German annual producer prices fall in September
DOW JONES NEWSWIRES OCTOBER 20, 2014 6:45PM
Germany's producer prices index continued its fall on an annual basis in September, as energy costs kept it under downward pressure, while it remained steady on the month earlier, official data showed on Monday.
Producer prices were unchanged on the month and fell 1.0 per cent on the year, data from the country's statistics office Destatis showed Monday. The figures matched economists' expectations in a Dow Jones Newswires survey.
In August, producer prices fell 0.1 per cent on the month and declined 0.8 per cent on the year.
Energy prices were the main driver of the index, Destatis said, adding that they were 3.8 per cent lower than in September 2013. Without energy prices, producer prices would have been 0.1 per cent higher in September than in the year-earlier month.
Prices at the factory gates have an effect on, but don't translate directly into, prices paid by consumers.
Fear of costly repercussions as banks charge for euro deposits
JULIET CHUNG AND VIPAL MONGA THE WALL STREET JOURNAL OCTOBER 21, 2014 12:00AM
SEVERAL global banks have begun charging large customers to deposit their money in euros, a rare move that could have costly implications for investors and companies that do business in Europe.
The actions are driven by policies from the European Central Bank, which in June became the largest central bank to impose a negative interest rate on deposits — meaning banks are paying to park their money with the ECB.
The effort is designed to encourage banks to instead use that money to lend. When the ECB dropped those rates further last month, some banks started pushing those costs — or costs related to the rate cuts — onto customers.
Now, instead of paying customers interest on their euro accounts, as they have done in the past, some banks have started charging them. Bank of New York Mellon recently started charging 0.2 per cent on euro deposits, the bank said on Friday, and Goldman Sachs Group and JPMorgan Chase have also started charging clients, insiders say.
Meanwhile, Credit Suisse Group has told customers it will pass along negative interest rates on all currencies in which they apply, sources said, and has started charging on euro deposits.
Many bankers and their clients say the shift is the most sweeping of its kind they can recall. The clients most immediately affected are investment firms, such as hedge funds and mutual-fund companies. Multinational corporations with sizeable operations in Europe also could face additional costs, according to bankers who work with them.
Negative rates reflect in part the paralysis that threatens to plague the European economy. Households and businesses are so reluctant to spend or invest that banks are charging some customers merely to hold their cash. The recent moves appear to reflect a view from the banks that the negative rates are likely to persist for some time. They also could push customers with large deposits to put that money into other vehicles that are more risky.
The fees also underscore challenges institutional depositors such as hedge funds, mutual funds and corporations may face in finding a haven for their deposits. Banks have traditionally competed for institutional investors’ deposits.
HSBC will soon start charging customers with more than about €10 million ($14.5m) in deposits, according to one insider. The move is intended to discourage a flood of deposits from institutional investors fleeing competitors that already have started levying charges on euro deposits, the person said. An HSBC spokesman said the bank was “monitoring the situation” regarding negative interest rates.
Several bankers said the changing regulatory landscape had made it harder to absorb the cost, as they might have in the past. In 2011, BNY Mellon disclosed a move to charge some of its US depositors for holding their cash, after investors poured money into the bank to escape gyrations in the market. The bank later aborted the plan.
A BNY Mellon spokesman said the 2011 situation “resolved itself” as deposit levels shrank. “The current euro situation is much more enduring and is likely to be the norm for some time,” he said.
The latest move by the banks is notable because so many are taking the step, giving clients fewer options to move their money.
Mutual-fund firm Vanguard Group confirmed it was being charged for its euro balances. “That is being passed on,” said Vanguard spokesman David Hoffman. “It’s very recent.”
He declined to say which banks were instituting the charge or detail the firm’s euro cash exposure, but he said it was “very small.”
The new charges are setting off a search by some clients to try to avoid or minimise fees. Investors and bankers say some clients are looking for banks that haven’t yet started charging for euro deposits. Others are moving their balances into instruments such as money-market funds.
The BNY Mellon spokesman said the bank was working with clients who were looking for alternatives to cash deposits to find investment opportunities.
In an interview, BNY Mellon chief financial officer Todd Gibbons said the firm expected the fees to be imposed across the industry. He said 15 per cent of BNY Mellon’s deposits were euro-dominated and that he expected most of the affected clients to be “savers on the institutional side,” including financial-services firms, corporations and pension funds.
The charges highlight the divergent paths central banks in the US and Europe are taking. Although the Federal Reserve has kept interest rates low for years, it continues to pay banks on excess deposits and has signalled it hopes to raise rates relatively soon.
Relationships between banks’ prime-brokerage businesses, which execute and finance trades, and their clients are already under strain. Some banks have started squeezing clients such as hedge funds by increasing the cost of financing and, in some cases, dropping clients that don’t bring banks enough profit.
Not all big banks are following suit. Deutsche Bank hadn’t started levying charges on euro deposits as of Friday, insiders say.
Anthony Carfang at Treasury Strategies, a Chicago-based consulting firm, said the prominence of the negative rates made such charges more palatable than they may have been in the past. “This looks like a pass-through,” he said. “That makes it a lot more acceptable in the customer’s mind.”
ECB considers corporate bond-buying
DOW JONES NEWSWIRES OCTOBER 21, 2014 10:45PM
The European Central Bank is considering purchasing corporate bonds as an option if it concludes that more expansive measures are needed to pump additional money into the eurozone's fragile economy, according to people familiar with the matter.
No specific plan has been discussed and there is no timetable for when such a step may be considered, one of the people said.
Last month, the ECB decided to buy asset backed securities and corporate bonds in the financial markets. The central bank began covered bond purchases on Monday, and has said it would begin buying asset backed securities later this quarter.
The ECB's consideration of corporate bond purchases was reported earlier on Tuesday by Reuters.
The aim of the current programs, as well as a separate four-year lending program for eurozone banks, is to add to the money supply by increasing the amount of assets the ECB holds on its books. ECB President Mario Draghi said last month that the bank's goal was to get its balance sheet back toward early-2012 levels, when it was around €700 billion ($A1.02 trillion) higher than it is now.
But concerns have grown in recent weeks that the ECB may not be able to get there with its current measures. Demand for the first installment of four-year loans was below economists' expectations, with banks borrowing €83bn.
The pool of available covered bonds and asset backed securities may be insufficient to buy large swaths of private debt without distorting prices.
Eurozone collapse the big threat to global economy, says Ken Henry
THE AUSTRALIAN OCTOBER 24, 2014 12:00AM
Richard Gluyas
Business Correspondent
Melbourne
Budget 2008 - Canberra
Treasury Secretary Ken Henry, right, fears an investment strike in Europe Source: News Limited
THE biggest danger faced by the global economy is an investment strike in Europe leading to the collapse of the eurozone, National Australia Bank non-executive director and ex-Treasury secretary Ken Henry says.
Dr Henry said there was a widespread view that Europe could continue to “limp through” its poor growth outlook and high unemployment without threatening the financial arrangements that underpin the common currency.
“My own view on this, and it’s a view I’ve had for a very long time, is that the eurozone is ultimately unsustainable,” he told a business lunch in Melbourne sponsored by the Australian Financial Review.
“If not, fundamental changes to the governance arrangements of the eurozone have to be made.
“But the biggest concern right now would be that financial markets, for some reason, come to the view that Europe is not actually a place they should be funding.”
The consequences for Australia could be both positive and negative.
On the upside, the nation could become a safe investment haven, because it was a more attractive place to invest “on almost every measure”.
Santos chairman Ken Borda said his big concern was the impact on markets, and a potential loss of liquidity, from negative sentiment.
Mr Borda said if investors felt they couldn’t exit an asset, it could quickly cause dislocation.
“On the other hand, I take a lot of comfort that the two largest economies in the world — the US and China — are continuing to show good growth, and I think we’re also seeing that in relation to their currencies,” he said.
Santos, he said, remained confident about Asian growth, and by extension demand in the region for its LNG exports.
The Santos chairman also pushed for a comprehensive energy policy, and a more collaborative relationship with regulators, of the kind that exists in the US.
If relations continued as they were, the danger was that there “may not be an industry to regulate”.
Mr Borda also pushed back against the ethical investment policy of the Australian National University, which led to a sell-off of stocks like Santos.
He said it was incorrect to suggest that Santos was socially irresponsible, or doing social harm.
Dr Henry said any future tax review should include all taxes, unlike his own 2010 exercise undertaken for the Labor government, which excluded the GST.
The budget, he said, would still be in surplus if the revenue-to-GDP figure had not changed.
http://www.cnbc.com/id/102113088?trknav=...:topnews:9
S&P warns Europe crisis not over, France output falls
Antonia Matthews | @antoniaCNBC
Ratings agency Standard & Poor's warned on Thursday that the euro zone crisis was entering a "stubborn phase of subdued growth" in what it says is a new stage in the region's economic crisis.
The warning comes as new data showed a deepening downturn in France's private sector economy during October.
Markit's Flash Composite Output Index (PMI) for France slipped to 48.0, from 48.4 in September. That was its lowest reading since February. A reading below 50 marks a contraction in private sector activity.
There was better news for the euro zone more broadly, however, as its composite PMI beat expectations, coming in at 52.2 in October, up from 52.0 in September. The reading was above all economist forecasts in a Reuters poll.
Ulrich Baumgarten | Ulrich Baumgarten | Getty Images
'Sick man'
France has been dubbed the "sick man" of the euro zone over recent months. Gross domestic product (GDP) failed to expand during the second quarter of this year after stalling in the first, and is expected to have grown only slightly—by 0.2 percent—in the third quarter, according to the Bank of France.
"We believe that the euro zone's problems are still unresolved," said Standard & Poor's credit analyst Moritz Kraemer in a statement.
Further data released by Markit showed the private sector in Germany grew, offering some hope after a series of disappointing data for the euro zone's largest economy. German investor morale fell sharply in October, ZEW data showed earlier in October, while the latest industrial output figures also disappointed.
Germany's flash composite PMI for October climbed to 54.3 from 54.1 last month.
"The first reading of Germany's PMI for October shows that not everything in the euro zone's biggest economy is gloomy and doomy," Carsten Brzeski, chief economist at ING-DiBa, said in a note. "In our view, the state of the German economy is not as bad as disappointing August data and recent sentiment declines made some people believe."
'Policy complacency'
S&P revised its outlook on the long-term sovereign rating on France to negative earlier this month and cut Finland's rating to 'AA+', leaving only Germany and Luxembourg with 'AAA' ratings in the euro zone. In 2006 eight countries had the agency's top rating.
Read MoreS&P cuts France's outlook to negative
"We believe that as an unintended consequence of its OMT promise, the ECB may have instilled a sense of policy complacency," said Kraemer.
The European Central Bank promised in 2012 to buy the debt of stressed countries if needed under a program known as Outright Monetary Transactions or OMT. To date it has not activated the controversial program, but it has been credited with calming markets.
"We believe that one of the main impediments to a more robust recovery is the large overhang of debt. The recentslowdown should therefore not come unexpectedly," S&P added.
Follow us on Twitter: @CNBCWorld
Antonia Matthews
Digital News Editor
http://www.cnbc.com/id/102114723?trknav=...:topnews:4
Europe needs to get its act together: Soros
Katrina Bishop | @KatrinaBishop
Europe needs to be more pro-active in helping Ukraine in its struggle against Russia, billionaire investor George Soros told CNBC on Thursday, stressing that it was in the region's best interest to do so.
"Europe needs to get its act together and be more active in helping Ukraine fight for itself," he said in Brussels. "Because Ukraine wants to be part of Europe - effectively, the attack on Ukraine is indirectly an attack on the European Union."
Western countries have already imposed wide-ranging sanctions on Russia since its annexation of the Crimean peninsula in March, with Moscow imposing tit-for-tat measures in response. Such penalties have affected both European economies and Russia, with companies that do business in both countries especially badly hit.
In an article published Thursday in The New York Review of Books entitled "Wake Up, Europe" Soros said Russia was threatening Europe's "very existence".
George Soros
Chris Ratcliffe | Bloomberg | Getty Images
George Soros
"It's certainly in Europe's duty and interest to enable Ukraine to fight for its independence," he added, when talking to CNBC.
Read MoreGeorge Soros loads up on bearish market bet
The legendary investor, who is originally from Hungary in eastern Europe, has previously warned of a second Great Depression and argued that Europe is already in deflation.
"I am not the only one. I think this is now pretty generally recognised," he said, arguing that fiscal stimulus across Europe – and especially in Ukraine – was needed. "Leaving it only to monetary policy is one-sided. You need fiscal stimulus as well… You need a more balanced policy."
There are growing concerns about the inflationary picture in the euro zone in particular, which has been battled growth-sapping disinflation for months. In September, annual price growth slowed to just 0.3 percent, fuelling worries that the area is heading for a period of deflation.
Read MorePaulson holds onto gold ETF, Soros adds gold miners
"Right now, you've (Europe) got a lot of problems, of which Ukraine is just one," he said, when asked about the region's potential for investment. "Hopefully they'll solve the problem, then it will become more interesting."
But Soros refused to be drawn into a discussion about the recent volatility plaguing markets across the world.
"I'm no longer active in managing money. I am outside observer and my views are not as sharp as they used to be," he said, smiling.
- By CNBC's Katrina Bishop
Katrina Bishop
Deputy News Editor, CNBC.com
ECB health checks failed by 25 eurozone banks
BRIAN BLACKSTONE THE WALL STREET JOURNAL OCTOBER 27, 2014 12:00AM
ABOUT 25 eurozone banks have failed the European Central Bank’s financial health checks, although more than half of these lenders have taken the necessary steps to shore up their balance sheets this year.
Of these banks, 11 or 12 still have additional capital needs and there are no German or French banks among those dozen or so lenders, though there are Italian banks.
The ECB is due to release the final results of its asset-quality review and stress tests today. They were based on bank data for the end of 2013, but many banks have since taken steps to raise capital.
The ECB is reviewing the finances of 130 eurozone lenders. The European Banking Authority is conducting a review that brings the total number of tested institutions to 150. It is possible that some non-eurozone banks will fail the tests, pushing the total number of lenders above 25.
Bloomberg reported that the two-part review forms one pillar of the ECB’s effort to rekindle confidence in the eurozone after half a decade of financial turmoil. ECB president Mario Draghi has said banks need to fail to prove the losses of the past have been dealt with. After two previous European stress tests didn’t reveal problems at lenders that later failed, the ECB has staked its reputation on getting this exercise right.
“The numbers are consistent with our expectations,” said Alberto Gallo, head of European macro-credit research at Royal Bank of Scotland Group in London. “It’s too early to say the exercise is credible. The key will be to see how much stress the strong banks will take, and how many of them will pass by a narrow margin.” He expects 11 banks will need to plug capital gaps after measures already taken this year.
Analysts and investors said the exams were an important opportunity to restore investor confidence in Europe’s banking industry and to revive the flow of credit to the economy.
To pass the asset quality review, which scrutinises the asset side of balance sheets as of December 31 last year, banks need common equity tier-1 capital equivalent to at least 8 per cent of risk-weighted assets. In the adverse stress test, the pass mark is 5.5 per cent.
“The ECB can’t comment on speculation about the outcome of the comprehensive assessment. Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final,” an ECB spokesman said.
The euro region’s largest banks will show a €6 billion ($8.6bn) capital gap in the ECB’s assessment, according to analysts at Citigroup led by London-based Ronit Ghose. The shortfall would be €15bn when excluding capital banks raised this year, with failures concentrated in Greece, Italy, Spain and Ireland.
Banks that raised sufficient capital this year to cover the shortfall won’t have to find fresh funds. Lenders with a shortfall will have two weeks to submit a capital plan..
ECB says 13 banks need $15bn injection
AAP OCTOBER 27, 2014 6:45AM
Twenty-five eurozone banks have failed a stress test intended to determine their financial stability, the European Central Bank has said, adding that 13 of those must raise €10 billion ($15.00bn) in the next six to nine months.
The other 12 banks have already raised €15bn in capital to adjust their balance sheets in 2014.
The tests on 130 banks were based on balance sheets as of December 2013.
Nine Italian banks failed the stress tests, according to the ECB.
One German institution, Munich Hypotheken, was among the 25 failing financial institutions.
Three Greek banks, three Cypriot banks, two Slovenian banks, two Belgian banks, one Irish bank, one Austrian bank, one Portuguese bank, one French bank and one Spanish bank also failed, based on their December 2013 balance sheets.
Asset values across all banks were adjusted by €48bn, the ECB said, and bad loans increased by €136bn to €879bn.
"This unprecedented in-depth review of the largest banks' positions will boost public confidence in the banking sector," ECB Vice President Vitor Constancio said in a statement.
"By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust."
The 13 failing banks will also have to submit a re-capitalisation plan to the ECB within two weeks.
Eurozone lending still sluggish in September
DOW JONES NEWSWIRES OCTOBER 27, 2014 9:30PM
Lending to the eurozone's private sector improved in September compared with August but remained below levels from a year earlier, suggesting the economy remains hampered by a lack of new credit and spending.
Lending to households and businesses was down 1.2 per cent last month compared with September 2013, according to the European Central Bank's monthly report on Monday. That was an improvement from August, when lending was down 1.5 per cent on an annual basis.
The monthly improvement was driven by increased lending to households, which was up €5 billion in September from August. That offset a slight decline in lending to nonfinancial businesses.
The figures came one day after largely positive results from the ECB's long-awaited health check of European banks. The ECB concluded most of the 130 banks it reviewed are healthy, and that many needing additional capital have already taken the necessary steps.
"This unprecedented in-depth review of the largest banks' positions will boost public confidence in the banking sector," ECB Vice President Vítor Constancio said after the results were released Sunday. "This should facilitate more lending in Europe, which will help economic growth."
The ECB report Monday showed the broad figure on money supply, M3, increased 2.5 per cent in September from the previous year, an acceleration from the previous month's annual rise.
Still, that remained well below the ECB's reference value of 4.5 per cent money growth that it sees as consistent with achieving its inflation target of just under 2 per cent.
Italy pledges €4.5bn in new budget measures
DOW JONES NEWSWIRES OCTOBER 27, 2014 10:45PM
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The Italian government pledged to revise its 2015 budget with €4.5 billion in additional measures, in an effort to keep its deficit in line with European Commission requests and avoid open conflict with the European Union's executive arm.
In a letter sent on Monday to the commission in response to its specific requests, the Italian Treasury said Rome is ready to amend its budget law, reallocating some of the funds originally set aside for lowering Italy's high tax burden. The additional measures will allow the country to reduce its closely watched deficit and huge debt quicker, in line with the EU's requests, the Treasury said.
Last week, the commission had warned Italy that its budget plans for 2015 would violate the EU fiscal rules and asked Rome for further explanation on its budget plans. The commission delivered similar warnings to France and a few other governments, in a sign that officials in Brussels are resisting pleas for leniency.
Italy's 2015 budget included cuts to labor taxes and personal income taxes of €18 billion, in an attempt to revive the country's depressed economy.
In its response to the commission, Italy's Economy Minister Pier Carlo Padoan stressed that the country is "going through one of the most severe and lengthy recessions in its history," and highlighted a "serious risk of deflation." This is why, he added, the Italian government led by young Premier Matteo Renzi has proposed a mix of measures "aimed at minimizing these macroeconomic risks, since a tighter fiscal would be too risky."
EU leaders staked out opposing positions on austerity at an EU summit last week, with Italy and France both trying to fend off pressure from the bloc's budget hawks to cut their deficits faster. With the eurozone at risk of slipping back into recession, and anti-EU political parties on the rise, Rome and Paris said it would be foolish to deepen the region's economic woes by insisting on sharper budget cuts.
The confrontation is shaping up as the most important test yet of the bloc's new system for overseeing the national budgets of its member states, as worries mount that renewed political gridlock will undermine investor confidence in the eurozone again.