European markets on the rise again
Hopes that Italy’s banks can be bailed out one way or another - private investors, state aid or the European bailout fund - continue to support stock markets. And the expectation that the European Central Bank may extend its bond buying programme for a few more months is also providing some support. On Wall Street the global surge in banking stocks helped push both the Dow Jones Industrial Average and the S&P 500 to new intra-day peaks, although pharmaceutical shares were under pressure after president-elect Donald Trump said he would look at cutting drug prices. The final scores in Europe showed:
- The FTSE 100 finished up 1.81% or 122.39 points at 6902.23
- Germany’s Dax jumped 1.96% to 10,986.69
- France’s Cac closed up 1.36% at 4694.72
- Italy’s FTSE MIB rose 2.1% to 18,130.66
- Spain’s Ibex ended up 0.75% at 8960.4
- In Greece, the Athens market added 2.82% to 640.07
On Wall Street, the Dow Jones Industrial Average is currently up 92 points or 0.48% at 19344, close to the day’s highs.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
In Greece tensions over reforms are once again mounting with creditors – this time over an IMF demand that shops remain open for business on Sundays. Helena Smith reports:
Most EU member states would relish overhauling a relic of old times like the ban on Sunday shopping. In Greece, though, it is the sort of measure that makes for front-page splashes, conspiracy theory and cries of protest.
But the International Monetary Fund, in the spirit of further opening up one of the continent’s most sclerotic economies, is not letting go. Instead the Washington-based body, which is still negotiating its participation in Greece’s latest bailout, has stepped up demands for trade to be liberalised saying shops should remain open on Sundays. Moreover, it argues, the reform will give people work in a nation hobbled by record levels of unemployment.
In its splash today, the daily Ethnos newspaper, citing a leaked email from the IMF, reports that closure of an ongoing review of the economy by creditors – the second since Athens received its third bailout last summer – is now contingent on shops opening up for commerce on Sundays. The organisation wants the measure to be signed and sealed this month. So far the response has been negative. Ministry of finance officials told the paper that, instead, they will push through an amendment that will allow shops in specially defined tourist areas to stay open. That’s unlikely to pass muster with lenders who have signalled they are going to rachet up the pressure on Greece to enforce the sort of reforms that will make it more competitive. Ideologically, the governing leftwing Syriza party is said to be against the move on the grounds that it will not only benefit bigger stores but is an infringement of basic workers’ rights.
The Greek Orthodox Church has already likened the step to a sin and shop employees, who have already taken to the streets, are girding for further battle.
And here’s our full story on Matteo Renzi planning to resign later as Italian prime minister:
One of the factors supporting the market rally is the expectation that the European Central Bank could announce an extension of its bond buying programme following its latest meeting on Thursday:
Goldman expects ECB to deliver dovish message at Thur's meeting by extending APP until Dec2017 at curr pace of €80bn as real rates has risen pic.twitter.com/QrIaSdUGYB
— Holger Zschaepitz (@Schuldensuehner) December 7, 2016
[APP is the asset purchase programme]
That hope, and optimism that Italy’s struggling banks can somehow be recapitalised, have combined to send European markets higher, with Germany’s Dax up 1.8%, France’s Cac 1.1%, the FTSE 100 1.6% and Italy’s FTSE MIB 1.5%.
On Wall Street the Dow Jones Industrial Average has hit a new intra-day record of 19,276, despite concerns about healthcare companies after Donald Trump said he would look at drug pricing.
Tata Steel commits to Port Talbot
Back in the UK and some good news for steel workers at Port Talbot:
Steel unions say Tata Steel has committed to blast furnaces at Port Talbot and will invest £1bn into business, saving thousands of jobs
— Graham Ruddick (@GrahamtRuddick) December 7, 2016
Unions also say Tata has committed to no compulsory redundancies for at least five years in UK business
— Graham Ruddick (@GrahamtRuddick) December 7, 2016
Tata Steel will close the British Steel pension scheme and launch new a defined contribution scheme
— Graham Ruddick (@GrahamtRuddick) December 7, 2016
Markets continue to be buoyed by hopes of a resolution to Italy’s banking problems. Connor Campbell, financial analyst at Spreadex, said:
With the Italian government passing its 2017 budget, and Mario Renzi confirming he will resign this evening, the European markets maintained their banking-boosted growth this Wednesday.
The continued lack of fuss following the Italian referendum result, combined with the prospect of a Monte dei Paschi bailout (potentially as soon as this week), has led the European indices to a bevy of highs this afternoon. The CAC is still at an 11 month peak, while the DAX, following a near 200 point rise, is at its best price in exactly a year.
The highs hit by the FTSE were a bit less impressive, though its 110 point increase does leave the UK index just 10 points away from 6900, a level it hasn’t seen since November 10th. While most of the pan-European growth has been inspired by the rallying banking sector, the FTSE has also benefited from a commodity stock rebound and the latest pound-plunge, with sterling shedding 0.8% against the dollar and 1.1% against the euro.
But Michael Hewson, chief market analyst at CMC Markets UK, warned markets could be getting ahead of themselves:
Talk that the Italian banking system could be on the verge of a €15bn bailout from the European Stability Mechanism has pushed equity markets in Europe to their highest levels in several months...
While the reports of a bailout request have been denied the usual rule of thumb when these sorts of reports do the rounds is that there is usually an element of truth to them, even if we don’t know the exact mechanics, and markets are responding to that.
As with most things the devil is likely to be in the detail, and the likely strings that are likely to be attached to any aid request, if and when it comes. It is here that markets could be getting ahead of themselves.
Updated
Renzi set to resign as Italian PM
Well it seems Matteo Renzi will not be staying on as Italian prime minister after all and plans to resign this evening now the budget has been passed. He tweeted:
Legge di bilancio approvata. Alle 19 le dimissioni formali. Grazie a tutti e viva l'Italiahttps://t.co/PLsLxcrPGS
— Matteo Renzi (@matteorenzi) December 7, 2016
AP reports:
Italian Premier Matteo Renzi says he’ll resign now that Parliament has completed approval of the 2017 national budget.
Renzi had offered his resignation two days earlier to President Sergio Mattarella following his humiliating defeat in a government-backed voter referendum on reforms.
But Mattarella told him to stay in office until passage of the budget law, which was done Wednesday afternoon.
Renzi tweeted that he plans to go to the president to resign at 7 p.m. (1800 GMT).
Updated
UK economic growth flat, says NIESR
Following the poor UK manufacturing figures earlier, comes news that the economy’s growth has flattened in the last few weeks, according to a leading think tank.
The National Institute of Economic and Social Reseach has estimated that UK output grew by 0.4% in the three months to the end of November, the same as in the three months to October. But it warned a slowdown was ahead.
The think tank said the economy was being supported by the service sector, which was borne out by the earlier weak manufacturing figures. Rebecca Piggott, research fellow at NIESR, said:
Recent economic growth has been driven almost entirely by the UK’s broad service sector, supported by robust consumer spending. In stark contrast, the official figures suggest that the production and construction sectors of the economy have declined over recent months.
Looking ahead, we do not expect such buoyant consumer spending growth to persist. Sterling’s pronounced depreciation this year is expected to pass through to the consumer prices throughout the course of 2017 and 2018, eroding the purchasing power of households substantially.
NIESR’s latest quarterly forecast published just over a month ago forecast GDP growth of 2% per annum in 2016 and 1.4% in 2017. CPI inflation was expected to reach 3.8% at the end of 2017.
Updated
Another area likely to be hit by the uncertainty of the UK leaving the EU is the Irish banking sector, according to ratings agency Fitch. It said:
Fitch Ratings has revised the 2017 sector outlook for Irish banks to stable from positive, as the UK’s vote to leave the EU increases uncertainty for the operating environment. Ireland’s economic recovery should remain strong in the short term, underpinning the stable sector outlook. The rating outlook on Irish banks is positive, reflecting our expectation that improving bank credit fundamentals should outweigh these challenges.
Brexit is negative for Ireland’s long-term economic and political prospects, putting pressure on GDP growth and creating uncertainty around relations with Northern Ireland. The extent of any weakening of the bank operating environment, triggered by a slowdown of GDP growth in the UK, sterling depreciation, or potential trade barriers, will become clear only as EU-UK negotiations develop. A deterioration in the operating environment could slow any improvements in the asset quality and capitalisation of Irish banks...
Capitalisation, although improving, remains vulnerable. We expect capital ratios to strengthen in 2017, despite pressure from volatility in pension fund deficits and foreign-exchange markets. Fully-loaded regulatory capital ratios remain weaker than international peers, primarily due to large amounts of deferred tax assets; these assets are reducing slowly because of Ireland’s low corporate tax rate and relatively low levels of profitability compared to the size of the balance sheet. Large, albeit reducing, stocks of unreserved problem assets also leave Irish banks’ capitalisation more exposed if the operating environment deteriorates.
Further improvements in asset quality and capitalisation would improve the banks’ risk profiles and may result in ratings upgrades; this is why the ratings outlook for Irish banks is positive. Although uncertainty as regards the operating environment has increased, we believe credit fundamentals will improve in 2017, as the sector continues to work through its backlog of impaired loans.
But... Bloomberg is reporting that Renzi might be having second thoughts about stepping down.
They say:
Matteo Renzi is wavering on whether to stay on as Italian prime minister despite his resignation offer after Sunday’s referendum defeat, according to a senior state official.
President Sergio Mattarella wants Renzi to reconsider his decision in order to provide political and economic stability, said the official, who asked not to be named because the issue is confidential.
Italian senate approves 2017 budget
Newsflash! After a debate today. the Italian Senate just approved the country’s 2017 budget.
That’s the last order of business before Matteo Renzi can formally step down as prime minister.
ITALY SENATE VOTED 173 VS 108 IN FAVOR OF GOVT ON BUDGET LAW
— Mario Cavaggioni (@CavaggioniMario) December 7, 2016
Renzi now also expected to meet with senior members of his Democratic Party this afternoon, to discuss the next steps - including whether he remains as party leader.
Updated
Back in the markets, European stocks are hitting multi-month highs on continued optimism that Italy’s banking sector will receive much-needed fresh capital soon.
Every index is sharply higher today, with some traders speculating that the fabled “Santa Rally” might be kicking off (stock markets often rally in the run-up to Christmas).
Over in Milan, Monte dei Paschi is still having a good day, up 8%, following the reports that the Italian government could take a €2bn stake in the bank.
Banca Monte Paschi waking up this morning... pic.twitter.com/f61XIbLsqM
— RANsquawk (@RANsquawk) December 7, 2016
And the suggestions that Rome could turn to the ESM for a €15bn bank bailout continues to calm fears of an imminent financial crisis.
Kathleen Brooks of City Index says:
Even the prospect of a nationalisation [of Monte dei Paschi], potentially as early as this weekend, isn’t spooking the markets as it may avoid retail bondholders having to take any losses.
The FTSE 100 index is now up by 100 points, or 1.5% at 6880 -- a chunky rise. However, that’s partly because the pound fell at 9.30am when October’s weak UK manufacturing data were released.
The German Dax is still at a one-year high, the French CAC is at its highest level since January, and Italy’s FTSE MIB it at its highest level since June.
EC antitrust commissioner Margrethe Vestager declined to comment directly on the Monte dei Paschi rescue talks.
But she did point out that the commission is keen to support citizens who have been missold financial products.
That could be significant, as the small retail investors who own Italian bank bonds may argue that they were deceived about the risk of being possibly ‘bailed into’ a rescue. And some analysts reckon the Italian government could circumvent those new bail-in rules by compensating these small investors.
Vestager told reporters in Brussels that:
“One of the things that we are working with is tools to enable governments to compensate for mis-selling of different kinds.
“It is something we have set up before. We will work with governments again if they want to set up schemes that can allow citizens to be compensated if mis-selling has been taking place.”
JP Morgan and HSBC also reject Euribor findings
The European Commission have got a fight on their hands over today’s Euribor fines.
JP Morgan and HSBC have both announced that reject the EC’s conclusions that they breached antitrust laws, and will fight on to try to prove it.
A spokeswoman for JP Morgan (fined €337m today) says the bank could launch an appeal:
“We have cooperated fully with the European Commission throughout its five year investigation. We did not engage in any wrongdoing with respect to the EURIBOR benchmark.
We will continue to vigorously defend our position against these allegations, including through possible appeals to the European courts.”
HSBC (fined €33m) is also adamant that it didn’t take part in a cartel:
The European Commission’s decision relates to allegations of Euribor manipulation and related purported conduct during the course of one month in early 2007. We believe we did not participate in an anti-competitive cartel. We are reviewing the European Commission’s decision and considering our legal options.
Updated
Credit Agricole to appeal Euribor ruling
French bank Credit Agricole is refusing to accept that it breached antitrust rules!
In a short, sharp statement, it says:
Crédit Agricole takes note of today’s decision of the European Commission in the Euribor case.
Crédit Agricole firmly believes that it did not infringe competition law. Accordingly, it will appeal the Commission’s decision before the European courts.
Payment of the fine will not affect the 2016 financial statements given the provisions set aside previously.
Today’s fines mark the end of the euribor scandal, hopefully, Vestager continues.
But....
The Commission will not hesitate to investigate and sanction any other cartel it may uncover in the future in the financial industry.
Commissioner Vestager is outlining the euribor ruling now.
She says JP Morgan, HSBC and Credit Agricole all breached antitrust rules by conspiring to rig the euribor rate.
The euribor market is means to provide protection from market volatility in euro-denominated securities, Vestager says. If this market is rigged, it will benefit only a few.
Traders used IM services and corporate chatrooms to exchange confidential information to distort the euribor rate to serve their own interests, she adds.
Euribor was calculated from submissions from individual banks, which created the ability to rig it.
Vestager cites one example, from 19th March 2007, in which the cartel members decided they would benefit from a lower euribor rate. So, weeks earlier, they conspired to submit low numbers to the committee which calculated the daily figure.
(this will sound depressingly familiar to anyone who’s read about the Libor scandal).
Updated
Here’s the details of the euribor-rigging fines just announced by the EC.
- JPMorgan: €337.2m
- HSBC: €33.6m
- Credit Agricole: €114.7m
Margrethe Vestager, the EU’s antitrust commissioner, says:
“Banks have to respect EU competition rules just like any other company operating in the single market.”
These fines come three years after four other banks were fined over Euribor rigging, Barclays, Deutsche Bank, RBS and Societe Generale.
Updated
Crédit Agricole, HSBC and JP Morgan fined over Euribor scandal
Newsflash! The European commission has fined Cr´dit Agricole, HSBC and JP Morgan a combined total of €485m for their role in the Euribor fixing scandal.
This is the case in which traders were accused of conspiring to rig the official rates at which banks would lend to each other in various currencies (euros, in this case)
More to follow....
Updated
City experts are pretty unimpressed by the slide in UK manufacturing in October:
Ugh! October UK ind. production was worst month since September 2012, falling 1.3%m/m. -8.6%m/m plunge in mining & -0.9%m/m in manufacturing pic.twitter.com/nEawxnV39X
— Rupert Seggins (@Rupert_Seggins) December 7, 2016
Despite better surveys, #UK manufacturing remained very weak in October despite weaker #GBP. May's #Brexit plan is to make it great again... pic.twitter.com/M22vIRpMPp
— Anna Stupnytska (@AnnaStupnytska) December 7, 2016
That disappointing UK manufacturing report has hit the pound, sending it down 0.5% against the US dollar:
Pound falls to $1.26 after manufacturing output unexpectedly drops, by 0.9% https://t.co/5LG42Arn5o pic.twitter.com/3ng0Tr5F3s
— Bloomberg Brexit (@Brexit) December 7, 2016
The Office for National Statistics reports that most areas of manufacturing struggled in October, led by pharmaceuticals, where output shrank by 3.6%.
This chart shows how Britain’s manufacturing sector weakened in October, after two months of gains:
UK manufacturing output fell 0.9% in October 2016 vs September & was 0.4% lower than a year ago.#ukmanufacturinghttps://t.co/aqSS1d7cve pic.twitter.com/LejkS32iYs
— Noble Francis (@NobleFrancis) December 7, 2016
Not so good. UK Manufacturing month on same month a year ago decreased by 0.4% in October 2016.
— Shaun Richards (@notayesmansecon) December 7, 2016
UK industrial production takes a tumble in October
Breaking: Britain’s industrial sector has suffered its biggest fall in output sine 2012.
UK industrial production shrank by 1.3% in October, dashing hopes of a 0.2% rise.
It’s partly due to the temporary shutdown of the Buzzard oil field in the North Sea.
But... manufacturing certainly had a poor month too. Output across manufacturing firms fell by 0.9% in October. That’s the weakest performance since February, and will raise fears that the economy is weakening.
Economist Mark Astley says the figures are much weaker than expected.
UK #manufacturing & ind product much weaker than expected in Oct (-0.9%,-1.3% m/m; -0.4%,-1.1% y/y) #PMI giving false post #brexit picture?
— marksastley (@astleyeconomics) December 7, 2016
Investec’s Philip Shaw hopes that the underlying picture is better.
UK manufacturing output down 0.9% in Oct. Note that surveys of the sector have been positive and so this is likely to be an erratic number.
— Philip Shaw (@philipshaw8) December 7, 2016
Every single Italian bank share has risen this morning, led by Monte dei Paschi which is currently 7.7% higher.
ITALY: Bank equities continue to rally today, big time. The Italian Treasury just denied that it "is preparing any requests to the ESM". pic.twitter.com/vuP4hjHdZP
— Maxime Sbaihi (@MxSba) December 7, 2016
ESM: Italy hasn't asked for help
Europe’s bailout fund has just said that it hasn’t received a request for help from Italy, and hasn’t had any discussions about a possible programme.
Asked about reports that Rome is planning a €15bn bailout request for its banks, a spokesman for the European Stability Mechanism says:
“There is no request and there are no discussions with theItalian authorities on an ESM loan.”
On press report about Italian loan request to #ESM: There is no request & there are no discussions with the Italian authorities on ESM loan
— ESM (@ESM_Press) December 7, 2016
However...this denial doesn’t mean that Italy isn’t preparing a request for help from the ESM, of course....
Italy has denied "preparing a request' to ESM- but they have not ruled it out forever. It was last resort and still is. https://t.co/LGC86AyOY0
— James Politi (@JamesPoliti) December 7, 2016
Updated
Looking away from Italy, the big news this morning is that drugs giant Pfizer has been hit with a record fine after the price charged to the NHS for an anti-epilepsy drug was hiked by up to 2,600%.
Boom! Germany’s DAX stock market has hit its highest level in a year, while France’s CAC is at an 11-month high.
Italian banking crisis: What the experts say
Optimism is rife in the City that a recapitalisation solution for troubled Italian bank Monte dei Paschi is in the pipeline, says Mike van Dulken of Accendo Markets
However, this could be via Italy applying for a €15bn loan from Europe’s ESM to help recapitalise several troubled banks and not just MPS which would avoid the issue of illegal state aid/bailout.
Mizuho strategist Antoine Bouvet says investors are hopeful that Rome will get a grip on the crisis:
“Despite the fact that the probability of early elections has risen, the market is focusing on the banking sector and the fact the government seems to be showing more urgency in dealing with that problem.”
However.... financial analyst Dan Davies (who actually owns some MPS shares, bold lad) isn’t convinced that a bailout will benefit shareholders.
Strong temptation to take my MPS off the table as I don't see how a state bail out leaves equity with anything
— Dan Davies (@dsquareddigest) December 7, 2016
European stock markets are all rallying this morning, with banking stocks boosted by Italian bailout hopes.
The main indices are up around 1%, pushing the FTSE 100 up by almost 60 points to 6837.
La Stampa’s report that Italy may seek European help for its banks is cheering the City:
Italy's @LaStampa reporting Rome will seek #Spain-style bank bailout from #eurozone rescue fund. Big if true. #MPS https://t.co/Nw6eQG9zNN
— Peter Spiegel (@SpiegelPeter) December 7, 2016
Shares in Monte dei Paschi have surged 10% on reports Rome could seek an EU bank bailout https://t.co/M0Bc7lT69z pic.twitter.com/FiTwKxl4b9
— fastFT (@fastFT) December 7, 2016
In London, mining stocks are also gaining ground, with Rio Tinto and Antofagasta both up 4%.
Monte Dei Paschi shares leap on bailout hopes
Shares in Monte Dei Paschi have jumped by 9% at the start of trading in Milan, on hopes that Italy can pull off a rescue package.
Other Italian banks are rallying too, driving the whole sector up 3%.
Traders are reacting to La Stampa’s claim that Italy could seek a €15bn bailout (even though it’s just been denied)
They’re also comforted by Reuters’ overnight report that Italy could take a €2bn stake in Monte dei Paschi, in a bid to:
- a) encourage private investors to back the €5bn cash call
- b) avoid inflicting losses on small retail investors who hold MPS bonds.
One source told Reuters that:
“It’s a de-facto nationalisation with a strong presence by the state that can attract other investors and allow the transaction to be completed.
Italian bonds strengthen
Italian government debt is rallying this morning, pushing the yield (interest rate) on its 10-year debt down to 1.91%, from 1.97%.
That has narrowed the gap between Italian and German borrowing costs - a key measure of stress in the eurozone.
#Italy 10y risk spread over #Germany continues to shrink following La Stampa report Italy to ask for €15bn ESM loan for Paschi, other Banks pic.twitter.com/VD1Euz1pTL
— Holger Zschaepitz (@Schuldensuehner) December 7, 2016
Updated
La Stampa: Italy to ask for €15bn ESM loan
Italy’s La Stampa newspaper is reporting that Rome is considering seeking a €15bn loan from European authorities, to recapitalise its banking sector.
According to the report, Italy would use the funds to shore up several banks, not just Monte dei Paschi.
In return, Rome would have to commit to tightening its 2017 budget (which might be tricky, given the political void at present).
BBG, citing La Stampa, says 15 billion eur ESM loan would allow for recapitalization of Paschi, Pop Vincenza, Veneto Banca, Carige.
— Arne Petimezas (@APetimezas) December 7, 2016
It’s an intriguing idea, with one problem....it’s just been denied by Italy’s Treasury department.
*ITALIAN TREASURY DENIES PREPARING REQUESTS TO ESM ON BANKS - BBG
— Michael Hewson (@mhewson_CMC) December 7, 2016
But how could it happen?
These funds would come from the European Stability Mechanism (ESM), which is Europe’s bailout fund. Spain took a similar loan a few years ago, which helped it avoid falling into a financial crisis.
The attraction for Italy would that such a loan would come with fewer strings attached than a full-scale bailout. But there would still be some conditions, and monitoring of its banks by Brussels.
If Italy turns to ESM, here's the relevant toolkit for (indirect) bank recapitalisation. https://t.co/lcGnRHZz37 pic.twitter.com/K2gWnBsGVr
— Frederik Ducrozet (@fwred) December 7, 2016
Updated
The agenda: Italian banking rescue, euribor fines?
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Three days on from Italy’s constitutional referendum, the future of the country’s weaker banks still hangs in the balance.
Monte de Paschi di Siena (MPS), the oldest and most troubled of the Italian banks, is making a final push to persuade investors to back its €5bn cash call.
But prime minister Matteo Renzi’s resignation may force Monte dei Paschi into seeking some form of help from the state, as investors have been spooked by the uncertainty gripping the Italian political system.
Reuters reported last night that the Italian government could take a €2bn controlling stake in MPS, which would lift the government’s stake up to 40%. That could also provide compensation for the small retail investors who hold some of its bonds.
And there is still talk that a public rescue plan could be cobbled together by the weekend, possibly even with some fund from Europe? All may become clearer today... #NoPromises
Also coming up today:
The European Commission could hit HSBC, JPMorgan and Crédit Agricole with multimillion-euro fines later today for rigging the Euribor interest rate benchmark.
Australia has sent a shiver through the global economy by reporting that its economy shrank by 0.5% in the last quarter; only the fourth such decline in 25 years.
Here’s how the story unfolded:
On the economic front, we get:
- German industrial production for October (just released, more on that shortly)
- UK industrial production for October. at 9.30am GMT
- The NIESR think tank estimates UK GDP for September-November, at 3pm GMT
Updated
