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| Eurozone crisis live: Recession fears stalk markets again | |
| (40 minutes later) | |
| 8.32am: With concern building about the waning effect of the LTROs, there's going to be a lot of talk about the meeting in Copenhagen this time next week of EU finance ministers - known as ecofin - and at the same time eurozone finance ministers. | |
| It's not strictly speaking a summit but seems set to be a crucial gathering because on the agenda is deciding how big the eurozone rescue fund should be. The European Commission wants to combine the eurozone's temporary bailout fund, the European Financial Stability Facility, the devilishly acronymed EFSF, with the future permanent fund which comes into existence this year - the European Stability Mechanism, or ESM for short - bringing the total to €940bn. | |
| Basically, the Germans don't want to do this. The furthest they will go is to temporarily merge both till next year when EFSF expires, giving a year at around €750bn then back down to €500bn. Everyone else is worried that won't be enough to calm the markets now that Mario Draghi has told everyone not to expect any more cheap loans. | |
| 8.22am: The FTSE100 is now up nearly 19 points, or 0.33% at 5864, despite this blog's pessimism, but it's still on course for its worst week of 2012. Germany's Dax and France's Cac are also up slightly. | |
| Having said that fear was returning to the markets, what I meant was that there's a wider feeling that lack of growth will rein in the optimism that has characterised the markets so far this year. Here's Gary Jenkins of Swordfish: | |
| "The worst is over…" according to ECB President Mario Draghi so I guess we can all breathe a big sigh of relief and learn how to stop worrying and love the bonds…Of course Mr Draghi has to make such comments because if he was quoted as being overly negative then it could all become self-fulfilling. | |
| The fact is though that Portuguese and Spanish bond yields are back to where they were before the injection of close to €1tn into the system via LTROs and the European economic data is worse than expected. To be fair Italian bond yields have improved significantly recently but that trend may well come to a halt if concerns start to mount about the debt sustainability of Portugal and Spain. | |
| With all the emphasis on the impact of weak economic data on sovereigns it might be easy to overlook the potential impact upon corporate credit quality. Whilst corporates have been a shining beacon of hope over the last few years partly thanks to the action they took at the start of the crisis if the weak economic data becomes a trend then at some stage the credit quality indicators will deteriorate and the safe haven status may be impacted. That said if the data is still disappointing by the time we get to the 3rd quarter then we might well be looking at further stimulus packages… | |
| 8.04am: The FTSE100 in London has opened up slightly, at 5854 points, a rise of 0.15%, helped by BT's announcement that it has reached a deal with its pension trustees over the deficit. | 8.04am: The FTSE100 in London has opened up slightly, at 5854 points, a rise of 0.15%, helped by BT's announcement that it has reached a deal with its pension trustees over the deficit. |
| But the tone of the morning commenst from our usual battery of City commentators is on the cautious side. As Michael Hewson of CMC Markets puts it: | But the tone of the morning commenst from our usual battery of City commentators is on the cautious side. As Michael Hewson of CMC Markets puts it: |
| Yesterday's disappointing economic data from France and Germany saw concerns about growth in Europe push back near to the top of the agenda as 10-year bond yields in Italy and Spain started to edge back higher again, above the 5% level, bringing the recent rise in equity markets to a shuddering halt. This has raised concerns that the recent good run in equity markets could be over and we could be heading back down again. | Yesterday's disappointing economic data from France and Germany saw concerns about growth in Europe push back near to the top of the agenda as 10-year bond yields in Italy and Spain started to edge back higher again, above the 5% level, bringing the recent rise in equity markets to a shuddering halt. This has raised concerns that the recent good run in equity markets could be over and we could be heading back down again. |
| With Belgium, the Netherlands, Italy, Portugal, Greece and now Ireland in recession, concerns about the ability of Europe to prevent a contagion effect are beginning to resonate once more in Brussels, ahead of next week's European finance ministers meeting in Copenhagen. | With Belgium, the Netherlands, Italy, Portugal, Greece and now Ireland in recession, concerns about the ability of Europe to prevent a contagion effect are beginning to resonate once more in Brussels, ahead of next week's European finance ministers meeting in Copenhagen. |
| Michael also mentions that pressure is now growing on Germany to agree to creating a bigger firewall around the euro at next week's meeting of finance ministers in Copenhagen. but more on that shortly. | |
| 7.44am: Good morning and welcome to the eurozone crisis live blog. | 7.44am: Good morning and welcome to the eurozone crisis live blog. |
| After a couple of quieter weeks there are signs that fear is creeping back into the system. Thursday's surveys of manufacturing across the eurozone have given everyone the heebie jeebies, it would seem, with the Nikkei index in Japan experiencing its worst day for two months overnight. | After a couple of quieter weeks there are signs that fear is creeping back into the system. Thursday's surveys of manufacturing across the eurozone have given everyone the heebie jeebies, it would seem, with the Nikkei index in Japan experiencing its worst day for two months overnight. |
| And a front page story in the FT flags up the threat of rising borrowing costs in Spain where poor growth forecasts pushed 10-year bond yields up to 5.53%. The report also suggested that one of the reasons for was that the positive effects of the ECB's cheap loans to banks over the past few months – so-called longer term refinancing operations, or LTROs – were wearing off. | And a front page story in the FT flags up the threat of rising borrowing costs in Spain where poor growth forecasts pushed 10-year bond yields up to 5.53%. The report also suggested that one of the reasons for was that the positive effects of the ECB's cheap loans to banks over the past few months – so-called longer term refinancing operations, or LTROs – were wearing off. |
| Marc Chandler, currency strategist at Brown Brothers Harriman, noted Italian 10-year yields have fallen 180 basis points so far this year while Spain's have risen by 39bp. | Marc Chandler, currency strategist at Brown Brothers Harriman, noted Italian 10-year yields have fallen 180 basis points so far this year while Spain's have risen by 39bp. |
| "That is after two LTROs," he said. "That definitely concerns me. When the bonds rally it helps the banks' balance sheets. But when yields start rising it hurts the banks even more. It is a vicious circle." | "That is after two LTROs," he said. "That definitely concerns me. When the bonds rally it helps the banks' balance sheets. But when yields start rising it hurts the banks even more. It is a vicious circle." |