1500 Despite the ECB failing to announce any stimulus measures today, the FTSE 100 has extended its gains to be up 2 per cent, or more than 100 points, at 5,363 with another 90 minutes of trading remaining. Frankfurt is up 1.6 per cent and Paris has added 1.9 per cent.
1400 The European Commission proposed a system of centralised banking regulations that would ensure that taxpayers would never again have to bail out ailing banks whose collapse would threaten the wider economy. Under the proposal, banks that posed no systemic risk to the national or international economy would simply be allowed to fail. But those whose failure would pose too grave a threat to the stability of financial markets would be propped up in part by having unsecured creditors of the bank, such as bondholders and shareholders, take losses rather than having taxpayers give the institution rescue money.
“We don’t want taxpayers to have to pay,” said Michel Barnier, the European commissioner responsible for the internal market, as he outlined the proposals in Brussels. “We’re going to break the link between banking crises and public budgets.”
However, such a move would come too late to alleviate the banking crisis afflicting Europe and one of its biggest economies, Spain, where banks are sitting on huge losses that the government cannot afford to plug. It also offers no immediate guarantee that EU taxpayers are off the hook.
The complex proposal is not scheduled to take effect fully until 2018. In any event, it also needs the approval of the European Council, composed of the leaders of the 27 EU countries, and the European Parliament, and may be significantly altered in the process of gaining approval.
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1245 The European Central Bank held its main interest rate at 1 per cent, resisting international pressure to provide more support for the eurozone’s ailing economy. The ECB also said the interest rate on its deposit facility would remain at 0.25 percent, and the rate on the marginal lending facility would stay at 1.75 per cent. The euro was steady versus the dollar after the news.
ECB President Mario Draghi will explain the Governing Council’s decision at a news conference at 1330 London time. Markets are looking for hints whether the ECB may cut interest rates in the coming months and how worried the 17-country bloc’s central bank is about recent weak economic data. An update of the ECB’s staff projections for growth and inflation will also be eyed for clues on future ECB policy moves.
1230 The FTSE 100 was 70 points higher at 5,329 at lunchtime in its first day of trading after the market was closed on Monday and Tuesday for the Diamond Jubilee celebrations. The strong session came despite fresh evidence that the eurozone debt crisis is weighing on the continent, with a survey yesterday revealing the fourth consecutive month of declines in the eurozone private sector.
Financial stocks enjoyed a strong run after taking a battering last week, with Man Group up 8 per cent, or 6.2p, at 81.7p, Barclays adding 10.4p to 183.9p and Lloyds Banking Group 1.4p at 27.1p.
Investors may have been thrown by Royal Bank of Scotland’s share price, which shot up from just under 20p on Friday to 216.55p as a result of a share consolidation authorised by the bank’s annual meeting last week. Shareholders will be handed one new share for every 10 they own, which pushed the bank’s share price up to a value not seen since September 2008.
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Guinness to Smirnoff owner Diageo was on the risers board after it unveiled plans to invest £1 billion in Scotch whisky production over the next five years in a move that will create several hundred jobs. Diageo, which produces Scotch brands such as Bells, J&B and Johnnie Walker, said it plans to build a major new distillery in Scotland and expand a number of its existing 28 distilleries. Shares were 2.2 per cent, or 33p, higher at £15.50.
Meanwhile, Asian markets performed well overnight after the US service sector, which employs most of the American workforce, grew at a faster-than-expected pace in May.
1200 Graham Keeley reports from Madrid: Luis de Guindos, the Spanish Economy Minister, says independent assessments of Spanish banks will be ready in 15 days. An external audit of Spain’s banking system expected before the end of June, which is likely to reveal additional capital needs of €30 billion to €70 billion, is key to discussions on how to reform the country’s financial sector.
Mr de Guindos, who travels later today to Paris for talks with his French counterpart, says a European banking union is “fundamental for the euro”. Aides at the Spanish economy ministry denied suggestions that Spain and France were attempting to form a common front to convince Germany to soften its line to allow direct aid for stricken Spanish banks.
1100 The interest rate on Spain’s key 10-year government bond is edging down due to hopes the European Union may be moving closer toward adopting measures that could alleviate the country’s financial crisis. FactSet financial data service showed the yield at 6.24 per cent mid-morning. The spread, or difference, with the equivalent German yield fell below 5 percentage points for the first time in more than a week.
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The spread shot past the 500 basis-point barrier last week as fears mounted that Spain would not be able to shore up its troubled banking sector and would need external help.
Spain’s Ibex 35 stock index was up by almost 3 per cent today as traders eyed a policy announcement by the European Central Bank later in the day. Also helping confidence were hopes the US Federal Reserve might provide more stimulus to its economy, supporting confidence in the global economy.
1015 Strong exports saved the eurozone from a recession in the first quarter, offsetting a plunge in investment and inventories, as official figures confirmed that GDP was flat in the three months to March 31 quarter-on-quarter. The European Union’s Statistics Office did, however, revise down its previous estimate of the year-on-year GDP growth in the first quarter, to a contraction of 0.1 per cent from a flat reading.
The data comes as the European Central Bank meets to discuss interest rates. Economists expect no policy moves today, but possibly an indication of readiness to cut rates as early as next month, given a weakening economy and Spain’s banking troubles.
The output of the 17 economies that make up the eurozone contracted 0.3 per cent in the last quarter of 2011 against the previous three months and, if the economy were to have shrunk for a second consecutive quarter, the eurozone would be in recession. Eurostat said exports contributed 0.5 percentage points to the final quarterly GDP figure, offsetting falls in investment and inventories, which took away 0.3 percentage points and 0.2 percentage points respectively.
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Eurostat data showed Spain, the Netherlands, Portugal, Greece, Italy, Cyprus were in recession after two, or more, consecutive quarters of shrinking growth.
0915 Growth in the construction sector hit a three-month low in May as expansion in new orders abated and optimism about the coming year weakened sharply. The Markit/CIPS Construction Purchasing Managers’ Index (PMI) fell to 54.4 from 55.8 in April, staying above the 50 level which separates growth from contraction and beating forecasts for a fall to 54.2. However, the reading was the lowest in three months.
Coming soon after news that the UK’s manufacturing sector shrank at its fastest pace in three years in May, the construction release further dents hopes of an early end to recession and raises the chances of more stimulus from the Bank of England.
0815 The FTSE 100 rose in early trading - the first of the week after session after bank holidays on Monday and Tuesdday for the Diamond Jubilee, rallying on expectations that recent disappointing economic data and worsening eurozone credit crisis could prompt central banks to announce fresh stimulus measures.
The blue-chip index was up 0.85 per cent, or 45 points, at 5,306, having closed 1.1 per cent lower on Friday at its lowest level for six months after US jobs growth came in at the weakest in a year in May.
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Miners led the blue chips higher as copper prices rose slightly supported by a weaker dollar, with investors playing it relatively safe ahead of a European Central Bank meeting later today. Vodafone was the biggest blue chip faller, down 3.7 percent, as the market heavyweight’s stock traded with the entitlement to its latest dividend, alone knocking 12.45 points off the FTSE 100 index’s gains.
Overall ex-dividend factors chopped 13.7 points off the FTSE, with Associated British Foods, Evraz , Intertek, and WPP Group the other stocks trading without their payout attractions.
0630 Asian stock markets perked up today after US service companies, which employ most of the American workforce, grew at a slightly faster pace in May.
The result provided some relief for markets following a slew of dismal economic data, including a disappointing US jobs report and a slowdown in Chinese manufacturing, that intensified fears of a global economic recession.
Japan’s Nikkei 225 rose 1.6 per cent to 8,512.43 and Hong Kong’s Hang Seng added 1.1 per cent to 18,457.94. Australia’s S&P/ASX 200 edged 0.2 per cent up to 4,050.
Benchmarks in Singapore, Indonesia and Taiwan also rose, but those in mainland China fell. Markets in South Korea were closed for a public holiday.
0445 Oil was higher in Asian trade today after G7 European leaders vowed to respond “speedily” to the continent’s debt crisis.
A decline in US crude reserves also lent support to prices, analysts said.
New York’s main contract, West Texas Intermediate (WTI) crude for delivery in July, was up 49 cents to $84.78 per barrel while Brent North Sea crude for July gained 42 cents to $99.26 in morning trade.
“There has been some correction in oil prices after the G7 talks with some respite in the gloom over the eurozone debt crisis, and also a drop in US stockpiles has uplifted the market,” said Justin Harper, market strategist at IG Markets Singapore.
European finance ministers from the Group of Seven economies had vowed after emergency talks on Tuesday to respond “speedily” to the continent’s fiscal crisis, Japan’s Finance Minister said.
“We were able to share our recognition on the European issue,” Jun Azumi was quoted by Jiji Press as saying after a conference call with his G7 counterparts. “The European side stated that they will respond to it speedily.”
Worries over the eurozone debt crisis, along with the anaemic US economy, have cast a shadow over oil prices in recent months as investors worry demand will eventually slacken.
Meanwhile, a rise in US crude stocks has provided a brief respite for investors still fretting about demand in the world’s top oil consuming nation.
Data from the American Petroleum Institute (API), an industry body, showed nationwide crude stocks fell by 1.8 million barrels in the past week.
0405 The Australian Treasurer has hailed as “remarkable” the 1.3 per cent growth in its mining-driven economy in the first three months of 2012, as consumer spending rallied and business investment boomed.
The Australian Bureau of Statistics (ABS) said the quarter-on-quarter numbers, compared with an upwardly-revised 0.6 percent for the final quarter of 2012, took annual growth to 4.3 per cent.
Both figures overshot forecasts of 0.7 per cent and 3.4 per cent respectively in a performance driven by rallying consumer spending and business investment which offset gloom in exports.
Treasurer Wayne Swan described the data as “stunning” proof of Australia’s world-beating economic strength, with annual growth at its fastest pace since before the global financial crisis more than four years ago.
“Today’s national accounts paint an extraordinary picture of exceptional growth in the March quarter... putting our economy in a league of its own, despite ongoing global turbulence,” Mr Swan said.
“This is a remarkable outcome and reaffirms Australia’s position as one of the strongest economies in the world, with the Australian economy growing faster than every single major advanced economy in the March quarter.”
0330 Moody’s has cut its debt rating on Austria’s three biggest banks - Erste Bank, Raiffeisen Bank International (RBI) and Bank Austria, an offshoot of Italy’s UniCredit group.
The move was largely due to their exposure to the financial crisis in eastern Europe.
The ratings agency said in a statement that Erste Bank and RBI were strongly exposed in eastern Europe, notably in Hungary and Romania, while the downgrade of Bank Austria was justified by the precarious situation of its Italian mother-group.
Erste Bank was downgraded by two notches while the others went down by one notch. Prospects for Erste and Bank Austria were “negative” while RBI was put at “stable”.
0300 Hong Kong stocks gained 0.50 per cent at the open in line with a regional rise and following a positive lead from Wall Street.
The benchmark Hang Seng Index added 90.65 points to 18,349.68 in the first few minutes of trade.
0220 Nasdaq is taking steps toward compensating investor losses due to computer glitches that fouled trading on the first day of Facebook’s $US16 billion IPO, according to the Wall Street Journal.
Nasdaq OMX Group, which operates the Nasdaq exchange, has told brokers that it expects to submit plans on the issue to the Securities and Exchange Commission on how it might make up losses tied to its systems problems, the Journal reported.
Trading orders on the first day that Facebook shares hit the market on May 18 overwhelmed Nasdaq’s systems, forcing a length delay in trades and leaving investors and brokers in the dark over the results of orders involving millions of shares.
Claims of losses related to Nasdaq’s problems are estimated above $US100 million, according to the Journal.On May 24 New York broker Knight Capital asked Nasdaq to compensate it for up to $US35 million on the IPO.
0130 Tokyo stocks opened 0.55 percent higher after Wall Street made moderate gains but with eyes still firmly on the eurozone debt crisis.
The Nikkei 225 index at the Tokyo Stock Exchange opened up 46.36 points at 8,428.36, while the broader Topix index added 0.4 per cent to 710.79. .
0120 The Australian share market has opened higher ahead of the release of gross domestic product (GDP) data.
The benchmark S&P/ASX200 index was up 18.5 points, or 0.46 per cent, at 4,062.2, while the broader All Ordinaries index was up 18.1 points, or 0.44 per cent, at 4,110.5. On the ASX 24, the June share price index futures contract was 13 points higher at 4,067, with 6,856 contracts traded.
Overnight: US stocks managed to eke out moderate gains in choppy trade yesterday as investors weighed an unexpected growth pickup in the services sector and Europe’s long-running financial crisis.
The Dow Jones Industrial Average rose 26.49 points, or 0.22 per cent, to finish at 12,127.95, snapping a four-day losing streak. The S&P 500-stock index rose 7.32 (0.57 per cent) to 1,285.50, while the tech-rich Nasdaq Composite gained 18.10 (0.66 per cent) to 2,778.11.
Stocks got a fleeting shot in the arm from the Institute for Supply Management’s services index on the sector that accounts for about 70 per cent of the US economy.
The ISM index rose to 53.7 per cent in May from 53.5 per cent in April, indicating a slightly faster growth rate. Expectations were for a decline.
European stocks closed mostly higher, with investors cautious after recent heavy losses driven by fears the eurozone debt crisis is far from resolved and could bring down struggling Spain.
In Frankfurt, the DAX 30 slipped 0.19 per cent to 5,969.40 points while in Paris the CAC 40 gained 1.07 per cent to 2,986.10 points. Madrid rose 0.45 per cent, edging up again despite fears Spain could need a bailout and as top government officials repeated calls for help for the country’s banks which need to raise some 80 billion euros in fresh capital. Milan meanwhile put on 0.63 per cent.
0000 Welcome to rolling coverage from our Business and Foreign staff of the market turmoil and the latest on the world debt crisis. We will keep this blog updated as markets open and close around the world.