, forcing it to take a provision of £845m against likely losses.
It is now pulling out of Qatar, the Kingdom of Saudi Arabia and Egypt - and will only undertake future construction work “on a highly selective basis”.
The company appears to have suffered badly from last year’s EU referendum, as my colleague Julia Kollewe explains:
In December, the Wolverhampton-based company, which employs nearly 50,000 people in the UK, Canada and the Middle East, blamed upheaval in Whitehall departments after the Brexit vote and change of government for a slowdown in orders.
Carillion has also been affected by cuts in spending by governments in the Middle East prompted by low oil prices.
Drop in UK orders after #Brexit vote and resultant profit warning cause Carillion boss to step down...https://t.co/LPGBtevh69
— Chris Shaw (@The_ChrisShaw) July 10, 2017
Updated
Greek factory output jumps, but inflation falls
Over to Greece.... and new figures show that industrial output jumped by 5.4% year-on-year in May.
That’s much better than April’s 0.9% annual rise, and may indicate that the Greek economy has turned a corner.
Separately, the inflation rate in Greece has fallen to 0.9% in June, down from 1.5% in May (on an EU-harmonised basis).
That’s mainly due to a drop in costs for household equipment and health services, according to Elstat.
Press release: Harmonized Index of Consumer Prices (June 2017) https://t.co/6jpoidkIXL pic.twitter.com/NIAMFha3Yr
— ELSTAT (@StatisticsGR) July 10, 2017
Eurozone investor confidence dips as central bank worries grow
Investor confidence across the euro area has dipped very slightly this month, and central bankers are to blame.
Sentix’s monthly survey of investor morale has dipped to 28.3 this month, down from June’s 28.4.
That’s still a fairly high level, reflecting the strong economic data we’ve seen from the eurozone in recent months.
But.... there are also signs that the prospect of higher interest rates and the unwinding of central bank stimulus programmes are worrying investors.
Sentix’s Central Bank Policy index has slumped to -26 in July, down from -11.5 in June. That’s its lowest level since the measure was created in 2005.
Sentix blames recent hints by the European Central Bank that it is moving towards unwinding its bond-buying programme, given the recovery in inflation.
“For a few months now, it has been clear to investors that the ECB must leave its expansive course.
This expectation has intensified for investors over the past few weeks.”
European Monetary Union Sentix Investor Confidence below expectations (28.4) in July: Actual (28.3) https://t.co/d0IqGH6hVw pic.twitter.com/MtmLvLQFXa
— FXCM Markets (@FXCMMarkets) July 10, 2017
Here’s a handy chart, showing how German imports and exports have both accelerated this year.
It also backs up Claus Vistesen’s point about how imports have actually grown faster than exports since the start of the year.
Today’s trade figures are the latest in a series of strong German data.
Last Thursday, we learned that factory orders rose by 1% in May, suggesting that economic growth was solid.
Marc Ostwald of ADM Investor Services says:
German Trade data proved to be much stronger than expected...echoing the strong foreign orders seen last week, though this will inevitably only serve to exacerbate tensions with the US, and some European countries.
Dax rallies after trade figures
The DAX index of leading German companies has jumped by 0.5% this morning, as traders in Frankfurt welcome today’s trade figures.
Exporters such as industrial group Thyssenkrupp, carmaker BMW and tire producer Continental are all among the top risers.
Other European markets are also up in early trading:
Claus Vistesen of Pantheon Economics argues that the media are obsessing with Germany’s trade surplus.
He points out that imports have actually risen faster than exports in recent months - perhaps a sign that German consumption is picking up.
The financial media's obsession with the German trade surplus is so quaint. Meanwhile ... imports are now rising faster than exports. pic.twitter.com/WTox4E8s2e
— Claus Vistesen (@ClausVistesen) July 10, 2017
German trade boom: snap reaction
Mike van Dulken of Accendo Markets is impressed by today’s trade report
Strong German trade data #eur #dax
— Mike van Dulken (@Accendo_Mike) July 10, 2017
Thomas Gitzel, VP Bank economist, says Germany is benefitted from a pick-up in global demand.
“The global economy is improving, which has a positive impact on the German export economy.”
Gitzel also expects fresh criticism from the White House, which has accused Germany of exploiting an unfairly weak currency.
“The trade balance is currently swelling, which will again lead to suspicions on the other side of the Atlantic. U.S. President Donald Trump will therefore continue his vehement criticism of the high German trade surplus.”
Mehreen Khan of the Financial Times agrees that Germany’s €22bn trade surplus, and its €17.3bn current account surplus, will rile the US government:
The size of Germany’s twin surpluses has come in for criticism from the Trump administration, which has accused Berlin of exploiting an undervalued currency.
The likes of the EU and the International Monetary Fund have also urged the German government to make the most of its healthy public finances and spend more money in the domestic economy.
Germany's trade surplus swelled to €22bn in May https://t.co/eKZ7wOFqG9 pic.twitter.com/preYVSxnxK
— fastFT (@fastFT) July 10, 2017
Germany ran a small deficit on services, of €2bn, during May.
However, this was more than covered by the surplus of goods flowing from German factories to other countries.
Destatis says that Germany’s current account surplus remained buoyant:
According to provisional results of the Deutsche Bundesbank, the current account of the balance of payments showed a surplus of €17.3bn in May 2017, which takes into account the balances of trade in goods including supplementary trade items (+€24.4bn), services (–€2.0bn), primary income (–€3.6bn) and secondary income (–€1.5bn).
In May 2016, the German current account recorded a surplus of 17.9 billion euros.
Updated
Today’s report shows that Germany ran a trade surplus with its fellow European Union states, and also with the rest of the world.
Here are the details:
- EU: German exported €64.2bn of goods, and imported €57.8bn
- The eurozone: German exported €40.8bn of goods, and imported €39.1bn
- Non-EU members: Germany exported €23.5bn, and imported €18.7bn
The agenda: German trade surplus widens
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Germany has got the new week up and running by smashing City expectations for its trade figures.
German exports jumped by 1.4% month-on-month in May, outstripping a 1.2% rise in imports. It’s the fifth monthly rise in exports in a row, meaning Germany achieved a seasonally adjusted foreign trade balance of €20.3bn.
Delicate numbers after g20 Summit: German trade balance again widens to €20.3bn in May, as exports increased by 1.4% MoM, imports only +1.2% pic.twitter.com/WTgGZmPFEk
— Holger Zschaepitz (@Schuldensuehner) July 10, 2017
Both figures were stronger than expected; a Reuters poll had predicted exports would rise by just 0.3%, and imports by 0.5%.
On an annual basis, the figures are even more impressive. Germany exported €110.6bn worth of goods in May, a surge of 14.1% year-on year. Imports swelled by 16.2% to €88.6bn.
That drove the German trade surplus up to €22.0bn in May 2017, up from €20.7bn in May 2016.
In contrast, Britain posted a trade deficit of £3.1bn during the month.
The figures highlight that Europe’s largest economy remains in rude health, and well placed to handle Brexit-related disruption. Over the weekend, German industry bodies warned that they wouldn’t help Britain get a good exit deal
But they will also intensify criticism that Germany’s export muscle is destabilising the eurozone, effectively forcing its neighbours to run trade deficits
Last week, the International Monetary Fund urged Berlin to cut its current account surplus by boosting investment spending, which would also suck more imports into Germany and tackle the trade surplus.
German #exports in May 2017: +14.1% on May 2016 #foreigntrades https://t.co/3bqgE7oZEk pic.twitter.com/kCy8nBe3Rq
— Destatis news (@destatis_news) July 10, 2017
I’ll pull together some reaction shortly...
Also coming up today
European financial markets are expected to rise at the start of the week. Traders are in upbeat mood, after last Friday’s strong US jobs figures.
@LCGTrading opening call#FTSE +30 points at 7380#DAX +66 points at 12454#CAC +21 points at 5166#EuroStoxx +15 points at 3478
— Ipek Ozkardeskaya (@IpekOzkardeskay) July 10, 2017
Markets are trying to start the week in a state of post-payrolls Goldilocksian bliss. Equities up, yen down. But it's only Monday......
— Kit Juckes (@kitjuckes) July 10, 2017
However, UK construction and services support firm Carillion has surprise the City with a profits warning, so that might dent the mood a little (more on that shortly too...)
We get a new gauge on investor confidence across the eurozone, from German market research firm Sentix, plus a new Greek inflation report.
And eurozone finance ministers will be holding a eurogroup meeting in Brussels. They’ll be discussing eurozone banking, national insolvency rules, Ireland’s post-bailout future, and the euro area fiscal stance for 2018 .
Here’s the agenda
- 7am BST: German trade figures
- 9.30am BST: Sentix’s eurozone sentiment index released
- 10am: Greek CPI inflation
- 2pm BST: Eurozone finance ministers meet in Brussels
Updated
