What was touted as a speech marking the fifth anniversary of the financial crisis became more of an all-purpose speech on everything the president is dealing with nowadays.
First a briefing on the Navy Yard shooting, then an update on Syria negotiations, followed by a few words about those crazy September days of five years ago. From there he listed executive actions and legislative measures ranging from mortgage refinancing programs to Dodd-Frank (especially the CFPB) to Obamacare.
If there was a single purpose to these remarks, it was to reinforce his postures leading up to congressional spending and debt ceiling debates. He is willing to negotiate on spending cuts for extraneous items, and believes the sequester must be replaced, but he sees no need to further gut spending on things like education or research. And, of course, he will not negotiate away his signature legislative achievement, the Affordable Care Act.
Most importantly, he reiterated that he will not negotiate over the debt ceiling.
The speech is over.
From Speaker Boehner’s spokesperson, in what we expect to be the first of many similar reactions from Republicans:
“Are some of these folks so beholden to one extreme wing of their party that they’re willing to tank the entire economy?”
“I will not negotiate over the full faith and credit of the United States.”
On Obamacare, and Republican threats to tie its undoing to upcoming budget and debt ceiling measures: “The candidate who called for repeal lost.”
“I cannot remember a time when one faction of one party promises economic chaos if it doesn’t get 100% of what it wants. That’s never happened before. But that’s what’s happening now.”
On the debt ceiling: Congress must pass a budget without threatening a shutdown or “even worse, threatening not to pay the country’s bills.”
“Our economy’s not growing as fast as it should and we’re not creating as many jobs as we should because the sequester’s in place… It’s irresponsible to keep it in place.”
He turns to Congress, and what it must focus on in upcoming federal spending battles. “Government is gonna have a critical role” in shaping the course of growth in the coming years, and opportunities “for this generation and future generations.”
Now some attacks: “At the moment, Republicans don’t seem focused on how to grow the economy and the middle class.” Their current plans would “do the opposite.” He notes the recent decline in deficits.
Now he is ticking off some accomplishments from his White House. “If you add it all up, over the past 3.5 years,” our economy is looking up. “What this ll means is we’ve cleared away the rubble from the financial crisis” and begun to lay a new foundation for growth. “And we should be proud of that, and on this five year anniversary we should take note of how far we’ve come.”
“But… we are not yet where we want to be… We need to grow faster, we need better paying jobs, we need more broad-based prosperity, we need more ladders for people who are poor but want to get into the middle class.” He ticks off statistics for the inequality in recent income growths .
Now he is onto the financial crisis.”It was five years ago this week that the financial crisis rocked Wall Street and sent an economy that was already in a recession into a tailspin.”
“By the time I took office, the economy was shrinking by an annualized rate of 8%… it also laid bare the long erosion of the middle class” that has worked “harder and harder just to keep up.”
Most people don’t recall the day Lehman went down, he says – they remember the day they got a pink slip.
President Obama is beginning now.
He first has a few words about the Navy Yard shooting, the cause for the speech delay – memorializing the victims and promising to help with the investigation.
Just a few minutes now…
The speech was scheduled to begin at 11:40.
As of now, President Obama’s economic speech is still on – despite a mass shooting (and ongoing criminal scene) a mile or so away from the White House at the Navy Yard. Here’s the White House’s preview of the president’s speech:
[T]he President will deliver remarks in the South Court Auditorium at the White House to mark the five-year anniversary of the financial crisis, discuss the progress we have made to grow the economy and create 7.5 million private sector jobs, and highlight the work we still need to do to strengthen the middle class and those fighting to get into it. He will continue to highlight his better bargain for the middle class, and warn against more self-inflicted wounds from Washington. He will be joined on-stage and in the audience by people who have benefited from his economic recovery proposals over the last five years including small business owners, construction workers, homeowners, consumers and tax cut recipients.
It is unclear how or if this morning’s shootings will change his presentation.
And I’m handing over to my colleague Jim Newell in the US, to cover President Obama’s speech on the US economy five years after the collapse of Lehman Brothers. GW
Time for a summary of events so far today, ahead of President Obama’s speech on the US economy (details)
• World stock markets have rallied on the news last night that Larry Summers has ruled himself out of the race to replace Ben Bernanke as chairman of the Federal Reserve.
The rally was driven by predictions that Janet Yellen, current Fed vice-chair, will replace Bernanke.
Yellen is seen as a more dovish replacement than Summers, and less likely to aggressively slow America’s stimulus programme. City economists say Yellen is a highly qualified replacement, and UK bookmakers reckon she’s odds-on to claim the prize.
• Greece has been hit by protests, at the start of a week of industrial action. The country’s schoolteachers began a five-day strike this morning, with thousands marching past the Athens parliament (photos here).
• There were also clashes between school guards and riot police in Athens. Several people were hospitalised after police used tear gas to break up protests at a government ministry.
• Europe’s top central banker, Mario Draghi, warned that the region’s recovery remained ‘fragile‘. The head of the European Central Bank also told German business leaders that politicians must push on with implementing economic reforms.
• Barclays admitted it faces a £50m fine over the way it raised funds from Qatari investors in 2008. The bank is fighting the charges.
Market update: Larry rally pushes shares higher
World stock markets continue to show solid gains today. Europe’s stocks remain at five-year highs, with the German DAX on track for its highest close here.
Here’s a snapshot of Europe’s stock markets, as the trading day heads for the close. The waves of green electronic ink shows how markets from London to Athens are higher:
Michael Hewson, senior markets analyst at CMC Markets in the City, says shares are rising on a “Summers breeze” — relief that former Treasury Secretary Larry Summers won’t replace Ben Bernanke at the Fed.
European markets surged today on the back of reduced Syrian tensions, as well as the “Yellen put” as Larry Summers the front runner to replace outgoing Fed chairman Ben Bernanke pulled his candidacy for the post due to concerns that the confirmation process would be acrimonious and could be damaging to the US administration.
Janet Yellen is widely perceived as being the heir to Bernanke’s legacy and the continuity she would bring to US monetary policy, as opposed to the uncertainty that would surround a Larry Summers candidacy.
While markets are celebrating now there is a danger that in thinking that Yellen is a shoo-in, the US president in being thwarted in his desire for Summers could well overlook Yellen in preference to an alternative candidate.
There had been widespread speculation that a Summers announcement could well have taken place this week, which would have removed some of the uncertainty surrounding Bernanke’s replacement. Unless Yellen is confirmed quickly then attention will inevitably shift to how robust the current rally is if the President doesn’t ratify the appointment quickly.
Obama to speak on the US economy
Heads-up: President Obama is due to give a speech to mark the fifth anniversary of the collapse of Lehman Brothers (on 15 September 2008).
The speech will take place in the Rose Garden of the White House. President Obama will be joined by ”people that have benefited from his economic recovery proposals over the last five years,” the White House said in a statement.
That will include “small business owners, construction workers, homeowners, consumers and tax cut recipients (USA Today reports).
The speech comes as Obama limbers up for another tussle with Republicans over budget cuts. Yesterday, he insisted that Congress must raise the US debt ceiling again. America could hit its legal limit on borrowings in October, and some opponents in Washington are pushing for changes to his healthcare reforms in return for lifting the debt ceiling again.
Encouraging economic news from America: US industrial output rose by 0.4% in August, driven by automobile production.
That’s the biggest monthly rise in six months, as America’s factories bounced back after July (when production was unchanged). Manufacturing production rose 0.7%.
Brett Ryan, US. economist at Deutsche Bank, explained that the figures may indicate a pick-up in global demand.
Companies have to increase production in order to keep up with demand
You have an elevated level of unfilled orders, so that bodes well for production.
Today’s markets rally continues to be driven by the prospect of the dovish Janet Yellen becoming the next chair of the Federal Reserve (she’s the odds-on favourite – see here)
Louise Cooper, analyst at CooperCity, believes Yellen would do a fine job, and also bring some much-needed gender balance to central banking.
I am a big fan of the immense intellect that is Dr Yellen. In its 100 years, the Fed has never been led by a woman and President Obama could make history with the choice of Dr Yellen. She is married to the economist George Akerlof who has won a Nobel Prize. She is the female half of a serious power couple.
But the fact Yellen is even being considered is a feat in itself as central banking is still an old boy’s club, Cooper adds:
The new Governor of the Bank of England, Mark Carney may have assuaged feminists with his choice of Jane Austen for the ten pound note, but his Monetary Policy Committee is female free. Out of the six members of the Executive Board at the European Central Bank, none have double X chromosomes either. And not one women heads up a central bank in any of the 28 EU member states. The Bank of Japan has Sayuri Shirai as one of the nine members of its Policy Board. But surprisingly, it is in Russia that a female head of a central bank is to be found. Elvira Nabiullina took office in June of this year after her appointment by President Putin – not a man known for his feminist views.
When asked about being one of the few female central bankers in the world Dr Yellen said “I really think this is something we’re going to see increase over time, and it’s time for that to happen.”
Let’s hope it starts with her being appointed as the world’s most powerful central banker. A good place to start.
Wall Street is open, and traders are joining in the market rally driven by Larry Summers’ withdrawal from the race for the Federal Reserve chair last night (see opening post).
Reports this morning that France, Britain and the United States have agree to seek a “strong and robust” UN resolution over Syria’s chemical weapons (see our Middle East liveblog) is also pushing markets up.
The Dow Jones industrial average has jumped by 153 points, or almost 1%, to 15527.
The S&P 500 and the Nasdaq are also up (round-up to follow).
Meanwhile in Glasgow, business secretary Vince Cable has launched a no-holds-barred attack on his Conservative colleagues in Britain’s coalition government.
As my colleague Andrew Sparrow reports, Cable told the Liberal Democrat party conference that Tory policies were ”nasty”, “ugly”, “ludicrous” and “deeply opportunistic”. More here.
We now have photos of today’s march by Greek teachers in Athens (this is separate from the scuffles between riot police and school guards we reported on at 10.58am).
They confirm that the march was well-attended, which suggests Greece could be heading into an autumn of discontent (check out Helena Smith’s dispatch from Athens for the details)
Some lunchtime fun: the Wall Street Journal has created an interactive which lets you build a German coalition government (something Germany’s politicians will probably be wrestling with in a week’s time).
Helpfully, it explains which potential combinations are and aren’t likely, and why….
Ireland’s finance minister has hinted that the Irish economy is growing again, just days before new GDP data shows whether its recession is actually over.
Reuters has the details:
Evidence points to Ireland’s economy having returned to growth in the second quarter after disappointing data earlier in the year, Finance Minister Michael Noonan said on Monday.
But Ireland must make sufficient cuts in next year’s budget, due next month, to ensure a return to a primary surplus,Noonan told reporters at a party meeting southwest of Dublin.
“All the anecdotal evidence would suggest an economy turning to growth,” Noonan said when asked about official figures for the second quarter due on Thursday.
Barclays faces £50m fine over Qatari fundraising
It’s official: Barclays is braced for a £50m fine over its 2008 fundraising from Qatari investors, although it isn’t backing down over the issue either.
The admission comes in its £5.9bn rights issue prospectus, which just hit the wires. Here’s its full prospectus.
The potential fine refers to certain “advisory services agreements” taken out between Barclays and Qatar, over which the Financial Conduct Authority filed “Warning Notices” against the bank last Friday.
As my colleague Jill Treanor flags up, Barclays is fighting the possible fine.
And here’s the key section of the prospectus:
The Warning Notices conclude that Barclays and Barclays Bank were in breach of certain disclosure-related Listing Rules and Barclays was also in breach of Listing Principle 3 (the requirement to act with integrity towards holders and potential holders of the Company’s shares).
In this regard, the FCA considers that Barclays and Barclays Bank acted recklessly. The financial penalty in the Warning Notices against the Group is £50 million. However, Barclays and Barclays Bank continue to contest the findings.
The Serious Fraud Office is investigating the same agreements. Its investigation is at an earlier stage and the Group has received and continues to respond to requests for further information.
The DOJ and the SEC are undertaking an investigation into whether the Group’s relationships with third
They are also investigating the agreements referred to above including the two advisory services agreements. The US Federal Reserve has requested to be kept informed of these matters.
It is not possible to estimate the full impact on the Group if the final conclusion of these matters is adverse.
Heads-up: Barclays has told investors that income at its investment banking arm in July and August was “significantly below” the levels seen a year ago,.
The weaker performance wiped 5% off its total income for the first eight months of this year.
The news comes as it releases its much-anticipated rights issue prospectus (Barclays is raising £6bn to improve its capital reserves).
The Bank of England is touring the UK, holding roadshows to promote its plan to replace Britain’s paper banknotes with plastic alternatives.
They’re in Gateshead today, having kicked off in the refined environs of Oxford on Friday – where my colleague Katie Allen watched events unfold.
Stephen Barratt, an accountant from Oxford, is unimpressed. He rubs the polymer dummy between his fingers with a look of disgust.
“It’s the feel. I can see the practical advantages but paper is much nicer. I don’t like them personally … The fact paper notes age is actually quite nice,” he says.
More than 650 people handle the notes before the day is out. Questions range from the environmental impact to washability.
Justin Gunson, a 29-year-old magician, is keen to see how the notes handle as well as other possible professional challenges. “As a magician you want to know if you can mark them, if you can use fake ones.”
The Bank has more than a dozen roadshows planned (unless local conjurers relieve them of the prototypes first).
Back to Greece, and Greek unions say that more than 40,000 civil servants took part in the central Athens demonstration today.
Participation in strike action is reckoned to be 95% - a very high figure given that strikers lose their salaries when they walk off the job.
Angeliki Fatourou of the OLME union (which represents workers in education) told our correspondent Helena Smith that:
It’s been a huge success.
And indicative of what the government and troika can expect in the coming weeks and months ahead.
As flagged up earlier, Greece’s Troika of international lenders return to Athens next week…..
Market update: European share at five-year high
A quick markets update. European stock markets remain buoyant following Larry Summers’ decision to withdraw from the race to succeed Ben Bernanke as head of the Federal Reserve.
• FTSEurofirst 300: up 9.5 points at 1259, a new five-year high
• FTSE 100: up 59 points at 6643, a five-week high
• German DAX: up 103 points at 8613, an all-time high
• French CAC: up 32 points at 4146, highest since February 2011
Some financial analysts reckon that the market reaction is overblown. After all, Ben Bernanke has already outlined the conditions under which the Fed would slow its stimulus programme. Would Janet Yellen really be a dramatically different prospect to Summers?
Stephen Lewis of Monument Securities thinks not.
Here’s his reasoning:
The markets should not assume that other candidates to lead the Fed will deviate far from the timetable for ‘tapering’ QE3 that Mr Bernanke has outlined. Ms Yellen, whose chances of taking the Chairmanship will appear to have improved with Prof Summers’ withdrawal, may be of a generally ‘dovish’ disposition.
But she has not dissented from the Bernanke schedule nor has she released any public comment recently about economic growth or unemployment that suggests she might look with favour on a more accommodative policy-course than the FOMC consensus currently approves.
There remains the mystery of why President Obama has appeared reluctant to nominate Yellen already. Lewis adds:
Dark rumours of personal frictions during the Clinton Administration abound but, politically, a Yellen appointment would probably be the easiest course for the President to pursue. He could at least count on most of the Democrats in the Senate being on his side.
Helena Smith: Anger on the streets of Athens
Over in Greece our correspondent Helena Smith reports that passions are on the rise as striking workers, starting with teachers, kick off a week of industrial action in the debt-stricken country.
She also confirms that several people were taken to hospital after riot police used tear gas this morning.
After a slow-motion summer, Greek unions are back in action organising protests and walk-outs with a vengeance.
Outrage over government plans to pare back the bloated public sector boiled over at 7 AM this morning when a week of strikes got off the ground with police firing tear gas at demonstrating school guards amassed outside the administrative reform ministry.
Three protestors were subsequently rushed to hospital suffering respiratory problems. The decision of authorities to resort to using toxic chemicals so early in the day appears only to have reinforced the resolve of unions in both the public and private sector to step up action against the reforms now being asked of Greece by the EU and IMF.
“It’s just made us more mad,” said Angeliki Fatourou, a leading member of the secondary school teachers union OLME which kicked off five-day rolling strikes today. “Please note that we will not rest easily. This will be the mother of strikes and teachers will lead the way.”
As Helena writes, thousands of teachers, from both secondary and primary sectors, are marching towards the parliament building in Syntagma square in a massive display of opposition over reforms that will see some 12,500 civil servants being transferred to a mobility scheme, widely seen as shorthand for dismissal, by the end of the year.
“The cuts really are the last straw,” said Fatourou insisting that most public schools no longer had enough money to pay heating, electricity or water bills.
ADEDY, the umbrella group representing civil servants nationwide, has also called on its 42 federations to go on strike later this week.
The 48-hour walkout, Wednesday and Thursday, comes ahead of crucial meetings Friday and Saturday that will decide whether industrial action will continue across the public sector. “At the moment different sectors are backing the idea of strike action with varying degrees of intensity,” ADEDY’s Tania Karayiannis told me this morning. “But that is expected to change. Greeks in both the public and private sector have been pushed to the absolute brink. This will be a very hot week that should be seen as a prelude to a very hot winter,” she said.
Visiting inspectors representing Greece’s international creditors will almost certainly be given a baptism of fire when they arrived in Athens to begin what will be the most crucial review, yet, of the Greek economy next Monday.
This video clip appears to show those reported clashes outside Greece’s Ministry of Administrative Reforms between school guards and riot police this morning (see 10.56am onwards):
That’s via the Keep Talking Greece website, which reports that demonstrators held a sit-down protest in the middle of the road outside the ministry, prompting riot police to move them.
And here’s a photo of teachers on strike in Crete:
Greek schoolteachers have gathered in force in the city of Thessaloniki for today’s walkout, as these tweets from local resident Antonis Gazakis show:
That’s via university lecturer Spyros Gkelis. He also flags up that there is reportedly a high turnout across the country from Greece’s school teachers for today’s strike.
Greek strikers ‘clash with riot police’ as week of industrial action begins
Over in Greece, a week of industrial action has begun with schoolteachers downing tools, and reports of clashes between school guards and riot police in Athens.
Greek secondary school teachers launched a five-day strike this morning, in protest at the government’s plans to cut thousands of jobs, and transfer staff to its unpopular ‘mobility scheme’ [from where employees can be forced to take a new job or be laid off].
It’s likely to be the first in a series of ‘rolling’ strikes.
According to local reports, Greek police fired teargas to disperse school guards who tried to enter the Administrative Reforms ministry in central Athens this morning, as the walkout got underway.
One police official told Reuters:
About 60 to 70 school guards tried to enter the building to occupy it and were pushed back by police.
School guards are responsible for patroling educational premises, and also operate road crossings for pupils.
Here’s Associated Press’s early take:
Riot police have scuffled with striking school guards outside a ministry in central Athens, as labor unions gear up for a series of public sector strikes over job cuts.
Local media report Monday at least two demonstrators were transported to hospitals suffering from breathing problems after police used small amounts of pepper spray in an attempt to move protesters away from the Administrative Reform Ministry.
Greece’s government has pledged to ax thousands of public sector jobs in an effort to meet conditions of its international bailout. The country has been depending on rescue loans from the International Monetary Fund and other European countries that use the euro currency since May 2010.
Today’s walkout is the prelude to a major 48-hour walkout, starting on Wednesday, called by Greece’s main unions.
Janet Yellen is the odds-on favourite to succeed Ben Bernanke this morning. A shoe-in, really, at just 1-8 with Paddy Power (so you’d get £9 back for every £8 you risked.)
Tim Geithner, outgoing Treasury secretary, is an 8-1 shout, as is former Fed vice-chairman Donald Kohn.
Stanley Fischer, who just stepped down from running Israel’s central bank, is a 40-1 outsider.
Larry Summers decision not to run for the Federal Reserve chair (see opening post onwards), is going to trigger a rally on Wall Street later today.
Traders are calling the Dow Jones industrial average up by over 1%, as US investors give the thumbs up to the prospect of a more dovish Fed chair (although we still don’t know who is going to actually replace Bernanke, of course)
European stocks remain at five-year highs, and the US dollar is still down around 0.5% on the currency markets.
Summers’ decision could give the US economy a small boost , tweets economic policy analyst Alan Tonelson:
Eurozone inflation fell to just 1.3% (annual basis) last month, data just released from Eurostat confirmed.
That’s a drop from July’s reading of 1.6% (for the consumer prices index), further away from the European Central Bank’s target of just below 2%. That shows there’s no pressure on the ECB to raise rates, or change its commitment to leave them at present levels, or lower, for an extended period.
The data confirmed that Greece remains in deflationary territory, with prices falling by 1.0% year-on year. Bulgaria (-0.7%) and Latvia (-0.1%) also showed the lowest rates.
The highest eurozone inflation figures were seen in Estonia (3.6%), the Netherlands (2.8%) and Romania (2.6%), with the UK also reporting inflation of 2.8% last month.
This may please Mario Draghi — as the ECB chief began his speech, Italy reported that its trade surplus has widened
Imports fell 0.3% year-on-year in July, while exports jumped by 3.0% compared with July 2012 – the first rise in exports in three months. This pushed the Italian trade surplus up to €5.948bn, up from €4.733bn a year ago.
In another welcome sign of rebalancing, exports to non-EU countries were up by 3.5% (full details here)
Draghi is also warning that eurozone governments must not slacken off the pace of reform – a familiar refrain for the ECB chief:
Thanks to their consolidation efforts so far, the primary fiscal deficit for the euro area has fallen from 3.5% of GDP in 2009 to around 0.5% in 2012. This is projected to turn into a primary surplus from 2014 onwards.
This improvement in public finances has helped send a signal to investors that government debt levels will stabilise and then fall in the future. This has been crucial in reassuring markets about debt sustainability. But the average public debt level in the euro area is still very high, at around 95% of GDP. This means that consolidation efforts need to be maintained in the years to come.
Draghi: Europe’s ‘fragile’ recovery needs more help
Mario Draghi’s Berlin speech is now online at the ECB’s web site: click here
It’s called “Europe and the Euro – A Family Affair”*, and the key theme is that Europe needs growth to underpin its delicate recovery.
As Draghi puts it:
The recovery is only in its infancy. The economy remains fragile. And unemployment is still far too high.
Draghi is reminding his audience of German small business owners that the eurozone faced” difficult circumstances” a year ago, with “severe tensions in financial markets” as investors feared the break-up of the euro.
That threat has receded, he said, but Europe remains too weak:
My main message is that we have made significant progress on the first step, stabilising the euro area. But there is still work to do to transform this achievement into higher growth and employment. Strengthening the euro area through sustainable policies, higher competitiveness and stronger common institutions is therefore our priority for today.
The speech contained some familiar themes — unemployment remains too high, and banking union remains incomplete.
On competitiveness, Draghi actually hails the drop in wages in some eurozone countries:
One way to regain competitiveness quickly is to address the numerator in unit labour costs – nominal wages. Another, longer-term approach is to increase the denominator – to achieve higher productivity. In my view, in the euro area today we need both.
On the first count, there are already some encouraging signs of rebalancing in the euro area in terms of cost competitiveness. Thanks in part to the structural reforms introduced in several countries, relative costs are adjusting where they had become misaligned in the past.
• – presumably the title is a reference Sly and the Family Stone, following Mark Carney’s decision to name-check young UK singer-songwriter Jake Bugg last month.
Over in Berlin, European central bank president Mario Draghi has begun giving a speech – here’s the wire snaps off the Reuters terminal….
16-Sep-2013 09:00 – ECB’S DRAGHI – EURO ZONE ECONOMY REMAINS FRAGILE, UNEMPLOYMENT FAR TOO HIGH
16-Sep-2013 09:00 – ECB’S DRAGHI – GIVEN SUBDUED INFLATION OUTLOOK, EXPECT KEY INTEREST RATES TO REMAIN AT CURRENT OR LOWER LEVELS FOR EXTENDED PERIOD OF TIME
16-Sep-2013 09:00 – ECB’S DRAGHI – BANKING UNION SHOULD HELP SPEED UP THE REPAIR OF BANKS – THAT IS IF, AS I HOPE, WE END UP WITH A STRONG SINGLE RESOLUTION MECHANISM
Kit Juckes of Société Générale dubs today’s market action the “Larry Rally”, and puts his finger firmly on the causes of the buoyant financial markets — easy money.
From his morning note to clients:
Five (long) years on from Lehman’s collapse, and while the global economy is still struggling to find its feet, financial markets are riding high. This morning’s catalyst may be Larry Summers’ decision to withdraw from consideration for the Fed Chairmanship, but the real driver is easy monetary policy. Of course.
June saw a huge market blood-letting as ‘tapering’ was priced in, and the period since then has seen outflows from emerging markets and bond funds slow, markets calm down.
The issue is how long the risk party can last as talk of tapering becomes reality and before the focus switches firmly to when and how fast the Federal Reserve actually tightens policy.
The Fed’s monetary policy committee meets on Wednesday night, so we might not have long to wait…..
Britain’s borrowing costs have dropped this morning, following Larry Summers’ decision.
The yield on 10-year gilts has dropped to 2.86% , from 2.91% on Friday night, as traders rush to buy UK debt (pushing up the price, and thus lowering the interest rate on the bond).
US Treasuries have also strengthened, driving down yields on America’s 10-year bonds by a chunky 8 basis points to 2.812%, from 2.9% on Friday.
The message from the markets is clear — they expect a less hawkish Fed chair than Summers….
Germany’s DAX index hit a new record high this morning — nudging 8,601 points in the opening minutes of trading.
European markets hit five-year high
The FTSeurofirst 300 index of Europe’s biggest companies has just hit a new five year high, driven by the prospect of the dovish Janet Yellen becoming the next Fed chair.
It has jumped 0.58% to 1,260.35, a level not seen since June 2008 — three months before the collapse of Lehman Brothers.
Here’s the details of the European markets this morning, following Asia’s rally (see 7.51am)
Mike van Dulken, head of research at Accendo Markets, explains that recent progress in Syria is also boosting the markets – along with the first election results from Germany (of which more shortly…..)
Investors are reacting positively to news that the more hawkish Larry Summers has withdrawn from the race to be the next Fed chair in Jan (not enough support from Obama’s Democrats), paving the way for the more accommodative vice-chair Janet Yellen.
Markets are not worried about tapering per se, rather the speed of it, seeing Yellen reduce bond buying more slowly and leave rates lower for longer.
Sentiment is also helped by news of deal between US & Russia over Syria’s chemical weapons surrender.
German Chancellor Merkel’s sister party won the Bavarian election which bodes well for her to keep her position in next week’s general election.
Summers end drives European markets higher
Europe’s stock markets are open, and the news that Larry Summers won’t be the next Fed chair is pushing shares higher.
The prospect of an “ even more dovish chairman at the helm of the world’s most pivotal central bank” than Ben Bernanke, as Chris Weston of IG puts it, is giving markets a lift.
The FTSE 100 jumped 1% at the start,and is now up 50 points at 6633.
Italy’s FTSE MIB has also gained 1%, with other indexes jumping at least 0.8%.
So why the rally? It’s all about Janet Yellen, the new favourite to replace Bernanke. As Weston explains, Yellen could potentially have quit the Fed altogether if Summers got the top job, depriving the Fed of one of its most dovish members:
Life with Larry Summers at the helm would have potentially been very different from life under Ben Bernanke; it’s these uncertainties that keep markets held back.
In theory if Larry Summers had got the job, we could easily have seen Janet Yellen step down from the Fed and return to academia, which would have had negative ramifications on the composition of the Fed in Q2 2014, with the board not just losing a key note dove, but also its last voting female. This has now changed, and while we know Donald Kohn has been interviewed, if Janet Yellen doesn’t get the job there could be an outcry given a large number of democrats and certainly market participants have been campaigning for her appointment.
Larry Summers’ withdrawal may be good news for investors who don’t want America’s stimulus programme to end, but it’s a blow to President Obama.
As our Washington bureau chief, Dan Roberts, explained last night:
Barack Obama’s hopes of a smooth transition of power at the
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- Apple unveils Lion, iOS 5, and iCloud at WWDC (live blog)Obama: US economy 'not growing as fast as it should' – live updates have 6180 words, post on www.theguardian.com at September 16, 2013. This is cached page on Talk Vietnam. If you want remove this page, please contact us.