US economy grows at faster-than-expected pace in third quarter – business live

More on the confusion after yesterday’s meeting between Greek and Germany finance ministers. Our correspondent Helena Smith reports:

Over in Athens tonight prime minister Antonis Samaras is holding talks with his deputy Evangelos Venizelos amid contradictory reports over the crisis-plagued country’s avowed desire to exit from its €240bn EU-IMF backed bailout programme.

Commotion in the Greek–German axis is nothing new but the re-emergence, overnight, of tensions between Athens and Berlin does not bode well. Despite official denials from the Greek finance ministry that all is going swimmingly with the country’s “troika of creditors, it would seem that nothing is further from the truth.

Samaras and Venizelos meet hours after Germany issued an unusually hard-hitting statement rejecting Greek media reports that it had agreed to support Athens’ avowed desire to exit its rescue programme early. Following talks between Greek finance minister Gikas Hardouvelis and his German counterpart Wolfgang Schauble, several Greek media outlets suggested that Berlin had thrown its weight behind the plan with the conservative daily, Kathimerini, going so far as to announce that Hardouvelis had also managed to secure approval for “a precautionary credit line if all is in place by the end of the year.”

Emerging from the meeting in Berlin, Hardouvelis told reporters that the two officials had discussed Greece’s desire to move into a “post-memorandum” era, free of dependency on foreign lenders, as of January 1. “Germany understands that we should find a solution soon, to delineate this new relationship,” he said. But declaring that the meeting had, in fact, ended inconclusively “without concrete results,” Schauble’s spokesman Frank Paul Weber issued an incendiary riposte.

“We reject Greek media reports that Germany and Greece reached an agreement on Wednesday on further support for Greece after the end” of its bailout, the spokesman told Bloomberg.

The exit plans – announced by Samaras in a bid to broaden approval ratings at a time when the possibility of early elections has triggered widespread political uncertainty – has spooked markets, unnerved investors and worried creditors. The yield on Greek government bonds shot up again Thursday with a rise of 59 basis points to 8.17%. Indicative of the tensions, the IMF spokesman Jerry Rice told reporters today that the return of international auditors to Athens would depend on Greece’s response to demands to push ahead with reforms.

Mission heads representing the EU, ECB and IMF cut off an inspection tour of the country’s economy earlier this month. Exiting the programme will depend, to great degree, on what grade Greece achieves when the review is completed.

On that note, it’s time to close the blog up for the evening. Thanks for all your comments, and we’ll be back tomorrow.

Following a meeting between Greek and German finance ministers, there seems some confusion about what went on. Reuters snaps:

• 30-Oct-2014 15:35 - GERMAN FINANCE MINISTRY SAYS DENIES GREEK MEDIA REPORTS THAT GERMANY AND GREECE REACHED A DEAL ON FURTHER SUPPORT FOR GREECE AFTER END OF BAILOUT PROGRAMME
• 30-Oct-2014 15:37 - GERMAN FINANCE MINISTRY SAYS GERMAN AND GREEK FINANCE MINISTERS MET YESTERDAY, BUT WITHOUT CONCRETE RESULTS

The European Central Bank has appointed four managers for its asset-backed securities purchase programme.

The scheme, part of the ECB’s plan to increase liquidity in the struggling eurozone, is due to start in November once it has been approved by the governing council.

The four are: Amundi and Amundi Intermédiation; Deutsche Asset & Wealth Management International; ING Investment Management; and State Street Global Advisors.

Their role, according to the ECB, will be “to conduct the eligible ABS purchase transactions on explicit instructions from, and on behalf of, the Eurosystem, which will undertake price checks and due diligence prior to approving the transactions.” It added:

The contracts with the executing asset managers contain a number of provisions to mitigate conflicts of interest, such as the separation of teams working for the ECB and those engaged in any other activities. This will be subject to checks by external auditors.

After falling to an all-time low against the dollar, the ruble has jumped more than 3% amid rumours of intervention from the central bank.

The Russian currency has been the worst performing emerging market currency over the past month, down 7.1% against the dollar and 7.3% against the euro before today, according to William Jackson at Capital Economics. He said:

While this can in part be pinned on the fall in oil prices, the ruble has dropped by more than the previous relationship between the currency and oil prices would suggest. This has raised concerns that Russia could be on the cusp of a self-fulfilling currency crisis.

Today’s revival came amid talk of central bank intervention ahead of a monetary policy meeting on Friday. There were also suggestions that Russia and Ukraine may have come to some agreement over Crimea. However cold water was poured on that idea, while the central bank refused to comment on any intervention. Jackson said:

Market moves today suggest that the central bank has tried to get ahead of the curve. The ruble has rallied by around 3% against the US dollar from its trough earlier in the day. It’s not quite clear what lies behind this movement (the central bank has refused to comment), but the most obvious explanation is that policymakers have intervened heavily on the foreign exchange market.

We had already been expecting a 100 basis point rate hike at the Russian central bank’s MPC meeting tomorrow. However, in addition to a sizeable jump in rates, there’s a possibility that the central bank brings its shift to a fully-floating exchange rate to a halt, instead using foreign exchange intervention to maintain a tighter grip on the currency. In spite of this, we expect the ruble to remain weak over the coming years.

Meanwhile Simon Quijano-Evans at Commerzbank agreed there could have been central bank action. He told Reuters:

This...looks like indirect indications by the central bank to the local banking community that ‘enough is enough’ and/or a substantial one-off FX intervention by the central bank.

Returning to the European confidence data, ING economist Peter Vanden Houte says the European Commission business and consumer survey turned out be a pleasant surprise. The overall economic sentiment index rose from 99.9 to 100.7, confounding the consensus expectation for a small drop. The business climate indicator increased to 0.05 from 0.02 in August.

The increase in overall sentiment in September was across the board, with all sectors seeing an improvement in confidence. The export-sensitive industrial sector showed a more optimistic view on both expected production and order books. The weakening of the euro exchange rate is finally giving some breathing space to European exporters, leading to more optimism.

Confidence in the more domestically oriented services and retail trade sector also both improved, while consumer confidence staged a slight increase on the back of better employment perspectives. Finally the construction sector saw a significant boost in confidence. Capacity utilization in the manufacturing sector increased to 80%, typically the level where investment expenditure starts to pick up.

The country breakdown, meanwhile, revealed that confidence in the bigger countries increased a bit unexpectedly (given the fact that other sentiment indicators were less upbeat) in Germany, France, Italy and the Netherlands, while it decreased in Spain.

As today’s figures suggest that the eurozone recovery is not doomed yet, the ECB will probably sit on its hands in the coming months, monitoring how previously announced policy measures are playing out. However, with inflation still hovering close to 0%, the pressure to act is likely to increase again. As it seems unlikely that the bank will be able to purchase sufficient assets to increase its balance sheet by €1 trillion, we believe that around the turn of the year the ECB will broaden the range of eligible assets for purchase to corporate bonds and supra-national bonds. Ultimately it might still have to consider buying sovereign bonds, but that will probably not happen before the second quarter of 2015.

US stocks dipped at the open, but the Dow Jones is now trading 0.3% higher at 17,25.24 while the S&P 500 has slipped 0.1% and the Nasdaq is down 0.6%.

Carsten Brzeski at ING has looked at the German jobless numbers in detail.

Did anyone say crisis? The German labour market remains solid as a rock, defying all woes from a weakening industry. Unemployment decreased by a non-seasonally adjusted 75,000 in October, bringing the total number of unemployed down to 2.733 million. In seasonally-adjusted terms, unemployment dropped by 22,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.7%.

The revival of the German labour market is gaining momentum. In fact, the October improvement was the best October performance since 2011, indicating that the story on the possible vacation impact on the German economy in August and September could have been for real. Now that finally all Germans are back from vacation, the labour market is accelerating.

The labour market remains the backbone of the German economy. Thanks to earlier reforms, ageing and immigration from crisis-battered Eurozone countries, the German labour market seems to have decoupled from the real economy. Or to be more precise, the economy currently needs much less growth than in the past to at least stabilize the labour market. While in the 1990s and early 2000s, it needed GDP growth of at least 1.5% to reduce unemployment, this threshold has come down to below 1%.

Looking ahead, the labour market should remain solid, supporting private consumption. Earlier today, the statistical office reported that employment had reached a new all-time-high in September. Moreover, vacancies are increasing again and have almost returned to their all-time high of November 2011. Interestingly, the current split of the German economy into healthy domestic activity and faltering external activity is also reflected in companies’ recruitment plans. Employment expectations in the manufacturing sector have been negative since March, while at the same time employers in the service sector are still hiring and have actually increased their recruitment plans in recent months.

To recap, today’s economic news has been pretty good. Paul Ashworth, chief US economist at Capital Economics, shares the Fed’s optimism about the economy:

Admittedly, consumption growth was a relatively modest 1.8% in the third quarter. But the conditions are in place for a pick-up in the pace of consumption growth. Real personal disposable incomes increased by a healthy 2.7% in the third quarter and, with the prospect of further big gains in employment and the impact of the slump in energy prices, real incomes should enjoy an even bigger gain in the fourth quarter.

Business investment growth was also relatively healthy at 5.5%, led by a 7.2% gain in investment in equipment. Residential investment only increased by 1.8%, but we still expect more gains in home building over the next couple of years because the level of housing starts is still running well below population requirements.

Finally, after being such a massive drag on the economy in recent years, the public sector is now a big positive. Government consumption increased by 4.6%, led by a 16% jump in defence spending.

Overall, we expect the strong growth to continue, with GDP on course for a 3.0% annualised gain in the fourth quarter.

More breaking news: German inflation unexpectedly slowed to 0.7% this month, the lowest reading since May.

Fed chair Janet Yellen is speaking at a diversity conference at the central bank, but won’t touch on monetary policy or the economic outlook, according to the text of the speech, Reuters reports.

Futures are pointing to a lower open on Wall Street, with the Dow Jones set to fall 24 points.

Over here, the FTSE 100 index is now trading down less than 40 points at 6414.61, a 0.6% drop. Germany’s Dax has lost 1% and France’s CAC has shed 0.4%.

Here’s some instant reaction to the US GDP data from ING economist Rob Carnell.

No wonder the FOMC statement erred on the upbeat side on Wednesday. That said, the components of the GDP total make less impressive reading. Consumer spending rose by only 1.8%, down from 2.5% in 2Q14, and fixed investment, though not bad at 4.7%, and faster than overall GDP growth, was also down from the second quarter reading. Structures, equipment, and residential investment spending growth all slowed.

What seems to have delivered most of the growth, and offset a substantial (0.57% GDP) drag from inventories, was a reasonable export performance (7.8%QoQ), coupled with a decline in imports (-1.7%), and a big surge in the erratic defense component of government spending. This last element alone added 0.66% to the GDP total. It is unlikely to be repeated any time soon.

Having said all this, we suspect the market will be prepared to see through the detail and focus on the better looking total. Following yesterday’s FOMC statement, investors will likely be looking for clues that may see the Fed hiking rates sooner than expected. This data certainly leans in that direction. Though with big falls in inflation looming, we would not be rushing to any hasty conclusions on rates just yet.

US economic growth was fuelled by a smaller trade deficit and a surge in defence spending in the third quarter. It was the fourth quarter out of the last five that the economy has expanded by at least 3.5%.

The trade position improved because of a sharp fall in imports – the biggest since the end of 2012, driven by a drop in oil imports. Trade added 1.32 percentage points to overall economic growth of 3.5%.

Spot gold dropped nearly 1% to hit a session low of $1,199.90 an ounce.

The dollar, already buoyed by last night’s upbeat Fed statement, extended gains against the pound on the strong US GDP data. Sterling hit the day’s low of $1.5950.

Ranko Berich, head of market analysis at Monex Europe, says ahead of the US GDP data:

The FOMC now believes that holes in the labour market are ‘gradually diminishing’ and ‘solid gains’ are being made in job creation. These changes all point in one direction – rate hikes in 2015.

However, rate hikes do remain conditional with key conditions being the continued improvement in inflation and the labour market. For this to happen, the economy itself needs to grow strongly, making today’s first reading of US third quarter GDP even more critical. Should GDP growth meet these high expectations today, the Fed’s hawkishness will only increase and the dollar could find itself ascendant in 2015.

In just over an hour, we will get the first estimate for third-quarter GDP growth in the US. Wall Street economists have pencilled in a healthy 3% annual rate between July and September. It would mark the fourth quarter in the past five in which the economy has grown by at least 3%.

In the second quarter, the economy expanded by 4.6%, but this was a sharp bounceback from the first quarter when it shrank by 2.1% – largely due to a harsh winter that disrupted much economic activity.

The Commerce Department is due to release the figures at 12.30 GMT.

John Hardy, a currency strategist at Saxo Bank, has told Reuters:

It’s really nothing to do with sterling, it’s all dollar strength at the moment on the back of the FOMC meeting last night – not because the statement was particularly hawkish, but because the market was positioned for a very dovish one.

The pound has dropped below $1.60 for the first time in a fortnight after the Fed adopted a slightly more hawkish tone in its latest statement last night, when it ended quantitative easing. This has lifted the dollar against other currencies.

Ed Knox, Currency Analyst at currency exchange company Caxton FX, says:

The dollar surged against its major peers after the Fed statement, and has helped the greenback to push below 1.60 against the pound and below 1.26 against the euro. The QE announcement as well as causing a widespread dollar strength, also included an unexpected reference to an improving labour market – the trigger for raising rates.

Analysts still expect to see the US raise interest rates before the UK and the demise of QE and the rallying response of the dollar certainly strengthens these expectations. An improving economy for the states then, with the absence of QE. This has already brought about some much needed volatility and the US dollar is now firmly in the driving seat.

After the surprise fall in German unemployment in October, the eurozone confidence figures have also come in better than expected.

In the City, office rents have hit a new record – at the Cheesegrater, eclipsing a deal struck at the Shard earlier this year.

British Land and Oxford Properties have agreed a deal to let the 41st floor of the Cheesegrater to insurance company FM Global at almost £85 per square foot, Propertyweek writes.

A floor spanning around 7,700 sq ft at the Leadenhall Building is now understood to be under offer to the US-based insurer.

The price eclipses a deal done by Arma Partners in Irvine Sellar’s Shard earlier this year, at what was hailed at the time to be a record at £80/sq ft.

Research carried out by Property Week in August found that average prime rents were £60/sq ft in Q2 in the City of London, compared with £66/sq ft at the end of 2008, before the recession hit.

More reaction to Barclays’ Q3 profits and provision for market-rigging. Simon Chouffot, spokesperson for the Robin Hood Tax campaign, says:

Half a billion pounds is a colossal sum, but the real shock is the regularity with which banks put aside such provisions for their scams. In what other sector would this be acceptable?

Banks shouldn’t be putting money aside to pay for their bad behaviour, they shouldn’t be doing wrong in the first place. A Robin Hood Tax would help curb the greed is good culture in banks and make them contribute positively to society. The fact their profits are once again rising while the rest of the economy suffers shows they can afford it.

Returning to Spain, ING economist Martin van Vliet says the ‘comeback kid’ lives up to its name. He notes that the Spanish economy retains significant forward momentum, despite some slowdown in the third quarter.

The nature of Spain’s economic recovery has clearly changed in recent quarters. For a long time, net exports were the only source of growth, but now that financial conditions have sharply improved and the labour market is turning around, domestic demand is taking over the growth baton. Nevertheless, bank lending is still contracting and unemployment remains extremely high (24.4% in August), which, together with the ongoing (albeit much slower) adjustment in the property sector and the need for further public-sector deleveraging limits the scope for stronger domestic demand growth in our view.

Moreover, export growth may lose some of its sparkle in the wake of weak eurozone growth and slowing demand from emerging markets. Indeed, the latest trade reveal that growth in exports to non-EU countries has already stalled.

In short, while the growth comeback in Spain has been impressive, it remains premature in our view to assume that a truly self-sustaining recovery has taken hold. We need further confirmation before we can be sure it really is the comeback kid of Europe.

Stock markets have turned negative, despite the good economic news out of Germany and Spain. Perhaps it’s the new hawkishness from the US Fed? European stocks erased earlier gains and the FTSE 100 index in London is now trading 0.5% lower at 6422.66, a fall of over 30 points. Spain’s Ibex has lot 1% and Italy’s FTSE MiB is 0.8% lower.

The number of unemployed people in Germany, seasonally adjusted, fell by 22,000 to 2.887m this month, according to the country’s Federal Labour Office.

The German unemployment data are much better than expected.

Industrial & Commercial Bank of China, the world’s largest lender by assets, reported its biggest jump in bad loans since at least 2006 as the property market slumped and the economy cooled, Bloomberg writes.

Nonperforming loans rose 9% in the third quarter from the previous three months, the Beijing-based bank said in an exchange filing yesterday.

A struggling Chinese economy is weighing on ICBC’s share price and is poised to drag the company to its weakest full-year profit growth since at least 2001 as more borrowers default. Challenges at home may encourage the bank to add to an overseas expansion that already spans Asia, South America and Europe.

In London, Standard Chartered shares have lost 6.7p, or 0.675%, to 985.4p. Meanwhile Barclays is up nearly 2% at 224.7p after posting better-than-expected results, despite a £500m provision related to ongoing investigations into currency rigging.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, says:

The beleaguered British bank has come out fighting, with an update which has both beaten expectations and given further confirmation of a recovery story which is beginning to get traction.

Inevitability, there are pockets of disappointment within the numbers, such as the performance of the investment bank, the additional provisions for Forex and PPI, and continuing pressure on margins. However, the update is positive on a number of fronts, not least of which is the 5% increase in pre-tax profits (indeed, up 31% in the year to date). This has been largely driven by ongoing strength in the Personal and Corporate Banking and Barclaycard areas, and typified by lower impairments and costs, some material positive releases (Lehman and interest rate hedging) and an improvement in the core capital ratio in the quarter from 9.9% to 10.2%.

The sector certainly has issues, and Barclays has been far from exempt from these in terms of profits and reputation, such that the share price has dipped 17% over the last year, as compared to a 5% drop for the wider FTSE100. Nonetheless, the throng of believers in the company’s recovery is growing, with the market consensus recently having strengthened to a strong buy.

European markets have taken the end of QE in the US in their stride. The FTSE 100 index opened 0.4% higher and is now up some 3 points, while Spain’s Ibex rose 0.6%, and Germany’s Dax 0.2%. France’s CAC and Italy’s FTSE MiB advanced 1%.

In France, stocks are getting a lift from upbeat corporate results. Renault upgraded its European car market growth forecast, telecoms equipment maker Alcatel-Lucent improved its gross profit margin in the latest quarter and oil services group Technip posted better-than-expected profits.

And Michael Hewson, chief market analyst at CMC Markets UK, says:

The committee also played down the risk of below target inflation while also stating that the amount of spare capacity appeared to be gradually diminishing, suggesting that if the data continued to improve then we could well see a rate hike sooner than expected.

As always the Fed insisted that any move on rates would be data dependant, but given some of the recent chatter from various FOMC voting and non-voting members alike the tone of the statement was all the more surprising for its hawkish tone, particularly given that there was no mention of the problems in Europe, the slowdown in China or concerns about a strong US dollar keeping inflation low.

Markets are still digesting last night’s news of the end of QE3 in the US. The Federal Reserve, headed by Janet Yellen, ended its $4.5 trillion quantitative easing programme after more than five years. The announcement had been expected, but the statement issued by the Fed was more hawkish than some had anticipated.

Marc Ostwald, strategist at ADM Investor Services International, says:

There was always a very substantial risk that QE addicted markets were pinning too much hope on another very dovish statement, which in the event were disappointed, and to compound matters the FOMC adopted a rather more emphatically balanced view of the policy outlook, though as we have stressed, the Fed has been carefully carving out room for manoeuvre since June.

Perhaps the irony is that while (gratuitously? Ed.) retaining “a considerable time”, the policy outlook was reformulated in a very balanced fashion: “if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”

The fact that the dissent at this meeting came from a lone dove Kocherlakota, as opposed to the hawkish dissents of Fisher and Plosser at the last meeting, adds a little more emphasis to the policy signal shift, but should not come as any surprise given Kocherlakota’s comments on policy and the inflation outlook. Overall, an initial Q2 2015 rate hike still looks to be on the cards.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.

We’ve woken up to the news that prosecutors in Washington and Manhattan have reopened an investigation into Standard Chartered. In August, it already warned of fresh fines from US authorities for breaching money laundering rules. Two years ago, Standard Chartered was fined $667m (£396m) for scheming with Iran to hide billions of pounds of transactions from the US authorities.

The New York Times reports:

The prosecutors are questioning whether Standard Chartered, which has a large operation in New York, failed to disclose the extent of its wrongdoing to the government, imperiling the bank’s earlier settlement.

A mixture of new issues and lingering problems could violate earlier settlements that imposed new practices and fines on the banks but stopped short of criminal charges, according to lawyers briefed on the cases. Prosecutors are exploring whether to strengthen the earlier deals, lawyers said, or scrap them altogether and force the banks to plead guilty to a crime.

The news comes two days after the emerging markets bank issued another profit warning, piling yet more pressure on embattled chief executive Peter Sands.