NEWS,25.01.2013

Eurozone tensions fade

New evidence suggested Friday that the eurozone might finally be emerging from its crisis with a European Central Bank announcement that banks were starting to repay some emergency loans ahead of time.In an unprecedented move a year ago, the ECB pumped more than €1.0 trillion ($1.3 trillion) into the banking sector to avert a looming credit crunch in the 17 countries that share the single currency.At the time, the ultra-cheap three-year loans, known as long-term refinancing operations (LTROs), were credited with marking a turning point in market sentiment towards the embattled euro. The LTROs were launched in two batches, in December 2011 and February 2012 and both included provisions to allow early repayment after one year, with the first repayment window opening on January 30, and the second on February 27.After that, repayments can continue on a weekly basis, depending on demand.In a widely-watched announcement on Friday, the ECB said that 278 banks would repay €137.16bn of the first €489bn LTRO on January 30.That is much more than the €100bn euros expected by analysts.Some experts believe the magnitude of the repayments is a sign of the improved health of the financial markets as it suggests banks are enjoying better access to funding.The euro certainly spiked higher on the news, rising to $1.3436.Nevertheless, other observers warn of possible problems further down the line if it emerges that only banks in the stronger core countries such as Germany repay the loans, while banks in still vulnerable, peripheral countries, such as Spain and Italy, become "stigmatised" for not being able to repay.The ECB did not provide details as to the nationality of the 278 banks which have decided to repay the cash, but some banks have made their intentions known via press statements.Berenberg Bank chief economist Holger Schmieding said it was "no wonder that the euro exchange rate is going up. We see the voluntary return of excess liquidity to the ECB as a strong vote of confidence in the euro.""Most of the funds will be returned because banks no longer need them," Schmieding argued.Private funding markets had reopened since the ECB unveiled its other anti-crisis weapon, a bond purchase programme, last August, the expert said."The large repayment shows how the ECB's intervention is successfully healing the eurozone financial system," he concluded.But Annalisa Piazza at Newedge Strategy was more cautious, suggesting that "markets might start to price in risks of tighter liquidity conditions in the future, should the repayment continue at the same pace."Nevertheless, the eurozone has seen other positive news this week, with private business activity across the eurozone as measured by the widely watched Purchasing Managers' Index or PMI hitting a 10-month high in January.And in Germany, the region's top economy, both business and investor confidence is also rising sharply."With business confidence recovering faster, at least in Germany, and the financial system healing, the resilience of the eurozone to future shocks is slowly growing," said Berenberg Bank's Schmieding."Serious risks remain... but they should be more manageable than in the last two years," he said.Speaking to the world's top business and political leaders at the World Economic Forum in Davos, ECB chief Mario Draghi hailed what he called "relative tranquility" on the financial markets and said: "All the indices point to a substantial improvement of financial conditions." But Draghi also warned that it was too early to declare the battle over."Are we satisfied...? I think to say the least, the jury is still out. Because all in all, we haven't seen an equal momentum on the real side of the economy and that's where we will have to do much more," he said.

Britain on brink of triple dip recession

Britain's economy shrank more than expected at the end of 2012 with a North Sea oil production slump, lower factory output and a hangover from London's Olympics pushing it perilously close to a "triple-dip" recession.The country's gross domestic product fell 0.3% in the fourth quarter, the Office for National Statistics said on Friday, sharper than a 0.1% decline forecast by analysts.The news is a blow for Britain's Conservative-led government, which a day earlier defended its austerity programme against criticism from the International Monetary Fund. It needs solid growth to meet its budget targets, keep a triple-A debt rating and bolster its chances of winning a 2015 election. Sterling fell to its lowest in 13-1/2 months against the euro and hit a five-month low against the dollar in response to the data. The euro was also buoyed by a stronger-than-expected German Ifo sentiment survey. "There are no positive takeaways from today's first (GDP)estimate," said Lee Hopley, chief economist for the EEF manufacturers' association. "Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy."Britain's economy is now 3.3% smaller than its peak in Q1 2008, having recovered only about half the output lost during the financial crisis a worse performance than most other major economies.The country slipped back into recession in the last three months of 2011, and only emerged from it in the third quarter of 2012, after a boost from the London Olympics.After a bout of snowy weather in January - which is likely to have hit spending and output the risk is that the economy will continue to shrink in the first three months of this year, technically pushing it into a rare "triple dip" recession.Britain's biggest department store group, John Lewis , said earlier on Friday that snow was responsible for its sales growth stalling in the latest week. Political IncendiaryIn economic terms, the picture remains one of stagnation over the past year. But politically, the latest dip in national output is more incendiary."Stagnation is going to be the theme for the next couple of quarters or so. This obviously brings Osborne's strategy into sharp relief and also the (Bank of England) strategy of maintaining or not sanctioning further monetary policy action," said Rob Wood at Berenberg Bank. "The Bank of England were forecasting a return to some growth in Q1 and that is likely to be disappointed." Finance minister George Osborne stuck fast to his austerity plan on Thursday, rejecting suggestions from the International Monetary Fund's chief economist that he should consider slowing his deficit reduction plan.Prime Minister David Cameron this week staked his political future on offering a referendum on Britain's place in the European Union. But it is Osborne's gamble that austerity will deliver strong growth before a 2015 election that will be crucial for his Conservative party's chance of winning.After the figures were released, the Osborne conceded that Britain was still in a "very difficult economic situation"."We face problems at home with the debts built up over many years and problems abroad, with the euro zone - where we export many of our products deep in recession," he added.Osborne's coalition partner, Liberal Democrat leader Nick Clegg, has said the government of which he is part had cut investment spending too rapidly.Opposition Labour Party' finance spokesperon Ed Balls responded to the data by saying the government was complacent."David Cameron and George Osborne have been asleep at the wheel. They've spent the last six months obsessing about a referendum in five years time, not focusing on the problems in our economy today," Balls said.Britain's chief central banker Mervyn King expects no more than a "gentle recovery" this year, while this week the IMF cut its 2013 forecast for British economic growth to 1.0% from 1.1% predicted in October.However, economists and business groups warn that even such lacklustre growth could be derailed by a hit to firms' and consumers' confidence from talk of a triple-dip recession.The biggest driver for the fourth-quarter fall in GDP was a 10.2% drop in mining and quarrying output, the biggest since records began in 1997, driven by disruption from extended maintenance affecting North Sea oil and gas fields.This knocked 0.18% off GDP, while slightly smaller amounts of damage were done by falls in factory output and in the 'government and other services' category, where the Olympics had boosted sports and recreation services in the third quarter.Friday's figures showed output in the service sector which makes up more than three quarters of GDP was flat in the fourth quarter. Industrial output was 1.8% lower.

Britain on brink of new recession

Britain's economy shrank 0.3% in the final quarter of 2012, a year in which it recorded zero growth, official data revealed on Friday, placing the country on the brink of yet another recession.British finance minister George Osborne said he was "determined to confront" the economic problems facing the country, which he claimed had been hit hard by the high debt inherited by the government and owing to eurozone strains."After growth of 0.9% in third quarter, the economy contracted by 0.3% in the fourth quarter of 2012," the Office for National Statistics said in a statement, adding that gross domestic product growth was flat over the year."GDP is estimated to have been flat between 2011 and 2012," the ONS said.Should Britain's economy shrink also in the current first quarter, then the country will enter its third recession since the 2008 global financial crisis."Given that a technical recession requires two consecutive quarters of falling output, this is arguably not a true 'triple-dip' yet," noted Vicky Redwood, chief UK economist at the Capital Economics research group."But there are no hard and fast definitions, and another contraction in Q1 is quite possible anyway, especially given the snow disruption."Chancellor of the Exchequer Osborne said the latest data was "a reminder today that Britain faces a very difficult economic situation."He added: "A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession."Now, we can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country," Osborne added in a statement.Britain is not a member of the eurozone but has been affected by the neighbouring bloc's ongoing financial crisis. Activity has been hit hard also by deficit-slashing austerity measures from the nation's Conservative-Liberal Democrat coalition government.In recent weeks, major British retailers have either been forced to close completely or seek outside help to remain operational. DVD rental chain Blockbuster UK and music retailer HMV became the latest casualties last week, entering administration in a bid to stay alive.Camera chain Jessops shut in early January after electrical firm Comet closed its 235 stores just before Christmas.The IMF's chief economist, Olivier Blanchard, urged Britain on Thursday to lessen the pace of its austerity programme because of the risk it may fall back into recession this year.Blanchard said Britain's annual budget statement due in March would be a good time for finance minister George Osborne to "take stock" of his programme of deep spending cuts and tax hikes.As Britain suffers, Europe's top economy Germany appears to have put the worst of the region's debt crisis behind it, separate data showed on Friday, with business confidence rising to its highest level in seven months.Britain's economy contracted in the fourth quarter after expanding by 0.9% in the third quarter of last year, when the country also exited a double-dip recession.However the third-quarter growth was boosted by one-off factors, including the London 2012 Olympic Games and rebounding activity after an extra public holiday for Queen Elizabeth II's Diamond Jubilee.Britain sank into the first phase of a double-dip recession in 2008 as a result of the devastating global financial crisis that sparked a number of vast banking bailouts.The economy rebounded in late 2009 but struggled to stage a convincing recovery and fell back into a second downturn in late 2011, which lasted for three quarters, as the eurozone crisis loomed large.

World's biggest nuclear plant may shut

The largest nuclear power plant in the world may be forced to shut down under tightened rules proposed by Japan's new nuclear watchdog aimed at safeguarding against earthquakes, a report said on Friday.Fukushima operator Tokyo Electric Power's vast Kashiwazaki-Kariwa plant in central Japan could be on the chopping block if the Nuclear Regulation Authority expands the definition of an active fault.The movement of a fault a crack in the earth's crust can generate massive earthquakes like the one that sparked a tsunami that slammed into the Fukushima Daiichi plant in March 2011, setting off the worst atomic crisis in a generation.The watchdog is planning to define an active fault as one that moved any time within the past 400 000 years, rather than the current 120 000 to 130 000-year limit, an official said, which could spell the end of the Tepco plant."The new guidelines will be put into effect in July, and then we will re-evaluate the safety of each of Japan's nuclear plants," said the NRA official, adding no decisions would be made until the new rules were in place.At least two "non-active" faults underneath the site's reactors could be ensnared by the new definition, forcing its closure, according to a report in the mass-circulation Yomiuri Shimbun newspaper on Friday.Other Japanese media have carried similar reports.A company spokesman said Tepco was conducting more tests on the faults underneath the Kashiwazaki-Kariwa plant, the world's biggest by generating capacity.The NRA is conducting or planning to conduct investigations into six other nuclear plants in Japan.At present only two of the country's 50 reactors are operational, after the entire stable was shuttered over several months for scheduled safety checks. Public resistance has meant the government has been reluctant to give the go-ahead for their re-starting.The two reactors that are working are both being investigated by seismologists.In 2007, the government ordered the temporary closure of the Kashiwazaki-Kariwa plant after a 6.8-magnitude earthquake destroyed hundreds of homes in the area and jolted the sprawling plant, which was close to the quake's epicentre, leading to a small radiation leak.The 9.0-magnitude earthquake that struck off Japan's northeastern coast in 2011 triggered the tsunami that left about 19 000 dead and set off the emergency at Fukushima.No one is officially recorded as having died as a direct result of the nuclear catastrophe, but radiation leaks forced tens of thousands of people from their homes and left swathes of agricultural land unfarmable.

NEWS,01.07.2012

Investors' eyes on European Central Bank

The month of June finished on a high note, with investors opting to trust that the most recent agreement by European leaders on dealing with the 2 1/2-year-old sovereign debt crisis will finally stem the bleeding for both the region's and the global economy.The European Central Bank this week might help sustain the momentum of optimism by opting to ease interest rates, already at a record low. Most economists polled by Reuters expect the central bank to lower borrowing costs at its meeting on Thursday.Investors will closely watch for the latest indicators on the strength of the US economy including the Labor Department's report on nonfarm payrolls in June, due on Friday, though expectations are low.Economists forecast an increase of 90,000 jobs and the US unemployment rate holding steady at 8.2%. Estimates in a Bloomberg survey of 59 economists ranged between 35,000 and 165,000 more jobs.Other US data due in the coming days include the Institute for Supply Management's manufacturing index and construction spending on Monday, as well as weekly jobless claims and mortgage data, ADP's private-sector payrolls report and the ISM's services-sector index on Thursday."We really need to see job creation pick up, which is the only thing that's going to get households spending on a sustained basis," Paul Dales, a senior US economist at Capital Economics in London, told Bloomberg News. "The economy isn't going to get exceptionally weak from here, but neither is it going to get much stronger."Wall Street will be closed on Wednesday, the Fourth of July, in observance of Independence Day.In the past five days on Wall Street, the Dow Jones Industrial Average advanced 1.9%, the Standard & Poor's 500 Index gained 2%, while the Nasdaq Composite Index rose 1.5%.For the month of June, the Dow gained 3.9% while the S&P 500 climbed 4% and the Nasdaq added 3.8%. In Europe, the Stoxx 600 Index posted a gain of 1.9% for the week, as national benchmark indexes advanced in all 18 western European markets. London rose 1%, Paris increased 3.4% and Frankfurt moved 2.4% higher in the past five days.Some analysts warned that the optimism and the gains might be short-lived."Investors have to be cautious because the market may be getting ahead of itself. We really don't have any details. The big question is still what direction the ECB takes [this] week," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters. On Friday, euro-zone leaders agreed to allow their joint emergency funds to be tapped by the region's banks, aimed at reducing the pressure on sovereign debt. They also pledged to create a single banking supervisor for euro-zone banks based around the ECB in a move toward a European banking union."[The EU deal] is certainly not a silver bullet for the debt crisis, but the market is kind of acting like it is. It may set us up for another push down in the weeks ahead," Esiner said.Others agreed. "People had pretty low expectations of the summit and are a little bit more optimistic now," Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, told Bloomberg News. "The devil is in the details on most of this stuff."In the coming days, Spain and France will test investors' appetite for their debt again. Spain is set to auction three-year, four-year and 10-year bonds on Thursday, the same day as France who is planning to sell between 7 billion and 8 billion euros in long-term bonds.

ECB official: Greece must deliver '100 pct'

 

Greece must fulfill the targets of its austerity and reform program "100 percent" to stay in the euro, a top European Central Bank official said Sunday offering little hope of substantial wiggle room for Athens and questioning whether it can be given more time to comply.Greece's new government wants to lower some taxes, freeze public sector layoffs and extend by two years the mid-2014 deadline for austerity measures demanded by creditors in exchange for loans that are keeping the country afloat, conditions that are hugely unpopular in the country.But ECB executive board member Joerg Asmussen told Germany's ARD television that there can be no departure from the aims of consolidating Greece's budget and restoring its competitiveness."The so-called mix of measures in other words, how do I reach the target one can talk about that," he said. But that, he added, means that "if the government intends to lower a tax, it will have to increase another tax by the same amount."Asked whether Greece would get more time to comply, Asmussen replied: "I don't think so." He noted that any extension would lead to a need for more external financial help "that means that the other 16 eurozone states and the IMF would then have to provide more financing."The ECB is part of the so-called "troika" of debt inspectors overseeing the Greek program, along with the European Commission and the International Monetary Fund. On Monday, the inspectors are expected to start their review of the country's finances and meet with the new government. Their conclusions will be critical to whether Greece will be able to renegotiate parts of its international bailout conditions."My preference and the preference of the ECB is very clearly that Greece remain in the eurozone," Asmussen said. "For that, the country must implement 100 percent the program targets that were agreed."An exit, he said, would make things economically difficult not just for the country leaving the eurozone but also for all the others.Other eurozone countries in particular Germany, the bloc's biggest economy have appeared cool to giving Greece much of a break on its targets or timeline."From Germany's point of view, a substantial loosening of the program, of the reform agreements, does not come into consideration," Foreign Minister Guido Westerwelle said Sunday. He insisted that Greece must implement those agreements "step by step, solidly and reliably."At a European Union summit last week, German Chancellor Angela Merkel made concessions to Italy and Spain notably agreeing to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece.But officials insist that help to struggling countries and banks will still come with strings attached, and that Germany has no intention of agreeing to share government debt through jointly issued eurobonds in the foreseeable future. Berlin fears that would cut struggling countries' borrowing costs at its expense and also take pressure off them to get their finances and economies in order.Westerwelle, a member of the pro-market Free Democrats the junior partner in Merkel's coalition insisted Sunday that eurobonds should stay off the table permanently."Too little solidarity endangers Europe, but too much solidarity does not endanger Europe any less," he said."Even if we already lived in a European federal state, I would be strictly against us Germans taking on liability for all debts in all of Europe."