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| Eurozone crisis live: Spanish borrowing costs hit record high | Eurozone crisis live: Spanish borrowing costs hit record high |
| (40 minutes later) | |
| 3.47pm: At its weekly briefing an IMF spokesman could be putting the cat among the (German) pigeons. | |
| He repeated the view that it would be "desirable" for further strengthening of European crisis management instruments, including a pan-European facility to take direct stakes in banks, according to Reuters. | |
| That of course is exactly what German chancellor Angela Merkel does not believe is "desirable." | |
| He added there had been no request for IMF aid from either Spain or Cyprus (which seems to be hoping for another €5bn or so from Russia instead.) | |
| And he backed Spain's move to shore up its banks with the €100bn bailout, but warned there should be no backtracking on its reform programme. An IMF mission currently in Spain is due to wrap up consultations with the authorities on 15 June (ie tomorrow). | |
| On Greece, there was a need to take things "one day at a time" and the IMF would consult with the new Greek government after the 17 June election (provided there is one, of course.) | |
| And the G20 meeting early next week would be focusing on growth, jobs and the eurozone crisis. Looks like the right topics - what chance for real solutions? | |
| 3.38pm: Spain's foreign minister José Manuel García Margallo has come out without one of the most dramatic statements on the situation so far, says Giles Tremlett in Madrid: | |
"The future of the European Union will be played out in the next few days, perhaps in the coming hours," he said today, according to El Pais . "The three months that (IMF boss) Lagarde gave is possibly too long." | |
| The Europa Press agency gives a slightly different version, but the message is the same. "The future of the Eureopan Union will probably be played out in the coming hours," it reports him as saying. | |
| García Margallo called on the ECB to buy Spanish bonds. The fact that yields on the benchmark ten year bond have edged back after breaking through the 7% mark may mean that it is already doing just that. | |
| 3.32pm: Ratings agency Fitch has been looking to the past for hints about Greece's future. | |
| To be more specific, it has looked at the situation in Argentina following its default in 2001: | |
| The devaluation of the peso immediately increased Argentine corporate debt and put pressure on free cash flow generation, especially for smaller, domestically focused companies. A similar situation could be expected in Greece; limited export ability, price controls, a potentially long recession and restricted local market refinancing options could all limit the ability of companies to meet interest and principal repayments. Greek companies could be even more exposed to a fall in trade because an exit from the euro would complicate broader relations with the EU free trade area. | |
| The combined impact meant that, by the middle of 2002, most of the Argentinian corporates we rated that had not already defaulted were rated in the 'C' to 'CCC' range. While sharply increased debt burdens and weak cash flows created an incentive to default, most of the companies that did so were forced through inability to pay, rather than unwillingness. | |
| 3.12pm: Wall Street has opened in fairly positive mood, with the Dow Jones Industrial Average up around 90 points in the first half hour or so of trading. | 3.12pm: Wall Street has opened in fairly positive mood, with the Dow Jones Industrial Average up around 90 points in the first half hour or so of trading. |
| This despite the weak US data released earlier. Part of the reason could be the expectation that the Federal Reserve, seeing the sluggish economy, could decide to do something about it at next week's meeting. There has been much talk of further quantitative easing, but that is by no means a foregone conclusion. | This despite the weak US data released earlier. Part of the reason could be the expectation that the Federal Reserve, seeing the sluggish economy, could decide to do something about it at next week's meeting. There has been much talk of further quantitative easing, but that is by no means a foregone conclusion. |
| Annalisa Piazza at Newedge Strategy said: | Annalisa Piazza at Newedge Strategy said: |
The outcome of next week's meeting is very uncertain as recent data have been depicting a mixed picture for activity and recent comments by the Fed's Bernanke have clearly suggested that the Fed had not made any decision yet, waiting for further evidence before drawing any conclusion. | The outcome of next week's meeting is very uncertain as recent data have been depicting a mixed picture for activity and recent comments by the Fed's Bernanke have clearly suggested that the Fed had not made any decision yet, waiting for further evidence before drawing any conclusion. |
| In our view, the ongoing and prolonged uncertainties surrounding the financial markets might end up being the key factor supporting a possible decision of additional accommodation next week. The outcome of the Greek election will certainly be crucial but - whatever the result is - further volatility in the markets is expected in the coming weeks. | In our view, the ongoing and prolonged uncertainties surrounding the financial markets might end up being the key factor supporting a possible decision of additional accommodation next week. The outcome of the Greek election will certainly be crucial but - whatever the result is - further volatility in the markets is expected in the coming weeks. |
| In a nutshell, we see around 60% chances that the [Fed] might decide to announce further accommodation next week. No QE3 is expected to be announced but the Fed might decide to expand and extend the "maturity extension program" for another six months or so. The Fed might "swap" another $100bn-$150bn of short-dated paper for long-dated bonds, in order to keep long rates at the current levels for a more prolonged period of time. Such a move could be seen as an insurance tool against risks (quite high) of spill-over effects from the troubled financial markets to the real economy. | In a nutshell, we see around 60% chances that the [Fed] might decide to announce further accommodation next week. No QE3 is expected to be announced but the Fed might decide to expand and extend the "maturity extension program" for another six months or so. The Fed might "swap" another $100bn-$150bn of short-dated paper for long-dated bonds, in order to keep long rates at the current levels for a more prolonged period of time. Such a move could be seen as an insurance tool against risks (quite high) of spill-over effects from the troubled financial markets to the real economy. |
| 2.49pm: Time for me to go home. As always, thank you for your comments. I'm handing over to Nick Fletcher. | 2.49pm: Time for me to go home. As always, thank you for your comments. I'm handing over to Nick Fletcher. |
| 2.27pm: Chris Williamson, chief economist at data firm Markit, says the disappointing US data make the case for more economic stimulus more compelling. | 2.27pm: Chris Williamson, chief economist at data firm Markit, says the disappointing US data make the case for more economic stimulus more compelling. |
A sharp fall in inflation and new signs of a weakening job market have opened the door further for the Fed to stimulate the tired-looking US recovery with another dose of stimulus next week. | A sharp fall in inflation and new signs of a weakening job market have opened the door further for the Fed to stimulate the tired-looking US recovery with another dose of stimulus next week. |
| With the unemployment rate running at 8.2% in May, non-farm payrolls showing the weakest rise for a year and today's jobless claims data suggesting the jobless rate could well rise again in June, pressure is mounting on the Fed to give the economy a shot in the arm of additional stimulus when the FOMC meets next week. Combine these weak labour market data with the recent back-to-back monthly falls in retail sales and disappointing business survey data, which showed exports stagnating in recent months due to the adverse international economic environment, the case for QE3 starts to look quite compelling. | With the unemployment rate running at 8.2% in May, non-farm payrolls showing the weakest rise for a year and today's jobless claims data suggesting the jobless rate could well rise again in June, pressure is mounting on the Fed to give the economy a shot in the arm of additional stimulus when the FOMC meets next week. Combine these weak labour market data with the recent back-to-back monthly falls in retail sales and disappointing business survey data, which showed exports stagnating in recent months due to the adverse international economic environment, the case for QE3 starts to look quite compelling. |
| Rob Carnell at ING added: | Rob Carnell at ING added: |
| All in all, a weak set of numbers. The fall in consumer prices will eventually provide a boost to both the household and corporate sectors, as it stems from lower fuel costs. But it may be several months before we start to see some evidence of the power of low fuel prices in other activity data. Market sentiment will struggle to become more optimistic until then. | All in all, a weak set of numbers. The fall in consumer prices will eventually provide a boost to both the household and corporate sectors, as it stems from lower fuel costs. But it may be several months before we start to see some evidence of the power of low fuel prices in other activity data. Market sentiment will struggle to become more optimistic until then. |
| 2.16pm: Our man in Madrid Giles Tremlett has provided some clarification on rumours of an emergency cabinet meeting. | 2.16pm: Our man in Madrid Giles Tremlett has provided some clarification on rumours of an emergency cabinet meeting. |
| The 20 minutos report does not talk about a crisis cabinet meeting. It talks about his "gabinete de crisis" or "crisis committee", which is a lot different. | The 20 minutos report does not talk about a crisis cabinet meeting. It talks about his "gabinete de crisis" or "crisis committee", which is a lot different. |
| 2.06pm: Here's a (late) lunchtime round-up. | 2.06pm: Here's a (late) lunchtime round-up. |
| • Spanish borrowing costs have surged to alarming levels. Ten-year bond yields breached 7% this morning - the level at which Greece, Ireland and Portugal were forced to seek bailouts - after a double downgrade last night, and despite the Spanish government's decision to seek banking aid worth up to €100bn. Yields are currently at 6.95%, up 17 basis points on the day. | • Spanish borrowing costs have surged to alarming levels. Ten-year bond yields breached 7% this morning - the level at which Greece, Ireland and Portugal were forced to seek bailouts - after a double downgrade last night, and despite the Spanish government's decision to seek banking aid worth up to €100bn. Yields are currently at 6.95%, up 17 basis points on the day. |
| • Italian bond yields have followed suit, rising to 6.2%. Italy managed to sell €4.5bn of bonds but at a high price: the yield on three-year bonds jumped to 5.3%, the highest since December. | • Italian bond yields have followed suit, rising to 6.2%. Italy managed to sell €4.5bn of bonds but at a high price: the yield on three-year bonds jumped to 5.3%, the highest since December. |
| • Meanwhile, Angela Merkel resisted pressure for Germany to underwrite debt or guarantee bank deposits in the eurozone. Addressing parliament in Berlin, the German chancellor rejected "miracle solutions" such as issuing joint euro bonds or setting up a Europe-wide deposit guarantee scheme, backed by her French, Italian and Spanish counterparts. Insted, she called for closer European political integration, although she admitted achieving that would be a "Herculean task". | • Meanwhile, Angela Merkel resisted pressure for Germany to underwrite debt or guarantee bank deposits in the eurozone. Addressing parliament in Berlin, the German chancellor rejected "miracle solutions" such as issuing joint euro bonds or setting up a Europe-wide deposit guarantee scheme, backed by her French, Italian and Spanish counterparts. Insted, she called for closer European political integration, although she admitted achieving that would be a "Herculean task". |
| • European stock markets are still trading lower, with the FTSE in London down 0.7%, Spain's Ibex and Germany's Dax both tumbling 0.5% and France's CAC slipping 0.3% while Italy's FTSE MiB is bucking the trend and just about positive. | • European stock markets are still trading lower, with the FTSE in London down 0.7%, Spain's Ibex and Germany's Dax both tumbling 0.5% and France's CAC slipping 0.3% while Italy's FTSE MiB is bucking the trend and just about positive. |
| 2.04pm: Official US figures have painted a picture of a sluggish economy: inflation eased in May while new claims for unemployment benefits unexpectedly rose last week, by 6,000, taking the total to 386,000. Consumer prices dropped by 0.3% last month - the sharpest decline since December 2008 - as households paid less for petrol, taking the annual rate down to 1.7%. | 2.04pm: Official US figures have painted a picture of a sluggish economy: inflation eased in May while new claims for unemployment benefits unexpectedly rose last week, by 6,000, taking the total to 386,000. Consumer prices dropped by 0.3% last month - the sharpest decline since December 2008 - as households paid less for petrol, taking the annual rate down to 1.7%. |
| 2.00pm: Some technical issues forced us to abandon the old blog and start a new one. Hence the radio silence. We're back in business now. | 2.00pm: Some technical issues forced us to abandon the old blog and start a new one. Hence the radio silence. We're back in business now. |
| In the meantime, Spain's economy minister Luis de Guindos said the government would take further action to reduce his country's debt risk premium that is seen as unsustainable. | In the meantime, Spain's economy minister Luis de Guindos said the government would take further action to reduce his country's debt risk premium that is seen as unsustainable. |
| As Spanish ten-year borrowing costs surged through 7%, the spread between Spanish bonds and benchmark German bunds hit a fresh euro era record of more than 550 basis points. | As Spanish ten-year borrowing costs surged through 7%, the spread between Spanish bonds and benchmark German bunds hit a fresh euro era record of more than 550 basis points. |
| Guindos told reporters in the corridors of parliament: | Guindos told reporters in the corridors of parliament: |
| It is not a situation that can be maintained over time... and I am convinced that we will continue to take more measures in the coming days and weeks to help bring it down. | It is not a situation that can be maintained over time... and I am convinced that we will continue to take more measures in the coming days and weeks to help bring it down. |
| 1.06pm: More on Spain. There is talk of an emergency cabinet meeting to discuss the crisis, which is not really surprising given the Moody's downgrade and the rise in the country's bond yields. | 1.06pm: More on Spain. There is talk of an emergency cabinet meeting to discuss the crisis, which is not really surprising given the Moody's downgrade and the rise in the country's bond yields. |
| But it all adds to the sense of stumbling from one crisis to the next without a clear plan ... | But it all adds to the sense of stumbling from one crisis to the next without a clear plan ... |