French recession fears grow -- as it happened

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow's data from the Office for National Statistics - a measure often used for setting pay and pensions - is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow's data could show CPI at the Bank of England's government-set target of 2% for the first time since November 2009. They comment: "Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

"Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

"In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland's exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Following the fifth and final review of Spain's financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country's banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks' balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets - so as to reverse the rise in government debt - and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms - amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system - and to ensure effective implementation of all reforms.

Full report here.

The protests in Ukraine have put pressure on the country's credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country's credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here's ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd's of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd's managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd's of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB's Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

...The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

And here's the text of Draghi's speech.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 - DRAGHI - UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 - DRAGHI - SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 - DRAGHI - ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 - DRAGHI - GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 - DRAGHI - GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 - DRAGHI - MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 - DRAGHI - WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 - DRAGHI - SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 - DRAGHI - SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 - DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit's monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up -- it just reported a 1.1% jump in industrial output in November.

On that note, I'm handing over to my colleague Nick Fletcher.

Inga Beale's appointment as boss of Lloyd's of London will go a small way to closing the gender gap at the top of the City. But there's still some way to go.

Currently there are just three women running FTSE 100 companies -- Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd's of London isn't a listed company, so Beale won't join the quartet. 

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent -- but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 -- currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress.... except that women who do reach senior positions are in jobs that are traditionally lower paid.

How times change.... Inga Beale is appointed as Lloyd's first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd's decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd's website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

The Eurozone's trade surplus almost doubled year-on-year in October -- but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone's posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year's €57.4bn.

The data also underlined today's theme -- the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA's recent problems -- three profits warning, and the resignation of its CEO -- could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results -- and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That's sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit's view that today's PMI data doesn't make fresh stimulus from the European Central Bank more likely.

There's also edginess ahead of the Federal Reserve's meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O'Flanagan of Clear Currency reckons the Fed won't taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

Howard Archer of IHS sums up the good news in today's data.....

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

... and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter. 

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

And here's some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high....

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace. 

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Credit Agricole's Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings...

And this graph shows how recent PMI data has been more negative than the official growth data:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France's GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September -- putting France back into recession (defined as two consecutive quarters of negative growth) 

Williamson added:

The pipeline of work that companies have to deal with is drying up and we'll get to a stage where, if that doesn't turn around, there will be increased job losses.