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| Market turmoil: Stocks rally despite Greece falling back into recession - live updates | Market turmoil: Stocks rally despite Greece falling back into recession - live updates |
| (35 minutes later) | |
| 3.48pm GMT | |
| 15:48 | |
| Negative interest rates should help lift growth and inflation but if the market turmoil continues, the economic consequences could outweigh the benefits, says Michael Pearce at Capital Economics. He says: | |
| In principle, cutting policy rates into negative territory should boost growth and inflation. But central banks have not communicated these benefits clearly, and the hesitant way in which they have been introduced has undermined confidence, raising the risk that negative rates do more harm than good. | |
| Although markets are rebounding today, the sharp falls in equity prices and in particular bank shares since the beginning of the year have led many to claim that negative rates are damaging global economic prospects. Markets have focused on three main concerns. | |
| 3.39pm GMT | |
| 15:39 | |
| The University of Michigan survey suggests a falling outlook for inflation: | |
| 5-10yr #inflation expectations in the U. of Mich. survey fell 0.3% to 2.4% - lowest reading in the history of the series | |
| #Fed will take note of the plunge in long-term #inflation expectations. Assuming no revisions, this raises concerns about inflation outlook | |
| 3.22pm GMT | |
| 15:22 | |
| The US consumer confidence figures are not too bad under the circumstances, reckons James Knightley at ING Bank: | |
| US consumer confidence as measured by the University of Michigan dipped to 90.7 in February versus 92.0 in January. This is a bit weaker than the 92.3 consensus, but isn’t too bad given the scale of equity market sell-off. | |
| Indeed, strong employment gains, rising real incomes and a firm housing market are providing enough offsetting effects for now and with retail sales having come in stronger than expected (when upward revisions are included) it looks a reasonably encouraging consumer spending story for now. | |
| However, equity markets don’t seem particularly interested unfortunately and the longer that this goes on the greater the risk that it feeds negatively into the real economy through weaker sentiment and tighter financial conditions. | |
| 3.18pm GMT | 3.18pm GMT |
| 15:18 | 15:18 |
| And after the US retail sales, here is some less positive news in terms of consumer confidence. | And after the US retail sales, here is some less positive news in terms of consumer confidence. |
| The University of Michigan consumer sentiment index has missed expectations with a fall from 92 in December to 90.7. The consensus forecast was for a reading of 92 for January. The index of consumers expectations fell from 82.7 to 81, a four month low. | The University of Michigan consumer sentiment index has missed expectations with a fall from 92 in December to 90.7. The consensus forecast was for a reading of 92 for January. The index of consumers expectations fell from 82.7 to 81, a four month low. |
| Meanwhile business inventories rose 0.1%, in line with forecasts. | Meanwhile business inventories rose 0.1%, in line with forecasts. |
| 3.05pm GMT | 3.05pm GMT |
| 15:05 | 15:05 |
| Oil continues to rebound, on renewed hope of production cuts to stem the supply glut. | Oil continues to rebound, on renewed hope of production cuts to stem the supply glut. |
| Helping the rally were reported comments from United Arab Emirates oil minister Suhail Al Mazrouei that producers were ready to work together. | Helping the rally were reported comments from United Arab Emirates oil minister Suhail Al Mazrouei that producers were ready to work together. |
| But we have been here many times before, and he was also reported as saying that there would be no cuts unless there was full co-operation among producers. | But we have been here many times before, and he was also reported as saying that there would be no cuts unless there was full co-operation among producers. |
| There have been several optimistic reports suggesting Opec might be ready to talk to other producers such as Russia about limiting output, but so far no real progress. | There have been several optimistic reports suggesting Opec might be ready to talk to other producers such as Russia about limiting output, but so far no real progress. |
| Nevertheless, Brent crude is now up 5% at $31.59 a barrel while West Texas Intermediate - the US benchmark - is 6% better at $27.79. | Nevertheless, Brent crude is now up 5% at $31.59 a barrel while West Texas Intermediate - the US benchmark - is 6% better at $27.79. |
| And that is one of the factors helping to support stock market as they bounce back from recent lows. | And that is one of the factors helping to support stock market as they bounce back from recent lows. |
| 2.46pm GMT | 2.46pm GMT |
| 14:46 | 14:46 |
| Another cut in the European Central Bank’s deposit rate in March has strong support among the central bank’s governing council, Reuters is reporting. | Another cut in the European Central Bank’s deposit rate in March has strong support among the central bank’s governing council, Reuters is reporting. |
| Any cut could come as part of a broader package including some changes to the bank’s asset purchase programme, but there is little appetite for more radical action . Reuters says markets are pricing in at least two rate cuts by the end of the year, taking the deposit rate from -0.3% to -0.55%. | Any cut could come as part of a broader package including some changes to the bank’s asset purchase programme, but there is little appetite for more radical action . Reuters says markets are pricing in at least two rate cuts by the end of the year, taking the deposit rate from -0.3% to -0.55%. |
| Banking groups are unlikely to be happy, since their shares have been hammered this week by fears about the effects of the wave of negative rates on their balance sheets and margins. | Banking groups are unlikely to be happy, since their shares have been hammered this week by fears about the effects of the wave of negative rates on their balance sheets and margins. |
| Reuters reports one policymaker as saying: “Cutting the deposit rate by more than 10 basis points would hurt bank profitability, not a popular idea right now, especially given what’s happening in the banking sector.” | Reuters reports one policymaker as saying: “Cutting the deposit rate by more than 10 basis points would hurt bank profitability, not a popular idea right now, especially given what’s happening in the banking sector.” |
| Updated | Updated |
| at 2.59pm GMT | at 2.59pm GMT |
| 2.39pm GMT | 2.39pm GMT |
| 14:39 | 14:39 |
| Wall Street opens higher | Wall Street opens higher |
| With markets elsewhere moving ahead after the recent turmoil (the Nikkei was the exception), the US has joined in the more optimistic mood. | With markets elsewhere moving ahead after the recent turmoil (the Nikkei was the exception), the US has joined in the more optimistic mood. |
| The Dow Jones Industrial Average is up 140 points or 0.9% while the S&P 500 opened 0.6% higher and the Nasdaq added 1%. Energy and financial stocks were among the early gainers. | The Dow Jones Industrial Average is up 140 points or 0.9% while the S&P 500 opened 0.6% higher and the Nasdaq added 1%. Energy and financial stocks were among the early gainers. |
| 2.29pm GMT | 2.29pm GMT |
| 14:29 | 14:29 |
| It appears there is some disagreement over the earlier comments about Greece from the IMF’s Poul Thomsen: | It appears there is some disagreement over the earlier comments about Greece from the IMF’s Poul Thomsen: |
| *#GREECE OFFICIAL: #IMF BLOG POST NOT IN LINE WITH WHAT'S AGREED | *#GREECE OFFICIAL: #IMF BLOG POST NOT IN LINE WITH WHAT'S AGREED |
| Views expressed by #IMF's #Thomsen are radically different than what has been agreed between #Greece and institutions in the summer-govt off | Views expressed by #IMF's #Thomsen are radically different than what has been agreed between #Greece and institutions in the summer-govt off |
| But: | But: |
| #Greek govt official says the recipient of #IMF's #Thomsen positions is not #Greece but the rest of the institutions that disagree | #Greek govt official says the recipient of #IMF's #Thomsen positions is not #Greece but the rest of the institutions that disagree |
| 2.04pm GMT | 2.04pm GMT |
| 14:04 | 14:04 |
| The US retail sales show consumer spending remains important to the country’s economy but the key question is how it will cope with the global problems, says Nancy Curtin, chief investment officer at Close Brothers Asset Management: | The US retail sales show consumer spending remains important to the country’s economy but the key question is how it will cope with the global problems, says Nancy Curtin, chief investment officer at Close Brothers Asset Management: |
| Consumer spending has played a starring role in supporting growth in the US’ service-led economy, and the latest retail figures suggest this is set to continue. Lower oil prices have certainly helped, with the US consumer benefitting from cheaper gas to the tune of $80m per day. The labour market continues to strengthen and consumer confidence hasn’t been shaken, all of which bodes well for the domestic economy. | Consumer spending has played a starring role in supporting growth in the US’ service-led economy, and the latest retail figures suggest this is set to continue. Lower oil prices have certainly helped, with the US consumer benefitting from cheaper gas to the tune of $80m per day. The labour market continues to strengthen and consumer confidence hasn’t been shaken, all of which bodes well for the domestic economy. |
| What really matters though, is how well the US weathers the global risks in the long-term: namely, Chinese devaluation and the exacerbating effect of the stronger US dollar. Clearly, the tentacles of the Chinese slowdown are spreading, and the lack of a clear enough policy is a red flag to ongoing volatility. Equally, the dollar has been strengthening due to the robustness – until recently – of the US recovery and the Fed’s decision to hike rates in December. However, it does drag down exports and adds to the already widening trade deficit. While it’s not yet a case of stunting US growth, all eyes will remain on Yellen to soothe where she can. For now, as hinted in her testimony to Congress, she’ll continue to put any immediate rates rise on hold. | What really matters though, is how well the US weathers the global risks in the long-term: namely, Chinese devaluation and the exacerbating effect of the stronger US dollar. Clearly, the tentacles of the Chinese slowdown are spreading, and the lack of a clear enough policy is a red flag to ongoing volatility. Equally, the dollar has been strengthening due to the robustness – until recently – of the US recovery and the Fed’s decision to hike rates in December. However, it does drag down exports and adds to the already widening trade deficit. While it’s not yet a case of stunting US growth, all eyes will remain on Yellen to soothe where she can. For now, as hinted in her testimony to Congress, she’ll continue to put any immediate rates rise on hold. |
| 1.53pm GMT | 1.53pm GMT |
| 13:53 | 13:53 |
| Dennis de Jong, managing director at UFX.com, said the US retail sales showed some positive signs: | Dennis de Jong, managing director at UFX.com, said the US retail sales showed some positive signs: |
| With US data on the whole far from convincing following the interest rate rise, Fed Chair Janet Yellen will be pleased with the green shoots shown in today’s retail sales figures. | With US data on the whole far from convincing following the interest rate rise, Fed Chair Janet Yellen will be pleased with the green shoots shown in today’s retail sales figures. |
| Any positive figure is a step in the right direction, and onlookers still await an uptick in consumer activity prompted by continuing low fuel and energy prices. | Any positive figure is a step in the right direction, and onlookers still await an uptick in consumer activity prompted by continuing low fuel and energy prices. |
| Yellen will still be wary given that the numbers have been given a leg-up from the holiday season, and she should expect there to be further strain on the US economy in the coming months. | Yellen will still be wary given that the numbers have been given a leg-up from the holiday season, and she should expect there to be further strain on the US economy in the coming months. |
| 1.49pm GMT | 1.49pm GMT |
| 13:49 | 13:49 |
| Markets may be pricing in a recession, but obviously no-one told US consumers. Control group #retail sales up by 0.6% m/m in January. | Markets may be pricing in a recession, but obviously no-one told US consumers. Control group #retail sales up by 0.6% m/m in January. |
| 1.46pm GMT | 1.46pm GMT |
| 13:46 | 13:46 |
| Overall, US retail sales rose 0.2% in January, while the December figure has been revised upwards from a 0.1% fall to a gain of 0.2%, said the Commerce Department. | Overall, US retail sales rose 0.2% in January, while the December figure has been revised upwards from a 0.1% fall to a gain of 0.2%, said the Commerce Department. |
| Cheaper fuel prices as the oil price tumbled seemed to encourage spending, although it also cut back revenues at petrol stations, while spending at bars and restaurants was hit by the severe winter weather. But clothing stores saw sales rise 0.2% and online retailers saw a 1.6% jump (the effect of harsh weather again presumably). | Cheaper fuel prices as the oil price tumbled seemed to encourage spending, although it also cut back revenues at petrol stations, while spending at bars and restaurants was hit by the severe winter weather. But clothing stores saw sales rise 0.2% and online retailers saw a 1.6% jump (the effect of harsh weather again presumably). |
| 1.35pm GMT | 1.35pm GMT |
| 13:35 | 13:35 |
| US retail sales beat forecasts | US retail sales beat forecasts |
| Over in the US and signs that consumers may be spending again as retail sales beat expectations. | Over in the US and signs that consumers may be spending again as retail sales beat expectations. |
| Core retail sales - which exclude cars, fuel, building materials and food services - increased 0.6% in January after a 0.3% fall in the previous month. Analysts had forecast an increase of around 0.3%. | Core retail sales - which exclude cars, fuel, building materials and food services - increased 0.6% in January after a 0.3% fall in the previous month. Analysts had forecast an increase of around 0.3%. |
| 1.32pm GMT | 1.32pm GMT |
| 13:32 | 13:32 |
| Deutsche Bank has confirmed earlier reports it may buy back some of its debt, an idea which has been supporting its share price after its falls earlier this week. | Deutsche Bank has confirmed earlier reports it may buy back some of its debt, an idea which has been supporting its share price after its falls earlier this week. |
| Deutsche has said it will offer to buy up to €3bn of European debt and $2bn of US debt. | Deutsche has said it will offer to buy up to €3bn of European debt and $2bn of US debt. |
| 1.30pm GMT | 1.30pm GMT |
| 13:30 | 13:30 |
| 1.29pm GMT | 1.29pm GMT |
| 13:29 | 13:29 |
| Ahead of Greece falling into recession and the new protests in Athens, the International Monetary Fund has said that fears of the country leaving the eurozone will increase unless a credible reform plan is put together. | Ahead of Greece falling into recession and the new protests in Athens, the International Monetary Fund has said that fears of the country leaving the eurozone will increase unless a credible reform plan is put together. |
| And Poul Thomsen, head of the IMF’s European department, said it had not yet seen such a plan. He repeated that debt relief - a bone of contention among some of the country’s creditors - needed to be a key element of the programme. He wrote in a new IMF commentary: | And Poul Thomsen, head of the IMF’s European department, said it had not yet seen such a plan. He repeated that debt relief - a bone of contention among some of the country’s creditors - needed to be a key element of the programme. He wrote in a new IMF commentary: |
| The IMF does not want Greece to implement draconian fiscal adjustment in an already severely depressed economy. In fact, we have time and again been the ones arguing for a fiscal adjustment path that is more supportive of recovery in the near term and more realistic in the medium term. | The IMF does not want Greece to implement draconian fiscal adjustment in an already severely depressed economy. In fact, we have time and again been the ones arguing for a fiscal adjustment path that is more supportive of recovery in the near term and more realistic in the medium term. |
| We have yet to see a credible plan for how Greece will reach the very ambitious medium-term surplus target that is key to the government’s plans for restoring debt sustainability. This emphasis on credibility is crucial for generating the investor confidence that is critical to Greece’s revival. A plan built on over-optimistic assumptions will soon cause Grexit fears to resurface once again and stifle the investment climate. | We have yet to see a credible plan for how Greece will reach the very ambitious medium-term surplus target that is key to the government’s plans for restoring debt sustainability. This emphasis on credibility is crucial for generating the investor confidence that is critical to Greece’s revival. A plan built on over-optimistic assumptions will soon cause Grexit fears to resurface once again and stifle the investment climate. |
| The overriding objective of the IMF’s engagement with Greece is to help the country put itself back on a path of sustainable growth that benefits the Greek people. The IMF will support the Greek authorities and their European partners in developing a program of reforms and debt relief that adds up. There are difficult choices to be made, but it is important to make them so that Greece’s efforts over the last six years are not wasted. | The overriding objective of the IMF’s engagement with Greece is to help the country put itself back on a path of sustainable growth that benefits the Greek people. The IMF will support the Greek authorities and their European partners in developing a program of reforms and debt relief that adds up. There are difficult choices to be made, but it is important to make them so that Greece’s efforts over the last six years are not wasted. |
| On the need for both reforms and debt relief, he said: | On the need for both reforms and debt relief, he said: |
| It is argued that the IMF has made its participation dependent on socially draconian reforms, especially of the pension system. This is not the case. Ultimately a program must add up: the combination of reforms plus debt relief must give us and the international community reasonable assurances that by the end of Greece’s next program, after almost a decade of dependence on European and IMF assistance, Greece will finally be able to stand on its own. This implies an inverse trade-off between ambition of reforms and strength of debt relief—we can certainly support a program with less ambitious reforms, but this will inevitably involve more debt relief. | It is argued that the IMF has made its participation dependent on socially draconian reforms, especially of the pension system. This is not the case. Ultimately a program must add up: the combination of reforms plus debt relief must give us and the international community reasonable assurances that by the end of Greece’s next program, after almost a decade of dependence on European and IMF assistance, Greece will finally be able to stand on its own. This implies an inverse trade-off between ambition of reforms and strength of debt relief—we can certainly support a program with less ambitious reforms, but this will inevitably involve more debt relief. |
| This said, no amount of pension reforms will make Greece’s debt sustainable without debt relief, and no amount of debt relief will make Greece’s pension system sustainable without pension reforms. Both need to come about. There is no doubt that both Greece and its European partners will face politically difficult decisions in the coming months to arrive at a program that is viable—one that adds up. | This said, no amount of pension reforms will make Greece’s debt sustainable without debt relief, and no amount of debt relief will make Greece’s pension system sustainable without pension reforms. Both need to come about. There is no doubt that both Greece and its European partners will face politically difficult decisions in the coming months to arrive at a program that is viable—one that adds up. |
| And on pensions, he said Greece is too poor to afford its present pension system: | And on pensions, he said Greece is too poor to afford its present pension system: |
| Despite the pension reforms of 2010 and 2012, Greece’s pension system remains unaffordably generous. For instance, the standard pensions in nominal Euro terms are broadly similar in Greece and Germany, even though Germany—measured by the average wage—is twice as rich as Greece. Add to this that Greeks still retire much earlier than Germans and that Germany is much better at collecting social security contributions. The result is that the Greek budget needs to transfer some 10 percent of GDP to cover the gaping hole in the pension system, compared to a European average of some 2½ percent. Clearly, this is unsustainable. | Despite the pension reforms of 2010 and 2012, Greece’s pension system remains unaffordably generous. For instance, the standard pensions in nominal Euro terms are broadly similar in Greece and Germany, even though Germany—measured by the average wage—is twice as rich as Greece. Add to this that Greeks still retire much earlier than Germans and that Germany is much better at collecting social security contributions. The result is that the Greek budget needs to transfer some 10 percent of GDP to cover the gaping hole in the pension system, compared to a European average of some 2½ percent. Clearly, this is unsustainable. |
| Updated | Updated |
| at 2.24pm GMT | at 2.24pm GMT |
| 1.12pm GMT | 1.12pm GMT |
| 13:12 | 13:12 |
| Larry Elliott | Larry Elliott |
| The next phase of the eurozone crisis is about to begin, to judge by the latest GDP figures, argues our economics editor Larry Elliott. He writes: | The next phase of the eurozone crisis is about to begin, to judge by the latest GDP figures, argues our economics editor Larry Elliott. He writes: |
| Greece is back in recession. Italy is barely growing. Portugal expanded but only at half the expected rate. The message could hardly be clearer: the next phase of the eurozone crisis is about to begin. | Greece is back in recession. Italy is barely growing. Portugal expanded but only at half the expected rate. The message could hardly be clearer: the next phase of the eurozone crisis is about to begin. |
| On the face of it, the performance of the eurozone economy in the final three months of 2015 looks solid if unspectacular, with growth as measured by GDP up by 0.3%. | On the face of it, the performance of the eurozone economy in the final three months of 2015 looks solid if unspectacular, with growth as measured by GDP up by 0.3%. |
| But scratch beneath the surface and the picture looks far less rosy. The beneficial impacts of the European Central Bank’s quantitative easing programme have started to wear off, as has the effect of the big drop in oil prices in the second half of 2014. The eurozone peaked in the second quarter of 2015 and the trend was starting to weaken even before the recent turbulence on the financial markets... | But scratch beneath the surface and the picture looks far less rosy. The beneficial impacts of the European Central Bank’s quantitative easing programme have started to wear off, as has the effect of the big drop in oil prices in the second half of 2014. The eurozone peaked in the second quarter of 2015 and the trend was starting to weaken even before the recent turbulence on the financial markets... |
| In the short term, further stimulus from the ECB is a bolt-on certainty next month, either through cuts in interest rates or an expansion of its QE programme, or more likely both. In the longer term, a summer of crisis eurozone summits to discuss the fate of Greece looms. Probably not what David Cameron wants as he contemplates how to win his Brexit referendum. | In the short term, further stimulus from the ECB is a bolt-on certainty next month, either through cuts in interest rates or an expansion of its QE programme, or more likely both. In the longer term, a summer of crisis eurozone summits to discuss the fate of Greece looms. Probably not what David Cameron wants as he contemplates how to win his Brexit referendum. |
| Larry’s full comment is here: | Larry’s full comment is here: |
| Related: The eurozone crisis is back on the boil | Related: The eurozone crisis is back on the boil |
| 12.33pm GMT | 12.33pm GMT |
| 12:33 | 12:33 |
| Here’s our full report on the eurozone GDP figures: | Here’s our full report on the eurozone GDP figures: |
| Related: Eurozone recovery falters as Greece slips back into recession | Related: Eurozone recovery falters as Greece slips back into recession |
| 12.25pm GMT | 12.25pm GMT |
| 12:25 | 12:25 |
| More on the yen: | More on the yen: |
| Shaping up to be USD/JPY's worst 2 weeks since 1998 carry trade implosion #funfactoids pic.twitter.com/sOikXvUfKK | Shaping up to be USD/JPY's worst 2 weeks since 1998 carry trade implosion #funfactoids pic.twitter.com/sOikXvUfKK |
| 12.05pm GMT | 12.05pm GMT |
| 12:05 | 12:05 |
| Europe’s stock markets continue to shrug off the sight of protests in recession-hit Greece, and lacklustre growth in the euro area. | Europe’s stock markets continue to shrug off the sight of protests in recession-hit Greece, and lacklustre growth in the euro area. |
| Bank shares are still rallying, with Deutsche Bank up 9% and Commerzbank 17% higher after it announced its first dividend since 2007 today. | Bank shares are still rallying, with Deutsche Bank up 9% and Commerzbank 17% higher after it announced its first dividend since 2007 today. |
| Here’s the lunchtime scores: | Here’s the lunchtime scores: |
| David Lamb, head of dealing at the forex specialists FEXCO, says European investors are pinning their hopes on more stimulus from the European Central Bank: | David Lamb, head of dealing at the forex specialists FEXCO, says European investors are pinning their hopes on more stimulus from the European Central Bank: |
| “It’s hard to imagine how the sense of deja-vu could be any stronger. The confirmation that Greece has slumped back into recession came as rioters stalked the streets of Athens to protest against government austerity. | “It’s hard to imagine how the sense of deja-vu could be any stronger. The confirmation that Greece has slumped back into recession came as rioters stalked the streets of Athens to protest against government austerity. |
| “Growth in the Eurozone’s biggest economies remains weak too, so at first glance it’s a puzzle that both European stocks and the Euro should rally in response to such a bleak picture. | “Growth in the Eurozone’s biggest economies remains weak too, so at first glance it’s a puzzle that both European stocks and the Euro should rally in response to such a bleak picture. |
| “The reason is the now racing certainty that the ECB will soon restart the Euro’s printing presses. Mario Draghi has dropped ever heavier hints that more QE is coming - and on this evidence it may come as soon as March. | “The reason is the now racing certainty that the ECB will soon restart the Euro’s printing presses. Mario Draghi has dropped ever heavier hints that more QE is coming - and on this evidence it may come as soon as March. |