Eurozone consumer confidence beats expectations
Consumer confidence in the eurozone was slightly better than expected in December.
A flash estimate from the European Commission showed confidence rose from -6 in November to -5.7, higher than the -5.85 forecast in a Reuters poll of economists.
In the EU as a whole confidence rose 0.7 points to -3.7.
And on that note, it’s time to close the blog for the day. Thanks for all your comments, and we’ll be back tomorrow.
Wall Street opens sharply higher
US markets have followed Europe with an upbeat start to trading despite oil falling to an 11 year low.
The Dow Jones Industrial Average is up 140 points or 0.85 while the S&P 500 has added 0.55% and Nasdaq is up 0.76%
Meanwhile Spain’s stock market is still under pressure, but in the rest of Europe investors seem happy to push shares higher.
Spain’s Ibex is down nearly 2.5%, but the FTSE 100 and Germany’s Dax are both up 0.9%, while France’s Cac has climbed 0.45%.
Oil continues to slide, with Brent crude currently down 1.76% at $36.23 a barrel have fallen as low as $36.04.
Here’s a look at what happens next after Spain’s uncertain election result:
Appeal court reduces libor fixing sentence for trader Tom Hayes
Former UBS trader Tom Hayes has had his sentence for his Libor fixing conviction cut from 14 years to 11 years after an appeal.
The court of appeal in London considered mitigating factors such as his Asperger’s syndrome diagnosis, but his lawyers and family failed to have the conviction overturned.
Here is our report on his sentencing in August:
Updated
Sports Direct loses Findel vote
Mike Ashley’s Sports Direct has failed in its attempt to appoint an executive onto the board of online retailer Findel.
Sports Direct, embroiled in a row about its working practices following a Guardian investigation, wanted to put one of its employees, Ben Gardener, onto the Findel board after buying a 19% stake in the business.
But Findel resisted the move, and at a meeting today requisitioned by Sports Direct nearly 81% of shareholders voted against Gardener’s appointment.
Only 19% - presumably the Sports Direct stake - was voted in favour.
Sports Direct looked likely to be defeated after major shareholders Toscafund, Schroders and River & Mercantile, who together control 43.9% of Findel, had already agreed to vote against Sports Direct. Ashley needed 50% to win the day.
Guaranteed to dampen the new year cheer:
Special tax on wine of €0.15 per bottle to be imposed as of Jan 1. #Greece #economy
— Manos Giakoumis (@ManosGiakoumis) December 21, 2015
Spain’s election result means the most market friendly coalition cannot happen, says economist Edoardo Campanella at UniCredit Research:
Spain has inaugurated its new multi-party era in the most troubling way. As expected the PP led by the incumbent Mariano Rajoy won a Pyrrhic victory at yesterday’s general elections. However, the anticipated lack of an absolute majority came with the unexpected poor performance of the PP potential coalition partner, Ciudadanos, that was relegated to the fourth place by a large margin.
So, a PP-Ciudadanos executive, that before the vote was seen as the most likely and market friendly option, is no longer feasible. All the other possible alliances pose issues. Given the relative parliamentary weights, the least fragile government may be a grand coalition between the PP and the PSOE. Although the programmatic differences are material, this alliance may provide an opportunity for the traditional parties to preserve the old order and marginalize both Podemos and Ciudadanos. The main drawback of this alliance is that, if it does not last long, it would backfire, strengthening the popularity of those outside it. If no deal is reached, Spain will likely head to fresh elections in the spring.
The timeline is as follows. The parliament convenes on January 13 and the King proposes a PM candidate, who needs to pass a confidence motion by absolute majority in a first investiture vote or by a simple majority in a second vote. The first vote would likely take place on January 18-22. If the parliament fails to elect a new PM, it would be dissolved two months after the first investiture vote, and then a new election would take place 30 to 60 days later. So government negotiations can potentially last until the second half of March. If these talks are not successful, fresh elections would be called in late April/May. Meanwhile, Mariano Rajoy remains as caretaker PM.
Updated
Here’s more on why the Spanish market is falling following the weekend’s election, courtesy of Bloomberg:
“The market was not ready for this result, it’s one of the worst scenarios that we could imagine,” Nuria Alvarez, a bank analyst at Renta 4 Banco SA in Madrid, said by phone. “The uncertainty is especially bad for the banking and the utility sectors since there can be regulatory changes that could affect them.”
European markets are continuing to hold much of their gains, with the exception being Spain after the uncertain election result. The Ibex is currently down around 2% but Germany’s Dax and the FTSE 100 are both up around 0.9%, while France’s Cac has climbed 0.5%.
On Wall Street the Dow Jones Industrial Average is forecast to open around 120 points higher, so the mini-rally could be maintained.
Despite the CBI survey coming in slightly below expectations, it does point to a reasonable run-up to Christmas, says Howard Archer, chief UK and European economist at IHS Global Insight:
Most sectors are reported to have seen sales growth in December, with strong performances in the online, clothing and recreational goods sectors, and also for online retailers.
The relatively decent CBI survey follows on from the Office for National Statistics reporting that retail sales volumes jumped 1.7% month-on-month and 5.0% year-on-year in November.
Retailers have been hoping that this will be a good Christmas for them given consumers’ generally improved purchasing power and the December CBI survey and November retail sales data suggests that their hopes could be largely realized.
Obviously retailers will be hoping that there is a final flurry in sales over the last few days before Christmas. However, retailers are not particularly upbeat about sales prospects in January.
We believe that the fundamentals for consumers should still be pretty decent in 2016, although there is currently appreciable uncertainty over how earnings growth will develop. Consumer price inflation looks likely to only rise gradually during the year... Meanwhile, employment should increase further. Despite its recent relapse, we believe that earnings growth will strengthen in 2016 due to the tightness of the labour market – although there is the possibility that it will be limited by employers using prolonged negligible inflation as a reason to curb pay awards. Furthermore, interest rates will likely only inch up in 2016. However, some consumers will be affected by tighter fiscal policy, notably reduced welfare benefits – although even here Chancellor George Osborne has abolished plans to cut working tax credits in 2016 and 2017.
UK retail sales disappoint - CBI
UK retail sales rose slightly less than expected in the run-up to Christmas, according to the latest distributive trends survey from the CBI, with the outlook for January also weak.
The balance in the survey rose from a nine month low of +7 in November to +19 in December, but this was lower than the +21 forecast by a Reuters poll. The balance records the difference between the number responding positively and those replying negatively.
As for expected sales next month, they were at their lowest level since May 2012. The CBI’s Barry Williams said:
It’s no surprise sales have recovered as we head into the final shopping days of the Christmas season. It would be ideal if the industry could keep that momentum into the New Year but retailers know 2015 was tough, and they’re expecting 2016 to start in much the same vein.
Here’s the full CBI report.
Updated
Here’s the worst performers so far in the Spanish index:
For a break from the serious business, why not try our Christmas quiz:
More on the rebound in stock markets, Spain excepted. Jasper Lawler at CMC Markets said:
Thin holiday market liquidity has spurred a nice rebound in share prices on Monday after uncertainty surrounding Spain’s election result caused a lower open across Europe. Spain’s Ibex stock index dived to its worst day in three months whilst Spanish bond yields spiked as investors reacted to the country’s uncertain political future.
There is no clear majority after Sunday’s election in Spain since a coalition between prime minister Rajoy’s People’s Party and the liberal Ciudadanos would not be enough to form a majority. There’s a chance a socialist government could take charge if Rajoy can’t form an alliance of parties in the next few days.
A socialist government in Spain would not be the end of the world and the recent experience from Portugal suggests bond yields would likely normalise after the initial shock. More broadly, the Spanish election result is another sign of anti-establishment feeling in Europe brought on by discontent particularly amongst the youth and unemployed which were hit hardest during the 2008 financial crisis.
The European Central Bank disappointed the market earlier this month when its latest stimulus programme was deemed insufficient to boost the region’s flagging economy.
The ECB had been tipped to unveil a major expansion of its €60bn-a-month quantitative easing (QE) programme. In the event it sanctioned just a six month extension to the end date and announced a small cut in the deposit rate.
But the bank’s chief economist has said in an interview with a Belgian newspaper that it would maintain its programme for as long as necessary, given the risk of a slowdown in growth in emerging markets. Reuters reports:
“It (the ECB) will pursue an accommodative monetary policy for as long as is necessary. Without giving a date, this timescale is fairly long,” Peter Praet, who is also a member of the bank’s executive board, told La Libre Belgique.
“Additional risks have arisen from the slowdown in the emerging countries, risks that are pretty significant for the euro area. There are also downward pressures on prices in the manufacturing sector as a result of surplus output and the very high unemployment level.”
Of course, Greece’s former finance minister cannot resist a comment on the Spanish election, which saw anti-austerity party Podemos gain ground:
Bravo Podemos! A small step that may turn into a large faultline shattering the Eurozone's crisis-denial & austerian contempt for democracy.
— Yanis Varoufakis (@yanisvaroufakis) December 21, 2015
And here’s a bit of historical context for the Spanish election:
Spain's Ibex 35 performancethe day after elections: 2011: -3.48% 2008: -0,29% 2004: -4.15% 2000: -1.23% 1996: -5.22% 1993: -1.75%
— Pablo Rodríguez (@Suanzes) December 21, 2015
4 years ago Rajoy had 186 seats. Absolute majority and a strong mandate. And Ibex was -3.48. So take it easy with those panic charts
— Pablo Rodríguez (@Suanzes) December 21, 2015
Spanish bond yields rise after election result
Meanwhile Spanish bond yields have the their highest level in a month following the inconclusive election result.
The country’s 10 year yields rose 18 basis points to 1.89% at one point, while 30 year yields climbed to more than 3%. Jan von Gench, chief fixed income analyst at Nordea, told Reuters:
Uncertainty is never good news for markets, which have been buying into the reform story in Spain. The best you can hope for is that the progress that has been done won’t be reversed following these election results.
The euro has also come under pressure after the Spanish news. Ilya Spivak, currency strategist at DailyFX, said:
The euro gapped down at the weekly trading open after Spain’s Prime Minister Mariano Rajoy and his PP party lost parliamentary majority at a general election held over the weekend. This opens the door for coalition negotiations that may bring the eurosceptic, anti-austerity Podemos party into government as part of a broader left-leaning coalition led by the PSOE, the PP’s top rival.
Podemos is seen as analogous to Greece’s Syriza, whose firm opposition to EU/IMF-mandated austerity measures spooked investors with the possibility of a heretofore unprecedented exit of a euro member state out of the currency bloc. A similar narrative playing out in the eurozone’s fourth-largest economy could prove deeply destabilizing for regional and global markets. The single currency’s response has been relatively muted thus far however as traders await greater clarity.
Stock markets continue on their unpredictable way, with the thinner trading in the shortened Christmas week likely to be adding to the uncertainty.
After early falls, most indices are now in positive territory, with Germany’s Dax up 131 points 0r 1.2% and France’s Cac 0.5% better. The FTSE 100 meanwhile is 0.9% or 55 points higher.
But with the uncertain outcome of the weekend’s election, Spanish shares remain down on the day so far, with the Ibex off 2.2%.
Santa rally after all, anyone?
Here’s our story on the fall in oil prices. Sean Farrell reports:
Oil has fallen to an 11-year low as traders took fright at the prospect of a glut caused by fresh supplies that will outstrip global demand.
Brent crude prices dropped almost 2% to as low as $36.17 a barrel, the lowest since July 2004 and weaker than during the worst of the financial crisis. The price fell to $36.20 on Christmas Eve 2008 as the global economy headed for recession following the collapse of Lehman Brothers.
The price of Brent, the global benchmark, nudged back up to $36.42 but prices were still below those of the previous trading day.
Global production is hovering around a record high and the market faces fresh supplies from Iran as Western sanctions are lifted and Iran seeks to win back customers from Saudi Arabia and Russia. Extra supplies are also looming from the US, where stockpiles are growing as extra drilling rigs are put into operation.
The full story is here:
Sir Ken Morrison buys stake in Sainsbury
Back with UK retail, and the former chairman of Morrisons has bought a stake in rival supermarket group Sainsbury.
Sir Ken Morrison and his son William bought 4.7m shares worth around £12m earlier this year, according to the Times. Sir Ken, who has 2.6m of the shares, also gave his public backing to Sainsbury chief executive Mike Coupe.
With Spain’s Ibex now down around 3%, financial analyst Connor Campbell from Spreadex said:
In a year full of election drama Spain managed to sneak theirs in just under the wire, Sunday’s vote seeing incumbent prime minister Mariano Rajoy’ People’s Party ostensibly still in power, but with a mere 123 seats lightyears away from a majority. That leaves Podemos and Ciudandanos, the two major destabilisers in this election, third and fourth respectively after securing 69 and 40 seats (the Socialists coming in second with 90), meaning whatever Frankenstein’s monster of a coalition arises out of these results will likely be dictated by the country’s two youngest parties.
It’s like the Greek election saga in a minor key, one that poses a host of new problems for a country that has spent the last few months gradually sinking to the bottom of the Eurozone’s unofficial performance chart.
What's next for #Spain? New Parliament must be called by Jan. 13. And if it fails to elect a new government within 2 months => new elections
— Maxime Sbaihi (@MxSba) December 21, 2015
Updated
FTSE 100 bucks downward trend as bid talk surrounds ITV
European markets are heading lower in general, but an exception is the FTSE 100 which is currently up 26 points or 0.44%.
It has been helped by a little pre-Christmas takeover speculation, following a Mail on Sunday report that US group Comcast could be plotting an £11bn bid for ITV. The talk has pushed the UK broadcaster up more than 4%.
UK listed mining shares have found some support after recent falls, but retailers are on the slide on concerns about heavy discounting during the Christmas shopping period.
Updated
Earlier, German producer prices came in much as expected, down 0.2% month on month in November and 2.5% lower year on year. The October figures showed a 0.4% month on month dip and a 2.3% year on year decline.
Spanish market drops 2.5%
The uncertainty caused by the weekend’s general election in Spain has seen the country’s stock market open sharply lower, with the Ibex down 2.5%.
Elsewhere Portugal’s PS120 has fallen 0.6%, while France’s Cac is down 0.2%.
The FTSE 100 is virtually flat, down 5 points or 0.1%, while Germany’s Dax is up 0.2% and Italy’s FTSE MIB has edged up 0.1%.
Updated
Tsipras says IMF should stay out of next Greek bailout
Over in Greece, and prime minister Alexis Tsipras apparently does not want the International Monetary Fund to take part in the country’s third, €86bn bailout.
This goes against the views of other eurozone members, notably Germany, who are keen for the IMF to be involved. In an interview with the Financial Times Tsipras said he wanted the eurozone to take full responsibility for overseeing economic reforms. The FT reports:
Mr Tsipras said in an interview with the Financial Times he was “puzzled by the unconstructive attitude of the fund on fiscal and financial issues”. He indicated that the IMF should leave his country’s third bailout to the eurozone when it decides whether to stay involved early next year.
“We think that after six years of managing in extraordinary crisis, Europe now has the institutional capacity to deal successfully with intra-European issues.”
Mr Tsipras’s assertion is likely to anger the German government, which has always insisted the IMF stay on board. Berlin values the fund’s technical expertise as much as it doubts the European Commission’s resolve.
The full report is here (£).
Back with oil, and Brent crude is currently down 1.6% at $36.29 having fallen as low as $36.17. That is the lowest level since July 2004, a level which oil has been testing for several days now. The level it had to breach was $36.20 which it reached in December 2008.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Spain and oil are in the spotlight this morning, as the recent market volatility continues into the shortened Christmas trading week.
The weekend’s election in Spain saw current prime minister Mariano Rajoy winning the largest number of wotes, but none of the parties came out with an overall majority. This is likely to lead to weeks of uncertainty, with doubts over the prospects for the country’s economic outlook. Here is our latest report:
Spanish politicians are gearing up for what could be weeks of complicated negotiations after Sunday’s general election yielded a deeply fragmented parliament, with the conservative People’s party losing ground to national newcomers Podemos and Ciudadanos.
The PP won 123 seats in the election, with 29% of the vote, leaving them far from a majority in the 350-seat legislature. Led by Mariano Rajoy, the current prime minister, Sunday’s election results left the party with limited possibilities when it comes to the alliances they now need to form a stable government majority.
The full story is here:
Jasper Lawler, market analyst at CMC Markets UK, said:L
European stocks look set for a weaker open on Monday, tracking the late sell-off in US markets on Friday as uncertainty surrounds the Spanish election results. Spain’s governing conservative party won but has lost its majority after losing seats to new parties Podemos and Ciudadanos, so must now form a coalition. The risk is that as part of a coalition, Rajoy will have to make concessions on economic policy at the expense of Spain’s burgeoning economic recovery.
Here are IG’s expectations for the European opening:
Our European opening calls: $FTSE 6018 down 34 $DAX 10559 down 49 $CAC 4596 down 29 $IBEX 9617 down 100 $MIB 21181 down 61
— IGSquawk (@IGSquawk) December 21, 2015
Elsewhere the Nikkei 225 has fallen 0.3% while the Hang Seng edged up 0.25%.
As for oil, Brent crude has dropped to levels not seen since 2004 on continuing fears about a glut of supply amid a slowdown in the global economy.
Otherwise it is a fairly quiet day on the economic front, as befits the start of the festive week. More US shopping news is due, after the weekend’s panic buying for last minute presents, with the latest CBI distributive trends survey for December.
