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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil price surges on cuts deal, as Trump tweet hits Lockheed Martin shares – as it happened

Russian energy Minister Alexander Novak (left), Qatar’s energy minister Mohammed Al-Sada, and Saudi Arabian energy and industry Minister Khalid Al-Falih.
Russian energy Minister Alexander Novak (left), Qatar’s energy minister Mohammed Al-Sada, and Saudi Arabian energy and industry Minister Khalid Al-Falih. Photograph: Lisi Niesner/EPA

Closing summary: Oil jumps, yield rise, Lockheed gets Trumped

European stock markets are now closed, so let’s wrap up:

Financial markets are expecting higher inflation after a group of oil producers sealed their first joint production cut deal since 2001.

Brent crude is trading at a 17-month high, up 3.6% or $2 per barrel at $56.27, after 11 non-Opec members including Russia agreed to cut their production by around 550,00 barrels per day.

That commitment means Opec will now deliver the 1.2m bpd cut agreed at the end of November, potentially putting a floor under oil prices.

However the move has also sparked a selloff in European government bonds, driving borrowing costs higher as investors anticipate a spike in consumer price inflation, and higher interest rates.

UK 10-year bond yields hit 1.5% for the first time since March.

Mihir Kapadia, CEO and Founder of Sun Global Investments, sum up the situation.

“The historic OPEC deal over the weekend has led to confidence in the market pushing up to a 5 % surge in Oil prices.

Euro Zone government bond yields have risen significantly reflecting among other things an expectation of higher inflation. As Saudi Arabia made greater than expected cuts and non-OPEC countries agreed cuts of 558,000 barrels a day, oil prices peaked at a 17 month high with WTI trading at $54.2 and U.S. Brent rising 4.4% at $56.73 per barrel, steadily clawing out from the slump – boosting oil stocks and Middle Eastern bonds among other assets.

There’s been drama on Wall Street, where $4bn was wiped off Lockheed Martin’s value in early trading after Donald Trump tweeted that its F-35 jets were too expensive.

Investors rushed to sell Lockheed shares, as the defence firm rushed out a statement defending the cost of the project and offering to discuss it with the president-elect.

Lockheed Martin shares this month.
Lockheed Martin shares this month. Photograph: Thomson Reuters

Another sign that the president-elect can move the markets with a tweet.

But there’s been little progress in the frenzied push to recapitalise Italy’s banking sector. That could be a good sign -- Rome’s government hasn’t given up persuading private investors from injecting fresh cash into Monte dei Paschi (MPS)

Italian bank stocks have gained ground today, with MPS closing 3.7% higher tonight.

Paolo Gentiloni is being sworn in as Italy’s next prime minister today, so he should soon be able to crack on with tackling the situation. Sources in the Italian Treasury have said that they are prepared to bail out MPS if needed, but hope that the bank can raise €5bn from investors.

A senior ECB policymaker has said the bank has never discussed resorting to helicopter money, in an attempt to stimulate the eurozone economy.

Over in Paris, Christine Lagarde has faced judges over claims of negligence during her time as finance minister.

And European stock markets have just closed after a fairly unimpressive day. In London the FTSE 100 shed 63 points, or almost 1%, to 6890. That’s partly because the pound had a good day against the US dollar, up almost one cent (bad news for exporters).

That’s all for tonight. Thanks for reading and commenting! GW

Updated

True to her word, Christine Lagarde has not stayed silent - instead, she’s told judges in Paris that she will fight the allegations that she was negligent by allowing the €400m payment to Bernard Tapie in 2008.

Lagarde told the court that:

“I would like to show you that I am in no way guilty of negligence, but rather that I acted in good faith with only the public interest in mind.”

“Was I negligent? No. And I will strive to convince you allegation by allegation.”

(thanks to Reuters for the quotes)

Updated

The Sky News logo is seen on television screens in an electrical store in Edinburgh.

Rupert Murdoch’s attempt to take over broadcaster Sky has taken an interesting twist, as my colleague Mark Sweney explains:

Advisers on the transaction between Sky and Fox, which is expected to lodge an official bid later this week, are pursuing a so-called “scheme of arrangement”.

This tactic, which requires Sky to gain approval from investors representing 75% of the voting rights, will ensure that all shareholders against the deal are forced to sell once the threshold is reached.

This would protect Murdoch from the unfortunate scenario where he finally claims his prize, but is left with a mutinous rump of investors who don’t sell their Sky shares.

Updated

Here’s the full statement from Lockheed Martin, defending the cost of its F-35 fighters following Donald Trump’s criticism.

[Lockheed Martin delivered Israel its first two F-35 jets today]

My colleague Kim Willsher reports that Christine Lagarde isn’t planning to keep silent during her trial:

The president of the court asked Lagarde how she intended to defend herself and if she wished to exercise her right to remain silent. “I have no intention of keeping silent, madame la presidente,” Lagarde replied.

Here’s Kim’s report:

International Monetary Fund (IMF) Managing Director and former Economy Minister Christine Lagarde appearing in court at the Plais de Justice, in Paris, France, 12 December 2016.
International Monetary Fund (IMF) Managing Director and former Economy Minister Christine Lagarde appearing in court at the Plais de Justice, in Paris, France, 12 December 2016. Photograph: Christophe Petit Tesson/EPA

Christine Lagarde’s lawyer has urged the judges at the Plais de Justice to pause her trial for negligence during her time as French finance minister.

Associated Press has the latest details from today’s court hearing.

International Monetary Fund chief Christine Lagarde went on trial Monday in a Paris court, accused of negligence for allowing a huge handout to a well-connected businessman when she was in the French government.

Poised and serious, Lagarde took notes as the judge summed up the years-long legal saga that led to charges against her charges she contests. A well-respected pioneer for women in leadership, Lagarde faces up to a year in prison if convicted.

A lawyer for Lagarde, Patrick Maisonneuve, pleaded for a delay in the proceedings, arguing that it doesn’t make sense for her to face trial while a separate investigation in the broader case is still underway. It is unclear whether the judges will decide Monday on the appeal or adjourn for deliberations.

The case revolves around a €403m ($425 million) payout to tycoon Bernard Tapie in an arbitration deal in 2008 over the botched sale of sportswear maker Adidas in the 1990s, when Lagarde was finance minister. The amount of the award prompted indignation in France.

Investigators suspect that the whole process was rigged in favor of Tapie, a business magnate with close connections with political circles, including then-President Nicolas Sarkozy.

Civil courts have since quashed the unusually generous award, declared the arbitration process and deal fraudulent and ordered Tapie to pay the money back.

Lagarde is accused of “serious negligence” that allegedly allowed other people in the case to commit a suspected major misappropriation of public funds.

Investigating judges say Lagarde committed a series of serious errors when she made the arbitration choice and also, later on, when she refused to challenge the deal, suggesting she may have been influenced by the political connections between Tapie and Sarkozy, according to court documents.

Updated

Despite Lockheed Martin’s problem, the S&P 500 index has hit a fresh record high in early trading on Wall Street.

The Dow Jones industrial average has also hit a new high, and at 19,776 is getting close to the 20,000 mark.

Energy companies are rallying on the back of the oil production cut deal agreed over the weekend.

A Lockheed Martin executive has responded to Donald Trump’s attack, insisting that the company has taken steps to cut the costs of its F-35 programme.

Reuters has the details:

Since the beginning, we have invested hundreds of millions of dollars to reduce the price of the airplane by about 70% since its original costing, and we project it to be about 85 million dollars in the 2019 or 2020 time frame”, said Jeff Babione, Lockheed Martin’s F-35 programme leader.

That hasn’t stopped the company’s shares falling by almos 5% in early trading, knocking almost $4bn off its value.

Updated

The European Central Bank has never discussed flooding the eurozone with helicopter money.

That’s according to ECB board member Benoît Cœuré, who has just completed an online Q&A about monetary policy.

Asked if the ECB could embrace helicopter funding (which means either a) handing the public money, or b) creating money to explicitly fund government spending), Cœuré indicated that it isn’t on the ECB’s agenda.

Cœuré also defended the ECB’s decision to trim its QE programme to €60bn per month of new bond purchases, from April, even though it sees inflation below target in 2019.

Cœuré also argued that banks shouldn’t grumble too much about record low interest rates -- ultraloose monetary policy does benefit them too:

And he gets a bonus mark for playing this delivery too:

Trump attack hits Lockheed Martin shares

Supplied photo made available, Wednesday, April 23, 2014, of US F-35 Joint Strike Fighters. The Australian government has approved the purchase of another 58 joint strike fighters at a coast of $12.4 billion. (AAP Image/Department of Defence, Lockheed Martin) NO ARCHIVING, EDITORIAL USE ONLY

The president-elect has done it again.....

Shares in US defence firm Lockheed Martin are losing altitude in pre-market trading after Donald Trump tweeted that the F-35 fighter jet programme was “out of control”/

Trump is promising to make big cuts once in office, which will wipe 2% off the company’s share price when trading begins on Wall Street in 45 minutes.

The F-35 Lightning II joint strike fighter is a stealth jet, designed and manufactured by Lockheed Martin in partnership with other defence firms.

Last month the Pentagon awarded Lockheed Martin a $6.1bn contract to produce 57 F-35 stealth fighters -- the ninth batch, and 58% cheaper than the first order. Clearly not enough of a saving for Mr Trump....

Updated

The Russian rouble has leapt by 2%, after oil producers hammered out that deal to cut global output by 1.8m barrels per day.

One US dollar now buys just 61.2 ruble, the lowest since October 2015 - before fears over Russia’s economy hammered the currency:

The ruble vs the US dollar (higher = a weaker ruble)
The ruble vs the US dollar (higher = a weaker ruble) Photograph: Thomson Reuters

Updated

Newsflash: Christine Lagarde has now arrived at the Paris courthouse where she’ll be tried of allegations of negligence (as explained earlier).

Security is tight outside the courthouse:

Gendarmes confer at the Paris courthouse.

Here’s Patrick Maisonneuve, Lagarde lawyer:

Patrick Maisonneuve, lawyer of International Monetary Fund Managing Director Christine Lagarde, arrives for her trial about a state payout in 2008 to a French businessman, at the courts in ParisPatrick Maisonneuve (R), lawyer of International Monetary Fund (IMF) Managing Director Christine Lagarde, arrives for her trial about a state payout in 2008 to a French businessman, at the courts in Paris, France, December 12, 2016. REUTERS/Gonzalo Fuentes

Officials representing Greece’s creditors will head back to Athens tomorrow, in another attempt to complete the latest review of its bailout.

European Commission officials say they hope to complete the work soon:

But...the two sides still seem someway apart, with Greece’s lenders demanding economic reforms to hit its bailout targets.

And finance minister Euclid Tsakalotos has warned creditors not to be too hardline, urging them to consider compromises.

As Tsakalotos put it:

“The Greek expression is ‘put water into wine’. It’s not an expression I like, because I wouldn’t like my wine watered down, but you know what I mean, to reach an honest compromise.”

Bloomberg’s Caroline Connan has tweeted from inside France’s Cour de Justice, where the head of the IMF will face a special tribunal over the Tapie Affair today.

Bloomberg also have a snappy summary of the case against Christine Lagarde:

Basically, that Lagarde didn’t do enough to stop a payout to [businessman Bernard] Tapie.

She’s accused of gross negligence in the use of public funds, a rarely used charge brought in cases where the evidence suggests the defendant didn’t knowingly participate in activities to defraud the state.

According to the indictment, Lagarde got at least two things wrong. First, she gave her go-ahead in October 2007 to the arbitration procedure even though the French investment agency, Agence des Participations de l’Etat, “repeatedly” advised her against it.

She’s also accused of waiving the right to appeal the arbitration decision even though she was told that a possible legal challenge was available.

More here: What’s at Stake in Lagarde’s French Trial: QuickTake Q&A

Heads-up: The European Central Bank is holding an online Q&A in 90 minutes time (from 1pm GMT)

It’s looking for questions on monetary policy, having just decided to extend its bond-buying stimulus programme until the end of 2017. You can post them on Twitter using the #AskECB hashtag.

Italian banks rally, but other markets becalmed

Italian bank shares are rallying this morning, on hopes that the country’s new government can resolve the problem in its financial sector.

UBI Banca, the country’s fifth largest lender, has jumped by over 4% while Unicredit and Banco Populare di Milano have both gained over 2.5%

And this is helping Italy’s stock market to outperform the rest of Europe; Milan’s FTSE MIB is the only index up today.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

The City is hoping that the appointment of Italy’s new prime minister, Paolo Gentiloni, will create an opportunity to resolve the crisis.

Lena Komileva of G+ Economics explains:

Gentiloni’s appointment is expected to mean the current Finance Minister, Padoan, stays in his post to focus on resolving the banking sector.

While Monte dei Paschi is teetering on the brink of a collapse, an interim technocratic government is more likely to take on the difficult political capital cost involved in plugging in the bank’s capital gap, by bailing in retail shareholders, with the promise of some fiscal compensation after the next election.

The fact that private investors are shunning Italian political risk after the Referendum means that onus lies with the interim government to ensure successful political containment and prevent Eurozone systemic risk. Thus, while investors will continue to dislike uncertainty, the political risk-rewards of a likely compromise with Monte dei Paschi shareholders in the next few weeks, together with the EU’s own backstop mechanisms, means that the situation will likely be contained.

Updated

America’s borrowing costs have hit their highest level in around 18 months, as the yield on US Treasury bills rises.

That’s partly due to the inflationary impact of the oil deal, and partly due to predictions that the Federal Reserve will raise interest rates on Wednesday.

Reuters’ source at the Italian Treasury has given more details about how a state bailout of Monte dei Paschi might be handled:

Eurozone bond yields are sliding

European government bonds are taking a bath this morning, amid fears that the deal to curb oil production will drive inflation higher.

Prices are falling across the board, which pushes up the yield (or interest rate) on sovereign debt.

Britain’s 10-year gilt yield hit 1.5% for the first time since May, up from 1.43% on Friday night.

Most eurozone debt is also out of favour. Germany’s 10-year bond yield has hit 0.396%, up from 0.347% on Friday, while France’s 10-year yield has hit an 11-month high of 0.919%.

And the gap between Italy and Spain’s borrowing costs has widened to its widest level since February 2012 -- the heights of the eurozone debt crisis.

Rising bond yields usually signify that the City is expecting higher inflation -- and thus demanding a higher rate of return when buying bonds.

Updated

Reuters is reporting that Italy’s government is prepared to recapitalise Monte dei Paschi if necessary - but still hopeful that private investors will stump up for the bank’s €5bn cash call.

Here’s the story:

Italy is ready to pump capital into Monte dei Paschi di Siena if the ailing bank fails to get the money it needs to remain in business from investors, a Treasury source said on Monday.

Italy’s third-biggest bank is pressing ahead with a plan to raise €5bn ($5.3 billion) on the market this year,despite political uncertainty in the country after a constitutional referendum triggered a government crisis.

“There is confidence at the economy ministry that Monte dei Paschi’s cash call can succeed. If the operation failed, the state would carry out a precautionary recapitalisation,” the Treasury source said.

“The bank’s existence and its clients’ savings will be preserved under any circumstances,” the source added.

Last night, MPS reopened its debt-to-equity swap -- which would allow retail investors to convert their bonds into shares. That could help to hit its target of raising €5bn in new capital.

Moscovici: No banking crisis in Italy

Over in Italy, shares in Monte dei Paschi (MPS) have jumped by 7.5% at the start of trading.

The move came as EU economics commissioner Pierre Moscovici declared that Italy can tackle its banking problems without creating a new crisis.

Moscovici was in best “Don’t panic!” mode on France Info radio, saying:

“There is not and there will not be a banking crisis in Italy, there will not be a European financial crisis coming from Italy.

“We have the capacity to deal with the situation and it will be dealt with from both in Italy and at the European level.”

However, there’s still no word on whether private investors will provide MPS with a lifeline, or whether its cash call will fail.

Updated

Shares in oil companies are jumping this morning as investors anticipate higher profits once the output cuts kick in.

Royal Dutch Shell have jumped by 3%, while BP are up 2%.

Smaller oil exploration and production are also benefiting, with Tullow Oil up 8% and Cairn Energy gaining 6%.

Oil cuts deal: what the experts say

City experts agree that the deal agreed by Opec and non-Opec members are significant.

But some suspect that prices may not rise much higher, because America’s shale industry has not made promised to make any cuts.

Morgan Stanley say this the deal should “add to bullish sentiment” in the market, especially if producers actually comply with the cuts:

FXTM Chief Market Strategist Hussein Sayed believes the oil price could push higher -- at which point US shale producers could easily return to the market.

With 1.758 million barrels expected to be slashed out of the market, or about 2% of the global oil supply starting January 1, oil prices have more room to rally with Brent potentially crossing above $60 in the next couple of weeks.

The market’s focus will then switch to compliance with the agreement, and U.S. shale producers who are not a part of the agreement. U.S. rig counts rose by 21 last week to 498, the biggest increase since mid-2015, and the questions now becomes how fast will US shale ramp up production and at what level is it possible to cap the current rally?

These production cuts show that Opec and non-Opec members are serious about putting a floor under the oil price, says Naeem Aslam of Think Markets.

Saudi Arabia has shown a willingness to bring its oil production below the 10 million barrels a day mark. This is surely a sign that the country is serious about lowering the supply glut on the market.

Moreover, this also shows that they are willing to do more than the non-OPEC countries to push the price of oil higher. Traders are also cheering the news that Russia is also going to cut its oil production by 300K barrels a day by May 2017.

But Barclays believe prices will fall back during 2017.

“There are too many moving parts for OPEC’s new policy to be sustainable in the long term. The strategy is bound to overshoot, in our view, leading to lower prices in the second half of next year.”

Production cut sents oil price soaring to 17-month high

Oil price today

The oil price is surging this morning, after energy producers hammered out a historic deal to cut output over the weekend.

A group of 11 countries who are not part of the Opec cartel collectively agreed to cut output by 558,000 barrels per day, from January 1.

That bolsters the production cuts agreed by Opec late last month; they are cutting 1.2m barrels per day in an attempt to cut the worldwide glut in oil and drive prices higher.

It’s the first such deal between Opec and non-Opec members in 15 years.

And in further drama, Saudi Arabia also signalled that it might be prepared to make deeper cuts, on top of what it initially pledged.

Saudi Oil Minister Khalid al-Falih said after Sunday’s meeting.

“I can tell you with absolute certainty that effective January 1, we’re going to cut and cut substantially to be below the level that we have committed to on November 30.”

This is having a serious effect on oil this morning, driving Brent Crude and US Crude price to their highest level since last July.

Brent, the benchmark for global oil price, is up 4.4% at $56.73 per barrel.

Great news for Opec. But if prices stay at the levels, motorists can expect to pay more at the pump, and heating our homes might get pricier too....

Updated

The agenda: Italian banks, oil, Lagarde trial

The Monte dei Paschi bank headquarters in Siena.
The Monte dei Paschi bank headquarters in Siena. Photograph: Stefano Rellandini/Reuters

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Coming up today....

The battle to rescue Italy’s banks will continue this week, now that foreign minister Paolo Gentiloni has been chosen to replace Matteo Renzi as prime minister.

Executives at Monte dei Paschi, Italy’s oldest bank, are making a final attempt to persuade private investors to back its €5bn cash call. If they fail, the bank could soon find itself swept into a bail-in.

From Rome, my colleague Stephanie Kirchgaessner reports:

Executives at Monte dei Paschi of Siena (MPS) were fighting on Sunday night to salvage a multibillion-euro rescue by private investors in a frantic attempt to prop up the bank.

In a statement released after a board meeting on Sunday, the world’s oldest bank said it would forge ahead with a debt-for-equity swap offer for tens of thousands of retail investors. The offer still requires regulatory approval. If MPS manages to convince investors to go along with the plan, it would help it avoid a government bailout by Italy, which would have far-reaching economic and political consequences.

A deal to prop up MPS was thrown into doubt last week after the European Central Bank (ECB) reportedly said it could not have more time to secure the private investment. MPS had sought an extension until 20 January.

Also on the agenda:

Investors are watching the oil price closely, after producers agreed an output deal over the weekend (more on that shortly).

IMF chief Christine Lagarde is appearing before judges in Paris this afternoon, over charges relating to the €400m payment made to businessman Bernard Tapie when she was French finance minister.

Lagarde denies charges of negligence, but could potentially face up to a year in jail and a fine of €15,000 if convicted.

She’s already pleaded her case on France 2 television, saying:

“Negligence is a non-intentional offence. I think we are all a bit negligent sometimes in our life. I have done my job as well as I could, within the limits of what I knew.”

And traders are also counting down the hours until Wednesday afternoon, when America’s central bank, the Federal Reserve, is widely expected to raise US interest rates.

Fed chief Janet Yellen will also face a lot of questions about president-elect Donald Trump, we assume.

We’ll be tracking all the main events through the day...

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