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| Eurozone crisis live: Markets fear Spanish bailout will top €100bn | |
| (40 minutes later) | |
| 11.03am: Spain will need an outright bailout and not just a rescue package for its banks if it has to pay the kind of interest rates demanded by investors at today's treasury bill auctions, says Marc Otswald of Monument Securities. | |
| While Spain achieved its overall target of €3bn of 12 and 18-month T-Bill sales, the yields at which these were sold can only be described as prohibitively expensive, having spiked sharply higher from early morning indications. Quite clearly, the delay to the second part of the audit of Spanish Banks to September was exactly NOT what the doctor ordered, nor was the German constitutional ruling on the ESM (not that it will delay the start of the ESM, but it is another "ball and chain" in terms of German political decision making processes.) | |
| Still the key point is that if Spain is paying those kind of levels for its debt, it needs not only an ESM package to recapitalize its banks, it also needs an outright bail-out package, and it is becoming very difficult to see how it can manage without that beyond the end of Q3, unless yields fall dramatically! | |
| The issue is in fact about the breadth of estimates (official and market) about how much is needed to recapitalize Spain's banks (€40bn to €279bn) and as my (German) father used to say: "wer soll das bezahlen?" (who is going to pay for that?), and when will Spain be forced into requesting a full bail-out (one estimate just published suggests €300bn would be needed), which should or would be the cue for Germany to say auf wiedersehen to the Euro. | |
| 10.53am: We've also got some reaction to the UK's better-than-expected inflation figures, which economists expect will pave the way to a new round of quantitative easing by the Bank of England. David Tinsley, UK economist at BNP Paribas, says: | |
| Overall this is a soft release. The rise in the core [rate of CPI to 2.2%, from 2.1%] is perhaps a small fly in the ointment, but it seems to reflect timing issues. The price of a litre of petrol is currently some 5 pence lower than that sampled in this May release, suggesting further downside news ahead. | |
| This all makes the MPC's job a little easier. The May Inflation Report had a forecast for CPI inflation of 3.15% in 2012 Q3. On current form it is likely to undershoot that significantly. There is therefore little stopping the MPC unleashing another burst of QE at its next meeting. | |
| Chris Williamson of Markit provides a reliably gloomy commentary: | |
| Unfortunately, the drop in inflationary pressures is principally the result of very weak global demand, and an increasingly bleak looking economic outlook. Slower global growth has caused oil prices to fall by around one quarter since their peak earlier this year, with prices also falling for a wide variety of other commodities. This is not therefore a UK-specific easing in price pressures we are seeing, with inflation rates also coming down in all major economies, notably the US, China and Eurozone. | |
| It also seems likely that any new intervention by the Bank of England will form part of a coordinated approach to reinvigorate the global economy by the major central banks around the world, starting this week with the US Federal Reserve, where expectations are growing that policy-makers will seek to boost the US economy via an expansion of its "Operation Twist". | |
| 10.34am: There's some analysis coming out on Spain's treasury bill auction. Nicholas Spiro of Spiro Sovereign Strategy says: | 10.34am: There's some analysis coming out on Spain's treasury bill auction. Nicholas Spiro of Spiro Sovereign Strategy says: |
| Spanish auctions are agonising to follow. The market is effectively broken and is starved of liquidity. The Treasury is trying to mitigate the damage by curbing supply but this only exacerbates market illiquidity, pushing yields ever higher. Last month Spain issued 1-year paper at an average yield of just under 3%. Today it paid an even more punishing 5%. This augurs badly for Thursday's bond auction. | Spanish auctions are agonising to follow. The market is effectively broken and is starved of liquidity. The Treasury is trying to mitigate the damage by curbing supply but this only exacerbates market illiquidity, pushing yields ever higher. Last month Spain issued 1-year paper at an average yield of just under 3%. Today it paid an even more punishing 5%. This augurs badly for Thursday's bond auction. |
| Reports that the external audit of Spanish banks will be delayed will undermine confidence further. Yet the crisis is increasingly no longer about Spain. It's about the fear that the eurozone is going to fall apart because of the absence of a fiscal and banking union. The market has become increasingly binary: backstop or break-up. Spain is the focal point for market nervousness. A country whose public debt is still relatively low compared to the eurozone average is now perceived to be flirting with insolvency. | Reports that the external audit of Spanish banks will be delayed will undermine confidence further. Yet the crisis is increasingly no longer about Spain. It's about the fear that the eurozone is going to fall apart because of the absence of a fiscal and banking union. The market has become increasingly binary: backstop or break-up. Spain is the focal point for market nervousness. A country whose public debt is still relatively low compared to the eurozone average is now perceived to be flirting with insolvency. |
| 10.28am: News in from Rome, where my colleague John Hooper reports on a claim that Italian factory workers are taking three months of holiday a year. | 10.28am: News in from Rome, where my colleague John Hooper reports on a claim that Italian factory workers are taking three months of holiday a year. |
| Making a point that will no doubt be noted by Angela Merkel and Bild Zeitung, a junior minister in the Italian government, Gianfranco Polillo, has claimed that his country's factory workers are taking three months of holiday a year. | Making a point that will no doubt be noted by Angela Merkel and Bild Zeitung, a junior minister in the Italian government, Gianfranco Polillo, has claimed that his country's factory workers are taking three months of holiday a year. |
| Polillo, a junior minister at the economy ministry, said he had reached this conclusion by dividing the total number of hours worked in Italy by the number of workers. "And I discovered that an [average] worker is in the factory for nine months and for three months, more or less, on holiday." The three months presumably includes sick leave, but in an interview published by La Repubblica this morning Polillo made it quite clear that he thought that was not the whole story. "We're in the Bel Paese, my dear friend", he said. "That's what they call it, and that's how we plan to be able to continue -- accustomed to leisure". | Polillo, a junior minister at the economy ministry, said he had reached this conclusion by dividing the total number of hours worked in Italy by the number of workers. "And I discovered that an [average] worker is in the factory for nine months and for three months, more or less, on holiday." The three months presumably includes sick leave, but in an interview published by La Repubblica this morning Polillo made it quite clear that he thought that was not the whole story. "We're in the Bel Paese, my dear friend", he said. "That's what they call it, and that's how we plan to be able to continue -- accustomed to leisure". |
| The minister proposed that every worker should put in another week's work. The effect, he says, would be to increase Italy's shrinking GDP by a full percentage point. Italy has the EU's second biggest manufacturing sector after … er … Germany. | The minister proposed that every worker should put in another week's work. The effect, he says, would be to increase Italy's shrinking GDP by a full percentage point. Italy has the EU's second biggest manufacturing sector after … er … Germany. |
| 10.21am: The euro slid against the dollar following the much weaker than expected survey results (see 10.18am). | 10.21am: The euro slid against the dollar following the much weaker than expected survey results (see 10.18am). |
| A ZEW economist said this was not just a monthly fluctuation in sentiment; the slide is too pronounced to interpret it as a temporary fluctuation. The survey results came in mainly before the Greek elections, but the results coming in after the elections were not significantly better. | A ZEW economist said this was not just a monthly fluctuation in sentiment; the slide is too pronounced to interpret it as a temporary fluctuation. The survey results came in mainly before the Greek elections, but the results coming in after the elections were not significantly better. |
| The think-tank said diminishing exports, global growth and eurozone rescue packages were the main reasons for the slide in expectations. It does not, however, expect Germany to go back into recession. | The think-tank said diminishing exports, global growth and eurozone rescue packages were the main reasons for the slide in expectations. It does not, however, expect Germany to go back into recession. |
| 10.18am: German business confidence fell in June at its fastest rate since October 1998, with uncertainty over the Greek elections likely to blame for the drop. The ZEW survey fell to -16.9 from 10.8 in May, way below forecasts for a drop to 4. | 10.18am: German business confidence fell in June at its fastest rate since October 1998, with uncertainty over the Greek elections likely to blame for the drop. The ZEW survey fell to -16.9 from 10.8 in May, way below forecasts for a drop to 4. |
| 10.16am: More from the debt markets, where Greece has sold €1.3bn of 3-month treasury bills. The average yield has dropped slightly, coming in at 4.31% compared with 4.34% at a previous auction in May. Reuters says Greek banks traditionally buy the bulk of the treasury bills, meaning funding costs do not fully reflect market strains. | 10.16am: More from the debt markets, where Greece has sold €1.3bn of 3-month treasury bills. The average yield has dropped slightly, coming in at 4.31% compared with 4.34% at a previous auction in May. Reuters says Greek banks traditionally buy the bulk of the treasury bills, meaning funding costs do not fully reflect market strains. |
| 10.02am: The ruling that the German government did not consult enough about the formation of the ESM permanent bailout scheme should not have any effect on the ratification of the fund, which is due to come into effect in July (see 9.22am). Thanks to reader ballymichael for pointing that out. | 10.02am: The ruling that the German government did not consult enough about the formation of the ESM permanent bailout scheme should not have any effect on the ratification of the fund, which is due to come into effect in July (see 9.22am). Thanks to reader ballymichael for pointing that out. |
| Barclays analyst Thomas Harjes wrote ahead of the ruling that the suit should have no bearing on ratification of the ESM Treaty or tougher fiscal rules known as the Fiscal Pact. | Barclays analyst Thomas Harjes wrote ahead of the ruling that the suit should have no bearing on ratification of the ESM Treaty or tougher fiscal rules known as the Fiscal Pact. |
| 9.49am: General feeling seems to be that Spain did well to sell the full €3bn (see 9.34am), but it had to pay dearly in order to get the bills away. The FT markets editor sums it up... | 9.49am: General feeling seems to be that Spain did well to sell the full €3bn (see 9.34am), but it had to pay dearly in order to get the bills away. The FT markets editor sums it up... |
| Spain forced to pay up in auction of treasury bills, but gets away what it wanted. Phew, I think | Spain forced to pay up in auction of treasury bills, but gets away what it wanted. Phew, I think |
| — Chris Adams (@chrisadamsmkts) June 19, 2012 | — Chris Adams (@chrisadamsmkts) June 19, 2012 |
| 9.34am: It was a tale of two debt auctions this morning. Denmark has just sold 1.6bn danish krone (€215m) of debt maturing in 2014 at a negative bond yield of -0.08%. That compares with an average yield of 0.31% at the last auction. | 9.34am: It was a tale of two debt auctions this morning. Denmark has just sold 1.6bn danish krone (€215m) of debt maturing in 2014 at a negative bond yield of -0.08%. That compares with an average yield of 0.31% at the last auction. |
| Spain, meanwhile, has sold €640m of 18-month bills with an average yield of 5.1%, compared with 3.3% at the last auction. It also sold €2.4bn of 12-month bills with an average yield of 5.07%, compared with 2.98% at the last auction. | Spain, meanwhile, has sold €640m of 18-month bills with an average yield of 5.1%, compared with 3.3% at the last auction. It also sold €2.4bn of 12-month bills with an average yield of 5.07%, compared with 2.98% at the last auction. |
| 9.30am: UK inflation fell unexpectedly in May to its lowest in two and a half years due to slower price rises for food and fuel. CPI came in at 2.8% for May compared with 3% in April and expectations of a reading of 3%. RPI was 3.1% compared with 3.5% in April and a forecast of 3.3%. | 9.30am: UK inflation fell unexpectedly in May to its lowest in two and a half years due to slower price rises for food and fuel. CPI came in at 2.8% for May compared with 3% in April and expectations of a reading of 3%. RPI was 3.1% compared with 3.5% in April and a forecast of 3.3%. |
| 9.22am: Germany's constitutional court has upheld the case against the European Stability Mechanism, the permanent rescue fund to replace the EFSF. The court said Angela Merkel's government had not consulted parliament sufficiently about the configuration of the scheme. | 9.22am: Germany's constitutional court has upheld the case against the European Stability Mechanism, the permanent rescue fund to replace the EFSF. The court said Angela Merkel's government had not consulted parliament sufficiently about the configuration of the scheme. |
| The ESM is supposed to come into effect in July but has not yet been ratified by many eurozone member states, including Germany. This ruling does not bar the ESM from taking effect, but it can't be helpful in terms of getting it through parliament. | The ESM is supposed to come into effect in July but has not yet been ratified by many eurozone member states, including Germany. This ruling does not bar the ESM from taking effect, but it can't be helpful in terms of getting it through parliament. |
| 9.18am: Spanish yields have reacted to news of the delay to the banking audit (see 9.10am) accordingly. The yield on Spanish 10-year debt is pushing up towards yesterday's highs, currently at 7.19%. | 9.18am: Spanish yields have reacted to news of the delay to the banking audit (see 9.10am) accordingly. The yield on Spanish 10-year debt is pushing up towards yesterday's highs, currently at 7.19%. |
| As Sony Kapoor of think-tank Re-Define notes, it's not exactly the way to build confidence... | As Sony Kapoor of think-tank Re-Define notes, it's not exactly the way to build confidence... |
| Lesson in How not to build confidence: #Spain says it needs more time 2 gather information on exactly what's going on with it's banks! | Lesson in How not to build confidence: #Spain says it needs more time 2 gather information on exactly what's going on with it's banks! |
| — Sony Kapoor (@SonyKapoor) June 19, 2012 | — Sony Kapoor (@SonyKapoor) June 19, 2012 |
| 9.10am: The full audit of the Spanish banks has been delayed from July to September, fuelling fears that the banks may need more than originally thought (see 8.25am). Spain's central bank has apparently agreed the delay with the government, the IMF and the ECB. Accendo Markets' head of research wonders what's keeping them. | 9.10am: The full audit of the Spanish banks has been delayed from July to September, fuelling fears that the banks may need more than originally thought (see 8.25am). Spain's central bank has apparently agreed the delay with the government, the IMF and the ECB. Accendo Markets' head of research wonders what's keeping them. |
| Spain says wants more time to gather information; what on? Ever deteriorating non-performing loan figures? | Spain says wants more time to gather information; what on? Ever deteriorating non-performing loan figures? |
| — Mike van Dulken (@Accendo_Mike) June 19, 2012 | — Mike van Dulken (@Accendo_Mike) June 19, 2012 |
| The first phase of the report is still expected this week. It was scheduled for Thursday and there is some speculation it may come today. | The first phase of the report is still expected this week. It was scheduled for Thursday and there is some speculation it may come today. |
| 8.45am: And there's more bad news for France after one of its largest companies, food group Danone, said operating profits for 2012 would fall as the economic climate in southern Europe, notably Spain, deteriorated. The shares dropped 6.5%. | 8.45am: And there's more bad news for France after one of its largest companies, food group Danone, said operating profits for 2012 would fall as the economic climate in southern Europe, notably Spain, deteriorated. The shares dropped 6.5%. |
| 8.33am: French business confidence declined again in June. It decreased from 93 in May to 92, and was at 98 in March this year. Manuel Maleki of ING says: | 8.33am: French business confidence declined again in June. It decreased from 93 in May to 92, and was at 98 in March this year. Manuel Maleki of ING says: |
| French business confidence stayed low due to an anaemic domestic market. Moreover, the poor international climate and the uncertainty regarding the future of the eurozone after the Greek election and doubts on the Spanish banking sector have hit French business confidence. The announced taxes on dividends and the political tensions between France and Germany, its first trade partner, are unlikely to improve business sentiment any time soon. | French business confidence stayed low due to an anaemic domestic market. Moreover, the poor international climate and the uncertainty regarding the future of the eurozone after the Greek election and doubts on the Spanish banking sector have hit French business confidence. The announced taxes on dividends and the political tensions between France and Germany, its first trade partner, are unlikely to improve business sentiment any time soon. |
| 8.25am: There are rumours that the report on Spanish banks – which will determine how much of the proposed €100bn bailout they will need – could be released today instead of Thursday. Gary Jenkins of Swordfish Research says it is unlikely to be good news: | 8.25am: There are rumours that the report on Spanish banks – which will determine how much of the proposed €100bn bailout they will need – could be released today instead of Thursday. Gary Jenkins of Swordfish Research says it is unlikely to be good news: |
| Spain was not helped yesterday by speculation that the independent audit of the banks could show that the total amount required is over the already agreed €100bn bailout figure. This is just a rumour but I think it is fair to say that the €100bn figure was originally described as allowing for any eventuality with lots of headroom so if the figure does end up being over €75bn then yet again European officials / politicians will have made a bad situation even worse. | Spain was not helped yesterday by speculation that the independent audit of the banks could show that the total amount required is over the already agreed €100bn bailout figure. This is just a rumour but I think it is fair to say that the €100bn figure was originally described as allowing for any eventuality with lots of headroom so if the figure does end up being over €75bn then yet again European officials / politicians will have made a bad situation even worse. |
| 8.20am: In the debt markets, the yield on Spain's 10-year bonds – effectively the interest rate on the bonds – is at 7.16%, slightly lower than yesterday's high of 7.26%. | 8.20am: In the debt markets, the yield on Spain's 10-year bonds – effectively the interest rate on the bonds – is at 7.16%, slightly lower than yesterday's high of 7.26%. |
| The yield on Italy's 10-year bond is bouncing around the 6% mark, currently at 6.04% (according to Tradeweb data). | The yield on Italy's 10-year bond is bouncing around the 6% mark, currently at 6.04% (according to Tradeweb data). |
| Two banks, ING and BNP, are saying the ECB may resume its bond buying programme if Spain's 10-year yields reach 7.5%. | Two banks, ING and BNP, are saying the ECB may resume its bond buying programme if Spain's 10-year yields reach 7.5%. |
| 8.00am: Quick look at the markets, which have opened slightly higher. | 8.00am: Quick look at the markets, which have opened slightly higher. |
| UK FTSE 100: up 0.5%, or 28 points, at 5519 France CAC 40: up 0.5% Spain IBEX: up 0.3% Germany DAX: up 0.2% Italy: FTSE MIB: up 0.3% | UK FTSE 100: up 0.5%, or 28 points, at 5519 France CAC 40: up 0.5% Spain IBEX: up 0.3% Germany DAX: up 0.2% Italy: FTSE MIB: up 0.3% |
| 7.52am: The main news will be coming out of Greece and the G20 summit today, but there's also inflation figures in the UK and economic confidence from Germany. | 7.52am: The main news will be coming out of Greece and the G20 summit today, but there's also inflation figures in the UK and economic confidence from Germany. |
| Later in the day, the US Federal Reserve will start its two-day meeting on interest rates. My colleague Dominic Rushe reports that analysts expect the Fed to step in with a new round of Operation Twist to bolster the fragile American recovery. | Later in the day, the US Federal Reserve will start its two-day meeting on interest rates. My colleague Dominic Rushe reports that analysts expect the Fed to step in with a new round of Operation Twist to bolster the fragile American recovery. |
| • UK inflation figures for May: 9.30am • Germany ZEW economic confidence survey for June: 10am • Eurozone ZEW economic confidence survey for June: 10am • US housing starts and building permits for May: 1.30pm • JP Morgan's Jamie Dimon testifies: 2.30pm | • UK inflation figures for May: 9.30am • Germany ZEW economic confidence survey for June: 10am • Eurozone ZEW economic confidence survey for June: 10am • US housing starts and building permits for May: 1.30pm • JP Morgan's Jamie Dimon testifies: 2.30pm |
| In the debt markets, Spain will be selling €2bn-€3bn of 12-18 month debt, while Greece is looking to raise €1bn in 13-week treasury bills. Later in the day, the US will be selling 4-week bills. | In the debt markets, Spain will be selling €2bn-€3bn of 12-18 month debt, while Greece is looking to raise €1bn in 13-week treasury bills. Later in the day, the US will be selling 4-week bills. |
| 6.57am: Good morning and welcome to our rolling coverage of the eurozone debt crisis. Greece's conservatives, New Democracy, said late on Monday that they expect to form a new cabinet with the Pasok Socialists and possibly another smaller centre-left party today. | 6.57am: Good morning and welcome to our rolling coverage of the eurozone debt crisis. Greece's conservatives, New Democracy, said late on Monday that they expect to form a new cabinet with the Pasok Socialists and possibly another smaller centre-left party today. |
| Overnight, the IMF announced that its lending capacity has almost doubled following an increase in contributions to the fund to $456bn (£366bn). In a statement from the G20 meeting in Los Cabos, Mexico, IMF chief Christine Lagarde said: | Overnight, the IMF announced that its lending capacity has almost doubled following an increase in contributions to the fund to $456bn (£366bn). In a statement from the G20 meeting in Los Cabos, Mexico, IMF chief Christine Lagarde said: |
| These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members. They will be drawn only if they are needed as a second line of defence. | These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members. They will be drawn only if they are needed as a second line of defence. |
| Over in Los Cabos, EU commission president José Manuel Barroso has been sounding very defensive and insisting the origins of the eurozone crisis lie in the unorthodox policies of American capitalism. My colleague Patrick Wintour is reporting from the summit. | Over in Los Cabos, EU commission president José Manuel Barroso has been sounding very defensive and insisting the origins of the eurozone crisis lie in the unorthodox policies of American capitalism. My colleague Patrick Wintour is reporting from the summit. |