Euro hits two year low as ECB tells staff to prepare more measures -- live

ECB president Mario Draghis’s comments that the bank was unanimous in being prepared to use unconventional stimulus measures if needed gave markets a lift. Italy and Spain, however, were an exception, ending the day slightly lower. Investors will now be looking ahead to the final key event of the week - Friday’s non-farm payroll numbers. The final scores showed:

• The FTSE 100 finished 12.01 points or 0.18% higher at 6551.15
• Germany’s Dax added 0.66% to 9377.41
• France’s Cac closed 0.46% higher at 4227.68
• Italy’s FTSE MIB dipped 0.73% to 19,285.76
• Spain’s Ibex ended 0.15% at 10,261.8

On Wall Street, the Dow Jones Industrial Average is currently 29 points or 0.17% higher.

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

Aengus Collins, Eurozone analyst at the Economist Intelligence Unit, agrees that it was another assured appearance from Mario Draghi (as the Twitter crowd reckoned too).

This was a typically adroit performance from Mr Draghi, on whose credibility and effectiveness the euro zone is far too reliant. Had the recent rumours of dissent been allowed to fester and to damage his authority, the potential damage could have been grave. However, it is important to put Mr Draghi’s latest statements in perspective.

He has formalised a previously verbal commitment to balance-sheet expansion, but the fact remains unchanged that the level of intervention being promised is unlikely to deliver a sufficient jolt to the real economy to lift the euro zone onto a markedly improved trajectory. The ECB is still not promising a game-changer.

Mario Draghi never fails to deliver, eh? Here’s the key points from today’s ECB press conference (highlights start here).

1) The European Central Bank’s governing council has tasked its staff to start work to ensure further measures to stimulate the eurozone economy, if needed.

2) The governing council also unanimously agreed that the ECB’s balance sheet should be expanded back to towards its level in March 2012. That means up to one trillion euros more.

3) The euro has hit a new two-year low, falling to $1.243 as Draghi addressed the press pack.

4) Draghi has played down reports of splits at the heart of the ECB -- saying that last night’s central bank chief’s dinner was remarkably constructive.

And he insisted that bank chiefs from North and South Europe are not at each other’s throats.

4) Draghi was less keen to discuss whether the ECB held a gun to the head of Ireland to take a bailout in 2010, as correspondence released today suggests. He did argue that Ireland’s economy has done well since the bailout ended -- cold comfort for those years of austerity, I suggest.

5) The broad economic picture remains weak, with Draghi warning that risks remain to the downside.

The weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment.

In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook.

Eva Taylor of Reuters asks whether there were any bilateral talks after last night’s governing council dinner, and whether there was any discontent raised.

A brave question, given she co-wrote the story that central bank governors are concerned about Draghi’s management style.

Didn’t you write that story, Draghi asks?

Yes I did, she replies.

Well, it was a very successful meeting. No concerns were raised. We had rich, interesting, very candid discussions.

The dinner went very well, even better than expected, Draghi adds.

<chortles in the press room>

But were there any bilateral talks after the meeting, Taylor presses?

I’m not ubiquitious. Draghi replies.

Draghi insists that there is no split at the ECB between governors from Northern European countries, and those from the South. Not at all!

He wishes he could give some examples of countries agreeing with each other, but alas, confidentiality precludes it.

What does the decision to “task ECB staff” to prepare for further measures mean exactly, asks Brian Blackstone of the WSJ.

Draghi says the ECB wants to get all the relevant staff up to speed now, in case those measures are needed.

Blackstone adds that Draghi told the press pack not to worry about the balance sheet goals last month - so why the change?

Draghi agrees that the ECB has given more guidance here - both on balance sheet size and the composition of what assets it holds.

Draghi then checks his folder, and decides that he told the European Parliament that the balance sheet would rise towards 2012 levels.

Yes, Mario, but you weren’t as forthcoming last month....

Onto questions.

Does the ECB now have a specific target for expanding its balance sheet?

Draghi replies by reading out this section from his statement:

Following up on the decisions of 2 October 2014, we last month started purchasing covered bonds under our new programme. We will also soon start to purchase asset-backed securities. The programmes will last for at least two years. Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these asset purchases will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012.

I think that’s a yes.

That statement is now online here, by the way.

And could big decisions be taken with a simply majority of national central bank chiefs?

Draghi points out that today’s statement was signed by the entire governing council, including this crucial sentence:

The Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed.

Draghi says that the ECB has responded to inflation outlook, weakening growth and subdued monetary and credit dynamics.

We believe these measures will move inflation back towards its target, he says.

And the governing council is unanimously committed to taking further “timely measures”, if needed.

That’s important -- the ECB isn’t out of firepower.

Draghi begins by confirming that the ECB left borrowing costs unchanged.

The ECB has started buying covered bonds, he confirms - a decision taken last month.

And we will start to buy asset-backed securities soon.

These programmes will run for 2 years, and have a “sizeable impact” on our balance sheet, moving it towards its 2012 levels.

That’s interesting -- Reuters reported this week that some governing council members were unhappy that Draghi appeared to put a size on the asset purchase programme at an earlier press conference.

OK, time for the main event of the afternoon - the European Central Bank press conference, from 1.30pm GMT or 2.30pm in Frankfurt, with president Mario Draghi.

We’re not expecting any new policy announcements, after the ECB left interest rates unchanged at today’s meeting.

But there are several things to watch out for:

1) Any more details of the ECB’s new stimulus programme, under which it is buying assets from banks. It started buying covered bonds last week - and should move onto asset-backed securities soon.

But is it considering widening the plan to include corporate bonds, as rumoured in recent days?

And how widely will it expand its balance sheet?

2) Mario Draghi’s view of the eurozone economy, especially after the OECD warned today that it faces stagnation unless the ECB does more.

Is he still confident that the eurozone will avoid deflation?

3) Draghi’s take on the letters exchanged between the ECB and Ireland in 2010, which show pressure being imposed on Dublin to take a bailout.

4) Hopefully someone in the press pack will ask Draghi about Reuters’ claim that several central bank chiefs have concerns over his managerial style. Is there a rift widening in Frankfurt?

The European Central Bank’s governing council has voted to leave interest rates unchanged at their record lows, at today’s meeting.

The means:

• headline rate remains at 0.05%,
  
• the marginal lending date (charged to banks) stays at 0.3%, and
  
• the deposit facility rate (paid on bank deposits at the ECB) stays at minus 0.2%.
  

Next.... the ECB’s press conference in under 45 minutes.

The ECB has just published details of letters exchanged with the Irish government in the run-up to the country’s bailout in 2010.

They’re online here:

6 November 2014 - ECB publishes letters from 2010 on Ireland

The ECB claims that this dcumentation shows “domestic factors” pushed Ireland towards its programme, rather than pressure from Frankfurt.

Perhaps... but the first letter, from then Jean-Claude Trichet, ends with a warning that the ECB could withdraw its liquidity support for Ireland’s banks unless

Trichet wrote that:

Further decisions by the governing council of the ECB regarding the terms of liquidity provision to Irish banks will...need to take into account appropriate progress in the areas of fiscal consolidation, structural reforms and financial service restructuring.

Unfortunately, a second letter from Trichet hasn’t uploaded properly....

Last night, the Irish Times reported that this later later showed that the governing council of the ECB would only agree to provide further emergency liquidity assistance (ELA) to the banks if it received “in writing a commitment” from the government to apply immediately for a bailout.

JUST IN: The Bank of England’s monetary policy committee has voted to leave UK interest rates at their current record low of 0.5%.

It has also made no changes to its asset purchase scheme (quantitative easing), which remains at £375bn.

And there’s no statement from the BoE either.

Not a surprise - most economists think rates won’t rise until 2015....

Over in Brussels, the European Commission is refusing to engage with last night’s revelations that major corporations have been avoiding tax through Luxembourg on an industrial scale.

Even though the EC’s new president, Jean-Claude Juncker, was Luxembourg’s prime minister and finance minister for most of the last decade.

Margaritis Schinas, chief EC spokesperson, says these revelations are a matter for Luxembourg, and said Junker is serene and calm.

But it’s a crucial issue, especially as the EC is probing Luxembourg’s tax affairs....

OECD chief economist Catherine Mann has urged the eurozone’s three largest economies to do more to stimulate growth, or risk sliding into stagnation.

She was speaking to our economics correspondent, Phillip Inman, who reports:

France, Germany and Italy must agree to jolt the eurozone economy back to life or face a long period of low growth, low inflation and an increasing debt burden, according to a stinging report by the Organisation for Economic Cooperation and Development (OECD).

The Paris-based thinktank, which counts the world’s major trading states as members, said Spain and other smaller countries had shown the way by pushing through reforms to reorganise their economies while the core nations were locked in discussions over how to lift growth.

Speaking before a meeting of world leaders at the G20 summit in Brisbane, Australia, this month, the OECD’s chief economist said eurozone governments needed to support efforts by the European central bank to lower borrowing costs in addition to boosting public spending on education and infrastructure investment.

Catherine Mann said: “Fiscal spending in the near term to support innovation, education, and infrastructure will both support near-term growth as well as turn back the legacy of low potential output and complement the engines of trade and investment.”

She praised Spain and other countries hit hard by the 2008 financial crisis for restructuring their banking sectors and driving down labour costs to revitalise the economy. She said the continent’s core countries needed to unlock the potential for growth in their economies with a similar programme of reform.

And here’s the full story: France, Germany and Italy urged to follow Spain’s lead to revive eurozone

Today’s Organisation for Economic Co-operation and Development’s report is called “Getting the world economy into higher gear”.

It’s online here as a pdf.

Here are some key points:

The Organisation for Economic Co-operation and Development has warned that the weak eurozone is dragging back the global economy.

In new forecasts just released, the Paris-based group warned that the world is only achieving a ‘low-gear’ recovery.

OECD Secretary-General Angel Gurría has warned there is an “increased risk” of stagnation in Europe, and rising risks in the financial markets.

Gurría says:

“We have yet to achieve a broad-based, sustained global expansion, as investment, credit and international trade remain hesitant,”

adding:

“Financial risks remain high and may increase market volatility in the coming period.

There is an increasing risk of stagnation in the euro area. Countries must employ all monetary, fiscal and structural reform policies at their disposal to address these risks and support growth,”

The OECD also repeated its call for the European Central Bank to launch more stimulus measures, beyond those recently announced.

With euro area inflation far below target and drifting downward, the European Central Bank should expand its monetary policy stimulus – even beyond measures already announced - building on the positive steps taken to date.

We’ll find out what Mario Draghi, the ECB chief, thinks about that in a few hours when the ECB holds its monthly press conference.

Here are the OECD’s forecasts:

• OECD FORECASTS WORLD GDP GROWTH OF 3.3 PCT IN 2014, 3.7 PCT IN 2015
• OECD FORECASTS U.S GDP GROWTH OF 2.2 PCT IN 2014, 3.1 PCT IN 2015
• OECD FORECASTS EURO AREA GROWTH OF 0.8 PCT IN 2014, 1.1 PCT IN 2015
• OECD FORECASTS JAPANESE GDP GROWTH OF 0.9 PCT IN 2014, 1.1 PCT IN 2015
• OECD FORECASTS CHINESE GDP GROWTH OF 7.3 PCT IN 2014, 7.1 PCT IN 2015

There are more details here, on the OECD’s website.

Reaction to follow....

Just in... UK manufacturing has beaten expectations.

Industrial output rose by 0.6% in September, the Office for National Statistics reports, beating expectations of a 0.4% gain.

The manufacturing sector expanded by 0.4%, partly due to strong output in the food industry, and a rebound in car production.

The reopening of some of the large North Sea oil fields, such as Buzzard, after summer maintenance also boosted output.

However, UK industrial production is still 9.5% below its pre-crisis level, with manufacturing 4.1% below that peak.

.... as are other international rivals:

Britain’s housing market may be cooling (see Halifax’s data), but the nation’s love affair with the car continues.

The Society for Motor Manufacturers and Traders reports that 2 million cars have now been registered so far this year, the best performance in over seven years.

But the SMMT does reckon that the growth rate is cooling, and will be flat in 2016.

Here’s the key points:

• New car registrations jumped 14.2% in October to 179,714 units, marking the 32^nd consecutive month of growth.
  
• 2,137,910 cars registered in the year-to-date –first time the market has passed two million in October since 2007.
• October performance exceeded expectations; demand for new cars set to stabilise in coming months.
• Rising demand for alternatively-fuelled vehicles continues, with market up more than 50% in both month and year-to-date.

Britain’s Competition and Markets Authority has vowed to get to grips once and for all with the country’s banks.

It announced a full, 18-month inquiry into the sector this morning, to decide whether there is effective competition in retail banking.

Consumer groups and new entrants to the sector have welcomed the move.

As Jill Treanor explains, the inquiry could help break the stranglehold of the “big four”.

Alex Chisholm, the head of the Competition and Markets Authority (CMA), is to embark on the most detailed analysis of the sector for a decade after concluding that customers were not getting a good enough deal from the major high street players. Major banks could be be broken up or forced to be more transparent about their fee structures and a previous deal over the treatment of small business customers – in operation since 2002 – is also to be reviewed.

According to the CMA the big four – Barclays, HSBC and bailed-out Lloyds Banking Group and Royal Bank of Scotland – have a 77% share of personal current accounts and a 85% share of small business banking, market shares which have barely shifted despite almost a dozen of investigations in the last 15 years.

Is Britain’s housing market running out of steam?

UK house prices fell by 0.4% in October, according to figures just released by the Halifax building society.

It’s the latest signal that Britain’s housing market is cooling, as tighter mortgage rules hit demand.Economists had expected a 0.4% rise.

Halifax’s monthly house price index can be volatile. But over the last three months, prices are up by just 0.8% -- the smallest rise since the last three months of 2012.

Martin Ellis, Halifax’s housing economist, says demand has weakened in recent months:

“Activity continues to decline with mortgage approvals in September falling for the third successive month to a 14 month low, whilst home sales are at their lowest level since October 2013. The associated weakening in demand has brought supply and demand into better balance.

“The economy is, however, continuing to grow at a healthy pace and employment is still rising. These factors should support housing demand over the coming months. However, while the chances of an imminent interest rate hike may have receded, a recent Halifax survey found that many borrowers are concerned about the impact a rise could have on their monthly mortgage repayments over the next 12 months. This concern is likely to curb buying intentions.”

Reaction to follow....

There’s a shake-up underway in Britain’s milk industry -- Dairy Crest is selling its dairies operations to rival Müller , for £80m.

The move allows Dairy Crest to focus on its cheeses and spreads operations, such as Cathedral City and Utterly Butterly, where profit margins are higher.

Dairy Crest says:

[we] believes the Transaction to be in the best interests of consumers, customers, dairy farmers, employees and Dairy Crest’s shareholders.

But it also means that Britain’s milk industry is dominated by just a few players -- including two overseas titans. So there could be competition concerns.

Farmers won’t want to see their prices pushed down even further now Müller has cornered the market.

Müller will get Dairy Crest’s factories at Foston, Chadwell Heath and Severnside; they produce 1.3 billion litres of milk per year.

The deal also includes the Hanworth glass bottling site, where Dairy Crest is consulting with employees on the site’s future, and 72 depots.

Older readers will remember that Dairy Crest was once part of the Milk Marketing Board -- so this is something of a moment.

Bad news from Germany - factory orders across Europe’s largest economy have missed expectations in September, intensifying concern over its growth prospects.

The economy ministry reported this morning that factory orders rose by just 0.8% in September, way below forecasts of a 2.3% rise.

It blamed “global crises and weak eurozone growth”, for weighing on German industry.

Alarmingly, domestic orders actually fell, by 2.8%, showing weak demand as Germany teeters on the brink of recession.

Foreign orders rose by 3.7%, suggesting the rest of the world economy is holding Germany up rather than the other way around.

The only good news is that August’s shocking figures have been revised up a little - from a 5.7% tumble to ‘just’ a 4.2% slide.

But generally it’s a worrying sign, as Credit Agricole’s Frederik Ducrozet explains:

More reaction to follow...