Rouble rocked while US jobless rate drops to six-year low – business live

Over to Greece where government leaders are expressing optimism that the debt-stricken country is inching ever closer to exiting its EU-IMF sponsored bailout programme. From Athens our correspondent Helena Smith reports:

Hours after euro area finance ministers agreed to consider throwing Greece a precautionary credit line, Athens’ deputy prime minister Evangelos Venizelos said the decision had effectively launched the country’s exit from often onerous international supervision. “The eurogroup meeting fits absolutely with our planning,” he told reporters, reiterating that the government’s aim was to strike a deal with lenders by year’s end.

“The goal is to have left the regime of the memorandum and troika [oversight] and to have returned to [having] a status of essential equality in the eurozone … without emergency mechanisms such as the troika. There will be nothing better.

Giving its first sign of support for Athens’ avowed aim to exit its economic adjustment programme by 2015, the euro group announced that it would begin discussions on the details of a new credit line for the twice-bailed out country late on Thursday.

“Taking into account the still fragile market sentiment and the many reform challenges ahead there is strong support for a precautionary credit line,” the euro group’s chairman, Jeroen Dijsselbloem, said at the session. EU aid disbursements drawn down from the €240bn bailout scheme are due to expire this year.

Although the credit line could be guaranteed through the European Stability Mechanism, Dijsselbloem insisted there was “broad consensus” that the IMF remain involved in the new plan, the nuts and bolts of which are not expected to be finalized until the next euro group meeting on December 8 at the earliest.

Venizelos made the statements as media reports filtered through that the vehemently anti-austerity main opposition leader, Alexis Tsipras, had requested a meeting with the new European Commission president Jean-Claude Juncker. Tsipras’ radical left Syriza party has been at pains to strengthen ties with European officials amid polls that have shown it would come first if, as many expect, a snap election is held early next year. Media reports suggested that Tsipras’ request had been welcomed by Juncker who has publicly criticized the young leader’s policies in the past.The prospect of Syriza assuming power has unnerved the business community.

On that note, it’s time to close up for the evening. Thanks for all your comments, have a good weekend, and we’ll be back on Monday.

Martin Wolf brings the session to an end by saying: “We don’t seem to have reached 100% consensus on all subjects” and says another symposium next year might be needed to resolve outstanding issues.

Speaking on the issue of whether the euro should have devalued, the ECB’s Benoit Coeure said that, given the large eurozone current account surplus, it was not clear that a weaker euro was the right solution to growth problems.

Now to questions, and asked about fiscal policy structures, Janet Yellen said: “In thinking about fiscal policy, having a long term target for sustainable debt to GDP is important.”

The IMF’s Christine Lagarde said EU fiscal goals may need a rethink and a reset, given how the situation has evolved.

ECB board member Benoit Coeure said at the Paris symposium that eurozone leaders needed to take steps on structural reform at their December meeting.

He said monetary policy should be used where possible to get inflation back to 2%.

Internal devaluation within the eurozone just shifted demand around, and better productivity was needed.

Janet Yellen is now up, and her full speech is available here on the Federal Reserve website.

Moderator Martin Wolf of the FT was having fun, by the way, when he moved from Coeure to Yellen:

Banks were responsible for the financial crisis, says Raghuram Rajan, governor of the Reserve Bank of India at the Paris symposium, but he wondered whether regulation had now gone too far and was hurting risk taking.

He said: “Banks have cried wolf too often so they have very little credibilty when they cry wolf again.” But equally they are now stepping away from risks, he said. This could harm economic growth, so a balance needed to be found.

More from Federal Reserve chair Janet Yellen at the Paris symposium (from her yet to be delivered comments), courtesy Reuters:

Yellen said politicians across the globe should make sure their fiscal houses are in order during good times, so they can support economies when things go bad, blaming part of the slow recovery on weak government support.

Yellen said that as the financial crisis took hold in 2008, central banks were forced to turn to unconventional tools such as large-scale bond buying programs to prop up their economies. The tools helped support domestic recovery and global economic growth, but more action from fiscal authorities would have been helpful, she said.

“In the United States, fiscal policy has been much less supportive relative to previous recoveries,”Yellen said.

On Europe, Lagarde said ECB president Mario Draghi’s comments that the central bank was ready to do more to stimulate the flagging eurozone economy were “perfectly legimate and appropriate.”

Central banks need to normalise policy as the global economy and inflation return to a more usual situation, said US Federal Reserve chair Janet Yellen, but this could lead to financial volatilily.

In remarks prepared for the Bank of France symposium in Paris which she will deliver shortly, Yellen said the Fed was trying to clearly communicate its intentions on interest rates to minimise any surprises for global markets. Last week the Fed ended its bond buying programme, but markets are now awaiting the first rate rise, which is not expected to come until mid-2015.

Christine Lagarde is currently speaking and said the US had communicated its intentions well and the current stance on monetary policy should be maintained. She added that the global economic situation was still brittle.

Here is our full story on the US jobs numbers. The US unemployment rate fell to its lowest level since 2008 on Friday, in a move hailed as a sign of progress by economists despite 9 million people remaining out of work, writes Heidi Moore in New York.

European stock markets are still down, with the FTSE 100 the only major index that is trading higher at the moment, up some 20 points, or 0.3% at 6564.88.

The Russian central bank said a decision to intervene in the forex markets to prop up the rouble could be taken within several minutes and without prior warning. It considers the rouble undervalued and expects a certain correction in the exchange rate.

Paul Ashworth, chief US economist at Capital Economics, concurs:

This is a strong report that suggests the first rate hike is coming soon. We expect the Fed to start tightening in March next year.

Chris Williamson, chief economist at Markit, says:

Buoyant labour market data, plus signs that the US economy is growing strongly despite slower growth elsewhere in many countries, adds to the likelihood of the Fed being the first major central bank to hike interest rates.

Further robust data in coming months will fuel expectations that the first rate hike could occur early next year, earlier than current expectation of a mid-year hike, though policymakers will want to see wage growth revive before being comfortable with raising households’ borrowing costs.

“On balance this was actually a strong report, despite the headline payrolls miss,” concludes Marc Ostwald, strategist at ADM Investor Services International.

He notes that the US underemployment rate dropped to a new cyclical low 11.5% from 11.8% and “there has been significant acceleration in the fall in recent months, which will not go unnoticed by Yellen & Co.”

However:

Payrolls were disappointing in terms of the breadth of payrolls gains, which were still heavily concentrated in lower-paid services jobs (retail & leisure/hospitality).

Once markets delve into the details, they should come to the conclusion that the risks in terms of Fed rate timing is that they move earlier than June 2015.

European stock markets are still in the red, while the FTSE 100 index in London is holding on its gains. It is trading some 33 points higher at 6584.36, a 0.5% rise. Germany’s Dax has slipped 0.2%, France’s CAC has shed 0.3%, Italy’s FTSE MiB has lost 0.9% and Spain’s Ibex is down 1%.

The US labour report for October doesn’t really change the positive story on the US economy, says ING economist James Knightley. To recap: payrolls rose 214,000, which was a little softer than the 235,000 consensus, but there was a net 31,000 upward revision for the previous two months so in that respect the jobs number is pretty much in line with what was expected.

Underemployment also fell nicely to stand at 11.5% while the proportion of people employed rose to 59.2%, the highest rate since 2009.

The one real disappointment was on the wage front. Average hourly earnings continue to grow at just 2% YoY despite the employment cost index report suggesting that worker compensation costs are rising. Nonetheless, with unemployment continuing to fall, thereby shrinking the pool of available labour, we expect wages to eventually respond.

While today’s report is unlikely to have any major market implications, the underlying story for the household sector remains very positive. With employment rising nicely, gasoline and mortgage rates plunging and equities hitting new highs we should expect to see ongoing strong readings for consumer confidence and spending, which bodes well for 4Q GDP growth. Moreover, with the eurozone and Japanese central banks continuing to provide aggressive stimulus, the positive US dollar environment looks set to continue.

A little bit for everyone in the US jobs report...

Job growth in the US has exceeded 200,000 in each of the last nine months, suggesting the recovery is pretty solid.

The Banque de France conference in Paris has a panel discussion this afternoon with IMF director general Christine Lagarde and US Fed president Janet Yellen (3.15pm until 4.45pm GMT).

Returning to Mark Carney’s comments earlier, my colleague Phillip Inman writes:

The Bank of England may need to rescue trillion dollar financial markets in the next crisis following a shift in business lending from banks to the bond markets, Bank of England governor Mark Carney told a conference on Friday.

Markets for bonds and derivatives could come under pressure in a repeat of the 2008 crisis and need the support of central bank funds following a “structural shift” away from bank lending, he warned.

Speaking at a gathering of central bankers in Paris, Carney said that tighter regulations imposed on banks had raised lending costs and encouraged businesses to seek loans from other sources.

He said reducing the dominance of bank lending was a positive step, but could mean Threadneedle Street extending its sphere of influence to protect financial markets from collapse.

Central banks have come under increasing pressure to make sure that the next crisis in the banking sector can be handled without a taxpayer-funded bailout. A series of regulatory reforms, including demands that banks hold greater reserves and conform to strict lending rules, have reduced the risk that taxpayers will need to find a rescue of the sector.

But Carney conceded that the job was not yet complete. He said: “The implicit [taxpayer] subsidy to banks has come down substantially but not been eliminated. We are still working to end too big to fail”.

It’s non-farm payrolls Friday! The numbers, due at 1.30pm GMT, will shed further light on the strength of the US recovery, particularly in the wake of the Fed’s recent ending of quantitative easing.

Daniel Sugarman, market strategist at ETX Capital, says:

While no-one’s hurrying to stand in front of a ‘mission accomplished’ banner just yet, the general feeling is that the US economy is strengthening significantly, and markets will be hoping that the Payroll numbers confirm this view. The estimate is for an increase of 231,000; in the past any result significantly above or below the estimated figure has caused significant market jitters.

The session has finished, and Carney et al. are heading to lunch. Or rather, déjeuner, as the programme states.

Here are some more detailed quotes from Carney, courtesy of Reuters.

Turning to the implicit subsidies – effectively too-big-to-fail and the likelihood of government support – trust me, when things were under stress, that subsidy was massive. It has come down, it has not been eliminated, but that is because we are still working to end too-big-to-fail.

The point of all this is that under-capitalising institutions [and] implicit subsidy conferred a large advantage on bank-based finance, and not just lending but trading book finance by banks. We’re working to restore market discipline.

BlackRock boss Laurence Fink concurred:

It’s up to all of us to make markets safer and sounder and more robust.

Carney finished by talking about the Bank of England’s fairer markets investigation. Recommendations will be published by June next year.

For markets to be effective, they also have to be fair.

The Bank warned of “deep-rooted problems” in the City that are undermining public trust in the financial system, when it launched a sweeping review intended to wipe out market manipulation last week, our City editor Jill Treanor reported then.

Deputy governor Nemat “Minouche” Shafik said the behaviour of traders in foreign exchange, currencies and bonds markets pointed to a pattern of behaviour that goes beyond a few rogue players. You can read the full story here.

Carney said in Paris:

We are changing the incentives in the banking system.

Since the crisis of 2008, virtually all credit growth has been in the capital markets. So banks have been given a series of incentives aside from capital to focus on their more traditional responsibilities [e.g. bank loans].

We are looking to change rules around securitisation.

Bank loans have gone up, trading book finance is down and liquid assets have increased, Carney said, as authorities around the world sought to make the financial system more resilient to shocks.

Carney has taken the podium to talk about increased capital requirements for banks and “too big to fail” banks.

In Paris, Danièle Nouy, president of the ECB’s supervisory council, is talking about shadow banks. Mark Carney is there too but is unlikely to say much (if anything) on when UK interest rates will go up. Next Wednesday’s quarterly inflation report will shed more light on the Bank of England’s thinking.

In Paris, the session with Mark Carney and others has got under way. You can watch it here. It is entitled S’adapter aux changements dans l’intermédiation financière and is chaired by Bundesbank president Jens Weidmann.

Hyun Song Shin, a former economics professor at Princeton, is speaking first, followed by a 30-minute debate between Carney, BlackRock boss Laurence Fink and Danièle Nouy, president of the ECB’s supervisory council.

Before we switch to the central bankers’ symposium in Paris, some instant reaction to the UK trade data.

Alan Clarke, at Scotia Bank, says:

This series is like a yo-yo. You get one good month, one bad month, one good month and so on. There has been no change in the trend - net trade has contributed very little to growth of late and there is little sign of that changing any time soon.

It is the lack of domestic demand in the eurozone that means we struggle to increase our exports as much as our imports. This is probably because continental European consumers and businesses are demanding less of everything and there is not an awful lot that we can do about that apart from watch and wait for the Eurozone recovery to gain traction, or try to export more to elsewhere on the globe.

Maeve Johnston, UK economist at Capital Economics, says:

Looking ahead, exporters are likely to struggle further over coming months given the strong pound and weakness in the euro-zone. But with UK exports still competitively priced in foreign currency terms, we remain optimistic that exporters will benefit from stronger global growth next year and that the economy can still rebalance gradually towards the external sector over the medium term.

David Kern, chief economist at the British Chambers of Commerce, says:

It is disappointing to see the UK’s trade deficit widen in September after some encouraging figures the previous month. While monthly figures can be erratic, the trade deficit also widened in Q3 as exports fell and imports rose. In September, the UK recorded its largest ever deficit in goods trade with Germany, partially offset by improvements in trade with China and Hong Kong.

We must drastically change our approach to supporting exporters as we are failing to make adequate progress towards rebalancing the economy. The government must introduce further measures to support UK exporters around the world, including the growing economies of Asia.

Bank of England governor Mark Carney is speaking this morning in Paris. He will be on a panel at the International Symposium of the Banque de France, at 10.15am GMT. Webcast at banque-france.fr/en/home.html

The ECB will suspend crisis loan repayments over the Christmas/New Year period. It said this morning it would not conduct early repayments of its long-term refinancing operations between 24 December and mid-January. The last repayment of 2014 will be settled on 23 December. Repayments will resume on 14 January.

Like last year, the ECB decided to suspend repayments of the three-year LTROs during the year-end period, “in view of the expected low interest and the concentration of other operations owing to public holidays.”

Among today’s stock market losers, car insurer Admiral, which owns price comparison site Confused.com, stands out. Shares fell as much as 3.7% after the company posted a drop in turnover amid fierce competition. Rival RSA fell 2.7%.

Admiral boss Henry Engelhardt said:

We anticipate that future earnings will be impacted by the decline in premiums experienced across the market in recent years, coupled with a return to higher claims inflation.

‘Crash for cash’ incidents have hit an all-time high, a report from Aviva said earlier this week. More than 50% of the insurer’s fraudulent motor injury claims are being made by organised gangs.

The FTSE 100 continues to march higher and is now trading 0.7% higher, or 45 points, at 6597.08. Royal Mail is one of the biggest risers, up as much as 3.3%, after a positive broker note. Goldman Sachs decided to resume its coverage of the company with a “buy” rating.

The FTSE hit a peak of 6904.86 in early September, its highest level since the start of 2000. In October, weak European economic data dragged down stock markets, including the London market, which slumped to 15-month lows. But it has clawed back ground since then.

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

Wall Street and the dollar surged yesterday fuelled by optimism about the US economy, with the Dow Jones and S&P 500 closing at new records.

The pound and the euro slid after the Bank of England and the European Central Bank both left policy unchanged. ECB chief Mario Draghi did his best to dispel rumours of discord on the ECB governing council, insisting there was no north/south divide.

Draghis’s comments that the bank was unanimous in being prepared to use unconventional stimulus measures if needed gave European stock markets a lift yesterday, with the exception of Italy and Spain.

All eyes are on US non-farm payrolls today, which are out at 1.30pm GMT. Wall Street analysts estimate 231,000 new jobs were created in the US economy last month, slightly below September’s better-than-expected number of 248,000. The jobless rate is expected to have stayed at 5.9%, a six-year low.