Question on the current negotiations between the EU and Britain.
Draghi: The ECB is not a party to these negotations. We can say two things. There are two aspects we should protect [in any negotiations]. One is single market, second is our monetary union. Further integration of our monetary union is essential.
The EU and Britain have to work together, both drawing benefits from it, he says, adding: The objective of the talks is to anchor the UK in the EU.
Question about abolition of €500 note [as it is linked increasingly with crime]
Draghi: We are considering action on that front. We have to do it very carefully. The council and board reflecting on how to do it in best way.
But nothing to do with reducing cash [in the system].
Draghi has also addressed the meltdown in the banking sector in recent days, which has been partly caused by concern about the effect of negative interest rates on banks’ margins. He said:
Since early December, a general deterioration in market sentiment has taken root and has gathered pace over the last week. This initially appeared closely linked to concerns regarding weakening economic activity around the globe – notably in emerging markets – and to potential adverse signals from falling commodity prices. Over time however, market sentiment has become more volatile and susceptible to rapid change. In this environment, stock prices significantly declined and bank equity prices were particularly hit, both globally and in Europe. The sharp fall in bank equity prices reflected the sector’s higher sensitivity to a weaker-than-expected economic outlook; it also reflected fears that some parts of the banking sector were exposed to the higher risks in commodity-producing sectors. The bulk of euro area listed banks, although they have relatively limited exposure to emerging markets and commodity producing countries, are currently trading well below their book values.
The fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest rate environment and to the strengthened international regulatory framework that has been put in place since the crisis.
He also tried to calm concerns about the state of European banks, in particular in relation to non-performing loans:
In the euro area, the situation in the banking sector now is very different from what it was in 2012. Perhaps most importantly, euro area banks have significantly strengthened their capital positions over the past few years…
Clearly, some parts of the banking sector in the euro area still face a number of challenges. These range from uncertainty about litigation and restructuring costs in a number of banks to working through a stock of legacy assets, particularly in the countries most affected by the financial crisis. There is a subset of banks with elevated levels of non-performing loans (NPLs). However, these NPLs were identified during the Comprehensive Assessment, using for the first time a common definition, and have since been adequately provisioned for. Therefore, we are in a good position to bring down NPLs in an orderly manner over the next few years. For this purpose, the ECB’s supervisory arm is working closely with the relevant national authorities to ensure that our NPL policies are complemented by the necessary national measures.
ECB will not hesitate to act – Draghi
European Central Bank president Mario Draghi has said the bank will not hesitate to act in the light of the recent economic and market turmoil.
At its last meeting the ECB said it would review its monetary policy stance at its next meeting in March, but in a speech to the European Parliament, Draghi suggested the turbulence in the markets last week has given it extra urgency:
In order to make the euro area more resilient, contributions from all policy areas are needed. The ECB is ready to do its part. As we announced at the end of our last monetary policy meeting in January, the Governing Council will review and possibly reconsider the monetary policy stance in early March. The focus of our deliberations will be twofold.
First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices.
Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act.
And he repeated his calls for fiscal policies to help the economy recover:
In parallel, other policies should help to put the euro area economy on firmer grounds. It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation. In addition, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creations and raise productivity. Compliance with the rules of the Stability and Growth Pact remains essential to maintain confidence in the fiscal framework.
It is doubtful that HSBC ever intended to leave the UK and highly likely chancellor George Osborne paid too high a price to ensure it stayed, says economics editor Larry Elliott.
His full analysis is here:
Is the European Central Bank’s Outright Monetary Transactions policy – president Mario Draghi’s promise in 2012 to do “whatever it takes” to save the euro – legal?
The European Court of Justice has ruled it is, but on Tuesday a German court will look at the issue (although no judgement is expected until the summer. UniCredit’s Andreas Rees says:
Tomorrow, a public hearing on the OMT before the German Constitutional Court (GCC) will take place. Besides the complainants, Bundesbank President Weidmann and ECB Executive Board Member Mersch will also attend. The ruling is expected by summer.
In June 2015, the European Court of Justice (ECJ) already stated that the OMT is legal under EU law. However, the GCC made the controversial claim of having the right to deliver a final judgment as far as German institutions (the Bundesbank) are concerned.
In general, we expect the GCC to accept the verdict of the ECJ. In order not to lose its face, the GCC could stress the responsibility of the German government and the Bundestag in case of the OMT being activated.
One possibility is the making of provisions for the federal budget in the theoretical case of losses for the Bundesbank. Even if the GCC was heading for an outright confrontation with the ECJ there would not be any legal obstacles (for the Bundesbank) to participate further in QE.
Over in Greece and the country’s budget primary surplus came in at €1.19bn in January, up from €443m last year and well above the target of €307m.
The figures were helped by better than expected revenues and lower than forecast outlays.
The Bundesbank president Jens Weidmann may find himself in a tricky spot:
More signs that the European Central Bank may act next month to provide further stimulus to the economy, including rate cuts, following news that Germany’s central bank has cut its inflation forecasts for this year and next.
The Bundesbank has slashed its forecast for inflation in 2016 from 1.1% to just 0.25% and in 2017 from 2% to 1.75%. The move comes amid the slump in oil prices, and the bank said: “Fluctuations in the price of oil typically have a very fast and noticeable effect on the price of energy for consumers.”
The ECB will be looking at its own forecasts for its March meeting, and if it also cuts them, further action is likely.
The eurozone trade figures showed a rise in the trade balance to €24.3bn in December from €23.6bn a year earlier.
Exports slipped 0.3% month on month as the benefits of a weaker euro were outweighed by a slowdown in global growth. Imports rose 0.8% in December compared to the previous month. Economist Howard Archer at IHG Global Insight said:
Weakened December traded goods data reinforce suspicion that net trade was of little help to Eurozone GDP growth in the fourth quarter…. While eurozone exporters have had appreciable help from a very competitive euro, the upside for exports has been constrained by muted global growth.
Looking ahead, Eurozone exporters manufacturers will be worried by the current heightened concerns over global growth and they will also not be happy with the euro’s recent overall firmer tone – although it is still at a competitive level.
With US markets closed and the half term school holiday underway in the UK, it is hard to know how sustainable the market rally is, but continuing strength in the oil price could help. Chris Beauchamp, senior market analyst at IG, said:
The new week on the London market is barely two hours old, but already the FTSE 100 has notched up triple-digit gains, having risen nearly 6% from the lows seen last Thursday. As with other bounces in recent months, the move has many scratching their heads and wondering why investors have suddenly become so ebullient, when not even a week ago all was doom and gloom.
However, the rally comes within the context of a broader downtrend that is a reflection of ongoing concerns about the global economy. For the moment therefore, this upward move gets filed as a brief flowering of bullish sentiment, rather than the start of something much more long-term. European markets are also strongly higher, but with the US out of the picture due to a national holiday it is too early to know whether these gains are going to last into the rest of the week.
Oil prices, which are still the main determinant of whether stock markets go up or down, are higher on the day; if the commodity can keep rallying into coming sessions we will see fresh buying momentum develop in stock markets.
Mike van Dulken, head of research at Accendo Markets said:
Equity markets making a bullish start to the week, adding to the gains of Friday and Thursday’s bounce from lows helped by breaks of the February downtrends. And it would appear to be a case of bad news is good news again. This after poor data from China (Exports, Imports) and Japan (GDP, Industrial Production) added to hopes of more central bank intervention and stimulus which buoyed commodities prices. Add to this a continued waning of worries over the banking sector (despite many a headwind remaining) thanks to talk of the ECB buying bundles of bad loans from Italian banks and many are asking if we have found a bottom.
HSBC warns on Brexit
After HSBC announced it planned to keep its headquarters in the UK, it has also warned it could move 1,000 investment banking jobs from London to Paris if the UK leaves the European Union. Jill Treanor reports:
HSBC chairman Douglas Flint told the BBC that while the “best answer” was to remain in a reformed Europe, the bank had the ability, in the event of a “no” vote, to “move people between London and Paris”.
Flint was referring to the bank’s non-ringfenced operations. The ringfenced bank includes HSBC’s high street operations, which are to be headquartered in Birmingham to comply with the new rules that protect taxpayers from having to bail out banks.
The referendum on Europe, which could be held in June, would have less of an impact on the “holding company” but could impact the operational activities of the wholesale bank, he said.
Stuart Gulliver, the chief executive of HSBC, later told Sky News: “We have 5,000 people in global banking and markets [HSBC’s investment bank] in London and I could imagine that around 20% of those would move to Paris.”
Our full report is here:
As the market rally continues, the biggest riser in the FTSE 100 is consumer goods group Reckitt Benckiser.
The company, whose products range from Nurofen tablets to Durex condoms, reported a 6% rise in like-for-like full year sales, better than the 5.3% forecast from analysts.
The results have helped lift its shares more than 6%.
With investors taking a more optimistic view of equity markets, the traditional haven in stormy times – gold – is losing its lustre at the moment.
Gold is down from $1237 to $1210 an ounce, while silver is also on the slide, down from $15.71 to $15.29 an ounce.
The European Central Bank is talking to the Italian government about using its asset purchase programme to buy bad loans packages from banks and accepting them as collateral in return for cash, according to Reuters:
The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their 200 billion euros ($225 billion) of soured credit and free up resources for new loans.
Nonetheless, it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months.
Italian Treasury officials told reporters the ECB may buy these securities as part of its 1.5 trillion euros asset-purchase program or accept them as collateral from banks in return for cash, in so called repurchase agreements.
The ECB declined to comment.
Whether the current market rally has any staying power could depend on the central banks, notably the Federal Reserve, says Rebecca O’Keeffe at stockbroker Interactive Investor:
Stocks have soared in Asia, rebounding aggressively after last week’s falls and providing further impetus for European markets. Recent moves have seen markets lurching from anticipation to despair, sometimes on the same day – so the hope is that this sharp move higher will set a more positive tone for investors, rather than just be seen as an opportunity to sell the rally.
Global central banks are yet again in the spotlight, with the People’s Bank of China intervening to boost the renminbi and Mario Draghi widely expected to discuss further support during his testimony this afternoon.
Janet Yellen spent much of last week trying to deflect blame for the market turmoil from the Federal Reserve, but with the ECB, BoJ, and now also the PBoC all actively supporting investors it does rather appear as though the US Fed represents the principal downside risk for global equity markets.
Alliance Trust’s Garrett-Cox to leave
Katherine Garrett-Cox is to leave Alliance Trust, the investment company where she became chief executive in 2008, in the latest stage of a shake-up of the business.
She stepped down from the board last year but remained chief executive of the company’s fund management arm.
Now Alliance said she will leave on 11March by mutual agreement.
The business was targeted last year by hedge fund Elliott Advisors who criticised its performance and cost base, leading to a change of chairman.
Lord Smith of Kelvin, the new chairman said:
Alliance Trust is undergoing significant change to improve both its operating performance and investment returns…it is clear to us that the role of chief executive of Alliance Trust Investments has changed significantly.
Garrett-Cox – known in the City as “Katherine the Great’ – earned £1.4m last year, and the company said compensation for her loss of office would be paid “in line with Alliance Trust’s remuneration policy and the terms of Katherine’s contract.”
More on what to expect from ECB president Mario Draghi at the European parliament later. Analyst at UniCredit said:
Given the latest market developments and with inflation expectations at record lows, we expect confirmation that more easing is in the pipeline. However, testimonies to the EU parliament do not usually send new policy messages, so hints at specific measures are unlikely. On Thursday, the account of the monetary policy meeting held on 21 January will be released.
As expected European markets have followed Asia higher in early trading.
The FTSE 100 is up 97 points or 1.7% while Germany’s Dax has added 2.1%, France’s Cac has climbed 2.2%, Spain’s Ibex 2.65% and Italy’s FTSE MIB 1.7% at the open. The FTSE Eurofirst300 is ahead 1.6%.
Banks, hard hit last week on fears that negative interest rates would squeeze their margins at a time when their balance sheets were already under pressure, are among the leading risers. Commerzbank is up 9.4%, Deutsche Bank 4.8% and Credit Suisse 7.3%.
Oil has stabilised after its recent volatility, with Brent crude down just 0.18% at $33.3 a barrel.
Chinese markets edge lower
Despite predictions of a crash in Chinese markets when they re-opened after the Lunar New Year holiday, the worst fears were not realised.
Both the CSI300 and the Shanghai Composite have ended down around 0.6%, helped by the positive mood in other Asian markets, notably Japan where the yen weakened amid promises of more intervention if necessary.
BAE Systems appoints new chief operating officer
On the corporate front, BAE Systems has appointed oil executive Charles Woodburn to the newly created role of chief operating officer.
The move puts Woodburn in line to replace chief executive Ian King in 12 to 18 months time.
It’s a quiet day for data, apart from eurozone trade data and a speech from European Central Bank president Mario Draghi at the European parliament.
And with US markets closed for Presidents Day – the country’s tribute to George Washington and Abraham Lincoln – it is Asia which is likely to dominate sentiment for the day. Commenting on the action so far, Jasper Lawler, market analyst at CMC Markets UK, said:
A strong fix for the yuan has eased devaluation concerns leading to relatively small losses in China, a rebound across the rest of Asia and a higher open expected for Europe.
Ordinarily, US markets closed for Presidents Day would leave European trading are a little on the quiet side but recent volatility could mean otherwise. There had been some expectation that Chinese markets could wreak havoc as the country plays catch-up with sharp declines in global stock markets after returning from Lunar New Year celebrations.
A bigger than expected decline in Chinese trade data was offset by soothing word over the weekend from PBOC governor Zhou Xiaochuan who played down forex fears.
Later in the week comes a range of UK data, including inflation, unemployment and retail sales.
Meanwhile the ECB’s attempts to lower the euro have been under pressure so Draghi’s speech will be widely watched. Lawler said:
The euro has been a beneficiary of risk-off in financial markets, trading at its highest since October against the dollar. European Central Bank president Mario Draghi’s last attempt to talk up the prospect of further easing at the ECB’s March meeting had the unusual effect of sending the euro higher so he may look to reassert his influence in his speech.
Farewell from Sydney
I’m handing over to Nick Fletcher, my colleague in London, who bring you all the day’s developments from the UK, European and US markets. Have a good day and thanks for joining me.
European markets set for strong start
The FTSE100 and Germany’s DAX is set for a strong opening today according to IG.
Barclays: ‘oil, China and banks pose greatest threats’
The puzzle that is the financial markets is engaging brains all over the world.
Ajay Rajadhyaksha, an economist at Barclays in New York, told Reuters that market volatility could feed back into the real economy and pose a risk to stability which the authorities are ill-placed to do anything about.
He pointed to three sources of volatility that had potential negative feedback loops: lower oil prices, capital outflows and economic weakness in China, and pressure on European banks. Rajadhyaksha said:
Of these, we consider China the biggest medium-term risk, but the least immediate issue.
Australian market closes up 1.64%
Strong day in Australia where the ASX/S&P200 has finished 1.64% or 78 points to the good at 4,843 points.
Nikkei closes up 7.16%
It’s all over for the day in Tokyo where the Nikkei has finished up a whopping 7.16%. Treble sakes all round!!!
Here’s where we are so far today. No post-new year fireworks in China but lots of action:
The Nikkei average in Tokyo has bounced up 7% after losing 11% last week, shrugging off dreadful GDP figures showing Japan’s economy shrank 1.4% in 2015
Japan’s economic revitalisation minister, Nobuteru Ishihara, has all but ruled out emergency government measures to stimulate the economy. Instead, Ishihara called for the quick implementation of a 3.32 trillion yen supplementary budget passed by parliament last month that provides support for child-rearing and nursing care, as well as a handout – intended to boost spending – for pensioners.
Ishihara said Japan’s economic fundamentals were “sound”, adding that it was moving towards a recovery in employment and corporate profits, despite the disappointing GDP figures.
Thailand grows by 2.8%
Thailand grew by 2.8% in 2015, compared with 0.8% the previous year, according to official data today.
But despite the extra growth, the country’s recovery from the turmoil of the military coup in 2014 remains fragile. The state planning agency cut its forecast for 2016 growth to 2.8-3.8% from the 3.0-4.0% range it saw in November.
One of the factors in China’s currency fluctuation (see below) is the amount of money wealthy citizens are removing from the country. Some estimates say up to a trillion US dollars has been taken out in the past year, further weakening confidence in China’s slowing economy and undermining the yuan, which the Beijing leadership wants to be become a fully-fledged international unit.
China’s crude imports dropped 20% in January from record high volumes the previous month, Reuters reports. Crude imports to the world’s second biggest economy in January were also down 4.6% on a year-on-year basis at 26.69m tonnes, or 6.29m barrels per day. But the data was distorted by China taking advantage of low global oil prices last year to add up to 185m barrels to its reserves, Reuters calculated.
So that has taken the edge off crude’s price spike on Friday. London Brent crude was down 17c at $33.19 a barrel at 0430am GMT.
Nikkei up 6%
The markets are loving the idea of more intervention.
He told parliament today that “excessive currency volatility is undesirable”, a reference to the sharp rise in the yen last week that sent stocks plunging.
He added that Tokyo would take appropriate action in the exchange rate market as needed and he hoped the Group of 20 finance leaders will take appropriate measures to address global economic problems when they meet in Shanghai next week.
The US dollar rose further hitting a session high of 113.87 yen compared with last week’s 15-month trough of 110.985.
Calling for banks to hold more capital, Sir John, who led the UK’s inquiry into the banking collapse, said:
A good way to think about it is as an insurance policy. You have to pay a premium to insure your house and you hope nothing bad will happen. But if it does, you are much better off in paying that premium, and for full coverage.
If banks run out of capital, all sorts of havoc could ensue. We want to be in a position where there’s enough of a buffer to take any losses that might occur.
Today’s figures from China and Japan are likely to increase the clamour for more action from the central banks.
Chris Weston, chief market strategist at IG in Melbourne, identified the key “bad news is good news” formula:
Asia has found its mojo. There is nothing like poor data to get the equity bulls excited. Japanese Q4 GDP fell 1.4% quarter-on-quarter annualised, 60 basis points worse than forecasts, with nominal faring slightly better. Consumption remains poor, although if you break down the facts, the shining light is that Capex gained for a second quarter. For those looking at the demand story, China’s January trade data would be particular worrying with exports (in USD terms) falling 11.2% in January and imports falling 18.8% in January.
(Late) Lunchtime summary
It’s been a lively day so far. Despite shocking data from Japan and China, stock markets are up across Asia Pacific. Although the indices in mainland China are down, last week’s closure will have distorted today’s trading and a better, more up-to-date picture surely comes from Japan where the Nikkei has soared more than 5%. This is presumably on the basis of more intervention by the Bank of Japan to bolster shrinking output.
Junko Nishioka, chief economist at Sumitomo Mitsui Banking, quoted by Reuters, sums up the mood and predicted more monetary easing could come as early as next month:
Private consumption is especially weak. The economy is at a standstill. It’s a matter of time before the BOJ and the government will take additional stimulus measures.
Stocks are up. Nikkei up 5.12% at the lunch break while the ASX200 in Australia is up 0.98% and the Kospi in Korea is 1.38% to the good.
Not so good in China where the two main indices – the CSI300 and the SHanghai Composite – are down 1.16% and 1.2%. But the Hang Seng in Hong Kong is up 2.39%.
Nikkei probably helped by a 0.34% drop in the yen to 113 to the US dollar.
Brent crude is down 45c at $32.91 a barrel.
There’s no doubt where some commentators stand on the Chinese trade data with these tweets from zerohedge making the point that the poor figures come despite the yuan drifitng lower in recent months.
The China trade figures look even worse in dollar terms which put exports down 11.2% in January compared with the same month in 2015, while imports were down a thumping 16.6%, the General Customs Administration said today.
However, officials said they expected the downward pressure on exports would begin to ease by the second quarter of this year.
Chinese trade plummets
Ouch. China has released its trade figures for January and they’re not good.
Exports down 6.6% (year-on-year in yuan terms) compared with forecasts of +3.6%
Imports down 14.4% compared with 1.8%
Trade surplus up to 406bn yuan against a forecast of 389bn.
Still on the yuan, it’s clear from market commentary this morning that remarks by the PBOC governor Zhou Xiaochuan at the weekend about the currency have helped calm jitters.
In an interview with the financial magazine Caixin, Zhou said that there was no basis for the yuan to keep depreciating and that China did not need to force the yuan lower in order to make exports more competitive. ,The PBOC would keep the yuan stable versus a basket of currencies, he said.
That’s good news for markets for a couple of reasons:
First, pessimistic observers think a devaluation of the yuan – forced or otherwise – would be extremely bad new for the global economy. Albert Edwards at Société Générale, for example, thinks China will be forced to devalue, sending a wave of deflation around the world. So, a strong statement from Zhou will soothe concerns about a big move in the yuan triggering a currency war.
The yuan, subject of much hand-wringing in trading rooms and world chancelleries alike, has nudged up today.
The People’s Bank of China set its official midpoint trading rate at 6.5118 per dollar, up sharply from 6.5314 before the holiday. That reflects a slightly calmer and more optimistic outlook for the Chinese economy compared with 10 days ago. Quite big potatoes given the pressure the currency has been under and the reports of huge intervention to keep it stable.
According to Reuters, the midpoint’s 0.3% rise on Monday was the biggest jump on the previous fix since 2 November last year when it gained 0.5%.
Chinese markets open 2% lower
Trading is underway in China again after the new year break and it looks like they are playing a bit of catch-up with last week’s sell-off.
CSI300 index down 2.5% to 2,888.79 points
Shanghai Composite index down 2.8% to 2,685.77 points.
But the Hang Seng in Hong Kong, where there was a shorter break last week, is more in line with other markets in Asia and is up 2%.
Japan’s economy shrinks by 1.4%
Our man in Tokyo, Justin McCurry, has just filed a story on the latest evidence that Shinzo Abe’s plan to kickstart the moribund Japanese economy is failing badly.
The economy shrank 1.4% on an annualised basis in the fourth quarter, figures released earlier today showed.
In what some have described the death-knell for “Abenomics” – his three-arrow policy of monetary easing, fiscal stimulus and structural reform – recent currency and market turmoil have wiped out the gains made soon after he became prime minister in late 2012.
“(The plan) actually worked, but now it is moving in reverse,” said Takuji Okubo, director of Japan Macro Advisors in Tokyo.
Here’s the full story:
Welcome to the Guardian business live blog from Sydney. They say a week can be a long time in politics (I think it was Harold Wilson the former British prime minister, who coined the phrase), and the same could also be said for the markets. During last week’s ferocious selling, it looked like China’s markets had dodged a bullet by being closed for the long new year break. Japan had its worst week since 2008 and oil hit a new low.
That’s despite the Japan’s GDP shrinking 1.4% in the fourth quarter
The ASX/S&P200 is up 0.77% and Korea is up 0.96%
Crude prices are down slightly after Friday’s huge double-digit jump
Evan Lucas from IG in Melbourne sets the scene:
China may be positively influenced by the rally on Friday and the fact Japan looks to have turned a corner.
The likelihood of a sharp one-off interventionist devaluation in the [yuan] is remote, bordering on never. [Zhou] did leave the option to allow a gradual depreciation in the [yuan] but, in short, the fear around a Chinese intervention should dissipate.
But then again ….
The bigger question is: Will it last?
Chinese trade figures will get the ball rolling any minute now ….