FTSE misses out as markets move higher
European markets have started the week on a positive note, lifted by rising oil prices and a positive performance from banking shares.
Hopes of a positive outcome from the Doha meeting of oil producers this month lifted Brent crude by more than 2% to $42.86 a barrel, benefiting commodity companies. Meanwhile Italian banks gained ground, with investors optimistic about a plan to set up a fund to take over bad loans, which pulled the whole sector higher.
There was also a boost from Wall Street, which headed higher in early trading ahead of the start of the latest reporting season.
But in London the FTSE 100 slipped back as housebuilding shares fell on worries about the general economic situation, the threat of Brexit and signs of a slowdown at the top end of the market. The final scores showed:
- The FTSE 100 finished down 4.29 points or 0.07% at 6200.12
- Germany’s Dax added 0.63% to 9682.99
- France’s Cac closed up 0.22% at 4312.63
- Italy’s FTSE MIBrose 1.25% to 17,722.66
- Spain’s Ibex ended 0.83% better at 8497.6
- In Greece, the Athens market edged 0.11% lower at 560.97
On Wall Street, the Dow Jones Industrial Average is currently up 71 points or 0.4%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Italian banks continue to move higher on hope that a state-backed fund to buy bad loans will soon be set up.
Troubled Monte dei Paschi is up around 9% while Unicredit and Intesa Sanpaolo, the country’s two biggest banks, are both up around 2%. Jasper Lawler, market analyst at CMC Markets, said:
A meeting of Italian banks, the Bank of Italy and government agencies ahead of the creation of a rescue fund lifted banking shares across Europe. If the fund can bring in outside investors as stakeholders and even issue its own bonds then it’s chances of success will be greater than the kind of government bailouts that have failed to turn things around so far.
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Speaking of helicopter money, Reuters is reporting that the European Central Bank is attempting to soothe ruffled feathers - particularly in Germany - after it suggested last month that the idea of giving money directly to citizens was an interesting idea:
Almost a month after stoking a divisive debate about how far it should go in pumping money into the flagging euro zone economy, the European Central Bank is trying to soothe relations with Germany after unusually strong criticism from Berlin.
Late last week, German Finance Minister Wolfgang Schaeuble was reported as blaming the ECB’s cheap-money policy in part for the rise of the country’s right-wing anti-immigration Alternative for Germany (AfD).
The discussion is likely to continue when ECB President Mario Draghi meets Schaeuble this week in Washington at the International Monetary Fund’s spring gathering of central bankers and ministers from around the world.
A storm of protest erupted in thrifty Germany after Draghi last month described the idea of “helicopter money” - sending money directly to citizens - as a “very interesting” - if unexamined - concept.
Late last week, top ECB officials, including the ECB’s chief economist and its vice president, backpedalled, saying the idea was not on the table. But the damage had already been done.
“The ECB’s policy was already unpopular in Germany and the idea of helicopter money was the straw that broke the camel’s back,” said Joerg Kraemer, an economist with Commerzbank in Frankfurt. “People feel that ideas like this are dangerous.”
German analysts see the idea as an excessive ramping up of a loose money policy that is already fuelling rising property prices in their country, and also because it would undermine the euro by printing money and giving it away for free.
“We’ve seen most of the impact of QE (Quantitative Easing) last year and there is little more to come,” said Lars Feld, one of the ‘wise men’ that advise the German government on economic policy.
So-called helicopter money - involving central banks printing money and giving it directly to consumers in an effort to boost spending and growth - should not be ruled out entirely according to former Federal Reserve chair Ben Bernanke.
In a new post he says the probability of helicopter money being used in the US in the foreseeable future is low. But it could prove a valuable tool for central banks although it poses problems with implementation. He concludes:
Money-financed fiscal programs (MFFPs), known colloquially as helicopter drops, are very unlikely to be needed in the United States in the foreseeable future. They also present a number of practical challenges of implementation, including integrating them into operational monetary frameworks and assuring appropriate governance and coordination between the legislature and the central bank.
However, under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs may be the best available alternative. It would be premature to rule them out.
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Wall Street opens higher
Ahead of the latest US reporting season which begins - as always - with Alcoa, Wall Street has moved ahead in early trading.
With oil prices maintaining their recent gains - Brent crude is currently up just over 1% at $42.41 a barrel - the Dow Jones Industrial Average is is up around 90 points or 0.5%.
The US move has done little to support the FTSE 100, which is virtually unchanged as a rise in commodity prices is undercut by falls in housebuilders on worries about the outlook.
But Germany’s Dax has fared better, up more than 1%, while France’s Cac has climbed nearly 0.6%.
And more from our correspondent in Athens on the anti-austerity pact signed signed between the Greek prime minister Alexis Tsipras and visiting Portuguese leader Antonio Costa. Helena Smith reports:
True to form, Tsipras has used the occasion of his Portuguese counterpart’s visit to lob a few verbal volleys at international creditors keeping debt-stricken Greece afloat.
As the accord was made public, the leftist leader announced that it was the right of every “sovereign and democratic country” to elect the means by which it would meet agreed (fiscal) targets.
“No one can take away the ability and the right of a sovereign and democratic country to choose the political means to achieve agreed targets,” he said.
“Democracy is the last commodity that we ought, tooth and nail, to defend.”
Having suffered the greatest economic damage, the problem-plagued country now needed the greatest amount of time to recover, said Tsipras.
Athens is in a race against-the-clock to conclude negotiations with auditors representing lenders at the EU and International Monetary Fund before talks break off for the latter’s annual Spring meetings which begin in Washington DC tomorrow. “They have to be wrapped up by tomorrow,” said the Greek economy minister Giorgos Stathakis.
Greece has long laid the blame for the failure to complete what would be the first review of its third international bailout at the door of the IMF. Every day that the economic progress report is delayed, the real economy – already in tatters – suffers a little more with the country effectively being put on hold until it receives its next aid disbursement from creditors.
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Athens Live has documents from the bailout talks between Greece and its creditors suggesting the two sides are heading towards a conclusion:
“IMF and EU Leak Drafts of the Greek Bailout Agreement” by @AthensLiveGr https://t.co/IHu29Egt6F
— Yiannis Βaboulias (@YiannisBab) April 11, 2016
Back with the sale of Tata’s Scunthorpe plant to Greybull, the trade association for the UK steel industry welcomed the deal but said more needed to be done to support the rest of the sector. Gareth Stace, director of UK Steel, said:
This is clearly good news for the British steel sector, and I hope it will provide a much needed boost for steelmaking in the UK. However, while very welcome it does not mean that we are out of the woods yet. A long term investor is needed, in the very short term, for the remainder of the whole of the Tata Steel UK business, including Port Talbot. We must also remember that the crisis that we are in is not confined to just the Tata Steel businesses, but the sector as a whole.
In order to help make the Long Products Europe business a success, as well as the steel companies across the UK, we still need government to pull all levers, push all buttons and take every action possible to ensure British steel can once again complete on the global market place. This includes pushing the European Commission to continue its steel dumping investigations ensuring that tariffs are set at an appropriate level.
We would also like to see more Government action to bridge the gap on electricity cost with competitors, business rates and to provide direct financial assistance to steel companies to further improve both energy efficiency and also productivity, are all measures that will help our sector fairly compete.
We need to remember that the intention to sell the Long Products Division was announced two years ago, which demonstrates that these complex deals take time and therefore requires patience on all sides, to see them through to a successful conclusion. Government must be prepared to provide time limited, life support to our sector. Without this, the future of steelmaking in Britain could be limited.
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All very friendly as Portugal’s prime minister Antonio Costa shakes hands with Greece’s Alexis Tsipras on a visit to Athens.
Back with the Greybull deal to buy Tata’s Scunthorpe operations, and the Unite union has called for the government to act to allow the business to operate on a level playing field with competitors.
Unite convenor for Tata Steel Scunthorpe Martin Foster said:
This announcement is good news and brings us within touching distance of securing a future for steelmaking in Scunthorpe.
It should not be forgotten though that many workers have already lost their jobs at Scunthorpe and those that remain are making huge sacrifices with their pay and pensions to secure their jobs.
Unite is asking our members to back the deal, but government ministers must now play their part too. The government cannot now leave Scunthorpe’s steelworkers high and dry and must take decisive action to allow them to compete on an even playing field with their global competitors.
This means supporting steelworkers by ensuring infrastructure such as HS2 and defence projects are built with British steel, as well as tackling the dumping of cheap imports and high energy costs, which is leaving steelworkers fighting with one hand tied behind their backs.
Greek prime minister Alexis Tsipras has just signed an anti-austerity pact with visiting Portuguese leader Antonio Costa:
Joint declaration of the Pr. Ministers of Greece and Portugal against austerity for a progressive democratic Europe. https://t.co/euhbSdnqqT
— Alexis Tsipras (@tsipras_eu) April 11, 2016
The Economist Intelligence Unit is casting some doubts on plans to restructure Italy’s banking system:
#Italy arranging industry funded bank bailout as fears grow. But without significant Gov support, which #EU won’t allow, hard to pull off
— Robin Bew (@RobinBew) April 11, 2016
German finance minister Wolfgang Schäuble and European Central Bank president Mario Draghi will talk this week in Washington at the IMF meeting.
That is according to a spokesman for the German finance ministry. It should be an interesting talk after Schäuble’s comments criticising the ECB’s loose monetary policy.
Reuters reports the ministry spokesman as saying Schäuble’s comments were about the domestic debate in Germany about monetary policy, and adding that the ECB’s independence was of the utmost importance.
Tata sells Scunthorpe business to Greybull
The British Steel name will be revived following confirmation that Tata has sold its UK long products business to investment group Greybull.
The move should safeguard 4,400 jobs, and included a steelworks in Scunthorpe, two mills in Teesside, an engineering workshop in Workington, a design consultancy in York, and associated distribution facilities, as well as a mill in northern France.
The return of “British Steel”. Greybull to buy Scunthorpe steel plant from Tata and rebadge it as British Steel pic.twitter.com/lSz4loyNjA
— Ed Conway (@EdConwaySky) April 11, 2016
Our story is here:
Updated
The European Commission is also talking of “progress” in the talks between Greece and its lenders. A Commission spokeswoman said (quote from Reuters):
Progress has been made over the weekend. Talks are continuing in Athens today. Our aim remains to conclude the review as soon as possible.
Germany’s economy has picked up speed in the first few months of the year, according to the country’s economy ministry.
Domestic demand has been the driver with overseas trade struggling.
#IHS forecast Q1 GDP growth at 0.6% q/q. #German economy gained pace at start of year; economy ministry https://t.co/6EJckCSyzm via @Reuters
— Howard Archer (@HowardArcherUK) April 11, 2016
More fuel to the row over pay at BP:
The controversy over the $20m (£14m) pay for BP’s chief executive has intensified after a group representing individual shareholders urged members to vote against the measure at this week’s annual general meeting (AGM).
ShareSoc said Bob Dudley’s pay was too high for a company that suffered a record loss last year and has under performed rivals for a long time. It also reflects a convoluted incentive scheme that should be simplified, it said.
Dudley’s pay rose 20% last year to $19.6m as the oil company racked up a record $6.5bn loss caused by the tumbling oil price and cut thousands of jobs. His pay was increased by a more than doubling of pension payments to $6.5m from $3m that has displeased investors.
Royal London Asset Management, which owns 0.7% of BP, said last week Dudley’s pay was unreasonable and insensitive and that it would vote against at Thursday’s AGM. Two shareholder advisers – ISS and Pirc – have recommended investors vote against BP’s remuneration report and Glass Lewis, another adviser, has reportedly done the same.
The full story is here:
Troika underestimated impact of Greek measures - IMF's Lagarde
The International Monetary Fund and the other members of the troika - the EU and ECB - underestimated the impact of some of the measures it recommended for Greece, the IMF managing director Christine Lagarde has admitted.
In a wide ranging interview with Bloomberg ahead of the fund’s meeting this week, Lagarde said:
We have acknowledged one mistake, which had to do with the fiscal multipliers where we—all of us, the IMF, Europeans, the ECB [European Central Bank]—underestimated the contracting impact of some of the measures that we recommended. We overestimated the ability of Greece to actually endorse and take ownership of measures that were needed, because we moved from one government to another to another to another, and it was always, “It’s not really our program, it’s not really our reforms, it’s not really our measures. It’s imposed by the Troika putting all members in the same bag.” So I think that was overestimated.
And she also said Greece’s leaders would do more to sort out its problems:
Greece cannot just continuously tag along and expect that things will be sorted out. The Greek leaders will need to take more ownership of reestablishing their country.
But she expected Greece to stay in the EU:
Yes, I think so. We’re not out of the Greek situation yet. And I think the present circumstances with the migration and the refugees are going to strengthen the critical role Greece is playing in the EU.
She also discussed the perception of the IMF, as well as her legal problems in France.
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Here’s Reuters on the continuing talks between Greece and its creditors:
Greece and its international lenders were edging closer to a compromise on signing off on a review of bailout reforms which could unlock more aid to the country, government sources said on Monday, after marathon talks with creditors.
Just over ten hours of overnight negotiations between Athens and its lenders - the European Commission, the European Central Bank, European Stability Mechanism and the International Monetary Fund - broke off shortly before 0400 GMT. They were scheduled to resume later Monday.
“There are some small details to settle on the fiscal side of things .. We are very close,” a government source said. Divergence remained over pension reforms and regulating non-performing loans, the source added.
The review has dragged on for months mainly due to a rift among the lenders over Greece’s projected fiscal shortfall by 2018 - initially seen at 3 percent by the EU, 1 percent by Athens and 4.5 percent by the IMF.
Athens and its lenders have agreed to use 3 percent as the baseline scenario in the Athens-based talks.
But the EU and the IMF are still at odds on whether Athens could achieve a 3.5 percent primary surplus - budget balance before debt service payments - in 2018, an official participating in the talks told Reuters.
The IMF, which will decide whether to co-finance Greece’s third bailout after the review and in light of how much debt relief Greece receives, believes Athens will miss its 2018 surplus target and settle at 1.5 percent, even if it implements measures worth 3 percent of GDP, the official said.
European markets have clawed back early losses and are now trading in positive territory.
The turnaround is partly due to a rise in the Italian banking sector. European banks have come under pressure on concerns about the damage that negative interest rates will have on their stretched balance sheets. Italy’s financial sector is seen as particularly vulnerable, but there are hopes that the country’s government can reach an agreement on a state-backed fund to buy bad loans and underpin the sector.
Mining shares are also on the rise, as copper edges higher and oil remains above $41 a barrel. Metal prices have been buoyed by hopes of further Chinese stimulus measures following the producer prices figures.
Updated
Over in Greece, and some progress appears to have been made in the talks between the government and representatives of its creditors.
According to the Athens-Macedonian news agency, economy minister George Stathakis said the two sides have agreed on tax issues but need further talks on bad loans: “Progress has been made in order to have an agreement on bad loans, but the issue has not closed yet... We are very close [to an agreement on bad loans].”
Another meeting has apparently been scheduled for later today.
More on the yen’s rise. Jasper Lawler, market analyst at CMC Markets UK, said:
The speed of the ascent in the Japanese yen will put markets on high alert for intervention from the Bank of Japan this week. Markets are calling the bluff of the Bank of Japan. The yen closed higher on Friday in a direct challenge to Japanese officials who had earlier in the day verbally intervened. With dollar/yen at 108, relatively strong by recent historical standards, the Bank of Japan faces a strong risk of failure by jumping the gun. Unless there is a sudden drop below 105 in the early part of the week, the BOJ will likely hold back on directly selling yen in the market.
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Conner Campbell of SpreadEx sums up the situation this morning:
Following last Friday’s rebound the markets appear to have started Monday back in a bad mood.
An unexpected fall in Chinese inflation, a rapidly growing yen and fears of a gloomy statement from the IMF on Tuesday are weighing on sentiment.
Germany’s finance minister, Wolfgang Schäuble, has caused plenty of chatter this morning after announcing that central banks should tighten monetary policy.
On Friday night, Schäuble said he wasn’t happy with the current record low interest rates, and is now actively pushing for hikes.
He declared:
I just said to [US Treasury secretary] Jack Lew that you should encourage the Federal Reserve and we should encourage the European Central Bank and the Bank of England in a concerted action, to carefully but slowly exit.”
Schäuble was speaking at an event organised by a German economic think tank. It’s quite a remarkable intervention, in this era of central bank independence.
Schauble even blamed the ECB’s ultra-loose monetary policy for the rise of the euro-sceptic Alternative for Deutschland party.
“I said to Mario Draghi…be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy.”
This chart shows why German savers are so irate:
Expropriation of the saver in one chart. Acc to DZ Bank, German savers have lost €343bn b/c of low interest rates. pic.twitter.com/c8RTKaCYGU
— Holger Zschaepitz (@Schuldensuehner) April 11, 2016
However.... they shouldn’t forget that savers would also have suffered if more banks had been allowed to fail in 2008, or if the global economy had fallen into another great recession. Things could be worse......
Overnight, China’s inflation rate came in lower than expected.
Consumer prices across China rose by 2.3% annually in March, compared to expectations of a 2.5% rise. That’s another sign that demand in the Chinese economy is losing momentum.
FXTM Research Analyst Lukman Otunuga says the data has disappointed the markets.
For an extended period, data from Beijing has repeatedly followed a negative path and this could be the continuing theme as the nation continues to transition away from its manufacturing roots towards the service sector.
Food price inflation is picking up sharply, though. It jumped by 7.6% in March.
European markets hit by growth worries
Shares are dropping across Europe in early trading, as traders anticipate growth downgrades from the IMF tomorrow.
Britain’s blue-chip FTSE 100 index is down 38 points or 0.6%, and it’s a similar picture in other markets:
In London, retail group Next, which recently warned that trading was tough, is the biggest faller (-2%)
German software group SAP has also lost 2%, after reporting that first-quarter results will miss expectations.
Money is pouring into German government debt this morning.
This has pushed the interest rate (or yield) on 10-year bunds to a one-year low of just 0.08% (meaning prices are at a one-year high).
*GERMANY 10-YEAR BUND YIELD HITS LOWEST SINCE APR 2015
— lemasabachthani (@lemasabachthani) April 11, 2016
*GERMANY 2-YEAR YIELD REACHES LOWEST SINCE ECB MARCH 10 MEETING
— lemasabachthani (@lemasabachthani) April 11, 2016
French bank BNP Paribas expect the International Monetary Fund to cut its forecasts tomorrow.
But they also hope to hear some soothing comments from policymakers:
The IMF Spring meetings begin this week, whilst the World Economic Outlook (published on Tuesday) will likely downgrade global growth forecasts.
Nonetheless, we still expect comments from the meetings to be supportive of global markets.
Updated
Gold has hit a three-week high this morning, thanks to worries over the global economy and the weakening dollar.
Spot gold nudged $1,252.26 an ounce on Monday, its highest since March 22.
OCBC Bank analyst Barnabas Gan explains (via Reuters)
“Markets are still jittery about what’s going on in the global economy... and gold is the preferred safe-haven.”
Yen hits 17-month high against the dollar
Policymakers in Japan may be getting jittery today, as they watched the yen hit a 17-month high against the US dollar.
The American currency fell to just 107.63 yen to the $1, the weakest level since autumn 2014. That extends last week’s 3.3% fall.
Traders say the yen’s strength is partly due to investors unwinding bets that US interest rates would rise several times this year. So they send the dollar down, pushing the yen up, and undermining Tokyo’s efforts to push up inflation.
Japan’s Chief Cabinet Secretary Yoshihide Suga sounded a warning note to the markets. He told reporters that the current moves are due to speculative trading, and warned that the government is ready to take action against excessive yen movements if necessary.
#Japan's Nikkei closes down 0.4% at 15751.13 as Yen continues to strengthen. Hits fresh high at 107.63 this morning. pic.twitter.com/Ffw4y5KUeh
— Holger Zschaepitz (@Schuldensuehner) April 11, 2016
World Bank cuts Asia growth forecasts
The World Bank has added to concerns over the China’s economy, by trimming its growth forecasts for East Asia.
It believes that the region’s GDP will rise by 6.3% in 2016, down from 6.4% in its last forecasts in October.
That will slow again to 6.2% in 2017 (compared to 6.3% in the previous forecasts). In 2015, the region expanded by 6.5%.
Beijing’s attempts to rebalance China’s economy towards services and consumption are the main factor. The World Bank also sees China’s growth rate slowing, from 6.9% last year to 6.7% in 2016 and 6.5% in 2017.
These growth rates are still pretty punchy, compared to the advanced economies. But the World Bank also cautions that emerging markets are vulnerable.
And if China slows sharply, the region could suffer “spillover effects” through trade and financial channels.
It says:
“The fundamentally positive base case for growth and poverty reduction in the region is subject to elevated risks.”
And those risks include the rebalancing of China’s economy, weak commodity prices, and the threat that financial market volatility could feed through to the wider economy.
As the World Bank puts it:
“In particular, vulnerabilities created by the interplay between high levels of indebtedness, price deflation, and slowing growth in China bear close monitoring, as do corporate and financial sector vulnerabilities across much of the region.”
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The agenda: IMF may cut growth forecasts this week
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Worries over the global economy are looming over the markets this morning.
On Tuesday, the International Monetary Fund will issue its new economic projections, and many analysts fear it will slash growth forecasts again.
With investor confidence weak, world trade looking shaky, and China’s economy slowing, tomorrow’s IMF report could be a grim reminder that the world economy is still too weak.
My colleague Katie Allen explains:
The IMF’s latest update is expected to reprise warnings about risks from a slowdown in emerging market economies, China’s downturn and lower commodity prices. It cut its outlook in January and recent downbeat comments from its managing director, Christine Lagarde, were taken by many as a hint that more cuts are to come in Tuesday’s World Economic Outlook.
Lagarde said in a speech that the global economy had lost momentum and that “the recovery remains too slow, too fragile, and risks to its durability are increasing.” She also called on governments to pursue more growth-friendly policies.
“Given comments from Christine Largarde recently, a downgrade to the IMF’s world growth forecasts looks to be on the cards,” said Ryan Djajasaputra, an economist at the bank Investec.
Here’s the full story:
European stock markets are expected to fall in early trading:
European markets opening calls#FTSE -20#DAX -25#CAC -15
— Ipek Ozkardeskaya (@IpekOzkardeskay) April 11, 2016
The economic calendar is pretty bare today. But William Dudley, an interest-rate policymaker at the US Federal Reserve, is giving a speech at around 2.45pm BST.
And there may be developments in Greece, where the government continues to negotiate with creditors over its bailout programme.
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