(NPLs are non-performing loans, EWG is the Euro Working Group assessing the details of the proposals)
More US data, and industrial production fell in October for the second straight month.
It dipped by 0.2% after a 0.2% decline in September. That compares to expectations of a 0.1% rise last month. ING’s Rob Carnell again:
A mixed production report from the US for October, with overall production down 0.2% month on month, but a better then expected manufacturing figure, which registered a 0.4% month on month gain.
All of the weakness was contained in the utilities and mining sectors – with mining no doubt reflecting ongoing softness of production in the oil and gas sector. We doubt policy-makers will be too disappointed with these figures, though the overall strength of the US economy does mask important areas of weakness, such as the goods producing sector, and additional headaches for the Fed as it seeks to normalise policy rates.
October’s US inflation figures give more fuel to the Federal Reserve to raise interest rates at its December meeting, analysts believe.
Inflation rose 0.2% year on year, up from 0.1% in September, with the core rate of inflation – which strips out food and energy – unchanged at 1.9% year on year.
David Morrison, senior market strategist at SpreadCo, said:
Ultimately, the inflation numbers do nothing to dampen speculation that the Fed is limbering up to hike rates for the first time since June 2006 at its FOMC meeting next month.
Rob Carnell at ING Bank suggested there was the prospect not only of a rise in December but the chance of further increases shortly after:
By February next year, there should be very little drag on headline inflation from oil/energy prices, unless we see a considerable further decline in oil from its already depressed levels. And as we approach this point, we should see headline inflation rapidly begin to close in on these higher core figures.
This of course raises the prospect that if the Fed does indeed raise rates in December, as we and the market now believes likely, and if the October hourly wages growth increase was not a one off, then the Fed is going to come under rising pressure to consider a further March hike in addition to any December increase.
We believe that the Fed will want to stick to its “cautious” approach to normalising rates, but if this conflicts with a buoyant activity and broad price picture, then longer dated bond yields are going to come under upward pressure, with the Fed having to fight any tendency for the dollar to appreciate by keeping policy rate expectations capped.
Her’s some colour (or color, perhaps) from today’s US inflation report, showing how prices of essentials and non-essentials alike are creeping up.
Just in… America’s inflation rate rate has inched higher in October.
The US consumer prices index rose by 0.2% last month, on both a monthly and an annual basis.
That’s up from +0.1% year-on-year in September, suggesting a slight build-up in inflationary pressures.
And core inflation, which strips out food and energy, came in at 1.9%. That could encourage the Federal Reserve to raise borrowing costs at next month’s meeting.
Celebrations and marches are currently underway in Greece to mark the 42nd uprising against military rule – a student revolt that paved the way to the collapse of seven years of US-backed dictatorship.
Helena Smith has the details:
Alexis Tsipras, the Greek prime minister, was heckled this morning when he laid a wreath at the Athens Polytechnic.
The anniversary is often exploited by black clad anarchists to run riot when Greeks traditionally stage a protest march to the US embassy. Addressing parliament, Tsipras berated the “so-called anti-establishment” and said they should not be allowed to “speak in the name of the people.”
Tsipras’ Syriza party, in the past, was frequently accused of having ties to the anti-establishment bloc – Tsipras’ intervention will be interpreted as yet another milestone in the politician’s reincarnation as a centrist leftist.
And a march is getting underway in Athens now:
Greece reaches bailout deal
The Greek stock market has jumped by 2.5% today, after a preliminary deal was finally struck between Athens and its lenders over how to address defaulting mortgages.
The agreement must be passed by the Greek parliament, but it should unlock €2bn of aid and €10bn of new capital for Greece’s banking sector.
Precise details aren’t available. But a Greek government source has said the compromise reached will protect around 60% of indebted households from having their primary residence seized.
Analyst site Macropolis says that houses worth less than €170,000 could be protected:
The Greek government had originally wanted to protect the poorest 70%, while creditors had only wanted to exclude 20% from seizure (ie, meaning cheaper houses could be repossessed).
Officials have told our Helena Smith that:
“We will table the agreement in parliament today prior to a vote probably on Thursday.”
Updated at 1.09pm GMT
Defence shares keep climbing
Money continues to pour into defence stocks this morning, on anticipation that Europe will be spending rather more on security measures.
The STOXX Europe total market aerospace index is currently up 2.8%, adding to yesterday’s gains.
This comes as France makes a formal request to its EU allies for help – the first time that the treaty clause seeking military assistance has been triggered.
Rolls-Royce, whose engines are used across the military, is up almost 4%.
BAE Systems is up 1.6%. It makes aircraft such as the Eurofighter, various military vehicles, and also offers cyber security protection.
Citi economists have already told clients that:
“We expect extra spending on policing, private security and military intervention.”
Italy, Spain, Austria and Lithuania have all been told that their budgets for 2016 risk breaking EU targets:
France’s 2016 budget has met with approval, though. Paris is already under Brussels’ “excessive deficit procedure”, giving it until 2017 to get its borrowing into line (the target that is now going to be missed).
The Paris stock market continues to climb – now up 113 points, or 2.3%, at 4918.
Commission vice-president Vladis Dombrovskis has also indicated that Brussels won’t try to block France’s new security spending blitz.
I’m “confident that we can find a way” to adjust budget targets to account for the events in Paris, he told Bloomberg TV.
Unfortunately the feed cut out before Dombrovskis could say whether EU countries struggling to cope with the refugee crisis would also get more budget leeway.
Updated at 11.24am GMT
Pierre Moscovici’s team have also tweeted that the Commission will show an “intelligent and humane” approach to Paris:
Commission backs France over security spending
The European Commission has just backed France’s decision to boost security spending at the expense of deficit reduction.
Moscovici (a former French finance minister) insists there is flexibility within the rules to allow states leeway, when needed.
“One thing that is clear in the current circumstances is that in this terrible moment the protection of citizens, the security of citizens in France and Europe is the priority.”
We may be accused of being inflexible, but actually we can adapt to all kinds of situation, Moscovici adds.
Updated at 11.10am GMT
Shares boosted by security spending hopes
France’s pledge to spend whatever it takes to defeat ISIS is pushing shares higher still.
Joshua Mahony, market analyst at IG, says investors are cheering the French government’s plan to breach deficit rules in favour of security spending – as outlined by PM Valls this morning.
It’s simply unrealistic to expect the French government can balance its books and enforce austerity at a time when it must also spend more on defence and intelligence.
President Francois Hollande is looking to flout EU rules over budget deficits in order to cancel defence cuts, while promising heightened security across the board. The fiscal boost of expansion of defence spending is likely to be something that will play out across Europe as the war against ISIS intensifies and the 4% rise in BAE shares so far this week perfectly illustrates this.
The downing of a Russian plane over Egypt by ISIS-linked terrorists only goes to expand the idea that military spending will rise globally over time.
The Paris CAC 40 index has extended its rally. It’s now up by 2%, up 97 points at 4901.
London’s FTSE 100, and the German DAX, have both gained around 1.7%.
Defence companies are leading the London stock market on anticipation that they’ll benefit from France’s new security spending plans.
Smiths Group, the UK engineering firm which also makes high tech body scanners, has risen by 10% after reporting that current trading is broadly in line with expectations.
Nick Fletcher’s latest market report has all the details:
German investor confidence has bounced back.
Data just released by the ZEW institute showed that economic sentiment rose in October, despite the slowdown in emerging markets this summer.
ZEW’s forward-looking growth expectations index jumped to 10.4, from just 1.9 in October. It suggests Europe’s largest economy will keep growing in the final months of 2015.
Updated at 10.23am GMT
These falling prices do raise fears that Britain is heading into deflation.
But Ian Stewart, chief economist at Deloitte, argues that negative inflation should be welcomed:
“Falling prices of essentials, including food and energy, are delivering a windfall bonus to UK consumers, bolstering spending power and enabling consumers to spend more on cars and “big ticket” items.
This reduction in prices, combined with rising real incomes and ultra-low interest rates, should help the UK recovery plough on despite the headwinds from emerging markets.”
A reminder from RBS that cheaper oil played a key role dragging down UK inflation:
Something curious happened in the drinks sector last month too.
The ONS reports that alcoholic beverages and tobacco prices fell by 0.4% between September and October this year compared with a rise of 0.6% between the same 2 months a year ago.
This is the first time that prices, overall, have fallen in this sector between a September and October since 2009 and the largest fall between these 2 months since official records began in 1996.
Could it be a knock-on effect from England’s rugby World Cup exit? Or a surge of discounting by supermarkets? All theories welcome…
Education prices dragged back inflation in October, according to the ONS.
But that’s not because going to college has suddenly become cheaper.
Instead, it’s because most students are now paying tuition fees, which were introduced in 2012 (so it’s only 4th-year students who are paying more than a year ago). So education costs only rose by 3.6% between September and October this year compared with a larger rise of 7.9% in 2014.
Updated at 9.53am GMT
This chart shows which items are cheaper than a year ago, and what still costs more:
UK inflation has been bobbing around zero all year:
UK inflation still negative
UK inflation was minus 0.1% year-on-year in October, meaning prices are still falling (a little) across the economy.
That matches September’s reading, and is the first time the annual CPI has fallen two months running since the series was created in 1996.
Food, alcohol and tobacco prices all pushed inflation down last month, the Office for National Statistics reports, while clothing and footwear prices rose.
Updated at 9.44am GMT
The boss of budget airline easyJet has predicted that passengers won’t be deterred by the Paris attacks.
Speaking on the BBC Today programme, Carolyn McCall said:
“If you look at any tragic event that has happened – and it’s been terrible what has happened in Paris and we have over a thousand people out there – post-9-11 and post-7-7 things start to get back and people get mobile and they want to travel again,”
“Our profitability has been driven by more passenger demand … There is a real demand for travel and I don’t think that’s going to abate.”
She was talking after easyJet posted another year of record profits:
Updated at 9.29am GMT
Speculation that the European Central Bank will ease monetary policy next month is pushing the euro down.
The single currency has hit $1.10647 against the US dollar – the lowest since early April.
Tony Cross, analyst at TrustNet Direct, sums up the morning:
London equities are certainly making good progress shortly after the open, with the vast majority of FTSE-100 constituents in positive territory and the index as a whole already having added in excess of 1%.
Strong gains in both US and Asian sessions appears to be the driver here, although it’s difficult to pin the move on any single piece of fundamental data – but it’s clear that at least for now, the majority of stocks globally remain unfazed by last week’s terrorist attacks in Paris.
Updated at 8.40am GMT
European markets jump – here’s why
Confidence is rippling through Europe’s stock markets, pushing the main indices all higher this morning.
There are solid gains in London, Paris, Frankfurt and Milan.
The STOXX 600 index, which tracks Europe’s biggest 600 companies, has jumped 1.5%, echoing last night’s rally on Wall Street.
Two factors appear to be driving the rally:
1) Investors are concluding that the atrocities in Paris are unlikely to have a long-term impact on growth, and thus corporate profitability.
History shows that terrorist attacks don’t have a long-term effect on markets (although they often have a short-term impact)
2) Central banks are more likely to keep monetary policy loose. Two senior ECB officials warned on Monday that confidence could be damaged by the Paris attacks, suggesting it may announce more stimulus moves soon.
Updated at 9.12am GMT
French hotel group Accor was one of the big fallers on Monday, dropping 7% at one stage.
But it’s leading the risers on the Paris market index today, up nearly 2%:
France puts security ahead of deficit cuts
France’s prime minister has confirmed that Paris will not be sticking to the budget rules imposed by Brussels, as it beefs up its security spending.
Manuel Valls told France Inter ratio this morning that European fiscal rules would not be allowed to prevent France taking the necessary measures in response to Friday’s attacks.
Reuters has the details:
The deficit target will “necessarily be exceeded” as France amends budget plans to hire 10,000 more police and gendarmes and boost their resources, Valls told France Inter radio.
“The European Commission must understand,” Valls said, that the struggle against Islamic State militants “concerns France but also concerns Europe”.
France was already on track to breach the EU’s 3% deficit target, by borrowing 3.3% of GDP next year. Hiring thousands more police and security officials will push spending higher.
Updated at 10.47am GMT
European markets are open, and rallying.
The FTSE 100 has jumped by more than 1%, gaining 70 points to 6215.
France’s CAC index and Germany’s DAX have both gained around 1% too, as the overnight rally in Asia ripples across to Europe.
World stock markets are pulling a ‘stunning u-turn’ today, says Mike van Dulken of Accendo Markets.
It’s a sign of the times how easily markets can digest such geopolitical horrors and demonstrate such resilience in the face of atrocity.
Stock market gains comes in spite of lingering worries about a slowing China (Copper has hit fresh 6 year lows) and the US dollar hitting new highs as traders price in a December US rate hike and global central bank policy divergence.
Updated at 8.00am GMT
Asian markets rebound
It’s Turnaround Tuesday in Tokyo.
Having shed 1% on Monday following the awful events in Paris, Japan’s benchmark index recovered its losses – and more – today to finish 1.2% higher.
Other markets also rallied – apart from China which was pretty flat.
Investors are encouraged by the solid trading in Europe yesterday, as traders in London, Paris and Frankfurt held their collective nerve.
Hikaru Sato, senior technical analyst at Daiwa Securities in Tokyo, explains:
“Investors think that the attacks in Paris would have little impact on the global economy in the long-term.”
The agenda: UK and US inflation coming up
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
World stock markets are rallying today, as international investors put aside worries that the tragic attacks in Paris will derail the global economy.
Asia indices have all risen overnight, and spread betters are calling Europe higher too.
The London and Paris markets are both expected to jump, after showing resilience yesterday during a day when €2.5bn was wiped off the travel sector.
Also coming up this morning, new inflation figures from the UK may show that prices fell again last month.
US inflation data is coming up later, and may show a small increase in the cost of living.
9.30am GMT: UK inflation: Expected to remain at -0.1%
10am GMT: German ZEW confidence figures
1.30pm GMT: US inflation Data: Expected to rise to 0.1% from 0%
And there may be developments in Greece, where talks continued last night with creditors over the remaining bad loan measures needed before Athens gets its aid tranche.
Greek officials say a preliminary deal has been reached, which could unlock bailout funds.
It’s also the 42nd anniversary of the famous student uprising against the junta at Athens Polytechnic, so security in the capital will be tight.
We’ll be tracking all the main events through the day….