Greece pays public sector wages, while US data disappoints
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Version 0 of 1. 5.48pm BST17:48 European markets end week on downbeat note More weak US data - including industrial production and consumer sentiment figures - sent the dollar lower on the basis that any rate rise is pushed further into the distance, and as a consequence, lifted the euro. So European markets, particularly export-heavy Germany - lost early gains and ended the week on a downbeat note. The final scores showed: On Wall Street, the Dow Jones Industrial Average is currently 16 points or 0.09% lower. On that note, it’s time to close up for the evening. Thanks for all your comments and we’ll be back next week. 5.36pm BST17:36 Here’s the rationale for the DBRS downgrade, which has come ahead of the next scheduled rating announcement for Greece from the agency on 12 June : The deviation of this review from the calendar is due to an increase in uncertainty over government policies and Greece’s capacity to remain current on its debt. DBRS placed the ratings Under Review on 4 February 2015 to reflect DBRS’s elevated concern over the potential for a deterioration in Greece’s creditworthiness as a result of actions by the Greek government following the general elections on 25 January 2015. In light of the change in government, and given the importance of financial assistance from the European Commission, European Central Bank and International Monetary Fund, DBRS’s concern over Greece’s ability to meet its financing needs had increased. The current downgrade is due to a further increase in uncertainty over whether Greece and its creditors will reach an agreement on a program that restores macroeconomic stability and improves Greece’s cash position. In the absence of an agreement, financing sources appear to be insufficient to meet Greece’s financing needs over the foreseeable future. This shortfall is due to the lack of access to bond markets, as well as a delay in an agreement between Greece and its official sector creditors over the conditions that the creditors require in exchange for continuing the existing financial assistance program, or entering a new longer term lending program. DBRS’s view is that a new longer term program is likely to be necessary to restore macroeconomic stabilization. The delay in an agreement has had an adverse impact on the economic recovery, on financial stability, and on the fiscal stance. The Negative trend reflects the risk of a missed payment to official creditors, or the further buildup of arrears to domestic agents. In the coming weeks Greece faces a series of payments to the IMF and the ECB. DBRS’s view is that a default to these official sector creditors would likely cause an acceleration in the withdrawal of deposits from Greek banks, and would further undermine growth prospects. This is turn would make it more difficult for Greece to generate primary fiscal surpluses. Such a default could also jeopardize ECB Emergency Liquidity Assistance (ELA), without which Greek banks could face lower liquidity buffers and run the risk of insolvency. 5.33pm BST17:33 Ratings agency DBRS downgrades Greece Ratings agency DBRS has downgraded Greece to CCC, bringing it into line with Fitch. DBRS Downgrades Greece to CCC (high) Negative Trend - See more at: http://t.co/yPMA73Y9Ik This one matters more than you might think as @ecb still use DBRS ratings https://t.co/8Jkm81PmyM Updated at 5.36pm BST 5.18pm BST17:18 Here’s more about Greece’s efforts to scrape together cash: #Greece gov't asks its embassies and consulates to forward any cash reserves. http://t.co/kTFdfswAcA /via @tovimagr /ht @Hekimoglou #Greece Parliament speaker Konstantopoùlou (Syriza) refuses to transfer Hellenic Parliament cash reserves to the State. 4.41pm BST16:41 S&P: Italy affirmed at BBB-/A-3, outlook stable 3.36pm BST15:36 Greek prime minister Alexis Tsipras is hoping to bring up the deadlock with the country’s creditors at next week’s summit in Latvia, a meeting mainly designed to discuss eastern Europe, Greek newspaper Kathimerini has reported: Greek Prime Minister Alexis Tsipras plans to press fellow European Union leaders to help resolve the deadlock in talks with creditors, inserting his country’s crisis into an EU summit intended to discuss eastern Europe. Tsipras will raise the standoff in bailout negotiations on the sidelines of talks to be held May 21-22 in Riga, Latvia, according to a Greek government official. Another European official said Tsipras was expected to attend the summit, while saying that Greece is not on the meeting’s agenda. Both officials asked not to be named as the diplomacy is not public. European policy makers are giving few clues on the state of Greece’s crisis negotiations as investors try to figure out just how much money the country has left in its coffers after surviving another week. The 110-day-long standoff has triggered a liquidity squeeze, pulling the country back into a double-dip recession, amid renewed doubts over its place in the euro area. “Even if they have a deal before the bailout extension ends at the end of June, we don’t think they’ll get access to the full remaining €7.2bn of the current bailout extension,” Stephen Gallo, the European head of currency strategy at Bank of Montreal in London, said in an interview on Bloomberg Television. With the European Central unlikely to “rush in” and buy Greek bonds, the situation in Greece “is not over for a long time,” he said. 3.27pm BST15:27 Greece pays public sector workers Back to Greece, and the government has paid public sector wages due today, a total of around €500m, according to the finance ministry. Reuters reports: Athens, which had been expected to easily make Friday’s payments, will find it harder to meet wage and pension commitments later this month as well as debt payments in June. “The mid-May payments of wages and pensions ... were made within the scheduled time frame,” the ministry said. A ministry official said that the amount paid was about €500m. In a sign of the precarious nature of Greece’s finances, the ministry also said that there was a delay in paying workers at a fund that disburses EU subsidies to farmers (OPEKEPE) “due to bureaucratic reasons”, but promised the funds would be paid later on Friday. Athens has been locked in talks with its international lenders on a cash-for-reforms deal for months. The state emptied an International Monetary Fund reserves account to meet a scheduled payment to the Fund this week. For months, the government has been borrowing from different parts of the state administration, including OPEKEPE, to pay the wages and pensions of public sector workers. 3.23pm BST15:23 Wall Street is slightly lower after the day’s disappointing data. On the consumer confidence figures, James Knightley of ING Bank said the fall was a puzzle: The bad news just keeps on coming for the US right now with the University of Michigan consumer sentiment index having fallen sharply in May to 88.6 versus 95.9 in April. Given the consensus prediction was 95.9 this is a big miss and is a little perplexing. After all, employment is rising, real incomes are rising, equities are rising and the housing market is performing ok. It is possible that the weakness in first quarter GDP numbers and higher Treasury yields have caused some concern and that gasoline prices have moved a little higher, but things don’t seem bad enough to justify the steepest drop in confidence in over two years. The report again implies little prospect of imminent policy tightening, but we suspect that the story isn’t as bad as these numbers suggests. 3.07pm BST15:07 More weak US data. The University of Michigan consumer sentiment index has fallen from 95.9 in April to 88.6, much lower than the 96 figure analysts had been expecting and a seven month low. Updated at 3.08pm BST 3.04pm BST15:04 Reaction to April’s weaker-than-expected US industrial production numbers is coming in. Coupled with the weak US retail sales figures earlier this week, the feeling is that the second quarter didn’t get off to the best of starts following a shocking first quarter when GDP increased at an annual rate of just 0.2%. James Knightley, economist at ING: Industrial output has now fallen for five straight months, which is not the sort of environment in which the Federal Reserve raises interest rates. Certainly, the oil price effect has been in play and dented oil and gas output, but manufacturing has also been subdued. With retail sales also looking fairly soft, expectations of a decent bounce in Q2 GDP after Q1’s weakness are starting to evaporate. Paul Ashworth, chief US economist at Capital Economics: Industrial production in April was dragged down by a drop back in utilities output, as the earlier weather-related distortion was unwound, and a sharp decline in oil and gas drilling. Elsewhere, the modest rebound in the Empire State manufacturing index to +3.1 in May, from -1.2, indicates that the stronger dollar is still restraining factory sector activity. Nevertheless, the drop back in the dollar over the past month will provide a little relief. Furthermore, the survey evidence on the services sector is much more upbeat. Accordingly, even if export-orientated manufacturers continue to struggle, stronger domestic demand can still drive a pick-up in GDP growth. 2.42pm BST14:42 US markets open higher US markets have opened slightly higher, following the S&P 500’s record high on Thursday. 2.24pm BST14:24 Surprise fall in US industrial production US industrial production fell for a fifth month in April, down 0.3% (following a revised 0.3% fall in March). Economists polled by Reuters had predicted a 0.1% increase. It was dragged down by falls in both mining and utilities. Manufacturing output was flat over the month according to the Federal Reserve, following a 0.3% increase in March. Updated at 2.26pm BST 2.16pm BST14:16 Reprieve or reversal? Bond markets rise, yields fall across the #Eurozone. 10yr Bund yields drop to 0.65%. pic.twitter.com/wuuZk5Kx4k 2.09pm BST14:09 The Guardian’s Helena Smith also reports that along with privatisations - a red line the government had said it would not cross - it is now also considering: Updated at 2.09pm BST 2.01pm BST14:01 Helena Smith Back in Greece, former deputy premier Evangelos Venizelos has accused the anti-austerity government of being a “prisoner to its pre-election pledges”. He said: The government can’t agree with its own members and parliamentarians and because of this, it can’t conduct a real and effective negotiation [with the debt-stricken country’s creditors]. The cost that the country has been paying, for the last four months, is huge. And that is down to the fact that everyone in the government is a prisoner of its pre-election promises. This vicious circle has to end. 1.37pm BST13:37 NY #Fed Empire survey remains soft, rising to only 3.1 in May vs. -1.2 in April; 6-month outlook slips as well (29.8 vs. 37.1) 1.34pm BST13:34 Over in the US - where every piece of data is being examined for its impact on the Federal Reserve’s plan for possible interest rate rises - New York manufacturing activity accelerated in May after weakening for three consecutive months. The New York Fed’s Empire State business conditions index rose to 3.09 in May from -1.19 in April, but this was below analysts expectations of an improvement to 5. The new orders index improved to 3.85 after -6 in April. Updated at 1.44pm BST 12.42pm BST12:42 Eurozone bonds rise Eurozone bond yields have fallen (reflecting higher prices), following weeks of volatility and price swings. German 10-year yields dropped seven basis points to 0.64%, but were still above the record low of 0.05% hit last month. Spanish, Italian and Portuguese 10-year yields were also down nine basis points at 1.75%, 1.79%, and 2.33% respectively. Updated at 12.42pm BST 12.20pm BST12:20 Helena Smith Over in Athens the rhetoric reached boiling point this morning. Both in and outside the ruling Syriza party, tempers are fraying as it becomes increasingly clear that the leftist-led government is slowly rolling back on its pre-election promises. Addressing the annual Economist conference in Athens this morning, Panagiotis Lafazanis, the energy minister and head of Syriza’s militant far left faction, lashed out at Europe saying its “extreme unilateral decisions” were destroying the continent. “Europe’s problem is not doomed, leftist-(led) Greece, but Europe’s extreme unilateral decisions that are a problem for Greece,” he railed. “There are several powerful circles in the European Union and the International Monetary Fund who, right now, are trying to suffocate and strangle the experiment that is the Greek left.” Lafazanis, who is regarded as the third most senior cabinet minister after prime minister Alexis Tsipras and his deputy Yannis Dragasakis, said the ultimate aim of such circles was to kick Greece out of the eurozone. “If some are planning to create an European architecture in which Greece is excluded, because it will not submit, then they should know that such a Europe will be disabled and crippled.” Updated at 12.21pm BST 12.08pm BST12:08 European markets are still up, with the FTSE back above 7,000. Investor confidence has been boosted by Mario Draghi’s pledge to press ahead with the ECB’s £1.1 trillion bond-buying programme (despite accelerating growth and the diminishing threat of deflation), and by the expectation that an imminent US rate rise is no longer on the table. 11.39am BST11:39 Holger Schmieding, economist at Berenberg, believes there is a 70% chance Greek will do just enough to stay in the euro. On current information, Greece looks likely to run out of money in late May or early June. Reality seems to be gradually dawning on prime minister Tsipras. Just back from a one-day visit to beautiful Thessaloniki, my somewhat superficial impression is that the overall mood in Greece is becoming much more realistic after an initial post-election honeymoon period for Syriza and its policy ideas. Despite serious risks, we continue to see a 70% probability that Tsipras will do sufficient u-turns in the end to keep Greece in the euro. With intense negotiations on various levels, we may – with luck – hear about some further progress early next week, possibly leading to a first deal by the end of May. While differences remain huge, negotiators seem to be finally tackling the really thorny issues of pension and labour reforms as well as the overall size of the needed fiscal correction. But that is not the end of the story. The current negotiations are about completing the current bailout programme that runs until the end of June, with a €7.2bn tranche pending. Once concluded, these talks will have to be followed immediately thereafter by equally difficult discussions on a third bailout and by regular progress reviews thereafter that could again prove very contentious. In short: even if Tsipras finally strikes the necessary deals with Greece’s creditors and thus ends the recession which he has caused himself, the future recovery will likely be more shallow than that of Spain until Greece manages to restore trust. Populism doesn’t come cheap. 11.20am BST11:20 IMF's Thomsen: progress on Greek deal is slow Poul Thomsen, the man in charge of the Greek programme at the International Monetary Fund updated the IMF’s executive board on Thursday. According to reports, Thomsen said it was positive that the Greek prime minister Alexis Tsipras had become more closely involved in negotiations with the country’s creditors. However, he noted some serious obstacles to progress, including a lack of access to Greek data, and differences of opinion on labour issues, pensions, fiscal policy for 2015 and administrative reform. Thomsen said the IMF would be “flexible” about agreeing to revise down Greece’s budget primary surplus target of 3% of GDP, without giving an alternative figure. IMF's Director Thomson says that the IMF has not seen any major developments in the Greek negotiations, according to MegaTV (@RANsquawk) IMF's Thomsen: We can't come up with #Greece's debt sustainability analysis and conclude the review if we don't hve access to data in Athens 10.47am BST10:47 Modern ruins: the ghost factories of Greece in pics One man embarked on a 1,550 mile road trip across Greece to highlight the remnants of Greece’s industrial past. Yannis Behrakis from Reuters found abandoned factories that once made everything from marble to nuts and cooking oil. Since shutting up shop, most of them have been looted, which adds to the sense of desolation. The full picture gallery is here. Updated at 10.47am BST 10.27am BST10:27 While the jump in construction output in March and the the upward revision for Q1 are positives, some of the details in the ONS report are not so pretty. New housing construction fell 3.4% in the first quarter, at a time when politicians/the industry is constantly talking about the desperate need for new homes. All new work (including public sector building and commercial property, as well as housing) was down 1.7% over the quarter. Repair and maintenance work fell by 0.2% in Q1. UK construction in Q1. Biggest quartely dip in public house building since Q1 2001. At least we built more factories. pic.twitter.com/6b9OVXJpaY Parties pre-election told young people there'd be lots more houses. Better get on with it: housing construction was down 3.4% Jan-Mar Updated at 10.28am BST 10.08am BST10:08 The big jump in construction output in March, combined with upward revisions for January and February, has brightened the picture for the first quarter overall. The ONS now estimates that the sector shrank by 1.1% in the first three months of the year, compared with the fourth quarter of 2014. Still in negative territory, but not as bad as the 1.6% decline the statistics agency had pencilled in at the time of the first estimate of first-quarter GDP last month. It increases the chance that overall GDP growth will be revised up modestly to 0.4% from 0.3% later this month. Howard Archer, chief UK economist at IHS Global Insight: Construction output saw a much-needed and welcome rebound in March. However, this was not enough to prevent marked contraction of 1.1% quarter-on-quarter in the first quarter. At least though, the contraction in construction output in the first quarter at 1.1% quarter-on-quarter was less than the 1.6% estimated in the preliminary national accounts data. Consequently, there now looks to be a very good chance that GDP growth in the first quarter will be revised up to 0.4% quarter-on-quarter from 0.3% when the next estimate comes out on 28 May. 9.41am BST09:41 UK construction smashes expectations Construction output jumped 3.9% in March according to the Office for National Statistics. That was better than the 2.5% increase forecast by economists. It took the annual rate of growth to 1.6% from -0.2% in February. The ONS also revised the data for February, to show a smaller, 0.3% decline after initially reporting a 0.9% fall in construction output. More soon. Updated at 9.41am BST 9.13am BST09:13 Andrew Bailey, the Bank of England’s deputy governor for prudential regulation, has been speaking in London about the state of UK banks. Here are the main points he’s been making at the Reuters regulation summit. Updated at 9.16am BST 8.34am BST08:34 Greece is in advanced talks with China’s Cosco over the privatisation of its largest port at Piraeus. In a sign that Greece is willing to make some compromises as it tries to seal a deal for emergency funding from its creditors, the country’s defence minister said the government was in detailed discussion with China about the port. Cosco already manages two container piers at the port and is keen to get hold of a majority stake. Greece unblocked the sale of a 51% stake (after prime minister Alexis Tsipras earlier blocked the sale of a 67% stake) and has invited Cosco and two other investors to submit bids by September. Speaking at a conference in Athens on Friday, defence minister Panos Kammenos said: We are in very advanced talks to expand this co-operation very soon in relation with the inclusion of a railway network as well. Updated at 8.41am BST 8.03am BST08:03 European markets open higher Markets have indeed opened higher. 7.56am BST07:56 And this is the view of Mike van Dulken and Augustin Eden at Accendo Markets, in a morning note titled: Another Mario speech, another boost for markets. FTSE100 Index called to open +20 points at 6995, having recovered from yet another test below 6900 to revisit 7000. The index continues to hold above its 100-day moving average (6915) with Bulls remaining optimistic of a revisit of 7127 highs while the bears refuse to ignore falling highs from mid-April hoping for another drop back towards 6900, or lower. Watch levels: Bullish 7010, Bearish 6950. The positive opening call comes after the FTSE100 gained 3.4% in Thursday trading as US Fed member commentary appeared to take a June interest rate rise off the cards. In Europe, Mario Draghi indicated yesterday that the eurozone’s QE programme would continue until the 2% inflation target is reached and deemed sustainable. The comments buoyed both bonds and equities in the euro area and contributed to rebounds and record closes in the US overnight. 7.47am BST07:47 European markets expected to open higher Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. European markets are expected to open mainly higher this morning after a record high finish for the S&P 500 last night. In the US, the prospect of an imminent rate rise appears to be off the table, while the ECB’s president Mario Draghi defended the central bank’s €1.1 trillion QE programme and vowed to continue. Speaking in Washington, he said: After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk. For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis. Equity market calls courtesy of Michael Hewson, chief market analyst at CMC Markets UK: FTSE 100 is expected to open unchanged at 6,973 DAX is expected to open 11 points higher at 11,570 CAC 40 is expected to open 5 points lower at 5,024 |