Mario Draghi says ECB is ready to pump more stimulus into eurozone economy
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Version 0 of 1. 3.05pm GMT15:05 Closing summary Before the blog closes, it is worth flagging up that Eurostat will publish the flash estimate of eurozone inflation for December on Wednesday next week (7 Jan). This could be a crucial moment for the currency bloc, and for Mario Draghi and his fellow policymakers at the European Central Bank. Economists polled by Reuters are predicting the eurozone will sink into deflation, with annual inflation falling to -0.1% from 0.3% in November. If economists are correct, speculation that the ECB will announce quantitative easing at its January meeting to stave off a dangerous deflationary spiral will mount. For now, here is a closing summary for today. That’s it for today. Thank you for reading and commenting, and please join us again next week. Have a great weekend. 2.29pm GMT14:29 George Papandreou, the former Greek Prime Minister, is making a return to politics with the launch of a new party in time for the country’s general election on 25 January. Papandreou, has stressed the new party will reflect the values of democracy, socialism and sustainable growth. It could shift the dynamic of the election, with the former PM potentially pulling votes from the left-wing and anti-austerity Syriza party, currently leading the polls. Ex-Greek PM Papandreou to launch own party but a successful comeback is far from certain http://t.co/BtReDXWbNw via @MacroPolis_gr #Greece Greek ex PM #Papandreou launches new party. He stepped down in 2011 following opposition to a referendum on IMF-EU bailout package. #Greece 2.01pm GMT14:01 Gold is on course for its third weekly fall as the dollar strengthens and oil prices fall. A stronger dollar makes gold more expensive for holders of foreign currencies. Spot gold fell to its lowest since 26 December at $1,172.95 an ounce. Prices were heading for a 1.6% weekly decline according to Reuters. Ole Hansen of Saxo Bank: An almost unchanged gold price in 2014 was quite impressive considering that we had a 12% rise in the dollar during the same time. But as long as we continue to see expectations for a rising dollar, investors will not start to suddenly look at gold as an investment opportunity. 1.15pm GMT13:15 Oil hits a new low Brent crude oil prices have hit a fresh post-2009 low, below $56 a barrel. Oil prices have been falling partly because of a supply glut as OPEC refuses to cut production despite the sharp drop in price since the summer of 2014. Brent crude touched a low of $55.48 a barrel. Rusty Braziel, RBN Energy analyst, believes low oil prices are here to stay over the medium term. With no production cuts in the offing and a significant demand response years away, oversupply looks to be with us for a while. $100 a barrel crude oil prices are in the rear view mirror, at least for a couple of years. Low oil prices have helped to drive UK inflation lower. Currently at just 1% - half the Bank of England’s 2% target - the consumer prices index is expected to fall further in early 2015. Mark Carney, the Bank’s governor, said in December the drop in oil prices was a “net positive” for the UK economy. Updated at 1.15pm GMT 12.15pm GMT12:15 European markets are mixed, after opening higher. Investor optimism, boosted initially by Mario Draghi’s comments, has faded following an underwhelming set off manufacturing PMI reports for the eurozone and UK. 11.55am GMT11:55 ...but consumer lending soars While mortgage approvals fell in November, lending to British consumers rose at its fastest rate in almost a decade in the three months to November according to the Bank of England report. Consumer lending rose at annual rate of 8.3% over the period, the fastest since October 2005. It suggests consumers still have a major role to play in the UK’s economic recovery. Net lending to business dropped by £149m, the smallest fall since August. Updated at 11.55am GMT 11.45am GMT11:45 Mortgage approvals fall... Bank of England lending data this morning showed mortgage approvals for house purchase (excluding remortgaging) fell to 59,029 in November from 59,011 in October. It was the lowest since June 2013, but a smaller-than-expected fall. City economists forecast a drop to 58,000. The drop in approvals is the latest sign of a cooling housing market in the UK. Earlier this week Nationwide said the pace of UK house price growth slowed sharply in the last three months of 2014. Howard Archer at IHS Global Insight said November’s fall in mortgage approvals amounted to “more soft news” on the housing market. Updated at 11.45am GMT 11.17am GMT11:17 The pound has fallen to a 16-month low against the dollar after the weaker-than-expected UK manufacturing PMI. Sterling fell almost 1% to $1.5447. Neil Mellor, currency strategist at Bank of New York Mellon, said the pound is likely to fall further. What we have in the Bank of England is a central bank that will not look to even think about raising interest rates until it has very good reasons to do so. I think sterling’s going lower for 2015. Mellor said the general election in May was also a major risk for sterling, because it could potentially leave the door open to a British exit from the European Union. That would be a “huge negative” for the pound, he said. 10.40am GMT10:40 In case you missed it, it is well worth reading how the collapse of courier company City Link affected one of its drivers, Mick Ward (in his words). An extract here: Christmas dinner wasn’t very pleasant. It was me and my daughter and my son, my wife and my daughter’s partner. We were trying to make the most of it. Obviously our minds were full of other things. You do the things you do. You have the turkey dinner and exchange presents, but it was very sombre. I just went to my bed on Christmas night about 10pm. I wasn’t really in the mood. I found out [about City Link going into administration] on Christmas Eve, just about lunchtime. I got a call from the RMT [Ward is the local representative for the RMT trade union]. I was down in Ayr delivering parcels to my customers as I do every day. I then called my depot manager and it was denied. They were going around the office telling everybody: “Don’t worry about it, this is a load of nonsense.” I had kiddies’ Christmas presents in the van so for the sake of them I carried on. I had medical goods in the van, we deliver a lot of medical supplies to people who have quite serious illnesses. And you can’t just say you are not getting them. I had bikes in the back of the van and other toys. There is no point in spoiling Christmas for other people. Read the full piece here. 10.31am GMT10:31 Our full story on the John Lewis sales dip in Christmas week is here. The figures were partly hit by the Black Friday promotional weekend at the end of November, which prompted people to bring forward purchases of electrical goods. 10.25am GMT10:25 Here are the winners and losers from this morning’s eurozone manufacturing PMI’s. Anything above 50 signals growth, anything below signals contraction: Updated at 10.29am GMT 10.17am GMT10:17 Some reaction now to the UK manufacturing PMI, which showed a surprise drop in the sector’s rate of growth in December. Howard Archer, chief UK economist at IHS Global Insight: This is a modestly weaker survey than expected showing that manufacturing activity eased back in December after picking up in November and October from a 17-month low in September. Nevertheless, the survey evidence still clearly points to manufacturing expansion and there are grounds to hope that the sector can enjoy a decent 2015. The weaker-than-expected December manufacturing purchasing managers’ survey will likely sustain strong belief that the Bank of England will not be raising interest rates before the latter months of 2015, especially as it also shows very weak price pressures. There can be no doubt that the Bank of England will kick off 2015 by keeping interest rates unchanged at 0.5% at the conclusion of the January MPC meeting next Thursday. James Knightley, economist at ING: This morning’s UK’s data releases show that the long hoped for economic rebalancing story is not playing out as envisaged. The manufacturing recovery remains disappointing with the December purchasing managers’ index falling to 52.5 from 53.3 versus expectations of a rise to 53.6. This suggests that the manufacturing sector’s growth rate will slow further, with manufacturing continuing to shrink as an overall proportion of the UK economy given the relative strength in the service sector. Mike Rigby, head of manufacturing at Barclays: 2014 finished on an encouraging note for the manufacturing sector, with growth still moving in the right direction despite broadly benign UK macroeconomic conditions impacting on levels of new investment. As we enter a new year, the hope is that manufacturers come flying out of the blocks with their focus firmly fixed on new export markets and investment in new product development, innovation and machinery. 9.55am GMT09:55 Germany’s manufacturing PMI started growing again in December. The headline index was back above the crucial 50 mark at 51.2, up from November’s 17-month low of 49.5. Factories in Europe’s largest economy scaled up production as new orders rose. Markit’s economist, Oliver Kolodseike: Some relief was offered by December’s survey results, as the PMI edged back into expansion territory and new orders returned to growth. Moreover, companies scaled up their production levels and hired additional workers in order to meet higher business requirements. However, it is too early to say whether or not the manufacturing economy has entered the fast lane again or whether the uptick in the data is just a temporary bright spot. 9.45am GMT09:45 The dip in December’s UK manufacturing PMI was unexpected. Economists polled by Reuters had expected the pace of growth to pick up slightly, forecasting 53.7 for the headline index. Manufacturers remained reliant on domestic orders last month, with new export orders flat. Rob Dobson, senior economist at Markit, gives some context to the figures: The latest survey provides further evidence of the ongoing slowdown in the UK manufacturing sector, with output and new order growth easing to their second-weakest rates during the past year-and-a- half. Despite this end of year tapering, the sector still performed well over 2014 as a whole, with growth averaging at its highest since 2010. The positives to come out of the December readings are the continued growth, further solid increases to workforce numbers, a supportive domestic market that is driving new contract wins and the broad-base of the upturn across the consumer, intermediate and investment goods industries. The main weak spot remains exports, with overseas new order inflows stagnating amid weaker economic growth in key markets and the ongoing lethargy of the euro area. Updated at 10.16am GMT 9.32am GMT09:32 UK manufacturing growth slows Breaking: The UK manufacturing PMI index has slipped to a three-month low of 52.5 in December from 53.3 in November. Output, new orders and employment all grew at a slower pace. More to follow. Updated at 9.40am GMT 9.24am GMT09:24 Over the final quarter of 2014, the eurozone’s manufacturing sector grew at the slowest rate since the current recovery started in third quarter of 2013. The manufacturing PMI, combined with the equivalent survey for the services sector, suggests the eurozone economy grew by just 0.1% in the fourth quarter according to the Markit’s calculations. That would be a slowdown compared with third-quarter growth of 0.1%. There was a mild improvement in new order books in December, which rose for the first time in four months, driven by new export business. Chris Williamson, Markit’s chief economist: Eurozone factory activity more or less stagnated again in December, rounding off a year which saw an initial, promising-looking upturn fade away and stall in the second half of the year. The crisis in Ukraine and a renewed lack of confidence in the ability of euro area policymakers to revive the region’s economy appear to have been the main catalysts to fuel increased economic uncertainty, causing companies to grow more risk averse and pull back on expansion plans. Expectations have risen that the ECB will also announce more aggressive policy stimulus in the New Year once it has had time to assess current policy initiatives. The overall weakness of the eurozone PMI supports the case for more stimulus. Perhaps Mario Draghi should get those money printing presses rolling now... 9.04am GMT09:04 Eurozone manufacturing stagnant in December Markit’s manufacturing PMI for the eurozone as a whole shows activity was flat at the end of the year. The headline index remained in growth territory - just - at 50.6 compared with 50.1 in November. 9.01am GMT09:01 The manufacturing PMI’s keep on coming. The French survey paints a negative picture of the sector. The headline index fell to 47.5 in December from 48.4 in November. Output fell for a seventh month, reflecting a drop in new orders. Jobs were lost at the fastest rate since August. 8.53am GMT08:53 Italy’s manufacturing sector shrank at the fastest rate in more than a year-and-a-half according to the Markit PMI. The headline index of activity fell to 48.4 last month from 49 in December, where anything below 50 signals contractions. It was the lowest in 19 months and the third successive month of contraction. Manufacturers shed staff at the fastest rate in more than a year-and-a-half. The one bright spot to the report was a continued growth of orders from abroad. Phil Smith, economist at Markit: The manufacturing sector’s performance has deteriorated throughout the final quarter, with the PMI posting its worst reading for 19 months in December. Factories have cut back production amid falling intakes of new orders, particularly among domestic clients, and this trend looks set continue as new business fell to the greatest extent for over a year-and-half in December and backlogs were depleted sharply. Without the support from export sales, the situation would be worse still. 8.46am GMT08:46 John Lewis sales dip in Christmas week The department store chain John Lewis has reported a 1.4% sales decline in the week to 27 December, compared with the same week in 2013. However, sales increased by 19% on Christmas Day itself, as customers put the crackers and turkey down to do a spot of online shopping. Mark Lewis, online director at John Lewis, said the dip in sales over Christmas week probably had something to do with the fact that the figures included one less day of clearance sales. “The fall of the calendar is such that we would expect to see some of this clearance demand fall into next weeks numbers,” he said. 8.34am GMT08:34 European markets open higher On the first day of trading in 2015, European markets have opened slightly up, boosted by Mario Draghi’s hints that the ECB will be pumping more stimulus into the eurozone soon. Updated at 8.34am GMT 8.25am GMT08:25 So Spain’s manufacturing sector was still growing in December according to the Markit PMI but at a slower pace than November (which was an 89-month high). Output and new orders grew at weaker rates but job creation at Spanish factories was the strongest since mid-2007, and companies raised their prices for the first time in five months. Oliver Kolodseike, economist at Markit and author of the report: December’s PMI results provide further welcome news for the Spanish manufacturing sector. Output continued to expand at a solid pace and manufacturers were able to further obtain new contracts despite raising their charges marginally. Furthermore, workers are increasingly feeling the benefit of growth with many companies continuing to expand their staff levels. The combination of increased new business, work in the pipeline and rising employment suggest that production growth should continue in the New Year. 8.16am GMT08:16 BREAKING: Spain’s manufacturing PMI has dropped to 53.8 in December from 54.7 in November (where anything above 50 indicates growth). Updated at 8.17am GMT 8.07am GMT08:07 The euro has fallen to its lowest level against the dollar in four and a half years. The ECB’s Mario Draghi has fanned expectations that the ECB will announce more stimulus (potentially QE) measures at its January meeting, helping to drive the euro to $1.2035, the lowest since June 2010. Draghi also said in his interview with German paper Handelsblatt that there would be no eurozone break-up. A break-up of the eurozone? That will not happen. That’s why there’s no plan B. 2015 starts according to script. Euro drops to $1.2033, weakest since Jun2010 as #Draghi promises sovereign #QE soon. pic.twitter.com/HlNTeZ2UZR 7.56am GMT07:56 Draghi signals increased likelihood of QE Happy New Year! Welcome to our rolling coverage of the financial markets, the world economy, business and finance. For those of you commuters back at work this morning, read our story on today’s rail fare increases here. Passengers and unions will be protesting outside stations across the UK this morning. It was always going to be a big year for Mario Draghi, the eloquent president of the European Central Bank, and he has started 2015 with another signal that the ECB is ready to push the button on quantitative easing. Draghi said the risk of the ECB not fulfilling its mandate of price stability - achieving inflation of close to but below 2% - was now higher than six months ago. In an interview with Handelsblatt, the German financial newspaper, Draghi said: The risk that we do not fulfil our mandate of price stability is higher than six months ago. We are in technical preparations to adjust the size , speed and compositions of our measures in early 2015, should it become necessary to react to a too long period of low inflation. There is unanimity with the governing council on this. Eurozone inflation is just 0.3% and with low oil prices and fragile growth of just 0.2% in the third quarter, inflationary pressures remain weak. The big question on investor minds is whether the ECB will opt for full-blown QE - purchasing government bonds - this year in a bid to avoid a nasty deflationary trap. Spain and Greece are already in deflation. We will get the latest data from the eurozone later this morning when Markit publishes its manufacturing PMI surveys for December. |