Greece denies early elections
Over in Greece the government is once again denying any suggestion that elections are on the horizon despite mounting speculation that a national ballot may soon be inevitable. Helena Smith reports:
Greece’s latest standoff with creditors has sparked widespread conjecture that early elections are not far off. Lenders’ demands for additional austerity beyond 2018, when the country’s current bailout programme ends, has put Athens’ leftist-led government increasingly on the defensive. Prime minister Alexis Tsipras’ surprise announcement of fiscal support for vulnerable groups appears only to have toughened the hard line approach with the European Stability Mechanism, the euro zone’s financing arm abruptly freezing short-term debt relief measures last week.
Senior cadres in the ruling Syriza party say they are now being told that unless €4.5 bn worth of extra measures in the form of pension and tax reforms are legislated, a crucial second review of the economy will be delayed. That could once again raise the spectre of Greece’s ejection from the eurozone. Earlier today the credit ratings agency, Moody’s, said it would increase the risk of Greece defaulting on bond payments in July.
“We are being blackmailed,” said one. “We have accepted reforms that ideologically have been very difficult to swallow. Asking us to vote through more is democratically unacceptable.”
With the two-party government’s wafer thin majority of 153 in the 300-seat house it was far from sure that further belt-tightening could be endorsed. Approval ratings of Syriza and Tsipras have plummeted precipitously on the back of fury over unpopular reforms.
“Early elections are not part of our plans,” the government spokesman Dimitris Tzanakopoulos said. “In 2018 Greece will exit the memoranda and [international] supervision,” he said referring to the latest bailout programme. “Even if the review is delayed we will not have elections. The country does not need elections.”
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Updated
The US economy continues to perform reasonably despite signs of a slowdown between November and December.
The initial Markit services purchasing managers index for December came in at 53.4, down from a final figure of 54.6 in November.
The composite index came in at 53.5 in December compared to 54.9 the previous month.
#US Markit PMI's suggest GDP growth of around 2% q/q AR in Q4 pic.twitter.com/RJeQIscr38
— Danske Bank Research (@Danske_Research) December 19, 2016
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Here’s our report on the Christine Lagarde guilty verdict. Kim Willsher reports:
Christine Lagarde, the head of the International Monetary Fund, has been found guilty of negligence in approving a massive payout of taxpayers’ money to controversial French businessman Bernard Tapie, but avoided a jail sentence.
A French court convicted the former government minister, who had faced a €15,000 fine and up to a year in jail, but decided she should not be punished and that the conviction would not constitute a criminal record.
The verdict came as a surprise as even the public prosecutor had admitted the evidence against Lagarde was “weak” during a five day trial last week. Jean-Claude Marin told the court Lagarde’s actions fell into the category of politics and not criminality and called for her to be acquitted.
Lagarde, who has always argued she did nothing wrong and acted “in the public interest”, was not present for the judgment. Her lawyer Patrick Maisonneuve said she had flown back to Washington DC, where the IMF is based.
Lagarde had appeared before the Cour de Justice de la République, a special tribunal set up to judge ministers and public officials for alleged crimes committed while in office. It is made up of three judges and 12 politicians from the French houses of parliament.
It was only the fifth time the court had sat and its judgements cannot be appealed against.
The full story is here:
Wall Street opens higher
The prospect of 20,000 on the Dow Jones Industrial Average edged a little closer after it moved higher at the start of trading.
The index is currently up 36 points at 19,880, while the S&P 500 and Nasdaq are both marginally higher.
Elsewhere:
BREAKING: Deutsche Bank settlement with Dept of Justice could come as early as Wed.; bank set to pay less than $14B in settlement - Reuters
— CNBC (@CNBC) December 19, 2016
Reports that the German bank would have to pay that much spooked investors back in September.
The IMF board is meeting shortly to discuss the Christine Lagarde situation. Gerry Rice, the fund’s director of communications, said:
The Executive Board has met on previous occasions to consider developments related to the legal proceedings in France. It is expected that the Board will meet again shortly to consider the most recent developments.
Here’s AP on the Lagarde news:
A special French court has declared International Monetary Fund chief Christine Lagarde guilty of criminal negligence in a long-running arbitration case.
But the court decided not to punish her or give her a criminal record.
The Court of Justice of the Republic ruled that her negligence while servicing as finance minister allowed for the misappropriation of funds by other people. The others, in a separate case, haven’t yet been tried.
Updated
IMF boss Lagarde guilty of negligence - report
International Monetary Fund managing director Christine Lagarde has been convicted on one count of negligence by a French court, Bloomberg is reporting.
Lagarde was accused of failing to prevent a government payout to businessman Bernard Tapie when she was French finance minister eight years ago.
Updated
Uh oh. There could be a spanner in the works of the Monte dei Paschi fundraising. Reuters reports:
Italian bank Monte dei Paschi di Siena is trying to resolve differences with a key investor over its 5 billion euro ($5.2 billion) rescue plan to allow the deal to go ahead and avoid a state bailout.
Italy’s third-largest bank has until the end of December to raise capital and offload 28 billion euros in gross bad loans as requested by European Central Bank supervisors.
Monte dei Paschi has failed to find buyers for its shares so far. On Monday, it shook the market again with a warning that Italian bank industry bailout fund Atlante was rethinking its 1.5 billion euro purchase of bad loans from the lender.
Atlante had expressed “deep reservations” in a Dec. 17 letter over the terms of a bridge loan that Monte dei Paschi had secured as part of the sale of bad loans, the bank said.
Monte dei Paschi shares extended losses on the news, erasing a week’s gains to trade down 7.7 percent at 19.3 euros each.
“If issues raised by (Atlante’s manager) Quaestio cannot be solved, the operation could not be concluded by Dec. 31, 2016 as requested by the European Central Bank,” the bank said in a statement.
However, Carlo Messina, chief executive of Intesa Sanpaolo, one of Atlante’s top contributors, said he believed the investment fund should go ahead with the deal and that it would reach a decision by Tuesday at the latest.
Italy is ready to bail out Monte dei Paschi, the world’s oldest bank,to prevent it being wound down and destabilising the euro zone’s fourth-largest banking sector.
Time for an update on the markets, and it’s an uncertain pattern.
Most European markets are still marginally lower, although off their worst levels, while Italy’s FTSE MIB is up 0.3% despite the fall in Monte dei Paschi as the bank starts its €5bn refinancing.
The FTSE 100 has also edged higher - just - up 0.09%. But France’s Cac is 0.26% lower, Germany’s Dax has dipped 0.03% and Spain’s Ibex is down 0.66%
Meanwhile with the strength of the dollar continuing in the wake of last week’s rate rise from the US Federal Reserve, the pound fell around 1% to its lowest level for a month, although it has recovered a little ground and is now down 0.75% at £1.2394.
Against the euro, sterling is down 0.5% at €1.1882.
Tomorrow could see more developments in the row between Greek and its lenders over the government’s plan to pay pensioners a Christmas bonus, something which was not approved by the lenders. Greece’s Kathimerini reports:
The Euro Working Group (EWG) is to meet Tuesday to discuss the impact on the Greek program of the SYRIZA-led government’s decision to grant a one-off supplement to pensioners.
The European Stability Mechanism reacted to the measure by suspending for the time being the implementation of the short-term debt relief measures that were only rubber stamped by eurozone finance ministers on December 5.
EWG is expected to discuss a report by representatives of the institutions on the actual cost of the handout. The report was requested by German Finance Minister Wolfgang Schaeuble.
Clemens Fuest, the president of Germany’s IFO institute, has told Bloomberg that current interest rates may be too low for the eurozone. He presumably then welcomes signs of inflationary pressures in the latest wages data.
#ECB rates may be too low for the euro zone: @FuestClemens https://t.co/IcyaCAInto via @GuyJohnsonTV pic.twitter.com/10sRmnA44F
— Zoe Schneeweiss (@ZSchneeweiss) December 19, 2016
The International Monetary Fund is positive about the actions taken by Ukraine over its biggest lender, PrivatBank. IMF managing director Christine Lagarde, who also has other things on her mind at the moment, said:
Today’s decision of Ukrainian authorities to nationalize PrivatBank is an important step in their efforts to safeguard financial stability. This decision was taken to ensure the smooth operations of the bank given its systemic role in Ukraine’s financial system, and in view of insufficient efforts to strengthen its capital adequacy in recent months...
It is now important that the process of nationalisation be followed by firm efforts to maximise the repayment of related-party loans, and the appointment of an independent management team to restore the bank’s viability, minimising the cost to the state and taxpayers in line with existing legislation and international best practice.
The IMF will continue to support Ukraine in its efforts to build strong institutions, enhance transparency, and advance structural reforms which are critical to achieve strong and sustainable economic growth.
And in Italy:
If I were running an Italian bank, not sure I would choose this moment to advertise the possession of a large and expensive art collection pic.twitter.com/FeErTJqS3O
— Harry Wilson (@harrynwilson) December 19, 2016
The details of the European Union’s decision against Apple in a dispute over the tax it pays to Ireland have been released. Jennifer Rankin reports from Brussels:
Apple could reduce its €13bn (£10.8bn) tax bill to Ireland if it increased payments to its US parent company or paid back taxes to other EU countries, the European commission has said, as it revealed the full text of its landmark ruling against the US tech giant for the first time.
Margrethe Vestager, the EU competition commissioner, suggested Ireland may not see the full €13bn in back taxes, if Apple chose to pay larger amounts to its US headquarters to fund research and development.
Speaking to the Irish Independent, she also said the total paid to Ireland could be reduced because other EU member states may demand more tax from Apple if they concluded that the US tech firm had underpaid them, because it had been routing profits to Apple’s Irish headquarters in Cork.
The full text of the EU’s decision, published on Monday, sets the stage for a titanic legal battle, which pits the European commission against Apple and Dublin, with implications for hundreds of companies.
In August, the commission said a sweetheart deal devised by the Irish government had allowed Apple to pay tax of just 0.005% in 2014 and an average rate of 1% over many years.
UK investigation into ticket re-sellers
The UK Competition and Markets Authority will investigate the secondary ticketing market. It said:
The CMA has today launched an enforcement investigation into suspected breaches of consumer protection law in the online secondary tickets market.
This follows concerns that people are not getting the full range of information required by law when buying tickets put up for resale.
The Competition and Markets Authority (CMA) will specifically look at if information is provided on who the seller is and any connections the seller may have with the platform or event organisers; whether there are any restrictions on the use of resold tickets which could result in the person being denied access to the event; and where a seat is located in the venue.
Andrea Coscelli, CMA Acting Chief Executive, said: “A night out at a concert or a trip to a big match is something that millions of people look forward to. So it’s important they know who they are buying from and whether there are any restrictions that could stop them using the ticket.
“We have heard concerns about a lack of transparency over who is buying up tickets from the primary market. We also think that it is essential that those consumers who buy tickets from the secondary market are made aware if there is a risk that they will be turned away at the door.”
Breaking: Online ticket platforms such as Viagogo, StubHub, GetMeIn, Seatwave to be investigated by the Competition and Markets Authority.
— Rob Davies (@ByRobDavies) December 19, 2016
The CMA ticketing investigation will probe some of the practices we revealed in The Observer in May. https://t.co/FwaviN3Gho
— Rob Davies (@ByRobDavies) December 19, 2016
CMA will take enforcement action if it finds "breaches of consumer law". Dozens of examples of this, as we explain:-https://t.co/fVyUhnABHd
— Rob Davies (@ByRobDavies) December 19, 2016
Updated
Meanwhile eurozone construction activity was also on the rise:
Eurozone construction activity rose 0.8% in October & 2.2% higher than a year ago but 29.5% lower than 2008 peak.https://t.co/1DahOyLCws pic.twitter.com/DKAXL2LKjn
— Noble Francis (@NobleFrancis) December 19, 2016
Annual growth in hourly eurozone wages rose 1.6% in the third quarter, compared to an increase of just 0.9% in the previous three months and 1.7% in the first quarter.
Hourly labour costs - which include wages and non-wage costs - rose by 1.5% in the eurozone and by 1.9% in the wider 28 member European Union in the third quarter of 2016, compared with the same quarter of the previous year. Report compiler Eurostat said:
The two main components of labour costs are wages & salaries and non-wage costs. In the euro area, wages & salaries per hour worked grew by 1.6% and the non-wage component by 1.2% in the third quarter of 2016 compared with the same quarter of 2015. In the second quarter of 2016, the annual changes were +0.9% and +1.5% respectively. In the EU28, hourly wages & salaries rose by 2.0% and the non-wage component by 1.5% in the third quarter of 2016. In the second quarter of 2016, annual changes were +1.4% and +1.7% respectively.
Howard Archer, chief European and UK economist at IHS Markit, said the data could be encouraging for the European Central Bank:
A rise in Eurozone wage costs and total labour costs in the third quarter of 2016 may fuel hope within the ECB that underlying Eurozone inflationary pressures may just be starting to pick up. The ECB has been frustrated and disappointed by the lack of a pick-up in underlying Eurozone in recent months, even though the headline consumer price inflation rate has picked up...
However, while the ECB may well take some comfort from the third-quarter Eurozone labour costs and wage data, the Governing Council will still be wary about the current weakness of underlying price pressures – the ECB will likely note that while annual growth in Eurozone total labour costs and wages both picked up in the third quarter, this followed a sharp relapse in the second quarter and both were still just below the levels seen in the first quarter.
Updated
Over to Greece, and this:
Moodys says #Greece's renewed tensions with creditors 'signal delays in second programme review, a credit negative'.
— Yannis Koutsomitis (@YanniKouts) December 19, 2016
If the festive mood in the German economy is not enough for you, then head over to our Christmas quiz for a bit more seasonal cheer. 44 out of 50 is the score to beat in my case (which is less impressive than it sounds given I wrote four of the questions.....)
Economists have mixed views on what the December German IFO index portends for 2017:
Encouragement for #German growth prospects in 2017 as #Ifo business climate index climbs to 32-month high of 111.0 in Dec (110.4 in Nov)
— Howard Archer (@HowardArcherUK) December 19, 2016
But economist Carsten Brzeski at ING Bank is less sanguine:
Germany’s most prominent leading indicator, the Ifo index, closes the year with another improvement. The Ifo index increased to 110.0 in December, from 110.4 in November. The increase was mainly driven by a better current assessment component (116.6, from 115.6). The expectations component remained almost unchanged. The December increase suggests that German businesses are not (yet) afraid of negative economic implications from the new president in the US.
Today’s Ifo was the last important macro indicator for the German economy this year. As always, the upcoming Christmas break is a good occasion for a reflective moment. A look at the German economy through the rear mirror. A look which shows an impressive, though slightly slowing growth performance. The German economy has continued its recovery and defied many external risks and turmoil, like Chinese stock market turbulences and economic slowdown, low oil prices, Brexit and continued weakness in many Eurozone countries. The key for economic success has been domestic demand. Strong domestic demand on the back of a strong labour market, low inflation, low interest rates and higher wages, partly fueled by the ECB and refugees.
Unfortunately, as with so many good things, the current positive growth cycle is also coming to an end. Gradually, not abruptly. Looking into 2017, the upside for the German economy is that the main growth drivers of 2016 should still be the main growth drivers of 2017, only weaker. Construction, the best-performing sector currently, should continue to benefit from low interest rates and excess demand for housing in urban areas. Consumption should continue to thrive on the back of the strong labour market, higher real wages and low interest rates. Finally, government consumption should remain high as the influx of refugees requires continued expenditure. However, these three drivers are unlikely to gain momentum as interest rates are unlikely to drop further, inflation is gradually moving upwards and the labour market has reached its natural rate of unemployment.
Real risks to the German outlook mainly seem to stem from the outside. The still unknown impact from president-elect Trump on trade and economic policies, the ongoing Brexit uncertainty and renewed political tensions in Europe due to several elections or a new flaring up of the Greek crisis are in our view the biggest risks for 2017. On top of everything, national elections in Germany do not pose a risk in itself but should clearly absorb time that could be used to implement new reforms and investments.
All in all, it very much looks as if 2017 could be the slimmed down version of 2016. The growth ingredients should remain the same but it will be a bit less of everything. A good recipe to lose some weight after the holidays but not the best recipe for more economic growth.
The German economy is in a festive mood, according to Clemens Fuest the president of the IFO institute. He said:
The German economy is making a strong finish to the year.
In the manufacturing sector, the index rose. Assessments of both the current business situation and expectations improved. Demand picked up significantly and the order back log grew. More companies plan to ramp up production in the months ahead as a result.
In wholesaling, the business climate index rose to its highest level in almost three years. This was primarily due to more favourable assessments of the business situation. Wholesalers, however, scaled back their optimistic expectations slightly. In retailing the index remained unchanged at a high level. While retailers assessed their current business situation slightly less favourably, their business expectations improved. Electrical goods retailers reported brisk Christmas business.
The construction sector continues to break records. Since Germany’s reunification business has never been better for contractors. Improved business expectations indicate that the boom will continue in the months ahead.
But it was not so joyous in the service sector:
In the service sector the mood deteriorated in the run-up to Christmas. The indicator fell to 31.7 balance points in December from 35.0 balance points in November. Service providers assessed their current business situation less favourably. They also scaled back their business expectations slightly. Both indices, however, are significantly above their long-term average. Service providers remain keen to recruit additional staff.
Updated
German business confidence rises
German business confidence improved in December, with the IFO index rising to 111 much as expected:
#Germany Ifo Business Climate at 111 https://t.co/B5HWHFBYiu pic.twitter.com/sKuq73z2By
— Trading Economics (@tEconomics) December 19, 2016
German Ifo a touch strong than expected in December and is consistent with a pick up in annual GDP growth from Q3's 1.7% to around 2.5% pic.twitter.com/6zklDAUiuK
— Capital Economics (@CapEconEurope) December 19, 2016
Updated
Ukraine's largest bank set to be nationalised
Ukraine’s largest lender has been declared insolvent, with the country’s central bank saying that nationalisation was the best way forward. Reuters reports:
Ukraine declared the country’s largest lender PrivatBank insolvent on Monday and said bringing it under state ownership was the only way to protect the money of 20 million Ukrainian clients and stave off threats to the financial system.
The central bank said in a statement that PrivatBank had not fulfilled its recapitalisation programme and 97 percent of its corporate loans had gone to companies linked to the bank’s shareholders. As of Dec. 1, the bank’s capital shortfall stood at 148 billion hryvnia ($5.65 billion).
“We are sure that moving the bank into state ownership is the only possible way to save the money of the bank’s clients and to save the financial system,” the central bank said in a statement.
The central bank said that Ukraine was ready to support PrivatBank with liquidity if needed, adding that it did not see the nationalisation process as significantly impacting the currency market or inflation levels.
PrivatBank’s former shareholders had agreed to restructure loans paid to insiders by July 1 next year, the central bank said, while the finance minister said the bank would be sold once it was back on its feet.
Under Western-backed banking reforms, Ukraine is meant to shut lenders that cannot meet capitalisation targets, but PrivatBank is considered too big to fail.
The nationalisation comes just days before parliament has to vote on next year’s budget, which must stick to a shortfall of 3 percent of economic output, as agreed with Ukraine’s international backers.
Meanwhile the Ukrainian president said the state assured PrivatBank’s clients that their money was safe, and called for people to remain calm.
Italy's Monte dei Paschi falls 8.5%
Over in Italy, shares in Monte dei Paschi have opened and are down 8.5%, triggering another suspension.
Updated
The Santa rally in markets that we have seen since the start of December appears to be running out of steam a little. Connor Campbell, financial analyst at Spreadex, said:
It may be the start of the final week before Christmas, but so far the European markets are looking rather Santa-less this Monday.
To be fair, the FTSE has actually had a rather impressive December already, finally climbing back above 7000 last Friday, so it can be forgiven for not drastically building on that level this morning. The index is still flirting with that landmark level, though currently it lacks the kind of momentum that could lead it to a fresh all-time high later in the day. As for the pound, it’s still struggling below 1.25 against the dollar, while against the dollar it has shed 0.2%.
Over in the Eurozone the situation was similar, with the DAX and CAC both dipping after the bell. Like the FTSE the German and French indices have had a very strong December; the DAX, for example, has risen around 800 points since the start of the month, in part thanks to the ECB’s (sort of) QE boost in its most recent meeting.
European markets open lower
Defying expectations, stock markets have started the last trading week before Christmas on the back foot.
The FTSE 100 has fallen around12 points or 0.18% while Germany’s Dax and France’s Cac have lost 0.2%. Italy’s FTSE MIB has opened down 0.3%.
Mining and financial stocks are proving a drag in early trading, with Italy’s Monte de Paschi failing to open but called lower on news of its plans to launch a €5bn cash call in a last ditch effort to avoid a state bailout. The bank said on Sunday its offer to institutional investors, who account for 65% of the total, would be open until 1pm GMT on Thursday. The offer to retail investors would close a day earlier.
Here’s Unicredit’s forecast for the German IFO business confidence index, due in an hour or so: “We expect the Ifo climate index to improve to 111.0 in December after the stabilization at 110.4 in November.”
And Mike van Dulken and Henry Croft at Accendo Markets said:
On a quiet day for macro data, in focus today will be German December IFO Surveys, all expected to show slight improvement since November with the Business Climate figure attempting to post a fresh 2016 high (albeit by a very slim margin). These figures have obvious importance for the Eurozone given Germany’s position as the powerhouse for the European economy.
Updated
Agenda - German confidence data and US services figures due
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s the last trading week before Christmas, and many investors are already winding down for the festive season. But with thin trading volumes in the markets, there might be some volatile moves to look out for. Will the FTSE 100 hit a new peak, beating the closing high of 7103 reached in April 2015 or the record intra-day level of 7129 in October this year? Will the Dow pass the key 20,000 barrier.
On the agenda come German confidence figures and US services and composite PMI numbers, and ahead of that European markets are expected to open higher:
Our European opening calls:$FTSE 7029 +0.25%
— IGSquawk (@IGSquawk) December 19, 2016
$DAX 11431 +0.23%
$CAC 4844 +0.22%$IBEX 9429 +0.17%$MIB 19058 +0.23%
We’ll also be keeping an eye on struggling Italian bank Monte dei Paschi di Siena, which is attempting to refinance its huge debts, and could affect the general direction of the markets. Michael Hewson, chief market analyst at CMC Markets UK, said:
As we head into the final full trading week of 2016, having come off a decent December so far for European stocks which have seen a number of significant breakouts, the key question as we head into year-end is whether these gains of the past two weeks are likely to be sustained.
Initial impressions look positive, however the elephant in the room remains the Italian banking sector after last week’s announcement by Italy’s largest bank Unicredit to draw a line under its recent problems by announcing a significant recapitalisation plan.
This week all eyes will return to Monte dei Paschi di Siena who are expected to launch their plans to sell €5bn of stock in the days leading up to Christmas to institutions and retail investors, in the hope that over €25bn of bad loans can then be sold on, and the bank rescued without having to bail in retail bondholders.
While the political picture at the top of Italian government has become a little clearer there is no reason that this particular attempted restructuring package is likely to be any more successful than the previous three, given the continued weakness of the Italian economy, which is probably why so far there has been so little investor interest.
There may also be developments in the Greek crisis, after lenders objected to the government’s plans to give Christmas bonuses to pensioners.
