European shares close higher
The return of the Trump trade - the boost to markets following the US presidential election - and upbeat economic forecasts from the European Commission combined to lift share prices on the first trading day of a busy week.
Trump’s positive meeting with Japanese prime minister Shinzo Abe over the weekend sent Asian markets higher, and the upbeat mood continued elsewhere. The final scores showed:
- The FTSE 100 finished up 20.17 points or 0.28% at 7278.92
- Germany’s Dax rose 0.92% to 11,774.43
- France’s Cac climbed 1.24% to 4888.19
- Italy’s FTSE MIB was 1.07% higher at 19,064.64
- Spain’s Ibex ended up 1.13% at 9484.1
- In Greece, the Athens market added 0.86% to 629.14
On Wall Street, the Dow Jones Industrial Average is currently up 0.65% at 20,402, close to the all time high of 20.404 touched earlier.
On that note it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Greece's credit rating at risk after creditors' dispute - Fitch
Back with Greece, and Fitch has said its current CCC junk credit rating depends on the country’s creditors open the door to further funding before July.
The agency said: “Our sovereign credit assessment is underpinned by our assumption that the second review of Greece’s third bailout programme will be completed well ahead of July, maintaining access to official funding.”
But despite signs of compromise, there are still disagreements among the country’s creditors. The IMF is reluctant to take part in a further bailout without further debt relief, but this is opposed by Greece’s European creditors.
Fitch said: “Recent events highlight that political risk remains a sovereign rating weakness for Greece, despite positive economic and fiscal developments.”
The agency pointed out that Greece faced payments of more than €6bn in July, including €3.9bn to the European Central Bank.
But it said: “Greece has broadly met programme conditions and recorded a primary surplus of €4.4bn in 2016 thanks to higher-than-budgeted revenues. GDP rose 1.8% year on year in the third quarter of 2016, the largest annual increase in over eight years. This progress is one reason that we think Greece’s European creditors would be prepared to proceed with the second review and to disburse funds without IMF involvement. Another reason is their desire to avoid a Greek political crisis during an already congested election year in Europe.
“Completing the second programme review and disbursing the associated ESM funds would enable Greece to meet its July maturities... Doing so in a timely fashion and avoiding the level of brinksmanship of the first half of 2015 would reduce the risk that Greece’s economic recovery is undermined by a hit to confidence or by the Greek government building up arrears to conserve liquidity.”
Fitch is due to review Greece’s CCC rating on 24 February.
Updated
Dow now barely 600 pts off 21k. I trust someone is manufacturing some Dow 21k hats...might not be that long
— Neil Wilson (@neilwilson_etx) February 13, 2017
Jasper Lawler, senior market analyst at London Capital Group, pointed to another possible reason for the continuing strength of the US market:
Investors are pricing in the benefits of a Goldman Sachs-led Treasury Department. Steve Mnuchin [who spent 17 years at the investment bank] is in the final hours of his confirmation as Treasury secretary. He is expected to be confirmed around 7pm EST Monday. Donald Trump’s agenda of financial deregulation will likely have another supporter in the form Mnuchin. Mnuchin and Gary Cohn will be a more ‘internationalist’ influence on Trump, potentially putting a lid the President’s penchant for currency wars and trade tariffs.
The benefit to Wall Street of having an ex-Goldman Sachs banker as Treasury Secretary is pretty self-evident. In extension, it would make sense for Mnuchin to fill key positions at the treasury with his people, namely other Wall Streeters. Senior Goldman Sachs banker Jim Donovan as well as Justin Muzinich, a former Morgan Stanley worker are reportedly being considered for key positions.
Updated
Since Trump's election win:
— Jamie McGeever (@ReutersJamie) February 13, 2017
- S&P 500 +12%
- Dow +14%
- US bank stocks +25%
- Goldman Sachs +35%
BREAKING: The collective market value of the S&P 500 has surpassed $20 trillion for the first time ever https://t.co/SrmleFnMwn pic.twitter.com/sOTglP5EW0
— CNBC (@CNBC) February 13, 2017
US markets hit new highs
As expected, Wall Street has opened higher, with the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all hitting new peaks.
The raised growth forecasts from the European Union have helped sentiment, but it is the return of the Trump bounce following a lull which is pushing markets higher again. The president’s positive meeting with Japanese prime minister Shinzo Abe has helped the upbeat mood, while mining shares are benefiting from the prospect of Trump’s infrastructure plans as well as capacity concerns after a strike at a BHP Billiton copper mine in Chile.
The Dow is currently up 91 points at 20,360 having earlier touched 20,364, while the S&P opened 0.24% higher and the Nasdaq 0.3%.
In a sign that Northern Ireland’s economy is still fragile, and local spending power lower than the rest of the UK, a new survey has found that one out of every seven shops on the region’s high streets lies empty.
The report for the Northern Ireland Retail Consortium has noted that the shop vacancy rate is now at its lowest since 2011 in the depth of the recession.But the rate of empty premises has only fallen by 0.5 per cent in the last three months. Overall the vacancy rate in terms of shops in Northern Ireland - 14 per cent - remains the highest of any area of the UK.
Aodhan Connolly, director of the Northern Ireland Consortium, while accentuating the positive from the slight call in shop vacancy rates, also issued a warning about Brexit’s impact on local consumers. Connolly said that once a new power sharing executive is formed after the Assembly elections on 2 March, the next regional government must “put the consumer first during the Brexit negotiations.”
He said that with Northern Irish households having only half the spending power of their counterparts in Britain the next devolved government must “make the case for tariff free trade” in order to continue “keeping show prices low once the UK leaves the European Union.”
Greek central banker: Bailout talks at critical phase
Greece’s central bank chief has now weighed in, warning MPs that the Greek bailout talks must be concluded quickly, before the economy is hurt by the uncertainty.
Yannis Stournaras told the Athens parliament’s economic affairs committee that time was running out, so both sides should make concessions to get a deal done.
Stournaras (who was finance minister in an earlier phase of the Greek crisis), said:
“Bailout review talks are at a very critical phase. The economy’s positive momentum must be assured by the swift conclusion of the review.
“Conditions could be much worse later, it may be too late.”
This uncertainty is hitting Greek bonds today, pushing the yield (or interest rate) on two-year debt back over 9% - a dangerously high level.
Traders are worried that Greece won’t receive its next tranche of bailout aid by the summer, when it must repay €7bn to its lenders.
Back to Greece.... where senior officials are warning that there are “red lines” that cannot be overstepped to conclude the compliance review at the heart of Greece’s standoff with its creditors.
In a strongly-worded interview this morning the interior minister, Panos Skourletis, insisted that the leftist-led government would not put its signature to an agreement that would doom Greece to a permanent debt deflationary cycle.
Warning that the European Union “might not exist in a few years” Skourletis told the leftist Syntaktwn newspaper:
“An agreement that prolongs this state of uncertainty, that impedes growth and recycles recession cannot be accepted … no one can be sure if the European Union will exist in a few years.”
Growing opposition to fresh austerity measures from the ruling Syriza’s party base dominated a meeting of Syriza’s executive committee at the weekend. Under pressure to step up resistance to calls for further pension cuts and tax increases, prime minister Alexis Tsipras used the opportunity to urge German chancellor Angela Merkel to rein in her finance minister Wolfgang Schauble accusing him of plotting to create a two-speed euro zone.
Speaking to the Guardian, the Syriza MP Hara Karafanti said Greece was paying the price of the ongoing spat between the IMF and EU over how to deal with the country.
She also believes that Fund’s demands for fresh cuts are based on a false and outdated assessment of the Greek economy.
Karafanti said:
“The demand for more measures is a result of the confusion that currently prevails between the creditor institutions....
The US stock market is expected to post further gains when trading begins in almost two hours time.
That would add to Friday’s record close, and extend the rally that began with Trump’s shock win three months ago.
Futures higher. Again. Looks like the market rally under Trump (because of him or despite him?) is set to continue.
— Paul R. La Monica (@LaMonicaBuzz) February 13, 2017
European markets hit highest level since December 2015
European stock markets have now hit their highest levels in 14 months.
Today’s EC forecasts and the re-emergence of the ‘Trump trade’ have pushed the Stoxx 600 index to its highest level since December 2015.
Mining shares are still showing solid gains, helped by predictions that the US government’s promise of tax reforms will spur growth.
Consumer goods firms, tech companies and industrial corporations are also leading the risers.
Relief that Trump and Abe’s summit appears to have gone well are also pushing shares higher. But the optimism feels shaky, and could unravel if Trump doesn’t deliver on his tax pledges.
Mihir Kapadia, CEO of Sun Global Investments, explains:
“It’s been a relatively incident-free end to the week at the White House and thus the markets are starting off the Monday on a positive note further to the bilateral discussions between the heads of states of the US and Japan.
While the US dollar has strengthened against the Yen over the backdrop of a cordial visit from Prime Minister Abe of Japan, the markets are cautious on what is oncoming within the next few weeks as president Trump promised to announce something “phenomenal” on the tax front.
This is likely to be on Tax reforms and infrastructure spending, but considering he needs approval from Congress, the feasibility of fruition is still being questioned. If for instance the infrastructure spending aren’t approved, we may see a disappointed market bringing down the US dollar which continues to be strong despite the bumps and controversies caused by the Trump presidency.”
During questions on today’s forecasts, Pierre Moscovici warned that the European project would be imperilled if Marine Le Pen wins the French presidency:
EU's @Moscovici on Le Pen plans: 'would be a tragedy for the euro, catastrophe for France, in a way the end of the European project'
— Danny Kemp (@dannyctkemp) February 13, 2017
The key takeaway from today’s European growth forecasts is that every member of the EU is expected to grow steadily from 2016 to 2018. That hasn’t happened since the financial crisis almost a decade ago.
"For the first time since 2008, the Commission's forecast points to economic growth across all EU MS for the entire forecasting period" pic.twitter.com/9sD1MfewNu
— Maxime Sbaihi (@MxSba) February 13, 2017
Moscovici to visit Greece to discuss bailout
Despite the deadlock over Greece’s bailout, the EC insists that the country’s economy is on the right track.
Today’s economic forecasts predict that Greek GDP will jump by 2.7%, up from a mere 0.3% last year, and then hit 3.1% growth in 2018.
Speaking in Brussels, commissioner Pierre Moscovici says he will travel to Athens on Wednesday, to help conclude the current negotiations with its creditors - and hopefully unlock the next aid tranche.
Remember: both sides are hoping for a breakthrough in time for the next meeting of eurozone finance ministers, on 20 February.
After returning to growth in 2016, economic activity in #Greece is expected to expand strongly in 2017-18. #ECForecast
— Pierre Moscovici (@pierremoscovici) February 13, 2017
#Greece exceeded its primary surplus target for 2016 (2.0% estimate vs 0.5% target). Now must conclude 2nd review, keep programme on track.
— Pierre Moscovici (@pierremoscovici) February 13, 2017
Updated
Today’s EC forecasts also predict that France’s budget deficit will drop below the official target of 3% of GDP this year, only to swell over it again in 2018.
That suggests it will be hard for the next president to boost government borrowing, without sparking a row with Brussels (although if Marine Le Pen wins, and pulls France out of the euro, these targets won’t apply anyway).
France (again) at risk of non-compliance with EU fiscal rules in 2018. #winterforecast pic.twitter.com/jce9WnD8mA
— Jean Comte (@JeanComte) February 13, 2017
Updated
The EC also predicts that Britain’s inflation rate will hit 2.5% this year, as the weak pound pushes up the cost of living.
The EC has also admitted that the Brexit vote has had less impact than previously thought.
It is now less gloomy about growth this year -- raising its forecast from 1% to 1.5% in 2017 (before slowing to 1.2% in 2018).
Today’s forecasts says:
“The impact of the vote by the U.K. to leave the EU in the referendum held on 23 June 2016 on growth has yet to be felt....
Recent momentum is projected to largely continue in the first quarter...[but] ease notably thereafter.”
LATEST: Effect of Brexit on Britain's economy will be less than previously forecast, EU says https://t.co/4Y1HNkXf8T pic.twitter.com/WGQOuBN8n7
— Bloomberg Brexit (@Brexit) February 13, 2017
EC raises growth forecasts
Newsflash: The European Commission has upped its growth forecasts for the eurozone over the next two years.
In its new Winter Forecasts, the EC now predicts eurozone GDP will rise by 1.6% this year, up from 1.5% previously. It also expects growth to accelerate to 1.8% in 2018, up from 1.7%.
EU raises economic forecast despite 'exceptional risks' from Brexit and Trump - AFP
— Danny Kemp (@dannyctkemp) February 13, 2017
The EC also expects unemployment to keep falling from its current high levels. It expects the jobless rate to average 9.6% this year, down from 10% last year, and then fall to 9.1% in 2018.
Here’s a video clip of the forecasts:
All EU countries' economies set to grow in 2016, 2017 and 2018: https://t.co/bLtrZLBg40 #ECforecast pic.twitter.com/iPvxnfFiPQ
— European Commission (@EU_Commission) February 13, 2017
Updated
Greek MPs welcome Schulz' warning against Grexit
Martin Schulz, Germany’s Social Democratic Party’s candidate for chancellor, has given politicians in Greece food for thought - and some glee – this morning by warning that talk of a Greek exit from the EU may suit the likes of president Trump but will only endanger Europe.
Speaking to Die Welt the chancellor candidate said:
“Anyone flirting with the idea of Grexit risks breaking Europe apart. This may be in the interest of [US president] Donald Trump or [French National Front leader] Marine Le Pen, but it is certainly not in the interest of Germany and Europe. It is extremely dangerous.”
Across the board, MPs are interpreting Schulz’s statements as strong rebuke of Berlin’s finance minister Wolfgang Schäuble who has repeatedly suggested it would be better for Greece to leave the common currency.
Hara Kafantari, who represents the governing Syriza party in parliament told the Guardian:
“It is a very strong message to Schäuble that his [yearning] for Grexit could lead to the dismemberment of Europe. It’s also a message to the euro zone that it should sit and think seriously about which way it wants to go because policies right now are like shifting sands, no one knows what is going to happen from one day to the next.
Europe has to decide whether it is going to move to the far right or return to the principles of democracy.”
Wolfgang Schäuble has long been seen by Athens to play bad cop to chancellor Angela Merkel’s good cop.
On Friday the former finance minister Yanis Varoufakis told this business blog:
“Grexit is a football being kicked around between Dr Schäuble and Mrs Merkel. Schäuble is determined to kick Greece out and Merkel is determined not to make a decision until she really must.”
US dollar hits two-week high
The US dollar has hit a two-week high against the Japanese yen this morning.
One dollar was trading at ¥114.1 yen at one point, up from ¥113.1 on Friday night, partly thanks to relief that the Trump-Abe summit passed off without incident.
As Kit Juckes of Societe Generale puts it..
President Trump played golf with Japanese Prime Minister Shinzo Abe, with bonhomie replacing currency wars. That set the stage for a risk-friendly start to the week, with USD/JPY tracking higher and equities in a buoyant mood across Asia.
But Juckes is also concerned that investors are putting too much faith in Trump’s promise of a major tax cut programme soon. So if the president doesn’t deliver, there could be plenty of disappointment...
The more dollar-positive and risk-friendly mood is rooted in the terrifying flakey earth of President Trump’s promise last week that he will announce something phenomenal on tax policy in the next two to three weeks.
With soundbites coming so far ahead of details, markets are unable to avoid over-excitement but of course they (we) are vulnerable to disappointment if the detail doesn’t live up to the expectations that grow so easily. In turn, that means market confidence is pretty fragile, too.
Here’s another sign that investors are in a confident mood:
VIX gauge of Wall Street volatility - so-called "fear index" - posts 3rd straight weekly close below 11 for first time since Nov 2006. pic.twitter.com/3o2klQtwJ9
— Jamie McGeever (@ReutersJamie) February 13, 2017
Zing! Britain’s FTSE 250 index has hit another all-time high.
The index, which contains medium-sized companies too small for the FTSE 100, is up 0.2% this morning at 18,748 points.
When FTSE 100 was up post-Brexit, commentators said "that's all exporters, FTSE 250 is better gauge of UK economy". And now this: https://t.co/RSQSB1eLWs
— Stanley Pignal (@spignal) February 13, 2017
Some UK news - the troubled Co-operative Bank is up for sale, four years after being rescued by a group of hedge funds.
Mining shares hit two-year high
Mining firms are leading the charge this morning, as traders bet that robust economic growth will keep commodity prices higher.
Glencore, Anglo American, BHP Billiton and Rio Tinto are all up over 2%. This has pushed London’s FTSE 100 higher, and the mining sector to its highest since August 2014.
EU movers:
— RANsquawk (@RANsquawk) February 13, 2017
ArcelorMittal +5.5%
BHP Billiton +3.4%
Anglo American +2.9%
Glencore +2.5%
Rio Tinto +2.1%
Rexel -0.7%
Fears of a copper shortage are partly to blame, with workers at a BHP Billiton mine in Chile currently on strike.
Updated
Trump effect: What the experts say
Kathleen Brooks of City Index says the markets are looking for Donald Trump to deliver on his campaign pledges this month.
Trump is, without doubt, a key theme of 2017, however, in the past week I have noticed a few changes in the way he is impacting financial markets. Firstly, the tweeter-in-chief might be losing some of his potency. The markets are starting to get used to his Twitter outbursts, and even after retailer Nordstrom was singled out for his ire last week, its shares actually rose after it received the ‘Trump treatment’.
Secondly, the markets are now focused on 28th February, when Trump will give his first State of the Union address to Congress and is expected to lay out his taxation and infrastructure plans. Big things are expected, infrastructure spending could the be the hardest to get past Congress, so if Trump rolls back on some of his spending rhetoric to try and win the support of Congress then the financial markets may not be so impressed.
James Bevan of charity fund manager CCLA agrees that the Trump-Abe summit will have pleased investors:
With Trump’s affirmation of the One China policy and hope of a stable approach to Asian foreign policy, markets can focus on fiscal policy.
— James Bevan (@jamesbevan_ccla) February 13, 2017
But Henry Croft of Accendo Markets sees geopolitical worries building:
US equities continue to rally in expectation of Donald Trump’s tax reform and a successful two-day Japan-US summit in Washington. This optimism, however, is being offset by rising geopolitical concerns following North Korea’s successful missile test on Sunday whilst a weaker Dollar in Asian trading weighs on the foreign earnings heavy FTSE 100.
Trump relief drives markets higher
Global stock markets are rallying at the start of the week, driven by optimism that US president Donald Trump’s tax cutting plans will boost global growth.
Relief that Trump’s meeting with Japanese prime minister Shinzo Abe passed off pretty well over the weekend has also helped to push share prices higher in Asia.
Japan’s Nikkei has closed up 0.4% at a two-week high, while other Asian markets have hit their highest level in 18 months, as Reuters explains:
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3 percent, with resource-related stocks in Australia leading the gains. Markets in Taiwan and Singapore scaled their highest levels since mid-2015.
These gains follow a record close on Wall Street on Friday night.
Last week, Trump cheered investors by promising to announce a “phenomenal” tax reform proposal within a few weeks - a challenging goal, but one that has cheered investors.
The Trump-Abe meeting has also gone better than many observers feared -- despite the Japanese PM finding himself on the wrong end of one of the president’s infamous handshakes:
Pres. Trump and Japanese PM Abe meet, shake hands in the Oval Office https://t.co/rG1oCqyhkf pic.twitter.com/njJ13Qi3s1
— CBS News (@CBSNews) February 10, 2017
During the visit, Trump ticked some important diplomatic boxes by affirming Washington’s “one China” policy, and avoiding labelling Beijing a currency manipulator.
Abe and Trump also agreed to discuss a bilateral trade deal - to fill the void created by America’s withdrawal from the Trans-Pacific Partnership agreement.
North Korea cast a shadow over the event, of course, by testing a ballistic missile over the weekend. But that prompted Japan and the US to reaffirm their own ties....
Analysts reckon the meeting went pretty well. Here’s AP’s take:
“This positive lead from the U.S. coupled with improving trade sentiment provides the backing for a positive Monday for Asian markets,” Jingyi Pan of IG said in a report.
The Trump-Abe meeting and Trump’s “One China” commitment “could allay some of the trade concerns in Asia and set free into the market more bullish bets,” said Pan. “While it remains to be hashed out, President Donald Trump’s mention of a ‘level playing field’ on currency valuation also appears to reflect an amicable turn after the U.S. president accused his visitors of currency manipulation.”
The Agenda: EU forecasts, Greek worries
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It feels like a cautious start to the week, with not much in the economic calendar.
At 10am GMT, the European Commission issues its latest economic forecasts for the region. It may revise its growth forecasts upwards, as Britain’s Brexit vote and Donald Trump’s election victory haven’t derailed Europe’s slow recovery.
Germany, meanwhile, has just released new wholesale inflation data, showing that prices jumped by 4% in the last year. That’s going to fuel concerns that inflation is accelerating too rapidly for Berlin’s comfort.
#Wholesale prices in January 2017: +4.0% on January 2016 #prices #inflation https://t.co/eFBWtecP9j pic.twitter.com/TfMYOlLINc
— Destatis news (@destatis_news) February 13, 2017
Investors will also be watching events in Greece. Officials from its creditors are due back in Athens next week, in the hope of reaching a deal on its next bailout payment before February 20th.
EC vice-president Valdis Dombrovskis has called on all parties to finalise an agreement quickly, warning yesterday that:
“Now is not the time to turn the clocks back to financial instability,”
But Greek PM Alexis Tsipras insists that Athens will not cave in, declaring that:
“We will not agree to demands that are not backed up by logic and numbers.”
So it could be a nervy week....
