ECB hikes growth forecasts but admits losses on Steinhoff bonds - as it happened
All the day's economic and financial news, as central bankers hold their final monetary policy meetings of 2017
- Latest: Mario Draghi admits ECB has lost money on Steinhoff bonds
- Bonds were bought through its stimulus programme
- Steinhoff hit by accounting problems
- ECB also raised growth forecasts
Earlier:
- Bank of England votes 9-0 to leave borrowing costs unchanged
- Bank: Brexit progress has boosted the pound
2.46pm GMT
Time for a recap.
The European Central Bank has hiked its growth forecasts, but admitted that inflation still won't be on target by 2020.
"Running such big corporate programmes it is not unusual that losses may be happening," he told a news conference after the bank left benchmark interest rates and the terms of the asset purchase scheme unchanged.
The ECB's rules only allow it to own debt as part of its asset-buying programme, which means it might have to sell its Steinhoff holding if the bonds were converted to equity.
Draghi forced to defend ECB's buying of Steinhoff bonds.
"Will draw lessons from Steinhoff experience."
"As soon as we got news of Steinhoff scandal we stopped buying the bond."
"Losses reported in the media exaggerated by a factor of 10."
~via fxstreet
2.27pm GMT
The press conference is over -- several minutes early. As suspected at the start, Draghi is ready for Christmas.
2.26pm GMT
Back on the ECB's stimulus programme....
Draghi says the ECB hasn't discussed whether it should bring its bond-buying programme to an abrupt stop next September, or simply continue at a slower rate.
Draghi walks back his sudden stop denial he mentioned last press conf, now says they have not discussed QE after September 2018, meaning it may very well be cut to zero
2.24pm GMT
Q: What the risks to your inflation forecasts - to the downside, or the upside?
The risk of deflation has disappeared, Draghi replies, but he won't go much further than that.
Draghi refused to provide an explicit balance of risks to the inflation outlook. The last time the ECB had one ("broadly balanced") was August 2014.
German journo trying to get Draghi to admit that inflation risks are to the upside.
What happens next will not surprise you. : )
2.23pm GMT
Q: Do you think Greece will need a fourth bailout when its existing programme expires?
That's an issue for the Greek government, Draghi replies.
ECB's Draghi: Up to Greek Government to decide on aid program.
2.17pm GMT
Q: Germany hasn't had a government for three months, and it might take several more months. Will this impact the push for banking union?
Draghi replies that the ECB is 'entirely in the hands of the citizens of Europe'. Thanks to democracy, it is the people who will decide how and when the eurozone is strengthened.
"The citizens of this part of the world take their time to form governments...," says Mario Draghi when asked about Germany's government formation.
#Draghi: "it's not in our hands", it's up to the citizens to decide what to do with the euro area. grazie!
2.15pm GMT
Q: Are you worried about bubbles in the financial markets, and how your exit from your stimulus programme could effect them?
We always discuss financial stability issues, Draghi replies firmly.
*DRAGHI: ECB DOESN'T SEE SYSTEMIC RISKS TO FINANCIAL STABILITY
2.11pm GMT
Q: Mr Draghi, do you expect to raise interest rates before your term ends in autumn 2019?
Draghi says he can't say what he expects...but any rate rise would be good news as it would mean that inflation was on a 'self-sustained' recovery.
2.10pm GMT
On the Steinhoff bond issue, Mario Draghi also insisted that the ECB's losses were being exaggerated significantly.
he said "ten fold" so safe to go with a40 million instead of a400 million?
2.08pm GMT
Q: Some European companies think they are disadvantaged by the new US tax reforms - do you have any concerns?
Draghi says the ECB hasn't looked at this issue yet, but it will give it some consideration.
2.06pm GMT
Draghi is then asked whether the ECB expects to suffer significant losses over its holdings in bonds issued by Steinhoff, the retail giant that is embroiled in a deepening financial scandal.
Draghi confirms that "the losses are there" within the ECB's bond-buying programme, although they've not been realised yet.
The goal is not to achieve profits or avoid losses.
2.01pm GMT
Q: Some of your colleagues have said they expect the asset-purchase programme to end in September. Do you?
1.59pm GMT
Q: Are you worried about negative effects on the eurozone economy from last night's increase in US interest rates, which further widens the gap between American and European borrowing costs?
The different decisions taken here and on the other side of the ocean reflect the different stages that our respective economies have reached, says Draghi firmly.
1.56pm GMT
Q: Are you reviewing the asset-purchase programme each month, or are its parameters fixed in stone until September?
And has there been any discussion on the open-ended design of the APP?
1.54pm GMT
Q: Did you consider dropping the link between the asset purchase scheme and inflation in your guidance?
No, say Draghi.
1.51pm GMT
Onto questions....
Q: When will we know when the ECB will decide how its asset purchase scheme will operate beyond September? [currently, it is due to run at a30bn/month until at least September]
1.46pm GMT
Draghi ends his statement by urging eurozone governments to "substantially" step up their structural reforms.
1.45pm GMT
On its new forecasts, the ECB sees inflation at 1.7% in 2020. In other words it does not rise to its 'below, but close to 2%, target'. Indicates an accommodative stance is still required. #ECB
1.44pm GMT
We also have new inflation forecasts...and the ECB has raised its forecast for 2018, from 1.2% to 1.4%.
But it still doesn't see consumer price inflation hitting its target of just below 2% by 2020. That explains why it is promising to keep interest rates rates low for some time.
#ECB SEES 2017 INFLATION AT 1.5% VS 1.5% - BBG
*ECB SEES 2018 INFLATION AT 1.4% VS 1.2%
*ECB SEES 2019 INFLATION AT 1.5% VS 1.5%
*ECB SEES 2020 INFLATION AT 1.7%
1.41pm GMT
The ECB has "substantially" upgraded its growth forecasts compared to September's forecasts, says Mario Draghi.
The new forecasts are:
Euro rises as ECB's Draghi confirms that growth projections have been revised up. pic.twitter.com/uylZqZg4vP
1.39pm GMT
Draghi says the eurozone still needs "favourable" financing conditions, even though the growth outlook has improved significantly recently.
#Draghi says #ECB has seen a "significant improvement in the growth outlook" since last time.
1.36pm GMT
Mario Draghi sets the tone for today's press conference by arriving a couple of minutes late.
1.29pm GMT
Mario Draghi's press conference is about to start in Frankfurt. It's also being streamed live here:
12.59pm GMT
Watch out for paper aeroplanes flying across the ECB press conference room when Mario Draghi's press conference begins.....
As my colleague @stehsatz notes, this #ECB meeting has the feeling of the last class before the school holidays start: none of the pupils really pays attention and even the teacher can't wait for it to be over
ECB unchanged. I wouldn't be surprised if this is one of the shorter press conferences. Not to say there aren't issues to discuss, but the policy path is pretty clear.
#EURUSD barely moved after #ECB announcement. At the press conference, we will look for, whether the ECB & #Draghi are going further down the road shifting to a more holistic view of the #economy and #inflation pic.twitter.com/aqPXZOeyFt
12.54pm GMT
Over in Frankfurt, the ECB has voted to leave interest rates across the eurozone at their current record lows.
That means the headline cost of borrowing remains at zero, while banks will be charged a negative interest rate for leaving deposits with the central bank.
At today's meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.
The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
Press release: Monetary policy decisions https://t.co/aZrLuuyhWa
12.50pm GMT
The Bank of England's interest rate decision hasn't caused many ructions in the City.
After the excitement of last month's interest rate rise it was back to business as usual for the Bank of England today, with a fully-expected unanimous no change decision.
The minutes were also fairly dull, with little having changed in the Committee's view since the November Inflation Report. Brexit is highlighted as the most significant influence on the economic outlook, with the minutes noting the trade-off between setting interest rates to control inflation and setting them to provide support to jobs and growth.
Following the first rate hike in a decade just last month, we did not expect another policy change today at the BoE's December Monetary Policy Committee (MPC) meeting. Instead, we were mainly looking for clues in the forward guidance for when the BoE would hike next. Unfortunately, the MPC did not offer much. By voting unanimously in favour of keeping rates on hold today while stating in its guidance that, 'further modest increases in Bank Rate would be warranted over the next few years, in order to return inflation sustainably to the target', the MPC signalled that while it plans to tighten monetary policy further, it is not yet ready to begin the process of preparing markets for the next hike just yet.
This sits well with our call that the next hike will not come until the second quarter of 2018, some six months away. Expect stronger guidance on the path of rate hikes at the February 2018 Inflation Report when the BoE will also updates its economic forecasts. In addition, the committee stated that, with respect to last month's 25bps rate hike, that 'it was too early to gauge fully the effect that this tightening was having on the economy' - expect a detailed analysis in the February report.
"It came as no surprise that the Monetary Policy Committee left interest rates unchanged at 0.5%. At a 9 - 0 vote, the committee has been more aligned than it has been for some time.
The economy remains fragile and even though progress is being made in the Brexit negotiations the eventual outcome is still very uncertain; businesses and individuals will remain wary and conscious of what they are spending.
12.45pm GMT
Disney's Bob Iger has been talking about the Fox deal:
Asked whether @21CF CEO James Murdoch will be joining Disney, Bob Iger says: "James and I will be talking over the next number of months. He's going to be integral to the integration process. And he and I will be discussing whether there's a role for him or not at our company."
Fox-Mouse deal is a brilliant two-fer for Rupert Murdoch: he gets billions from sale and settles dynastic succession problem #Disney
.@tomkeene on Disney buying Fox assets to @FerroTV: I'm wondering what's going to happen to @TheSimpsons franchise.. Why do you think I became who I am?.. Inspired by Homer, it's poetry. It's like American Shakespeare. pic.twitter.com/YkKhw7pJL2
Disney officially buys Fox....and another Simpsons joke comes to life: pic.twitter.com/FshXPmXnrT
12.23pm GMT
Breaking news: Rupert Murdoch's 21st Century Fox has agreed to sell its entertainment assets to Disney in a $66bn (49bn) deal that transforms his media empire by offloading a 39% stake in Sky.
My colleague Mark Sweney explains:
The takeover involves the 86-year-old tycoon and his family taking a 4.25% stake in Disney with assets including the 20th Century Fox film studio, the controlling stake in Britain's biggest pay-TV broadcaster and a number of cable channels going in the other direction.
Murdoch will retain control of the profitable, and controversial, Fox News channel.
12.17pm GMT
On Brexit, the Bank of England says there has been "progress" in negotiations between the UK and Brussels.
This has helped to push the pound up in recent weeks, the monetary policy committee believe.
Developments regarding the United Kingdom's withdrawal from the European Union - and in particular the reaction of households, businesses and asset prices to them - remain the most significant influence on, and source of uncertainty about, the economic outlook.
The Committee noted the progress in the Article 50 negotiations between the United Kingdom and the European Union.
12.10pm GMT
The Bank of England has flagged up that Britain's inflation rate hit 3.1% last month - meaning it has failed to meet its goal of keeping the CPI close to 2%.
The BoE pins the blame on the slump in sterling after the EU referendum in June 2016, saying:
It remains the case that inflation has been pushed above the target by the boost to import prices that resulted from the past depreciation of sterling. The MPC judges that inflation is likely to be close to its peak, and will decline towards the 2% target in the medium term.
12.07pm GMT
The Bank of England says that recent UK macroeconomic data has been "mixed", and it fears that growth may have slowed in the last quarter of 2017.
It says:
The recent news in the macroeconomic data has been mixed and relatively limited. Global growth has remained strong. Domestically, some activity indicators suggest GDP growth in Q4 might be slightly softer than in Q3.
The measures announced in the Autumn Budget will lessen the drag on aggregate demand stemming from fiscal consolidation, relative to previous plans. The labour market remains tight, and surveys suggest this will continue.
12.05pm GMT
The Bank of England is also maintaining its current quantitative easing stimulus programme, which has bought 435bn of government debt and 10bn of corporate bonds.
12.01pm GMT
The interest rate decision is unanimous, with every member of the Monetary Policy Committee voting to leave borrowing costs unchanged.
*BANK OF ENGLAND KEEPS KEY INTEREST RATE AT 0.5%; VOTE 9-0
12.00pm GMT
Breaking: The Bank of England has voted to leave UK interest rates at 0.5%.
More to follow
11.51am GMT
All eyes are turning to the Bank of England, as it prepares to release its interest rate decision at noon.
With rates highly likely to remain on hold, traders will be speed-reading the minutes of today's meeting for hints about potential policy changes in 2018.
The Bank of England will fall into a central banking holding pattern on Thursday after November saw the first interest-rate hike in a decade.
With no policy move expected by economists, the spotlight will be on any comment on the market pricing for two more rate increases over the next three years. Governor Mark Carney and most fellow policy makers haven't disputed that outlook, which would lift the benchmark to 1 percent from 0.5 percent.
11.46am GMT
Heads Up: GBP Bank of England Bank Rate (DEC 14) due at
12:00:00 GMT (15min)
Expected: 0.50%
Previous: 0.50%
11.45am GMT
It really is a busy day for central bankers.
Turkey's central bank has just raised borrowing costs by 50 basis points (0.5%), to an eye-watering 12.75%.
Turkey's Central Bank raises late liquidity window rate by 0.50 basis points to 12.75 percent, keeps other rates on hold https://t.co/kgSjfEYUYg pic.twitter.com/HfiNQhtRQ8
11.25am GMT
Last month, the Bank of England was split over whether to raise interest rates.
Seven policymakers voted to hike to 0.5%, but two - both deputy governors - wanted to leave rates on hold at just 0.25%.
It's the doves versus the hawks as the Bank of England decides on interest rates https://t.co/3F5VcwRfXf pic.twitter.com/JqcFHf2REk
11.02am GMT
A general strike has paralysed Greece as anger grows over government attempts to crack down on the ability of unionists to press ahead with industrial action.
"the government is continuing the misery, it is continuing the dirty work against the Greek people."
10.51am GMT
The pound is up a little against the US dollar this morning, at $1.344, as traders await the Bank of England's decision at midday.
Alexandra Russell-Oliver of currency firm Caxton says:
Markets expect the BoE to keep interest rates on hold after November's hike and to maintain a cautious pace going forward. No additional hikes are expected before the latter part of 2018.
This means traders will be watching today's statements for any guidance that might shift forward rate hike expectations; if such hints are provided, the pound may strengthen. Otherwise, the meeting may weigh on the pound with little set to renew sterling demand and given the risk of some traders' expectations being disappointed.
10.01am GMT
The 1.6% year-on-year jump in UK retail sales last month is encouraging, says Lisa Hooker, consumer markets leader at PwC.
But she warns that the cold snap could hurt shops:
"After a disappointing October, it's good to see retail sales picking up again in November. It was a month of two halves, with a slow start followed by sales ramping up in the final few weeks as retailers kicked off their Black Friday and Christmas promotional activity in earnest.
"Given the continued resilience of consumer sentiment, we're optimistic that Christmas shopping sales in December will hold up. However, one immediate risk is the weather - snow and freezing conditions dissuaded many shoppers from hitting the high street over the past week, and also delayed the deliveries of some online orders.
"These figures confirm that online won the Black Friday battle. Online sales growth dwarfed that of in-store as shoppers took advantage of Black Friday discounts, particularly in electricals.
"However, some retailers will be concerned that the Black Friday boost has come at the expense of traditional Christmas trading. Many consumers are likely to have pulled forward their seasonal purchases to make their budgets stretch further this Christmas.
UK Nov retail sales up by 1.1% on the month. In fact, three of the last four Nov numbers have risen in excess of 1%. Looks like, as yet, the ONS is not able to adjust properly for the seasonal effects of 'Black Friday'.
The UK official retail sales data are failing to adjust fully for the new seasonal pattern generated by Black Friday. SA sales above 12m centered average in November 14, 15 & 16, and now it seems in 17 too. Strength likely will come at the expense of weakness in Dec. pic.twitter.com/E9FerhAsWr
At 1.2% (excluding fuel), UK retail sales grew at the fastest monthly pace since April as Black Friday saw another surge in sales of household and electrical goods.
That said, it's worth treating these numbers with some caution. Black Friday is a relatively new and ever-changing beast, which makes it a nightmare for statisticians to seasonally adjust.
9.43am GMT
Breaking: UK retail sales were much stronger than expected last month, suggesting Black Friday was a success.
"Underlying retail sales growth remained reasonably strong in the last few months. Household goods stores had a good November, with a number of businesses saying that Black Friday promotions boosted sales."
Total average store prices increased by 3.1% in November 2017 when compared with the same period last year, with price increases across all store types, in particular food stores.
9.29am GMT
Economist are impressed by this month's eurozone PMI reports.
Danske Bank's Aila Mihr says the eurozone is growing strongly.
Seems like a never ending story as #eurozone #PMIs rise further in December driven by rising new orders and business expeectations. Composite PMI now consistent with GDP growth of 0.8% q/q in Q4 17. More good news for #Draghi ahead of #ECB meeting later today. pic.twitter.com/w03P5a7HSX
#Eurozone appears to be ending 2017 with substantial momentum as flash December #PMI shows #services & #manufacturing output growing at fastest rate since Feb 2011. Manufacturing PMI at record high of 60.6 with output index at 212-month high. Services activity at 80-month high
#EUROBOOM intensifies! #Germany's Manufacturing #PMI rises to the highest level ... ever! pic.twitter.com/NeDoraGYch
9.12am GMT
Boom! Eurozone companies are growing at the fastest rate in almost seven years, according to data firm Markit.
Factories are benefitting from strong order growth, with export orders growing at a near record pace. Firms also reported that they are taking on more staff, helping to tackle Europe's unemployment problems.
"The eurozone economy is picking up further momentum as the year comes to a close, ending its best quarter since the start of 2011. The PMI is signalling an impressive 0.8% GDP increase in the fourth quarter, with accelerating growth seen in both Germany and France, where fourth quarter growth rates of 1.0% and 0.7-0.8% are indicated respectively.
"France has been the big surprise this year, rapidly pulling out of its malaise to help shift the eurozone expansion into a higher gear.
Flash #PMI for #Germany at 6 year high led by record (over 2 decades) #manufacturing PMI. Q4 GDP growth of 1.0% signalled https://t.co/3ghUSloKfg pic.twitter.com/24bRTd15CT
9.05am GMT
Back in Zurich, Switzerland's top central banker insists that the SNB should maintain its ultra-loose monetary policy.
SNB Chairman Thomas Jordan says:
"Our expansionary policy remains appropriate in order to underpin the recovery and thereby ensure price stability, while taking due account of economic developments."
8.58am GMT
Over in the City, shares in Sports Direct have slumped by 9% this morning.
"Our high street elevation strategy is currently delivering spectacular trading performance within our flagship stores. We intend to open between 10 and 20 new flagship stores next year.
8.39am GMT
Take note, FX traders. The SNB is also promising to "remain active" in the foreign exchange market to prevent the Swiss franc becoming too strong.
It adds:
Since the last monetary policy assessment, the Swiss franc has weakened further against the euro and, more recently, has also depreciated against the US dollar. The overvaluation has thus continued to decrease, yet the franc remains highly valued.
8.32am GMT
Newsflash: The Swiss National Bank has left Switzerland's interest rates unchanged at their current record low of minus 0.75%.
*SNB MAINTAINS DEPOSIT RATE AT -0.75%
8.23am GMT
Bloomberg's Maxime Sbaihi says Mario Draghi has three tasks today, and they all involve some nimble verbal footwork:
It's #ECB day! #Draghi's 3 communication challenges today:
Acknowledge a better growth environment, but stay cautious on inflation
Confirm QE reduction in 3 weeks, but keep main scale-back details secret
Reassert the forward guidance(s), but recognize it's not carved in stone pic.twitter.com/G8tSW0tYms
8.15am GMT
China's central bank is also joining the party.
The People's Bank of China has raised the seven-day reverse repurchase rate to 2.5 per cent while that for the 28-day reverse repurchase rate was increased to 2.8 per cent.
7.53am GMT
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.
Related: Fall in employment rate spells end of UK jobs boom
A holding tone is most likely from Mark Carney & Co. The recent Brexit deal, six-year high level of inflation and the uptick in wages are unlikely to waver the BoE, who will be looking to analyse the impact of the first-rate hike in a decade, with no intention of further hikes until late next year, at the earliest.
With the economic recovery gathering momentum, Draghi is likely to be pushed on this and may offer small clues on the next steps, for example the timing of the first rate hike and how the central bank will approach raising rates and reducing its balance sheet.
I don't think we should expect too much though as Draghi detests being perceived to have committed to anything.
The deal, which will reportedly be announced before the New York stock exchange opens on Thursday, or around midday UK time, marks a turning point in an empire building career that started in the 1950s and is expected to lead to a split in the Murdoch family dynasty.
Rupert's son James Murdoch, the Fox chief executive, will leave the company, either to join Disney in a senior role or set up his own venture, according to the Financial Times
Related: Rupert Murdoch set to sell off 21st Century Fox assets to Disney
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