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| Eurozone crisis live: Germany outnumbered as leaders meet in Rome | Eurozone crisis live: Germany outnumbered as leaders meet in Rome |
| (40 minutes later) | |
| 8.39am: In the debt markets, investors are still trying to get to grips with the implications of the Spanish banking bailout. Yesterday's announcement that the banks would need between €51bn and €62bn was a relief, as it stuck within the previously announced €100bn limit. | |
| But it is still not clear whether the bailout will push other investors in Spanish bonds further down the pecking order in the case of a default. Christian Schulz, economist at Berenberg Bank, writes: | |
| A direct recapitalisation of Spanish banks via Europe's rescue funds is off the table, the Spanish government's FROB [The Fund for Orderly Bank Restructuring] will receive the funds. The loans become part of Spanish government debt. If and when a European banking union with European supervision, resolution and deposit insurance has been established in the future, it might be possible to bail-out banks directly and break the link between bank and sovereign debt. But the Eurozone is not there yet. | |
| Whether official European aid for Spain will obtain a senior creditor status over existing Spanish debt remains open. At the Eurogroup finance minister meeting, ministers agreed that the temporary EFSF [bailout fund] would initially provide the funds, but the ESM [the permanent bailout fund] would take over once operational in July. The EFSF has no legal basis to obtain seniority, the ESM does. As we expected, finance ministers seem to have been unable to resolve the issue and left it to the 28-29 EU summit. | |
| 8.25am: Commodities have been hit by growing fears of a global economic slowdown, with gold heading for its biggest weekly loss since December, and brent crude set for its worst week in a year. | |
| Gold has lost some of its appeal as a supposed safe-have, after investors started cashing in bullion to cover losses caused by the ongoing market turmoil. It dropped 2.5% yesterday on disappointment that the Fed did not launch another round of quantitative easing and is down again today. | |
| Brent crude is hovering below $90 a barrel after bleak economic data out of the US and China, the world's top consumers of oil. US factory output grew at its slowest pace in 11 months in June, while Chinese manufacturing contracted for an eighth month running. | |
| 8.16am: Quick look at the markets, which have opened lower, weighed down by Moody's rating downgrades. | |
| UK FTSE 100: down 0.8%, or 44 points, at 5523 France CAC 40: down 0.9% Germany DAX: down 1.1% Spain IBEX: down 1.1% Italy FTSE MIB: down 1.1% | |
| 8.03am: My colleague Jill Treanor takes a closer look at Moody's downgrade of 15 banks across the world. | 8.03am: My colleague Jill Treanor takes a closer look at Moody's downgrade of 15 banks across the world. |
| If one message emerges from last night's downgrade of major banks last night it is that the profitability of investment banking is poised to fall. | If one message emerges from last night's downgrade of major banks last night it is that the profitability of investment banking is poised to fall. |
| "All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital market activities," Moody's said as it cut the ratings on 15 banks, including Royal Bank of Scotland, Barclays and HSBC. (Lloyds downgrade was separate). | "All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital market activities," Moody's said as it cut the ratings on 15 banks, including Royal Bank of Scotland, Barclays and HSBC. (Lloyds downgrade was separate). |
| In dividing the banks up into three groups, the agency also helps create a picture of a hierarchy developing in the banking world. The first group contains HSBC, Royal Bank and Canada and JP Morgan (despite the "London whale") as the capital markets businesses are protected by strong "shock absorbers" from more stabile businesses. | In dividing the banks up into three groups, the agency also helps create a picture of a hierarchy developing in the banking world. The first group contains HSBC, Royal Bank and Canada and JP Morgan (despite the "London whale") as the capital markets businesses are protected by strong "shock absorbers" from more stabile businesses. |
| The second group includes the likes of Barclays and Goldman Sachs which rely on big returns on capital markets to meet promises of shareholder returns. The third group includes Royal Bank of Scotland, 83% owned by the taxpayer, and US banks Bank of America, Citigroup and Morgan Stanley which have shock absorbers which are "thinner or less reliable" than those in the other groups. | The second group includes the likes of Barclays and Goldman Sachs which rely on big returns on capital markets to meet promises of shareholder returns. The third group includes Royal Bank of Scotland, 83% owned by the taxpayer, and US banks Bank of America, Citigroup and Morgan Stanley which have shock absorbers which are "thinner or less reliable" than those in the other groups. |
| Bond market expert Gary Jenkins of research house Swordfish asked the key question on Friday - do these downgrades matter? His answer: "Ratings are a relative scale and if an entire industry is shifted then one could argue that the impact should be limited. The problem as I see it is that when the next hard recession hits these banks have a lot less ratings flexibility before they start staring at the non-investment grade cliff". | Bond market expert Gary Jenkins of research house Swordfish asked the key question on Friday - do these downgrades matter? His answer: "Ratings are a relative scale and if an entire industry is shifted then one could argue that the impact should be limited. The problem as I see it is that when the next hard recession hits these banks have a lot less ratings flexibility before they start staring at the non-investment grade cliff". |
| The reality is that the UK's banks are all above the crucial investment grade and knew these downgrades were on the cards. Will it push costs up for customers? Well Lloyds insisted last night that it did not think it should affect its costs - no excuse there, then, for raising costs to consumers. | The reality is that the UK's banks are all above the crucial investment grade and knew these downgrades were on the cards. Will it push costs up for customers? Well Lloyds insisted last night that it did not think it should affect its costs - no excuse there, then, for raising costs to consumers. |
| 7.53am: Not much economic data out today, but plenty of meetings. The leaders of Germany, France, Italy and Spain will be hoping to find some common ground at a meeting in Rome today, in an attempt to restore confidence in the eurozone ahead of a full EU summit next week. | 7.53am: Not much economic data out today, but plenty of meetings. The leaders of Germany, France, Italy and Spain will be hoping to find some common ground at a meeting in Rome today, in an attempt to restore confidence in the eurozone ahead of a full EU summit next week. |
| The Ecofin Council – a group of the economics and finance ministers of the 27 European Union member states – is taking place in Luxembourg. And in the UK, the Bank of England Financial Policy Committee is holding its quarterly meeting, where it may discuss whether banks' liquidity requirements should be eased. Here's today's agenda: | The Ecofin Council – a group of the economics and finance ministers of the 27 European Union member states – is taking place in Luxembourg. And in the UK, the Bank of England Financial Policy Committee is holding its quarterly meeting, where it may discuss whether banks' liquidity requirements should be eased. Here's today's agenda: |
• Italy consumer confidence for June: 9am • Canada consumer price index for May: | • Germany IFO business climate for June: 9am • Italy consumer confidence for June: 9am • Canada consumer price index for May: 1.30pm |
| In the debt markets, the UK is selling Treasury bills. | In the debt markets, the UK is selling Treasury bills. |
| 7.43am: Good morning and welcome to our rolling coverage of the eurozone debt crisis. | 7.43am: Good morning and welcome to our rolling coverage of the eurozone debt crisis. |
| Last night, ratings agency Moody's downgraded 15 banks and financial organisations across the world, including Barclays, HSBC and Royal Bank of Scotland. | Last night, ratings agency Moody's downgraded 15 banks and financial organisations across the world, including Barclays, HSBC and Royal Bank of Scotland. |
| And the IMF published a report calling for the European Central Bank to cut interest rates, and urging the eurozone to channel aid directly to struggling banks, rather than via governments. The fund is pushing for a European banking union "as an immediate priority", as well as greater fiscal integration, and jointly guaranteed eurozone debt. | And the IMF published a report calling for the European Central Bank to cut interest rates, and urging the eurozone to channel aid directly to struggling banks, rather than via governments. The fund is pushing for a European banking union "as an immediate priority", as well as greater fiscal integration, and jointly guaranteed eurozone debt. |