• Almost one in four now out of work in eurozone's fourth largest economy
• Talks resume in Athens over crucial bond swap deal
• Dallara and Papadamos meet tonight
• Draghi says €489bn pre-Christmas liquidity boost averted second credit crunch
• US economy grows by 2.8% in Q4
Here's a round-up of today's main developments. European markets slipped back as there is still no Greek debt restructuring deal on table. The FTSE 100 index in London closed down 61.75 points at 5733.45, a 1.07% drop. Germany's Dax lost 27.87 points to 6511.98, a 0.43% fall, while France's CAC shed 44.47 points, or 1.3%, to 3318.76. On Wall Street, the Dow Jones is currently trading nearly 90 points lower at 12,645, a 0.7% drop.
Greek debt talks are to resume in about half an hour, when Greek PM Lucas Papademos will be meeeting IIF managing director, Charles Dallara. The US economy grew by 2.8% in the fourth quarter on an annualised basis. That was the biggest rise since the second quarter of 2010 but still below expectations.
Good night and have a great weekend - we'll be back on Monday.
This has just popped up on Reuters. Bank of England policymaker David Miles told the news agency in an interview that he was more confident of a sharp fall in inflation this year than he had been three months ago, but that his final decision on whether to do more quantitative easing would hinge on fresh forecasts.
Financial markets are almost certain the Bank of England will pump at least an extra £50bn into the economy next month, but Miles did not want to commit himself, although he is viewed as one of the more dovish members of the Bank's nine-stron monetary policy committee, and has twice voted for more QE than the consensus since he joined in 2009.
It is presumptuous to assume it is a done deal. Given that I am not entirely certain how I will vote myself I am not going to speak for the other eight people.
He said the key economic development over the past three months for monetary policy was the apparent vindication of its longstanding forecast that inflation would peak in late 2011 and then fall rapidly. Inflation has been falling since hitting a three-year high of 5.2% in September, and is now at 4.2%, still more than twice as high as the Bank's 2% target.
It remains highly likely that inflation will continue to fall and move back to the target level, and quite possibly drop beneath it as you move through this year and into next year.The single most important thing in some ways since November ... is that what we thought would happen in terms of inflation coming down quite markedly does indeed look like it has happened.
This view contrasts with that of other MPC members. The minutes of January's meeting showed that some policymakers thought that more QE "was likely to be required," while others thought it less clear that inflation would undershoot its target.
The Bank forecast in November that inflation would fall below its 2% target by late 2012 and hover around 1.3% through 2013. Miles warned against a "mechanical" interpretation of these forecasts, and said it would be wrong to assume that more QE was a certainty.
But he did say that there were long-term downward pressures on inflation from high unemployment and muted wage growth, meaning that domestic inflation pressures were "very muted".
That substantial degree of spare capacity will persist into the future. That's one reason why it is plausible that the direction of inflation - even beyond the very near term - will be a downward trajectory for the next couple of years. To me that seems highly likely.
Michael Hewson, market analyst at CMC Markets, has provided a useful summary of today's market developments.
European markets have slipped back heading into the weekend with the same concerns hanging over them as last week, namely a resolution to the Greece debt restructuring talks. There is also rising concern about the state of Portugal's finances as its bond yields blow out towards 15% and the yield curve inverts, on fears that it could well go the same way as Greece, and need some form of debt restructuring.
A slightly weaker than expected US GDP number also weighed on markets heading into the close. The main fallers today have been the basic resources and oil and gas sector, with BP slipping back after a US court ruled that it couldn't shift some of its liabilities for the Gulf of Mexico oil disaster onto rig contractor Transocean.
Intercontinental Hotel Groups is also near the bottom of the FTSE after being in the end of a downgrade from UBS to "neutral". Defensive stocks have fared better today with Imperial Tobacco near the top of the index after some positive broker comment.
US markets opened lower this morning after US Q4 GDP came in below consensus analyst expectations, dragged down by reduced government spending on items like defence, as well as reduced local government. Consumer spending was up no doubt helped by all those iPod and iPad sales, while car sales also increased. The concern is that this figure could well get revised lower as is often the case, and also underlines why Bernanke appeared so cautious with his outlook at this week's FOMC meeting.
In earnings news Honeywell beat expectations for Q4, though revenues missed expectations, while the company warned on growth in European markets.Car maker Ford also announced their latest profits coming in at $0.20 a share excluding special items, up from last year, but they were below analyst expectations of $0.25 a share. Oil company Chevron also slid back after its Q4 earnings missed estimates, coming in at $2.58c a share, below expectations of $2.85c a share. In an important test of consumer sentiment University of Michigan confidence for January came in slightly higher at 75, just up from the previous reading of 74.
The US dollar has slid back once again today despite the slightly weaker tone in equity markets. The Japanese yen has jumped sharply moving close to the key 3 month support level at 76.50, prompting renewed concern of Bank of Japan action to once again stem the yen's rise.
The single currency looks set to post a second positive week in a row for the first time since October; however upside is being constrained somewhat by concern about the outcome of the Greece PSI talks and Monday's EU summit.
The Swiss franc continues to test the patience of the Swiss National Bank as it pushes closer to the peg at the 1.2000 level.Copper prices hit their highest levels since September at $3.9325 before pulling back, failing at the 61.8% resistance level of the down move from the $4.5125 highs in July last year to the October lows at $2.9940, after US GDP numbers missed expectations.
Crude oil prices have slipped back from their highs after US GDP numbers came in slightly lower than expected. They still look set to finish the week higher to post their first weekly gains since the beginning of January, underpinned by Iranian threats to stop exports to the EU. Gold prices have continued to remain fairly well underpinned on the back of the softer US dollar tone.
Italy may not be Greece (as the saying goes), but it is considering bidding for one of the great Greek legacy -- the Olympic games.
ITALY TO DECIDE ON ROME OLYMPIC BID BY MID-FEBRUARY, MONTI SAYS. Those Greek olympics sure helped THAT economy
— zerohedge (@zerohedge) January 27, 2012
So, the market's not loving the on-the-face-of-it pretty good US growth figures out earlier this afternoon. The FTSE100 is off 45 points now or 0.8% and the Dow has opened down 0.3% on Wall Street.
Despite the data showing the best pick up in growth since 2010, investors are worried that the 2.8% increase was based mainly on restocking. In other words, to paraphrase the infamous British Rail excuse about why its trains weren't working in the snow, the Americans done got the wrong type of growth.
Mario Draghi, the president of the ECB, has been speaking in Davos where he says that the bank's €489bn injection of liquidity into the system before Christmas averted a credit crunch but the danger signs are still there in the eurozone.
Draghi said it was not yet clear whether the cash the ECB has pumped into the banking sector was filtering through to companies and consumers.
So we know for sure that we have avoided a major, major credit crunch, a major funding crisis. Do we know that actually this money is going to finance the real economy? We don't have evidence of this yet. We have to wait. There is a lag. In the meantime, you have parts of the euro area where credit is more or less normal. You have areas where credit is seriously impaired.
Taking 2011 as a whole, the US economy grew by 1.7% which is pretty decent by UK standards where George Osborne would be very pleased to see anything above zero.
But there are signs that growth in US might soften a bit in the early part of this year because much of the Q4 increase came from companies rebuilding their inventories, the data said. Reuters reports:
Growth in the fourth quarter got a temporary boost from the rebuilding of business inventories, which was the fastest since the third quarter of 2010, after they declined in the third-quarter for the first time since late 2009.
Inventories increased $56bn, adding 1.94 percentage points to GDP growth. Excluding inventories, the economy grew at a tepid 0.8%, a sharp step-down from the prior period's 3.2%.
The robust stock accumulation suggest the recovery will lose a step in early 2012. Also pointing to slower growth, business spending on capital goods was the slowest since 2009, a sign the debt crisis in Europe was starting to take its toll.
The US economy grew by 2.8% in the fourth quarter on an annualised basis. That was the biggest rise since the second quarter of 2010 but still below expectations of 3% so the FTSE100 has dropped off a bit and is now down 41 points, or 0.71%. More to come on that.
It's lunchtime round-up time here.
• Spanish unemployment reaches 5.3m, or 22.8%, raising the prospect that Spain could ask Brussels for a softening of its deficit targets
• EU commissioner Ollie Rehn says a Greece deal is 'very close' with another meeting of the Greeks and creditors tonight
• A sharp fall in business lending in the eurozone has increased fears of a second credit crunch
• Portuguese bond yields have continued to rise on fears that the indebted country may need a second international bailout
Analysts are now saying it's inevitable that Portugal will need another bailout. Bond yields have been in retreat for some eurozone strugglers but it's the opposite for Portugal. Reuters has a story saying that investors are selling off stocks and bonds in the belief that Lisbon will have to go cap in hand again to the IMF, EU and ECB, just as Greece did last year.
It quotes Nikolaos Panigirtzoglou, a rate strategist at JPMorgan:
If we look at where bond yields are for Portugal it makes it impossible for Portugal to access debt markets in 2013. It's a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we're going to get a second bailout for Portugal later this year.
Back to Spain where our correspondent in Madrid, Giles Tremlett, has been looking at today's dreadful unemployment figures.
He says that the spike to 5.3 million out of work has led Mariano Rajoy's new conservative government to try to get the bean counters in Brussels to row back on their demands for austerity. The Spanish might find a more receptive audience in Brussels now than they would have done a few months ago as I wrote earlier.
Full story here.
My colleague Phillip Inman has been looking at the lending and money supply figures released by the ECB this morning. He says that the sharp fall in lending could force the ECB to cut interest rates from their current rate of 1%. Amazing to think that they put them up only a few months ago.
The prospect of a second credit crunch in four years came closer on Friday after official figures showed loans to firms in the eurozone fell sharply in December and the volume of cash grew at a slower rate than the previous month. Analysts said the figures painted a disturbingly gloomy picture of economic activity and were likely to spur the European Central Bank to cut interest rates from their current 1%.
The full story is here.
Interesting moves in the bond market where it's easy to see the increasingly big problems facing Portugal. City commentators have been quick to flag up the danger signals and today the yield on benchmark 10-year bonds has gone up again to 15.261%.
Shaun Richards, a City analyst, thinks that Portugal ands Spain could skip recession and go straight into depression, such is the dire state of their economies. He points out that Portuguese three-year bond yields are now much higher than the 10-year at 20%+, a situation seen in Greece during its spiral into chaos. Any, for his less than cheery thoughts click here.
Time to catch up with how the markets have been faring. The FTSE is now down just 12 points or 0.22% at 5782 so investors seem willing to keep believing in the post new year rally that has seen the index climb back to its highest levels since August. That is despite some pretty horrendous unemployment numbers today from Spain and continued uncertainty over the Greece bond swap deal.
Elsewhere the Dax in Frankfurt is 18 points or 0.26% to the good while the Cac40 in paris is down very slightly 0.05%.
It's turning out to be a very busy morning in euroland with Tim Geithner, the US treasury secretary, speaking about the crisis at Davos. There are fuller details of what he's saying at our excellent Davos live blog here.
But basically he's bang in line with Christine Lagarde in calling for a bigger, stronger firewall for the euro.
After a good day yesterday, Italy has followed up with another successful bond auction. It sold €8bn of six-month bonds this morning at the lowest interest rate since May 2011.
The yield on this morning's auction dropped to 1.97%, down from 3.25% at a similar auction last month. Italy also shifted another €3bn of other short-term debt.
Yields at eurozone debt auctions have generally been lower this year, as the nearly-€500bn of cheap loans offered by the ECB in December sloshes around the system.
In the secondary bond market, Italian 10-year bonds have also strengthened again today - pushing their yield down to 5.87%. In contrast, Portuguese 10-year bond yields hit 15.6% this morning.
If there is any delay in the Greek bond swap deal being announced Helena Smith, our correspondent in Athens, has been told it will not be because talks with the country's private sector creditors are on the wrong path. Rather, it looks like Greece's inability to force through economic reform could be the sticking point to getting the wider bailout deal in place. Here's Helena:
The voluntary write-down of Greek debt by the private sector is crucial not least because it has been set as a precondition for the disbursement of further aid by Athens' 'troika' of creditors, the EU, ECB and IMF. The new bailout deal, however, is far from being announced because the Troika is none too pleased with what it has discovered after a week of pouring over Greece's books.
It's not only the country's repeated failure to meet fiscal targets (the budget black hole for 2011 is an estimated two billion euro). Debt inspectors are apoplectic at the lack of progress Athens has made pushing ahead with privatizations and adopting structural reforms considered vital to freeing up and making one of the most sclerotic economies in Europe more competitive.
The EU, in particular, is turning the screws with Eurogroup chairman Jean Claude Junker saying that Greece's three-party interim coalition government will have to prove its commitment to the reform progress "in writing" before Athens receives any more aid.
Feeling the heat, the country's technocrat prime minister, Lucas Papademos, read the riot act to ministers at a cabinet meeting on
Thursday presenting them with a ten-page breakdown (compiled by the troika) of the reforms now being asked of Greece. These include lowering the minimum wage and suspending automatic salary increases, enforcing swinging civil servant layoffs, reducing government spending by making huge cuts in welfare and defense and further deregulating the labour maket by, inter alia, liberalizing the working hours of pharmacists and other "closed-shop" professions.But with general elections scheduled for the spring, and politicians busily positioning themselves, there is no guarantee that any of the reforms will be implemented any time soon – which could derail delivery of the 130 bn euro financial rescue package and once again bring Greece closer to default.
Tellingly, Giorgos Karatzaferis, who heads the far right Laos, one of the three parties participating in the government, has just told
parliament that as a "point of principle" he won't put his signature "to any document" outlining his commitment to the reform process, saying Papademos' signature should suffice.Again it would seem the battle lines are being drawn.
Something is definitely afoot with the Greece talks. Ollie Rehn, the EU's economic affairs supremo, is in Davos where he has said that a deal is 'very close'.
We are very close to a deal. If not today then over the weekend and preferably in January, not February. We are very close.
Over to Greece, where our correspondent Helena Smith, says officials well-briefed on the seemingly never ending debt talks appear ever more confident of a breakthrough.
At long last the haggling appears to be over with Greek officials saying that 'in substance' an agreement has been reached - which, of course, would imply that both sides have finally settled on that most tortuous of issues: interest rates on the new bonds. One insider has just revealed: 'I know I've said this before but this time I really do think we are close to a deal. They have in substance reached agreement. The only things preventing a final outline being announced are legal and technical in nature and that's partly because the bond swap is an essential ingredient of the [second] loan package for Greece.'
Following Thursday's resumption of talks (always a nocturnal affair beginning at around 8pm local time and ending at around 11pm) the government announced that, indeed, "progress" had been made.
Teams of lawyers and technocrats representing the government and the
International Institute of Finance (IIF), which speaks for global bondholders, are holding talks at the finance ministry as I write.A press spokesman at the prime minister's office has just called to tell me that the PM Lucas Papademos will be meeeting IIF managing director, Charles Dallara, at 6:30 PM today. Earlier he had told me no meeting had been lined up. But I am told this is good news and may even lead to the deal finally being announced.
Back to the Greece question and Josef Ackerman, chief executive of Deutsche Bank and also chairman of the IIF, has popped up on TV to say that private sector bondholders have offered to take a 70% haircut on Greek debt to get a deal done.
We have put a very attractive offer on the table. That's losses of almost 70 percent we are prepared to take.
Ouch. And in a Cameroonian flourish he adds that
Everybody needs to make a contribution.
So, we're all in it together, even the bankers. (Except Stephen Hester of course).
Howard Archer at IHS Global Insight has, as ever, an instant view on the ECB figures.
The sharp moderation in annual growth in loans to the private sector in December, particularly the appreciable monthly fall in loans to businesses, will reinforce concern that credit conditions are now increasingly tightening and posing a mounting risk to already struggling Eurozone economic activity. Of course, the moderation in loans to the private sector also likely reflects corporates becoming more cautious in their behaviour and in their investment plans in the current weakened and uncertain economic environment, and cutting back their demand for credit.
More evidence of a fresh credit crunch in Europe comes in the form of money supply figures out this morning.
The European Central Bank (ECB) reported that annual growth in overall loans to the eurozone private sector slowed to 1% in December from 1.7% in November and 2.7% in October. Lending to non-financial corporations fell by €37bn in December, which caused the year-on-year growth rate to retreat sharply to 1.1% from 1.6% in November and 1.8% in October. Lending to households also fell back. The ECB also reported that annual eurozone money-supply growth slowed sharply to 1.6% in December from 2.0% in November, 2.6% in October and a peak of 2.9% in September.
They are truly gruesome figures from Spain which already has the highest unemployment in the EU and where youth unemployment is close to 50%.
However, the figures may actually help Spain and other struggling eurozone countries because the there is a growing feeling in Brussels that austerity may not be the way to go. The Economist, no less, has this piece which hints at a change of mood. If the bad news keeps getting worse, the voices calling for less austerity might be given more of a hearing.
Bad news from Spain where the number of people out of work has risen above 5 million. The National Statistics Institute said 5.3 million people, or 22.8%, were out of work at the end of December, up from 4.9 million in the third quarter.
Here's a run-down of some of today's events:
• Italy to auction €11bn of short-term bonds - 10am GMT
• Mario Draghi speech in Davos on Europe's economic outlook - 1.15pm GMT /
• US Q4 GDP data released - 1.30pm GMT
Another analyst who is regularly quoted in these parts, Michael Hewson at CMC Markets, agrees that Portugal is sneaking up on the rails in terms of danger to the eurozone but he also gives a neat summary of where we are with the Greek talks.
Talks are set to continue today with speculation that they had given ground on the coupon to 3.75%, but there has been no confirmation of this so far. The offer is also above the 3.5% demanded by the Greek government and the EU, which is needed to get the debt to GDP ratio down to a more sustainable level by 2020.
Portugal is starting to concentrate minds in the market. As Gary Jenkins of Swordfish points out, the Portuguese had the proverbial bad day at the office yesterday with 10-year yields rising to 14.2%. Worse, the three-year rose to 19.2%. Here's Gary in his morning note:
It appears that they may have crossed the Rubicon in the eyes of the market ... After all the longer your bonds trade like they are distressed the less of a surprise it is if you decide to enter into negotiations with your creditors. Portugal may not be being helped by the long drawn out discussions in Greece at the moment as clearly a disorderly default there would have major ramifications across Europe. A negotiated settlement in Greece might take that risk away but it might also become a template for Portugal in how to deal with their debt, which would not be good news for investors.
Should be interesting then though there's not much action scheduled for the bond market today other than an auction of Italian bills later this morning.
The FTSE100 has duly opened down - 35 points in the red at the moment.
Only a few minutes to go before the market opens in London and, for what it's worth, it's expected to be down. Asian markets weren't too buoyant overnight due to some disappointing Japanese corporate earnings and US home sales yesterday. Stay tuned for more.
Not surprisingly, much of the attention around the euro crisis is focused on Greece this week as the talks over the bond swap go on. But there is a growing belief that Italy is really the key battleground. Our Brussels correspondent Ian Traynor wrote this week that the game-changer since the new year has been Mario Monti's ability to confront German policy makers with the consequences of their insistence that euro stragglers inplement tough austerity measures. For once here is a eurozone leader they respect and who is telling them that there's only so far austerity can go.
Phillip Stephens in the FT has caught up with that view today and writes that 'Italy is back' because at last it has a leader who peers can take seriously. As he neatly puts it:
Mr Berlusconi made crude jokes about Ms Merkel's appearance. Mr Monti talks to her about economics.
Good morning, and welcome to our live coverage of the eurozone debt crisis.
Talks are due to resume today in Athens between Lucas Papademos's government and the Institute of International Finance. Yesterday's negotiations appeared to make progress, and there is optimism that a deal could be agreed in the next few days.
But while Greek officials are upbeat, there is growing concern over Portugal. Its borrowing costs hit a record high yesterday, on speculation that it may need a second bailout. We'll be watching events there today too.
And with US GDP data due this afternoon, has the eurozone crisis dented growth in the world's biggest economy?