Wall Street opens lower
Despite earlier hopes that the US market would move higher at the open, it has slipped back in early trading.
Investors appear to be unsettled by another move lower in the oil price, with Brent crude currently down 0.8% at $38.34 a barrel on concerns that a meeting this month between producers would be unable to agree a freeze in output.
So the Dow Jones Industrial Average has dipped 24 points or 0.14%, which has seen European markets come off their best levels. The FTSE 100 is now up 0.2%, Germany’s Dax and France’s Cac are both 0.4% better.
On that note, it’s time to close for the day. Thanks for your comments, and we’ll be back tomorrow.
Three possible solutions to the Greek situation are examined by newspaper Kathimerini:
Under the circumstances, there are three possible ways forward. First, continue on the same muddling-through path with the IMF in an advisory role. Obviously, the Fund has to compromise its positions. Second, the European lenders show the IMF the exit and assume the responsibility for the Greek program, sticking to the targets, accepting a milder austerity package and providing a politically acceptable version of debt relief. However, this may face political resistance in Germany and other countries. Third, the European Commission, the European Central Bank and the European Stability Mechanism accept the IMF’s action plan. In this case, the primary surplus target should be lowered and generous debt relief should be provided.
Undoubtedly, the three stakeholders in the Greek program have different political incentives. This makes a reasonable solution more difficult to reach. On the three possible ways forward outlined above, it seems the muddling-through approach would be the least productive but politics could continue to make it the dominant one. The remaining two approaches would face bigger political hurdles but could work better for all parties involved.
After a slow start, European markets are edging higher.
The FTSE 100 is up 0.3% while Germany’s Dax is up 0.66% and France’s Cac has climbed 0.63%.
Meanwhile US futures are showing the Dow Jones Industrial Average virtually unchanged, up around 8 points.
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Worries about the Greek bailout after the weekend’s reported IMF threat have sent Greek bond yields higher.
The two year yields climbed to a one month high of 11.15% while 10 year yields rose 26 basis points to 8.99%. The Greek bond prices are weakening following the report that the IMF threatened to leave the third bailout programme to put pressure on creditors - notably Germany - to reach a deal on debt relief.
The IMF has denied this but managing director Christine Lagarde unsettled investors by saying the sides were a good distance away from a deal.
The Athens stock market has also been hit, and is currently around 1.5% lower. Economist Stuart Culverhouse at distressed debt broker Exotix told Reuters:
Markets are nervous that it could either delay progress on the subsequent reviews or lead to something more significant. I don’t think there is much of a risk of default in the very near term but clearly if it absents official financing then it becomes more of a concern.
Talks are due to restart today after a series of delays amid disagreements on the size of Greece’s fiscal gap and the progress on pension reforms and bad debts.
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Here’s the Greek payment schedule, courtesy of Bloomberg:
#Greece's July #ECB payment looms over bailout negotiations https://t.co/g2fP7YWzS9 via @nchrysoloras pic.twitter.com/QgY0kmLmVo
— Zoe Schneeweiss (@ZSchneeweiss) April 4, 2016
The review of the Greek bailout programme is expected to be completed by the end of April or early May, according to a spokesman for the German finance ministry.
But the Germans say a debt haircut is not on the agenda, Reuters is reporting, after the weekend’s leak about supposed IMF plans. The spokesman said Germany was confident a solution would be found, but more work needed to be done.
That tallies with comments from the EU:
EU official on Greece bailout: "Key issues such as spending cuts, pension reforms and non-performing loans are still open".
— Morris Cabrioli (@insidegame) April 4, 2016
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S&P warns again on Brexit risk to Britain's AAA rating
Standard & Poor’s has repeated its earlier warning that Britain could lose its much-prized AAA rating if the country votes to leave the European Union.
Writing an opinion piece on the Politico website, S&P’s chief sovereign ratings officer Moritz Kraemer said:
When Britain last held a referendum on its European Union membership in 1975, the stakes were not nearly as high. The U.K. had joined the European community only two years earlier. But today, given the U.K.’s deep political, financial and trading ties in Europe, an exit would be much more fraught — and the risks, when it comes to its credit worthiness, are therefore considerably higher.
While Brexit supporters share a collective skepticism about the “European experiment,” they lack consensus on what Britain’s trading options and political alliances will look like outside of the EU. If the Brexit camp wins the vote on June 23, the U.K. would enter a protracted period of uncertainty while its people debate the alternative. Markets dislike uncertainty — especially protracted uncertainty — and this “working out” period will likely have adverse credit consequences for the U.K...
Brexit would further polarize the U.K.’s political system, increase risks to effective, transparent and predictable policymaking, and diminish the U.K.’s long-term sovereign creditworthiness. Brexit also heightens potential risks to economic growth and the balance of payments, as well as domestic political threats to territorial integrity.
Consequently, a vote for “Leave” would likely lead Standard & Poor’s to lower the U.K.’s AAA rating — a rating it has held, without interruption, since 1978. While the U.K.’s rating would likely remain high given its many institutional, financial and economic strengths, the U.K. would lose its place in the increasingly exclusive club of AAA-rated sovereigns.
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The falls in the eurozone unemployment rate could slow down in the coming months, says Bert Colijn at ING Bank:
While dark clouds packed over the Eurozone economy in the beginning of the year, the labour market has continued to provide tailwind. The improvements in unemployment continue to fuel domestic demand in times when consumers have become more cautious. This will likely mitigate the negative effects of people more concerned about the state of the global economy.The improvements are not evenly spread across the Eurozone though. France and Italy saw the number of unemployed increase in February, although in France this did not lead to a higher unemployment rate. Germany and Spain saw unemployment decline again, with the unemployment rate in Spain falling from 20.5% to 20.4%. The continued struggle to reduce unemployment in France and Italy will likely have a dampening effect on domestic demand in the coming months.
While the labour market continues to improve, unemployment is known to be a lagging indicator. Surveys have recently indicated that employers are currently cautious to see how the market turmoil of the beginning of the year is playing out, which could result in more subdued hiring in the months ahead. The momentum of hiring is also not as strong as it was a few months back. The 3-month decline in unemployment has fallen from over half a million in September, to 224 thousand in February. With employers being cautious, this could mean that the relatively high pace of declines in the Eurozone unemployment rate over the past year could be slowing down somewhat in the months ahead. With the unemployment rate still well above its natural rate, that is bad news for price pressures.
Eurozone unemployment and producer prices fall
More data from the eurozone, with unemployment falling for a thirteenth successive month and producer prices dropping by more than expected in February.
The unemployment rate fell from 10.4% to 10.3% but the jobless decline of 39,000 was the smallest drop since last May.
Producer prices fell by 0.7% month on month compared to forecasts of a 0.5% decline.
Meanwhile Peter Praet, chief economist at the European Central Bank, said it was prepared to ease monetary policy further if inflation remained stubbornly low. He said at an event in Rome (quote from Reuters):
The prolonged period of low inflation we are in today has increased the risks that inflation misses might become persistent, which would be deeply damaging for the economy.
This is why we have reacted so forcefully to secure our objective - and will continue to do so in the future if necessary.
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The UK construction data is disappointing, says economist Howard Archer of IHS Global Insight:
This is a largely disappointing survey, which suggests that construction output was of little help to GDP growth in the first quarter. Latest hard data show that construction output disappointingly dipped 0.2% month-on-month and 0.8% in January, marking a soft start to 2016.
The government will be particularly disappointed to see housebuilding growth almost ground to a halt in March when it was at its weakest level since January 2013 - given that it is looking to address the UK’s acute housing shortage.
With the corresponding manufacturing survey also weak for March, first quarter GDP growth again looks to have been heavily dependent on the services sector – so much attention will be focused on the purchasing managers survey for the services sector for March that comes out on Tuesday, especially as the February survey was at a near three-year low.
Furthermore, there is not much in the survey to indicate that the construction sector’s fortunes are going to pick up in the near term as it shows orders growth at an 11-,month low, business expectations stuck at the lowest level since December 2014 and employment growth at the lowest level since mid-2013.
The construction sector is seemingly currently being affected by increased caution among clients (especially for major projects) amid heightened UK and global economic uncertainties – and it notable that the purchasing managers indicated that clients are “unwilling to commit to new contracts or expand existing work”.
The looming 23 June referendum on UK membership of the EU adds to the uncertainties dogging the construction sector – especially given the tightness of opinion polls.
On a relatively encouraging note, the purchasing managers reported that “survey respondents cited a generally supportive economic backdrop”
Also on the positive side, there is increasing government support for housebuilding (which needs to see prolonged decent expansion to make genuine inroads into the UK’s acute housing shortage). In November’s Autumn Statement, the Chancellor announced plans to double the housing budget to over £2 billion a year and to build 400,000 new affordable homes by the end of the decade. Additionally, the government has announced measures aimed at speeding up the planning system and reducing the obstacles to building new houses.
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Eurozone investor confidence has risen but by less than expected. The Sentix index came in at 5.7, up from 5.5 but below the forecast of 6.9.
Even without the weekend’s leaks about Greece, the talks with its lenders would have been difficult enough anyway:
#Greece & its lenders will have a whole list of unresolved issues in front of them when they resume talks today https://t.co/BlG9EhCcJ1
— Nick Malkoutzis (@NickMalkoutzis) April 4, 2016
Telecom shares have been hit by Friday’s news of the collapse of a €10bn deal between Orange and Bouygues to create a dominate French operator. Bouygues shares have slumped 14%, with the company heading for its worst day in 17 years.
Markit senior economist Tim Moore said:
March’s survey confirms that the UK construction sector is experiencing its weakest growth phase since the summer of 2013. Residential building has seen the greatest loss of momentum through the first quarter of 2016, which is a surprising reversal of fortunes given strong market fundamentals and its clear outperformance over the past three years.
Construction firms were reliant on a rebound in commercial building and resurgent civil engineering growth to offset the slowdown in housing activity. Civil engineering delivered its strongest performance for just over a year, suggesting that a healthy pipeline of infrastructure projects continues to boost construction output.
However, heightened uncertainty about the business outlook appears to have weighed on overall construction demand so far in 2016, with survey respondents citing cautious client spending patterns and a reduced willingness to commit to new projects.
As a result, volumes of new work disappointed in March as order book growth slipped for the third month in a row and reached its weakest since the pre-election blip last year.
UK construction steady in March
A better than expected performance from the construction industry in March still meant that overall expansion remained at its weakest in nearly a year.
The Markit/CIPS UK construction purchasing managers index came in at 54.2 last month, the same as February’s 10 month low but above forecasts of a dip to 54.1. The pace of growth picked up in commercial property and civil engineering but new home construction fell to its lowest level in three years.
UK Construction #PMI falls to 54.2 in March as housing activity expands at slowest pace for more than 3 years https://t.co/0wEh2X7mgt
— Markit Economics (@MarkitEconomics) April 4, 2016
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My colleague Andrew Sparrow is covering all the latest developments in the steel crisis in the politics live blog here:
Meanwhile, Greece has started returning migrants to Turkey following the EU’s deal with Ankara:
Helena Smith is following the latest developments:
#lesbos deportations: 90% of those detained in island's #Moria camp hv applied for #asylum which will delay further expulsions from #EU
— Helena Smith (@HelenaSmithGDN) April 4, 2016
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The pound continues to edge lower in the wake of growing Brexit fears and a stronger dollar after Friday’s non-farm payroll numbers. Connor Campbell, financial analyst at Spreadex, said:
The FTSE just about managed to be the best performing index this morning, its slight gains besting the mixed picture painted by the Eurozone. There is the chance that things could get worse for the UK index this Monday, however, with Brent Crude threatening to fall under $38 per barrel and copper dipping its toe below $2.15 per pound. So far the commodity sector is avoiding the kind of sharp declines it is now known for, though it is still early days yet and as investors are painfully aware the state of the oil and mining stocks can switch in a blink of an eye. Data-wise the only thing of note out of the UK today is the latest construction PMI, expected to rise to 54.3 from last month’s 54.2.
Whilst the FTSE flirted with flatness the pound began to tick lower after the bell, cable now hovering in the $1.42s following last week’s dollar-boosting non-farm jobs report. Sterling likely wasn’t helped by an Observer article over the weekend suggesting that, according to an online survey by Opinium, the Leave campaign has a 4 point advantage over the Remainers.
Markets are struggling for direction, with the FTSE 100 now just about outperforming European rivals by edging marginally into positive territory. Rebecca O’Keeffe, head of investment at Interactive Investor, said:
European markets are struggling to find positive momentum, despite a recovery in US markets on Friday. With oil and industrial metal prices once again under pressure, market risks appear to be increasing and investors need to start asking themselves if commodity prices are potentially warning of a turning point in equity markets, just as they did during the first quarter of the year?
The US Fed has gone to great pains to tell the market that the future path of US rate hikes will be data-dependent. Nevertheless, the market retains its Pavlovian response to any suggestions by the Fed of what it actually expects to do. That might help to explain how US equities rallied so strongly on Friday after a slew of solid economic data suggesting that the US economy continues to recover.
Over in Spain, and the latest unemployment figures have come in better than expected.
The number of people registered as unemployed fell by 1.4% or 58,216 people in March, leaving 4.09m out of work. This follows two months of rises, and compares with a forecast decline of 50,000.
Back with Greece, and the government has denied it was behind the leak of the supposed IMF threat to push the country close to default. Greek newspaper Kathimerini reports:
The Greek government has brushed off suggestions that the government may be connected to the publication of a transcript of an apparently secretly recorded telephone conversation between IMF officials discussing the Greek bailout.
“Greece has no reason to leak or wiretap [conversations],” junior Defense Minister Dimitris Vitsas said on Monday.
“The most well-protected people in the country at the moment are the members of the negotiating team,” Vitsas said. “We provide them with the best possible treatment.”
Markets dip as oil slips again
Stock markets are edging lower at the start of the week’s trading, with oil prices on the slide again.
Hopes of an agreement to curb supply at a meeting later this month appear to be dimming again, with Iran saying it plans to increase output until it gets back to its pre-sanction level. Other producers have said they would only take part in a freeze if Iran also agreed to a deal. So Brent crude has slipped nearly 1% to $38.29 a barrel.
So the FTSE 100 is currently down around 8 points at 6138 while Germany’s Dax and France’s Cac are also slightly lower. In Asia the Nikkei 225 dipped 0.25%.
Introduction: IMF denies threat to pull out of Greek bailout
Good morning and welcome to our rolling coverage of the world economy, the financial markets and business.
Greece is back in the spotlight after a weekend of leaks, claims and counter-claims. with reports that the International Monetary Fund would push the country close to default as part of a negotiating ploy on its bailout deal. The IMF has swiftly denied the idea but said a deal was still “a good distance away.”
Documents released by WikiLeaks appeared to show senior officials from the IMF discussing tactics to apply pressure on Greece and its lenders - especially Germany - to reach a deal on the latest bailout agreement this month. Part of the transcript included a threat that the IMF might not participate in the third bailout programme as a way of forcing a deal on debt relief before the UK’s referendum on whether or not to leave the European Union.
Lenders are due to resume talks today on the progress of the reforms Greece needs to make as part of the bailout agreement, which should pave the way for some kind of debt restructuring.
But the leaked documents have soured the mood, with Greek prime minister Alexis Tsipras demanding that the IMF clarify its position.
In response, IMF managing director Christine Lagarde has released a letter dening the claims. She said:
Any speculation that IMF staff would consider using a credit event as a negotiating tactic is simply nonsense....
The IMF conducts its negotiations in good faith, not by way of threats, and we do not communicate through leaks.
She added:
We are still a good distance away from having a coherent program that I can present to our Executive Board. I have on many occasions stressed that we can only support a program that is credible and based on realistic assumptions, and that delivers on its objective of setting Greece on a path of robust growth while gradually restoring debt sustainability.
Elsewhere, on a fairly quiet day for economic news, there are eurozone consumer confidence and unemployment figures, the latest construction PMI data, as well as US durable goods orders.
And we’ll be keeping an eye on the latest developments in the UK steel crisis, with unions due to meet today and various buyers said to be interested in some of the plants put up for sale by owner Tata.
Here’s our latest story on the Tata situation:
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