ECB vice president Vitor Constancio said earlier today:
There's been an agreement between the troika and Spain, and the program is being applied, structural reforms were introduced, so in our view our scenario is being pursued, and we have no reason so far to change that view.
However his comments referred to reports on the Spanish economy published by the IMF and the EU, the ECB said, and NOT to any kind of bailout programme.
18.00 Greece's politicians have agreed to provide the country's big four banks with €18bn of support from a state bank support fund, until they are recapitalised later this year.
The huge writedowns on Greek government debt that investors had to accept has hit the country's own banks particularly hard, as they were among the biggest holders of the debt.
National Bank, Alpha, Eurobank and Piraeus have had their capital bases almost wiped out by the writedowns, and they have to achieve a 9pc Core Tier 1 capital ratio by September, under new EU rules.
The banks will be allocated EFSF (eurozone bail-out fund) bonds by the support fund, Reuters reported.
17.40 It's been a less cheery day in European bond markets than it was in stock markets:
After Spain had its credt rating cut by S&P, the yield on the country's two-year bonds reached its highest for almost two weeks. Spain's benchmark 10-year yield rose five basis points to 5.88pc.
Italy also had to pay more tp borrow in a bond auction this morning - the country sold €2.5bn of ten-year bonds at average yields of 5.84pc, compared with 5.24pc at the last auction in March.
At the other end of the eurozone spectrum, the yields on German bonds reached a record low, as investors piled into the safe-haven asset. Five-year bond yields declined to an all-time low of 0.595pc.
Dutch yields also fell after the country last night succeeded in getting a parliamentary majority to back budget cuts, which brought down the government earlier this week.
17.10 More detail from Ireland - the government has said GDP will increase by 0.7pc this year and not 1.3pc as previously forecast, as the slowdown in the main economies Ireland trades with (eg. the UK and eurozone) held back recovery.
That bring's the Irish government's forecast closer to the 0.5pc growth projected by its bailout lenders.
Ireland also trimmed its forecast for GDP growth next year to 2.2pc, down from a previous estimate of 2.4pc.
The country also said it's debt pile will peak at 120.3pc of GDP next year, although it is expected to fall to 119.5pc in 2014 and 117.4pc in 2015.
17.05 BREAKING ...
Ireland has almost halved growth forecast for this year, and said its government debt will peak next year, but at a higher level than previously estimated
16.50 European markets meanwhile, have closed for the week.
Spain's IBEX rose 1.7pc and the FTSE MIB added 1.9pc in Milan.
16.40 Nice US markets factoid courtesy of CNBC's Carl Quintanilla on Twitter:
16.15 The Dutch finance minister Jan Kees de Jager said today some budget cuts would need to be pushed through by parliament before the country holds elections on September 12, to replace the government which collapsed this week.
The planned rise in VAT however, will not take place until October 1, he said.
14.55 Wall Street is now open and trading slightly higher, despite the GDP figure being worse than expected:
14.43 The Spanish government announced new growth forecasts today. It sees growth of 0.2pc in 2013, and hopes to balance the books in 2016. However, more than one in five Spaniards will still be out of work in three years time, according to the forecasts.
Economy minister Luis de Guindos told a press conference in Madrid that unemployment would stay remain stubbornly high next year, at 24.2pc, before falling to 22.3pc in 2015.
Total government borrowing is also expected to reach 82.3pc of GDP in 2013. S&P said last night that it could downgrade Spain's credit rating again if government debt was to rise above 80pc between 2012 and 2014.
14.18 Germany's finance minister has warned that S&P's Spanish downgrade had made an already dire situation "even more critical," and that the country had not deteriorated in objective terms.
The interview with Wolfgang Schaeuble (below) is due to be broadcast on German radio later today.
14.13 More on the US GDP growth figures from Paul Ashworth at Capital Economics:
First-quarter GDP growth was driven principally by a 2.9% increase in consumption, which was markedly stronger than expected. But with real personal disposable incomes rising by only 0.4% annualised, households were only able to increase their spending at that pace by running down their saving rate, to 3.9% in the first quarter from 4.5% in the quarter before. The unseasonably warm weather may have contributed to that decent gain in consumption, but it is also worth remembering that gasoline prices were rising rapidly over the first three months of the year.
Government expenditure fell by 3.0%. Along with the further decline in defence spending, it was also disappointing to see a 1.2% drop in State and local government spending. We would have expected more given that State and local government payrolls began to inch higher in the first quarter. Overall, at least private sector spending posted a decent gain, although we'll find out over the next few months just how much that spending was boosted by the mild winter.
Ceilene Gonzalez, 6-years-old, carries a bag with toys as she shops with her mother at the Toys "R" Us in New York. Consumption increased by 2.9pc in the first three months of the year (Photo: Getty Images)
14.01 The dollar fell against sterling and the euro following the news. US stock markets are forecast to open slightly higher.
13.50 Economists were divided over whether the weaker-than-expected growth figures would increase the likelihood of QE3 (aka more money printing). Richard Franulovich at Westpac said:
The weaker-than-expected GDP growth is still consistent with moderate growth in the U.S. I do not think that this in any way adds to speculation about QE3 because the numbers are within the Federal Reserve's range. We did get a move lower in the dollar against the yen, but in the end, all these moves could be short-lived. Risk assets want to go higher.
...while Daniel Hwang at Forex.com noted:
GDP was worse-than-expected and that increases the chances of the Fed launching QE3. Markets shrugged off the Spanish rating action and we could see risk assets continue upward momentum on expectations of a Fed move. This is negative for the dollar as it increases QE3 chances. Some of the other data may offset GDP a bit and we could see some back-and-forth action today.
13.37 The US economy expanded by less than forecast in the first three months of the year, after slower inventory growth and weak business spending tempered a consumer spending boom and the biggest gain in housebuilding in almost two years.
US gross domestic product (GDP) grew by 2.2pc over the last quarter, according to the US Commerce Department. Economists polled by Bloomberg had forecast growth of 2.5pc.
13.29 Prepare for more market movement shortly. US quarterly growth figures are out in one minute.
13.25 Oh markets, how fickle you are. After an initial sell-off, the IBEX 35 is now up by 1.8pc, at 7,150.50, while the FTSE Mib has risen 1.1pc to 14,677.59. In London, the FTSE 100 is up by 0.4pc, at 5,772.55. David Jones at IG Index comments:
The resilience of markets at present has been clearly restated this morning, as markets opened lower following last night's Spanish downgrade, before rallying strongly to recover all losses and push firmly into the black [...] As so often with downgrades, this is no more than a restatement of what we already expect, so the actual impact has been fairly muted. The other agencies are likely to follow suit, but these moves will be of even less moment than S&P's. Strong results from Samsung and Amazon are helping to keep sentiment positive this morning, on what is a quiet day for results after a very busy week.
Spanish 10-year borrowing costs have also eased-back from this morning's highs, though they remain elevated, at 5.859pc.
13.02 Despite yesterday's Spanish downgrade, S&P sees "no likelihood" of a sovereign default.
Ratings director Myriam Fernandez de Heredia told a conference call: "There is no likelihood of a payment default".
12.43 Germany has expressed "confidence" and "faith" in Spain's ability to implement the reforms outlined in its March budget.
Although Angela Merkel's spokesman Steffen Seibert dodged direct questions on the S&P downgrade at a regular news briefing, he said that the €27bn of tax hikes and spending cuts planned by Madrid "deserved international recognition and respect". He added:
Spain is determined to do whatever is necessary to overcome the challenges posed by the crisis.
12.35 Graham Neilson, chief investment strategist at Cairn Capital, comments on the Spanish downgrade:
The downgrade of Spain was long overdue. We still expect more sovereign ratings cuts for Eurozone countries and that Spain will do well to avoid sliding into junk territory this year. We also saw today more shocking unemployment data, showing that a third of all unemployment in the Eurozone resides in Spain. Domestic debt deflation remains acute and without a big decline in the value of the euro, the economic and therefore banking and sovereign debt situation can continue to worsen.
12.20 Following its gold star from the "troika" of the ECB, EU and IMF yesterday, Ireland has had its sovereign rating affirmed at BBB+ by Standard & Poor's. However, the ratings agency added:
The outlook remains negative, based on the government's still substantial task of reducing the deficit to less than 3% by 2015, an effort that weaker-than-expected external demand could undermine, in our view. Further, if Ireland votes against ratifying the European Union's fiscal treaty in a referendum on May 31, it could lose its eligibility for funding from the European Stability Mechanism (ESM). We would view this as a negative factor for the ratings.
11.43 Italy's economy is in for a rough ride this year, but should get back to growth in the second half if reforms are implemented, according to the head of the Italian Banking Association.
Giovanni Sabatini said that the economy could contract by 1.4pc in 2012. This is slightly worse than both the government's -1.2pc forecast, and the European Commission's -1.3pc prediction. Mr Sabatini told reporters:
Between the end of the year and the first months of 2013 we will start to see an impact on growth if the government measures are implemented effectively.
11.36 Barclays' annual meeting is underway. Follow the Wilsons (that's Harry and Amy - no relation) on our Barclays blog for live updates.
Harry Wilson is also tweeting from the event.
Bob Diamond, aka the "unacceptable face of banking," faces a fiery annual general meeting in London today (Photo: Reuters).
11.16 Meanwhile, the growth message continues. European Commission president José Manuel Barroso and Italian Prime Minister Mario Monti said on Friday that belt-tightening should be accompanied by investments to boost growth. In a joint statement, the leaders said:
We agreed that the revival of growth must come through a relentless focus on improving competitiveness and not through higher levels of debt. Fiscal consolidation should therefore proceed alongside targeted investments, to enhance competitiveness while also contributing to increasing demand in the short term.
All smiles: Italian PM Mario Monti is welcomed by European Commission president Jose Manuel Barroso ahead of a meeting in Brussels on Friday (Photo: EPA)
11.05 The cost of insuring Spanish debt against default has ticked up 12 basis points this morning to 480bps. This means it now costs £480,000 a year to insure £10m of Spanish government debt over five years. More from Gavan Nolan at Markit:
A downgrade to Spain's credit rating led to spreads widening from the open. But they recovered as the morning wore on, and the Markit iTraxx Europe is more or less flat on the day. S&P's two notch downgrade to BBB+ was aggressive by its standards and they left the sovereign on negative outlook, suggesting further downgrades in the months ahead. But the decision didn't enlighten the market – Spain's problems are all too apparent. The sovereign's spreads widened just 12bps to 480bps, still 40bps tighter than the record wides reached last week. Spain trades with an implied rating of BB, according to Markit data – an indication that the negative outlook will be borne out. Weak retail sales and unemployment number only served to highlight Spain's plight.
10.54 Lots of comments on Spain this morning from analysts and readers alike. Reader Benjamin Hurley writes:
I work in Spain at the moment, for a large international company, I can tell you first hand layoffs are on the increase and a sense of despair and paranoia is in the air...one thing not covered however in this is that the new changes in employment law (last month) have added substantially to the increase in redundancies, it's now cheaper and easier to fire people than ever before, the same day the new laws were passed, mass layoffs took place....
The main problem I see here, is the complete lack of ingenuity and entrepreneurship. I worked in the US before i was hired here and the contrast in work ethic and motivation is stark. But that said the Spanish people are held back by government bureaucracy, I don't believe its something endemic to them, it's possibly the most expensive and complex place for a young person to start a business in Europe....
They need to leave the EU, lower taxes, cut the red tape and let the people, not the government sector drive the economy....
Violent protests have erupted in Spain over government austerity measures and changes to employment laws (Photo: Reuters)
10.48 Spain's banks could need more money, but it won't come in the form of a Brussels bailout, according to deputy economy minister Fernando Jimenez Latorre.
Mr Latorre told reporters that any "possible" use of public funds for banks would be limited. He added:
At the moment we don't estimate it's necessary.
10.39 Commenting on the Italian bond auction, Achilleas Georgolopoulos at Lloyds, said:
It looks better than the market expected because there were quite a few negative comments coming after the Spanish downgrade.
The €5.9bn number is pleasing the market for now. Any number below five would have created a bit of a problem for them.
In this environment, domestic banks are probably supporting the auction and that has been a feature for Italy since the start of this year.
10.35 In two separate "off-the-run" auctions, Italy also sold €493m of four-year debt at average rates of 4.29pc, and €537m of 2019 bonds at average yields of 5.21pc. Demand here was stronger (the auctions attracted bid-to-cover ratios of 2.63 and 2.27 respectively).
10.20 Italy has paid higher rates to get two bond auctions away this morning.
The country sold €2.5bn of ten-year bonds at average yields of 5.84pc, compared with 5.24pc at the last auction in March. It also sold almost €2.5bn of five year debt at average rates of 4.86pc (vs. 4.18pc).
Demand also waned slightly. There were 1.48 bidders for every bond on offer at the 10-year auction (vs. 1.65), and 1.34 bidders per bond at the five-year auction (vs. 1.65).
10.15 Commenting on the data, Trevor Balchin, senior economist at Markit, said:
The latest batch of retail PMI data for the Eurozone portrayed a worryingly steep downturn on the high street. Coming on the back of disappointing flash estimates for the manufacturing and service sectors, the retail data point to a deepening recession at the start of the second quarter. The April Retail PMI signalled the fastest fall in sales since the record contraction seen in late-2008.
Ominously, German retail sales declined, abruptly ending a survey-record sequence of growth that stretched back to October 2010. French retail sales meanwhile fell at the fastest rate since the survey began, though this may have been influenced by the presidential elections. Italy remained the weakest link, however, as the rate of decline in sales reaccelerated to a near-record level.
10.11 The blue line says it all. Retail sales in Europe's three biggest economies (Germany, France and Italy) fell at their strongest pace since late-2008 in April, according to Markit's latest retail survey.
In France, sales fell to a record low.
Markit's eurozone Retail PMI plunged to 41.3 in April, from 49.1 in March. This is well below the 50 level that divides growth from contraction.
The blue line shows how retail sales have fallen in France, Germany and Italy (Source: Markit)
09.47 Meanwhile, German Chancellor Angela Merkel has insisted that the EU's fiscal compact, which enshrines tough budget rules in national law, is not open to negotiation. The Chancellor told Germany's Westdeutsche Allgemeine Zeitung:
The fiscal pact is negotiated, it was signed by 25 government leaders and has already been ratified by Portugal and Greece. Parliaments across Europe are on the verge of passing it. Ireland is having a referendum at the end of May. It is not open to new negotiations.
French presidential frontrunner Francois Hollande has said that if he is elected, he would seek to renegotiate the treaty. This could make a "Mellande" relationship much more fraught than the current "Merkozy" one with incumbent Nicolas Sarkozy.
09.20 Moving away from Spain, small and medium-sized businesses in the eurozone are still struggling to get bank loans, despite the European Cental Bank's €1 trillion cash injection into Europe's banking system in December and February.
A fifth of the 7,500 firms surveyed by the ECB said that they felt lending conditions had deteriorated. Smaller firms also said their applications for loans were being more regularly rejected.
08.58 Markit Economics illustrates how youth unemployment has more than doubled in Spain over the past five years.
...and how job cuts are hitting workers in both the public and private sectors:
08.46 It's becoming a dismal day for Spain. The INS also said that retail sales fell by 3.7pc on an annual basis in March. Sales have now fallen for 21 months in a row.
08.22 Spain's unemployment rate reached 24.44pc at the end of March (compared with 22.9pc in Q4 2011) - the highest level on modern record, according to data just released by Spain's statistics office.
More than 5.6m people in Spain are now out of work, according to the Instituto Nacional de Estadística's (INE) quarterly employment survey.
The data also highlighted major regional differences. The unemployment rate is now a staggering 33.17pc in Andalusia, compared with 13.55pc in the Basque Country.
People wait in line at a government employment office at Santa Eugenia's Madrid suburb (Photo: AFP)
Britain's benchmark FTSE 100 index fell by 0.4pc.
07.52 The downgrade has pushed up Spain's borrowing costs this morning, as its debt is now deemed more risky by investors.
Yields on 10-year Spanish bonds have risen by 18 basis points to 5.989pc, according to Bloomberg data.
Yields on Portuguese bonds jumped almost 2pc in 24 hours when its credit rating was cut to "junk" in January, amid forced selling by funds not allowed to hold junk-grade bonds.
But this doesn't always happen. When S&P stripped America of its prized AAA rating last year, its borrowing costs actually fell as investors sought safety in US T-bills amid the turmoil in Greece. Investors also shrugged-off France's downgrade, which was largely priced in.
07.07 S&P also put Spain on "negative outlook". This means there is a one-in-three chance the ratings agency could cut Spain's credit rating again in the next two years.
Spain, like Italy, is currently three notches from being cut to "junk" - or below investment grade. S&P said it could cut Spain's rating further if government debt were to rise above 80pc between 2012 and 2014 (from a level of 68.5pc of GDP in 2011, according to Eurostat), or growth weakened. It added:
We could also consider a downgrade if political support for the current reform agenda were to wane. Moreover, we could lower the ratings if we see that Spain's external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.
At 23.6pc, Spain has the highest unemployment rate in the developed world. More than half (50.5pc) of Spain's youth are out of work, according to Eurostat.
06.57 The pain in Spain continues. Late last night, Standard & Poor's (S&P) cut the country's credit rating by two notches to BBB+ from A on concerns over its debt.
S&P outlined Spain's woes in five bullet points:
• We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.
• At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.
• As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.
• We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.
• The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.
The downgrade puts Spain in the same league as Ireland and Italy, as well as countries such as Kazakhstan and Colombia.
06.55 Good morning and welcome back to our live coverage of the European debt crisis.
No hay comentarios:
Publicar un comentario