There was plenty to unsettle markets, from Russia’s economic woes and its attempt to stop the rouble slide with a 1% rate rise to the Greek political crisis and the poor take-up of the European Central Bank’s latest cheap loans to eurozone banks, writes Nick Fletcher. The ECB now seems set on a course of more radical measures, such as QE, but markets are not convinced president Mario Draghi has the support to push through his plans. Meanwhile, although the oil price has edged higher, it is still around five year lows. The UK market underperformed its European peers, weighed down as it is with commodity companies hit by the weak crude price. But there was some respite from the US, where positive retail sales figures saw Wall Street gain ground in early trading. The final scores showed:
The FTSE 100 finished 38.34 points or 0.59% lower at 6461.70
Germany’s Dax added 0.64% to 9862.53
France’s Cac closed down 0.05% to 4225.86
Italy’s FTSE MIB slipped 0.09% to 19,201.07
Spain’s Ibex ended 0.34% higher at 10,431.8
In Greece, the Athens market lost another 7.35% to 827.98
On Wall Street, the Dow Jones Industrial Average is currently up 214 points or 1.22%.
On that note it’s time to close up for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Bond expert Nick Spiro agrees that Russia’s central bank has been playing an awful hand, thanks to events beyond its control.
He writes:
“The bottom line is that Russia is on the sharp end of the seemingly unending slide in oil prices, and there’s very little the central bank can do to counter the fallout,”
“Russia’s monetary guardian is no longer a master of its own fate.”
Russia's central bank is damned if it does and damned if it doesn't. My comments to Reuters: http://t.co/WBnyEepeZZ
Instead, the rouble has suffered further big losses; it’s down another 1.5% tonight at 55.7 roubles to one US dollar.
It’s the biggest rout in 16 years.
. Photograph: Thomson Reuters
The rate increase comes a week after President Vladimir Putin told the central bank and the government to take “harsh” coordinated measures to deter speculators and steady the currency market, Bloomberg points out.
Hiking interest rates by one percentage point to 10.5% sounds like a big move, but traders aren’t impressed (as covered in the liveblog from here)
And with the oil price near five-year lows, and inflation heading over 10% next year, it’s hard to believe any rate move would have restored confidence in Russia.
Further hikes in borrowing costs look likely, especially if inflation does keep climbing. And that could trigger an even deeper recession.
The 100bp hike in Russian interest rates on Thursday was the minimum the central bank (CBR) had to deliver given the recent slide in the ruble. But this did little to stem the fall in the ruble, and the currency continued to weaken after the CBR’s decision.
With inflation set to rise further over the coming months, we think further rate hikes are likely in early 2015.
The Russian stock market is also in the doldrums. The RTS index has just closed down 3.6%.
As regular readers will recall the socialist politician (since expelled from the Pasok party) stands accused of removing the names of relatives from the 2,000 plus list of names handed to Greek authorities by the French former finance minister Christine Lagarde.
The trial must start within the next two months, with a judge being selected by lottery from the judiciary attached to the Supreme Court. It will be the first time in nearly 20 years that a politician is tried before a special tribunal in Greece.
Greece’s borrowing costs have moved further into danger zone territory too.
The 10-year bond is now yielding 9.1% tonight, up from 8.7% last night.
And the three-year bond yield has soared to 10.7%, up from 9.5%.
That means investors are treating short-term Greek debt as riskier than long-term bonds, suggesting a bigger risk of default or restructuring in the next few years.
Some news from Washington... the International Monetary Fund has said it will return to Athens next month for another assessment of its bailout programme:
IMF SPOKESMAN SAYS GREECE INTENDS TO TREAT IMF LOAN PROGRAM AS PRECAUTIONARY
IMF SPOKESMAN SAYS NEXT FUND MISSION WILL RETURN TO GREECE IN JANUARY
Many stocks have suffered double-digit declines; here’s the biggest fallers:
.
Investors are clearly ditching stocks before MPs hold their first vote to choose a new president, on December 17th.
The big vote isn’t until the 29th, when MPs have a third and final opportunity to approve the government’s candidate, Stavros Dimas. Reject him three times, and a general election is triggered.
And the Syriza party, which is demanding a debt restructuring, is the front-runner to seize power. That puts the Greek stock market on track for its biggest weekly fall in over two decades.
The US stock market is shrugging off the losses in other parts of the world.
The Dow Jones index is up around 1%, or 170 points, in early trading, recovering some of yesterday’s 268-point tumble.
Wall Street is cheering the latest retail sales figures, showing a 0.7% rise in November, up from 0.5% in October. That’s the biggest monthly increase since March.
The upturn in sales supports survey evidence that the economy’s recent growth surge is showing few signs of stalling, despite a gloomier-looking global economy. We expect, however, that the upturn is cooling compared to the heady rates of expansion seen in the summer.
And the falling oil price means less pressure to raise interest rates.
But for a real crash, check out the Middle East. The Dubai stock exchange tumbled over 7% today, in its biggest one-day drop since autumn 2009.
That’s a reaction to the drop in the oil price in recent days, which is likely to hurt economic growth in the region.
The Greek stock market is plunging to new depths, after the prime minister issued dire warnings of chaos ahead if his party were ejected from power.
And bond yields are surging, after Antonis Samaras told his MPs that Greece’s membership of the eurozone could soon be at risk again.
Samaras told members of his own New Democracy party that Greece risked locking itself out of the bond markets again if early elections are called next year, and the left-wing Syriza party wins.
Greek Prime Minister Antonis Samaras on Thursday accused opposition SYRIZA of bringing back Grexit fears and sending a message to the markets not to lend to the country by declaring its sovereign debt unsustainable.
Speaking to New Democracy deputies on Thursday, Samaras said that former EU commissioner Stavros Dimas would be the presidential candidate for all three ballots in the upcoming election whose first round is scheduled to take place on December 17.
“SYRIZA is after power it cannot manage,” Samaras told conservative MPs.
The Greek premier added that there were those who were trying to cancel the country’s success.
“Deputies have a duty to keep Greece in Europe,” he said.
Greek PM Samaras Says Syriza Brings Back ‘Grexit’ Talk
I’m not sure what effect Samaras was going for. But the impact has been immediate on the financial markets.
Athens exchange has now tumbled by 7%, meaning it has shed 20% of its value since Samaras decided to accelerate the presidential election to next week.
Better news for the US -- the number of Americans filing new claims for unemployment benefit fell last week, to 294,000. Another sign that its economy is chugging along.
Lunchtime round-up: Russian rate hike brings little relief
The Geyser fountain and Four Seasons sculptural composition in Manezhnaya Square covered in snow today. Photograph: Geodakyan Artyom/Geodakyan Artyom/ITAR-TASS Photo/Corbis
It’s been a busy morning for central bankers, who are in the eye of the storm as the world economy ends 2014 on a low.
The Central Bank of Russia, as expected, hiked interest rates again – to 10.5% from 9.5%. The bank also cut its economic growth forecasts over the next three years, and predicted that inflation could break through 10% early next year.
The move did little to help the rouble, though, which has crashed through the 55-mark against the US dollar for the first time ever.
The Swiss central bank was also active - leaving rates unchanged, but warning that the deflation risk was growing.
And the Bank of England has embraced a new era of openness, with a plan to release the transcripts of its meetings (with an eight-year delay). The BoE also intends to cuts its meetings to eight per year, and release the minutes on the same day.
The weak oil price is also weighing on shares; Brent crude is hovering near a five-year today, at $65 per barrel.
Chris Beauchamp, market analyst at IG, says oil is a worry:
The oil-inspired selloff continues to dampen any pre-Christmas optimism, although opportunistic shorters are still keeping one eye on the oncoming ‘Santa Rally’ that is likely to kick off from next week.
Concerns over global growth have knocked the mining sector, sending the FTSE 100 down 57 points at 6443.
Beauchamp adds that this morning’s corporate news brought little relief:
Retailers have hit the headlines in London, as Sports Direct (down 2%) and SuperGroup (down 7% ) posted updates. The former did well, hitting all the right notes, and in the right order, as it reported continued expansion in Europe along with a rise in earnings. However, the latter’s torrid year has seen no improvement thanks to the unseasonably warm weather of October.
It includes this chart, showing how the Russian central bank still has some firepower to prop up the rouble.
. Photograph: Guardian Datablog
Here’s their conclusion
When the Soviet Union collapsed, Putin was a KGB agent stationed in East Germany. He will have experienced the USSR’s fall, and the regime change that followed, first hand.
He will want to avoid a rerun.
It may not be 1991 or 1998 all over again for Russia, but today’s financial misfortune means that several of Putin’s tools of economic control and influence will now be less sharp - and over time, if sustained, the political implications of this may come to matter just as much. Despite the president’s necessary ramblings against the west during his latest state of the nation speech, there are already hints of greater caution and prudence. Maybe even concern.
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