Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Archive | Economy

French inflation climbs to 0.7% in November, matching Germany

Posted on 30 November 2016 by

Annual inflation in the French economy accelerated to 0.7 per cent this month, from 0.5 per cent in the previous month, in an encouraging sign of a pick up in consumer prices in the eurozone’s second largest economy.

Year-on-year prices were pushed up by a 2.1 per cent rise in energy prices and a 1 per cent climb in services. November’s inflation rate means French prices rose at the same pace as in Germany this month.

However, a closely-watched measure of core inflation – which strips out volatile elements – came in at a more moderate 0.5 per cent.

“Core inflation is a very lagging indicator in France, and we think it will rise gently to about 1 per cent in the middle of next year”, said Claus Vistesen at Pantheon.

Eurozone inflation climbs to highest since April 2014

Posted on 30 November 2016 by

A welcome dose of good news before next week’s big European Central Bank meeting.

Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of last year’s energy price falls.

This month’s figures have however been dampened by core inflation – which strips out volatile elements such as energy prices and food – remaining stuck at 0.8 per cent for the fourth consecutive month. The figures are a first flash estimate from Eurostat.

Core inflation is closely watched by policymakers at the ECB who have been battling with persistently low inflation for over two years. Faced with weak price pressures, the central bank is widely expected to extend its landmark €80bn a month bond-purchase at the ECB’s December policy decision next Thursday. (More on that here.)

ECB president Mario Draghi said today he expects inflation to reach its target of below but near 2 per cent by around 2018-2019.

“We’re still years away from a return to normal”, said Peter Vanden Houte, chief eurozone economist at ING, who says low inflation has likely bottomed out this year.

Eurostat said energy prices fell 1.1 per cent this month, compared to November 2015, while food, alcohol and tobacco prices climbed 0.7 per cent and industrial goods prices inched up by 0.3 per cent.

The eurozone-wide figures follow on from a flash estimate of German inflation, which remained unchanged at 0.7 per cent this month, matched by France.

Chart courtesy of Bloomberg

Draghi: Eurozone will decline without vital productivity growth

Posted on 30 November 2016 by

It’s productivity, stupid.

European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation.

Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the eurozone – as measured by workers’ output per hour – have fallen significantly behind the US in the wake of the financial crisis, with growth falling from 2 per cent to 0.5 per cent in recent years.

Raising productivity is vital to boost future economic growth, improve living standards, and help ease the burden on government public finances. Weak output per hour has also plagued the UK and the US since 2009, posing a major headache for economists who have sought to explain its decline.

Mr Draghi attributed weak productivity growth to non-manufacturing firms’ poor ability to absorb technological changes to improve their efficiency – a situation made worse by weak competition in many sectors.

Should governments fail to undertake reforms to lift productivity, encourage business innovation and liberalise labour markets, he warned income growth in the single currency area “is likely to stagnate and may even decline”.

Ahead of a key ECB meeting next week, the Italian central banker said policymakers were taking action to ensure that low interest rates do not become a permanent feature of the eurozone economy, “but we alone cannot eliminate that risk”, he said.

“Monetary policy is providing support and space for governments to carry out necessary structural reforms. It is up to euro area governments to act, individually at national level as well as jointly at European level”, he said.

Italian 10-year bond yields slip below 2%

Posted on 29 November 2016 by

Italian government debt is rallying strongly today with 10-year yields falling below 2 per cent for the first time in a week, helped along by reports the European Central Bank could ramp up its purchases of the country’s bonds ahead of a crucial referendum on Sunday.

Yields on Italy’s benchmark 10-year bonds are down 0.07 percentage points (7 basis points) on Tuesday to 1.98 per cent – outperforming peers across the eurozone today (yields fall when a bond’s price rises).

Within the last hour, Reuters has reported that ECB policymakers are ready to temporarily accelerate their purchases of Italian government debt as part of its existing quantitative easing measures, in a bid to calm market nerves should a ‘No’ vote lead to heightened volatility after the referendum.

Italian yields have climbed above 2 per cent for the first time since 2015 this month as investors have sold the country’s debt on the back of rising concern over support for populist groups who are critical of Rome’s eurozone membership.

Addressing MEPs on Monday, ECB president Mario Draghi rejected any suggestions the central bank would intervene in a bailout of the country’s struggling banking system. He added, however, that the Italian economy remained “vulnerable to shocks”.

The ECB has been snapping up €80bn of government bonds a month as part of its landmark asset purchase programme, launched in March last year. The purchases are carried out by the eurozone’s national central banks and are done according to the share of GDP represented by each member state.

Policymakers have flexibility within the QE framework to quicken or slow the pace of its purchases of different government debt. In the past, it has used this flexibility to buy fewer bonds in periods during the summer, when debt markets are less active.

Last week, ECB vice president Vitor Constancio hinted policymakers would react to any adverse financial shock from the vote on constitutional reform that prime minister Matteo Renzi has staked his job on.

“It’s the sort of political uncertainty that will trigger or not an economic shock in financial markets”, said Mr Constancio.

“And depending on the degree of that shock, then we have to see if we have anything to do or not”.

An ECB spokesperson declined to comment.

Eurozone ready to flesh out Greek debt relief options – Dijsselbloem

Posted on 29 November 2016 by

Eurozone finance ministers are ready to further flesh out possible debt relief options for Greece once further progress in made in the latest review of its bailout programme, the president of Eurogroup has said.

Speaking in Brussels on Tuesday, Jeroen Dijsselbloem said he hoped a “staff level agreement” on the review would be completed by finance ministers’ next meeting on December 5.

“This would allow the Eurogroup to have a further discussion on the
short, medium, and long term debt measures needed,” he said.

Should the agreement on the review be reached in time,
December’s meeting will see ministers engage in intense negotiations
between the euro area and International Monetary Fund on whether the
IMF will join the €86bn bailout of Greece – a decision with major
implications when it comes to parliamentary support for the Greek
programme in Germany and some other euro area nations.

A key point to be resolved in those talks will be how long Greece will be expected to maintain the 3.5 per cent primary budget surplus target that the country is scheduled to hit in 2018.

“It will be one of the key debates,” said the Dutch finance minister, adding:

The IMF has argued that you cannot ask Greek to maintain that for a very long time, and others have said that, `well, it’s going to be necessary given the fact that Greece has to comply with the Stability and Growth Pact’.

So, in between those two we will need to find a realistic path forward, and I’m saying realistic because I think the IMF has a point that running a primary surplus of 3.5 for a very long time is a huge thing to ask.

A primary surplus measures the budget excluding debt repayments. The Eurogroup president added that he hoped the IMF would become “fully involved again” in the programme.

Mr Dijsselbloem also took a veiled swipe at a recommendation from the
European Commission that the euro area should aim for a fiscal stimulus equivalent to 0.5 per cent of GDP next year, pointing out that it runs counter to budget plans that governments have already agreed on with the EU.

The Commission made the recommendation earlier this month, as a way of putting pressure on countries in a strong budgetary position, such as Germany and the Netherlands, to do more to boost demand and stimulate growth.

“Some would argue that given the position where we are in the economic
cycle, where the output gap is closing, that in some countries it
would not be wise to stimulate further with fiscal policy,” he said.

Commission officials “need to realise” that governments are put in a
complicated situation if the institution’s guidance on the broader
fiscal stance clashes with EU budget rules intended to make sure
nations do not overspend, he said.

Spanish inflation holds steady at 0.5%

Posted on 29 November 2016 by

Spanish inflation is holding up. Just.

The country’s stats office said today that the pace of EU-harmonised annual inflation maintained its pace at 0.5 per cent, a nose ahead of forecasts. The drop in fuel prices is “noteworthy”, it added.

(Chart: Bloomberg.)

French GDP growth confirmed at 0.2% in third quarter

Posted on 29 November 2016 by

Back to growth.

France’s economic growth accelerated by 0.2 per cent in the three months to the end of September as attention turns to the country’s presidential elections next year, a second reading of the data confirmed today.

The French economy has been struggling to generate any sustained momentum in 2016, having slipped into a surprise 0.1 per cent contraction in the middle of the year.

The figures for the third quarter from stats office Insee on Tuesday, means French GDP growth matched that of Germany over the same period and came in line with expectations.

On Sunday, former prime minister François Fillon was elected to stand for the opposition right-wing Republican party in presidential elections held in April and May next year.

Mr Fillon is promising a dose of shock economic medicine for the French economy, including 500,000 public sector job cuts, a raising of the retirement age and a hike to the 35-hour working week (read more on his plans here).

According to Insee, imports rebounded to grow by 2.5 per cent in the quarter, from a contraction of 1.7 per cent, while consumer spending growth stagnated and investment edged up by 0.2 per cent.

The French economy is set to be driven by higher consumer demand at the end of the year, with Insee reporting a strong 0.9 per cent rise in October consumer spending numbers – bouncing back from a 0.4 per cent contraction in the previous month.

Eurozone business confidence slips, UK back up to pre-referendum level

Posted on 29 November 2016 by

Business sentiment in the eurozone fell unexpectedly in November while the UK saw its economic confidence gauge climb above its pre-Brexit vote levels.

The European Commission’s monthly business climate indicator in the single currency area fell 0.14 points to 0.42 this month – a three-month low and defying expectations of a slight climb.

A related measure of eurozone economic sentiment was broadly unchanged, inching up by 0.1 points after several months of strong gains to an 11-month high.

Outside the eurozone, a healthy bounce in the UK’s economic sentiment dragged the EU-wide indicator up by 0.4 points, with Britain registering a 1.5 point increase to push its confidence gauge back above to its pre-referendum level.

It was the best monthly rise since December 2015 and corresponds with resilient consumer spending in the UK following the June 23 vote.

In Germany, economic sentiment slipped o.7 points, while France rose 1.5 points. Italian confidence fell 0.6 points as the country prepares to go to the polls in a key referendum next week.

Overall, the eurozone figures provide a welcome boost for policymakers at the European Central Bank, who are expected to announce an extension of their landmark stimulus measures next week, said Jack Allen at Capital Economics.

“With inflation pressures still very weak, and the EC survey measure of inflation expectations still consistent with low core inflation, we still expect the Bank next week to announce an extension to its asset purchases by six months at the current pace”, said Mr Allen.

Chart courtesy of Bloomberg

Jitters strike Italian bank stocks ahead of referendum

Posted on 28 November 2016 by

Stop me if you think you’ve heard this one before.

Italian bank stocks are being hit hard this morning, leading declines across European financials ahead of a key referendum on December 4 that could have major consequences for plans to revive Italy’s troubled financial system.

UniCredit – Italy’s most systemically important bank – is the biggest loser, falling 4 per cent, while Banco Popolare, Banca Popolare di Milano and Banco Emilia are down more than 3 per cent in early morning trading.

Italy’s main banking index has now slumped to a two-month low with all the stocks in the Euro Stoxx banks index in the red on Monday.

Investors are settling stocks as Italians prepare to go to the polls in six days’ time to decide on a reform to the country’s constitution in a vote that has become referendum on the leadership of Rome’s centre-left prime minister Matteo Renzi.

Should the reform be rejected – as tight polling indicates – Mr Renzi has vowed to step down in a move that could throw plans to clean up Italy’s oldest bank Monte Dei Paschi into turmoil, and spark contagion fears in the eurozone’s third largest economy (read more from the FT’s Rachel Sanderson here).

Italy has eight banks known to be in various stages of distress. As well as Monte dei Paschi, they include mid-sized lenders Popolare di Vicenza, Veneto Banca and Carige, and four small banks rescued last year: Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara.

Senior bankers have told the FT they fear Mr Renzi’s resignation would deter private investors from pumping fresh funds to recapitalise lenders, leading to fears they will need to be put under a new EU “resolution” mechanism that would force losses on creditors.

A ‘No’ vote “would likely usher in a period of increased political uncertainty in Italy and would represent a major set-back for economic reform efforts”, notes Elsa Lignos at RBC Capital Markets

“Italy continues to be a long-term risk for the euro area, but that is a two-year rather than a two-month trade”, said Ms Lignos.

Chart courtesy of Bloomberg

Donald Trump’s infrastructure plans win backing from OECD

Posted on 28 November 2016 by

Donald Trump’s economic plans received strong backing from the Organisation for Economic Co-operation and Development on Monday, with the international organisation predicting the president-elect’s infrastructure plans would increase US growth, combat inequality and energise discouraged workers.

In contrast to its support for US policy, the Paris-based OECD’s twice-yearly economic outlook is cool on the UK outlook, marking down Britain’s economic prospects on the view that the UK is heading for a hard Brexit in 2019.

Equity markets have already rallied on the expectation of a boost to US growth from looser fiscal policy and the OECD’s support marks the first leading international organisation to validate financial market bets.

The OECD’s support highlights how views of US prospects have altered over the past two months. Before the US election, international financial institutions, such as the International Monetary Fund and World Bank, feared a Trump presidency and officials discussed him as a sort of Voldemort for the global economic order — like the villain in Harry Potter, his name spoken only in hushed tones and behind closed doors.

Having long been a staunch supporter of budgetary prudence, the OECD has performed a U-turn over the past year, as it has become concerned that if governments do not use low interest rates to boost capital investment, advanced economies will become stuck in a low growth trap.

Catherine Mann, chief economist of the OECD said: “We are concerned about the extent to which asset prices are underpinned by low interest rates — so monetary policy has been over-burdened and there is now a premium on getting fiscal levers pulled in the right way”.

The latest OECD forecasts in its economic outlook show improvements to growth forecasts for 2017, which are directly caused by the organisation’s positive view of US tax and public spending policy after the election.

The US is expected to be the best performing large advanced economy in 2017, growing 2.3 per cent with the eurozone growing 1.6 per cent, 1.2 per cent in the UK and only 1 per cent in Japan.

“[The Trump fiscal effect] is an important part of our projection,” Ms Mann told the FT. “We don’t think anything will happen over the next six months, but we expect [a stimulus worth] 0.25 to 0.5 per cent of national income in the second half of 2017, mostly spent on public infrastructure and 1 per cent or so in 2018 coming from tax cuts.”

The outlook says US policies might even help get the world out of a rut. More active fiscal policy, it says, “should revive expectations for faster and more inclusive growth, thus allowing monetary policy to move toward a more neutral stance in the United States at least, and possibly other countries as well”.

“The boost to [US] spending on infrastructure and other investments (such as improving skills and facilitating job-finding success through more active labour market policies and the provision of child care) will combat inequality and counter the steady decline in labour force participation rates, both by prime-age men and women,” the report says.

Amid the praise for Mr Trump’s policies, the OECD warns that if he carries out his threats to raise trade barriers, the gains would disappear. “Trade protectionism shelters some jobs, but worsens prospects and lowers wellbeing for many others,” says.

It is similar concerns that have led the organisation to double-down on its dim view of Brexit, producing forecasts based on Britain moving to trade with the rest of the EU on World Trade Organisation rules from 2019, a so-called “hard Brexit”.

“The unpredictability of the exit process from the European Union is a major downside risk for the economy. Uncertainty could hamper domestic and foreign investment more than projected and the pass-through of currency depreciation to prices could be larger, deepening the extent of stagflation,” the OECD warned.

The OECD said there was room for fiscal expansion also in Britain, Germany, France, Belgium and Russia, but recommended that China, Hungary and Israel should move to a much tighter budgetary stance.