IMF boss Lagarde guilty of negligence; German confidence figures improve -as it happened

Nick Fletcher

from on 2016-12-19 14:59 (#25SN8)

2.59pm GMT

Over in Greece the government is once again denying any suggestion that elections are on the horizon despite mounting speculation that a national ballot may soon be inevitable. Helena Smith reports:

Greece's latest standoff with creditors has sparked widespread conjecture that early elections are not far off. Lenders' demands for additional austerity beyond 2018, when the country's current bailout programme ends, has put Athens' leftist-led government increasingly on the defensive. Prime minister Alexis Tsipras' surprise announcement of fiscal support for vulnerable groups appears only to have toughened the hard line approach with the European Stability Mechanism, the euro zone's financing arm abruptly freezing short-term debt relief measures last week.

Senior cadres in the ruling Syriza party say they are now being told that unless a4.5 bn worth of extra measures in the form of pension and tax reforms are legislated, a crucial second review of the economy will be delayed. That could once again raise the spectre of Greece's ejection from the eurozone. Earlier today the credit ratings agency, Moody's, said it would increase the risk of Greece defaulting on bond payments in July.

2.56pm GMT

The US economy continues to perform reasonably despite signs of a slowdown between November and December.

The initial Markit services purchasing managers index for December came in at 53.4, down from a final figure of 54.6 in November.

#US Markit PMI's suggest GDP growth of around 2% q/q AR in Q4 pic.twitter.com/RJeQIscr38

2.53pm GMT

Here's our report on the Christine Lagarde guilty verdict. Kim Willsher reports:

Christine Lagarde, the head of the International Monetary Fund, has been found guilty of negligence in approving a massive payout of taxpayers' money to controversial French businessman Bernard Tapie, but avoided a jail sentence.

A French court convicted the former government minister, who had faced a a15,000 fine and up to a year in jail, but decided she should not be punished and that the conviction would not constitute a criminal record.

2.46pm GMT

The prospect of 20,000 on the Dow Jones Industrial Average edged a little closer after it moved higher at the start of trading.

The index is currently up 36 points at 19,880, while the S&P 500 and Nasdaq are both marginally higher.

2.42pm GMT

Elsewhere:

BREAKING: Deutsche Bank settlement with Dept of Justice could come as early as Wed.; bank set to pay less than $14B in settlement - Reuters

2.39pm GMT

The IMF board is meeting shortly to discuss the Christine Lagarde situation. Gerry Rice, the fund's director of communications, said:

The Executive Board has met on previous occasions to consider developments related to the legal proceedings in France. It is expected that the Board will meet again shortly to consider the most recent developments.

2.32pm GMT

Here's AP on the Lagarde news:

A special French court has declared International Monetary Fund chief Christine Lagarde guilty of criminal negligence in a long-running arbitration case.

But the court decided not to punish her or give her a criminal record.

2.23pm GMT

International Monetary Fund managing director Christine Lagarde has been convicted on one count of negligence by a French court, Bloomberg is reporting.

Lagarde was accused of failing to prevent a government payout to businessman Bernard Tapie when she was French finance minister eight years ago.

2.15pm GMT

Uh oh. There could be a spanner in the works of the Monte dei Paschi fundraising. Reuters reports:

Italian bank Monte dei Paschi di Siena is trying to resolve differences with a key investor over its 5 billion euro ($5.2 billion) rescue plan to allow the deal to go ahead and avoid a state bailout.

Italy's third-largest bank has until the end of December to raise capital and offload 28 billion euros in gross bad loans as requested by European Central Bank supervisors.

2.09pm GMT

Time for an update on the markets, and it's an uncertain pattern.

Most European markets are still marginally lower, although off their worst levels, while Italy's FTSE MIB is up 0.3% despite the fall in Monte dei Paschi as the bank starts its a5bn refinancing.

1.45pm GMT

Tomorrow could see more developments in the row between Greek and its lenders over the government's plan to pay pensioners a Christmas bonus, something which was not approved by the lenders. Greece's Kathimerini reports:

The Euro Working Group (EWG) is to meet Tuesday to discuss the impact on the Greek program of the SYRIZA-led government's decision to grant a one-off supplement to pensioners.

The European Stability Mechanism reacted to the measure by suspending for the time being the implementation of the short-term debt relief measures that were only rubber stamped by eurozone finance ministers on December 5.

12.39pm GMT

Clemens Fuest, the president of Germany's IFO institute, has told Bloomberg that current interest rates may be too low for the eurozone. He presumably then welcomes signs of inflationary pressures in the latest wages data.

#ECB rates may be too low for the euro zone: @FuestClemens https://t.co/IcyaCAInto via @GuyJohnsonTV pic.twitter.com/10sRmnA44F

12.35pm GMT

The International Monetary Fund is positive about the actions taken by Ukraine over its biggest lender, PrivatBank. IMF managing director Christine Lagarde, who also has other things on her mind at the moment, said:

Today's decision of Ukrainian authorities to nationalize PrivatBank is an important step in their efforts to safeguard financial stability. This decision was taken to ensure the smooth operations of the bank given its systemic role in Ukraine's financial system, and in view of insufficient efforts to strengthen its capital adequacy in recent months...

It is now important that the process of nationalisation be followed by firm efforts to maximise the repayment of related-party loans, and the appointment of an independent management team to restore the bank's viability, minimising the cost to the state and taxpayers in line with existing legislation and international best practice.

12.24pm GMT

And in Italy:

If I were running an Italian bank, not sure I would choose this moment to advertise the possession of a large and expensive art collection pic.twitter.com/FeErTJqS3O

12.10pm GMT

The details of the European Union's decision against Apple in a dispute over the tax it pays to Ireland have been released. Jennifer Rankin reports from Brussels:

Apple could reduce its a13bn (10.8bn) tax bill to Ireland if it increased payments to its US parent company or paid back taxes to other EU countries, the European commission has said, as it revealed the full text of its landmark ruling against the US tech giant for the first time.

Margrethe Vestager, the EU competition commissioner, suggested Ireland may not see the full a13bn in back taxes, if Apple chose to pay larger amounts to its US headquarters to fund research and development.

11.29am GMT

The UK Competition and Markets Authority will investigate the secondary ticketing market. It said:

The CMA has today launched an enforcement investigation into suspected breaches of consumer protection law in the online secondary tickets market.

This follows concerns that people are not getting the full range of information required by law when buying tickets put up for resale.

Breaking: Online ticket platforms such as Viagogo, StubHub, GetMeIn, Seatwave to be investigated by the Competition and Markets Authority.

The CMA ticketing investigation will probe some of the practices we revealed in The Observer in May. https://t.co/FwaviN3Gho

CMA will take enforcement action if it finds "breaches of consumer law". Dozens of examples of this, as we explain:-https://t.co/fVyUhnABHd

11.22am GMT

Meanwhile eurozone construction activity was also on the rise:

Eurozone construction activity rose 0.8% in October & 2.2% higher than a year ago but 29.5% lower than 2008 peak.https://t.co/1DahOyLCws pic.twitter.com/DKAXL2LKjn

10.38am GMT

Annual growth in hourly eurozone wages rose 1.6% in the third quarter, compared to an increase of just 0.9% in the previous three months and 1.7% in the first quarter.

Hourly labour costs - which include wages and non-wage costs - rose by 1.5% in the eurozone and by 1.9% in the wider 28 member European Union in the third quarter of 2016, compared with the same quarter of the previous year. Report compiler Eurostat said:

The two main components of labour costs are wages & salaries and non-wage costs. In the euro area, wages & salaries per hour worked grew by 1.6% and the non-wage component by 1.2% in the third quarter of 2016 compared with the same quarter of 2015. In the second quarter of 2016, the annual changes were +0.9% and +1.5% respectively. In the EU28, hourly wages & salaries rose by 2.0% and the non-wage component by 1.5% in the third quarter of 2016. In the second quarter of 2016, annual changes were +1.4% and +1.7% respectively.

A rise in Eurozone wage costs and total labour costs in the third quarter of 2016 may fuel hope within the ECB that underlying Eurozone inflationary pressures may just be starting to pick up. The ECB has been frustrated and disappointed by the lack of a pick-up in underlying Eurozone in recent months, even though the headline consumer price inflation rate has picked up...

However, while the ECB may well take some comfort from the third-quarter Eurozone labour costs and wage data, the Governing Council will still be wary about the current weakness of underlying price pressures - the ECB will likely note that while annual growth in Eurozone total labour costs and wages both picked up in the third quarter, this followed a sharp relapse in the second quarter and both were still just below the levels seen in the first quarter.

9.59am GMT

Over to Greece, and this:

Moodys says #Greece's renewed tensions with creditors 'signal delays in second programme review, a credit negative'.

9.49am GMT

If the festive mood in the German economy is not enough for you, then head over to our Christmas quiz for a bit more seasonal cheer. 44 out of 50 is the score to beat in my case (which is less impressive than it sounds given I wrote four of the questions.....)

9.46am GMT

Economists have mixed views on what the December German IFO index portends for 2017:

Encouragement for #German growth prospects in 2017 as #Ifo business climate index climbs to 32-month high of 111.0 in Dec (110.4 in Nov)

Germany's most prominent leading indicator, the Ifo index, closes the year with another improvement. The Ifo index increased to 110.0 in December, from 110.4 in November. The increase was mainly driven by a better current assessment component (116.6, from 115.6). The expectations component remained almost unchanged. The December increase suggests that German businesses are not (yet) afraid of negative economic implications from the new president in the US.

Today's Ifo was the last important macro indicator for the German economy this year. As always, the upcoming Christmas break is a good occasion for a reflective moment. A look at the German economy through the rear mirror. A look which shows an impressive, though slightly slowing growth performance. The German economy has continued its recovery and defied many external risks and turmoil, like Chinese stock market turbulences and economic slowdown, low oil prices, Brexit and continued weakness in many Eurozone countries. The key for economic success has been domestic demand. Strong domestic demand on the back of a strong labour market, low inflation, low interest rates and higher wages, partly fueled by the ECB and refugees.

9.42am GMT

The German economy is in a festive mood, according to Clemens Fuest the president of the IFO institute. He said:

The German economy is making a strong finish to the year.

In the manufacturing sector, the index rose. Assessments of both the current business situation and expectations improved. Demand picked up significantly and the order back log grew. More companies plan to ramp up production in the months ahead as a result.

In the service sector the mood deteriorated in the run-up to Christmas. The indicator fell to 31.7 balance points in December from 35.0 balance points in November. Service providers assessed their current business situation less favourably. They also scaled back their business expectations slightly. Both indices, however, are significantly above their long-term average. Service providers remain keen to recruit additional staff.

9.04am GMT

German business confidence improved in December, with the IFO index rising to 111 much as expected:

#Germany Ifo Business Climate at 111 https://t.co/B5HWHFBYiu pic.twitter.com/sKuq73z2By

German Ifo a touch strong than expected in December and is consistent with a pick up in annual GDP growth from Q3's 1.7% to around 2.5% pic.twitter.com/6zklDAUiuK

8.42am GMT

Ukraine's largest lender has been declared insolvent, with the country's central bank saying that nationalisation was the best way forward. Reuters reports:

Ukraine declared the country's largest lender PrivatBank insolvent on Monday and said bringing it under state ownership was the only way to protect the money of 20 million Ukrainian clients and stave off threats to the financial system.

The central bank said in a statement that PrivatBank had not fulfilled its recapitalisation programme and 97 percent of its corporate loans had gone to companies linked to the bank's shareholders. As of Dec. 1, the bank's capital shortfall stood at 148 billion hryvnia ($5.65 billion).

8.26am GMT

Over in Italy, shares in Monte dei Paschi have opened and are down 8.5%, triggering another suspension.

8.23am GMT

The Santa rally in markets that we have seen since the start of December appears to be running out of steam a little. Connor Campbell, financial analyst at Spreadex, said:

It may be the start of the final week before Christmas, but so far the European markets are looking rather Santa-less this Monday.

To be fair, the FTSE has actually had a rather impressive December already, finally climbing back above 7000 last Friday, so it can be forgiven for not drastically building on that level this morning. The index is still flirting with that landmark level, though currently it lacks the kind of momentum that could lead it to a fresh all-time high later in the day. As for the pound, it's still struggling below 1.25 against the dollar, while against the dollar it has shed 0.2%.

8.11am GMT

Defying expectations, stock markets have started the last trading week before Christmas on the back foot.

The FTSE 100 has fallen around12 points or 0.18% while Germany's Dax and France's Cac have lost 0.2%. Italy's FTSE MIB has opened down 0.3%.

7.54am GMT

Here's Unicredit's forecast for the German IFO business confidence index, due in an hour or so: "We expect the Ifo climate index to improve to 111.0 in December after the stabilization at 110.4 in November."

And Mike van Dulken and Henry Croft at Accendo Markets said:

On a quiet day for macro data, in focus today will be German December IFO Surveys, all expected to show slight improvement since November with the Business Climate figure attempting to post a fresh 2016 high (albeit by a very slim margin). These figures have obvious importance for the Eurozone given Germany's position as the powerhouse for the European economy.

7.27am GMT

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

It's the last trading week before Christmas, and many investors are already winding down for the festive season. But with thin trading volumes in the markets, there might be some volatile moves to look out for. Will the FTSE 100 hit a new peak, beating the closing high of 7103 reached in April 2015 or the record intra-day level of 7129 in October this year? Will the Dow pass the key 20,000 barrier.

Our European opening calls:$FTSE 7029 +0.25%
$DAX 11431 +0.23%
$CAC 4844 +0.22%$IBEX 9429 +0.17%$MIB 19058 +0.23%

As we head into the final full trading week of 2016, having come off a decent December so far for European stocks which have seen a number of significant breakouts, the key question as we head into year-end is whether these gains of the past two weeks are likely to be sustained.

Initial impressions look positive, however the elephant in the room remains the Italian banking sector after last week's announcement by Italy's largest bank Unicredit to draw a line under its recent problems by announcing a significant recapitalisation plan.

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