Stock markets calmer ahead of euro bailout summit

• Just 48 hours to go to crunch bailout summit • FTSE up 1.4% – European stocks higher • Afternoon market round-up • Today’s agenda 7.44am: Welcome to Friday’s business blog live with me, Katie Allen. There remains plenty for markets to get nervous about as we head towards a summit this weekend to shore up the euro, sort out vulnerable banks, deal with Greece’s mounting fiscal problems and find a way to stop Italy and Spain succumbing to the same fate. Sound like a lot? Angela Merkel and Nicolas Sarkozy certainly think so. That’s why they confirmed last night that Sunday’s meeting won’t do the job and that there will be another summit next Wednesday . Before we round-up reactions to this latest development in the bailout story, we’ll give you a quick look ahead to Friday’s main events. Obviously, we’ll be watching out for all the comments throughout Europe ahead of the summit and developments in Greece – where violent clashes claimed a man’s life on Thursday . 7.45am: Here’s a list of the scheduled events. (All times are UK local and where possible we’ve put in links for more on the data/events): • 7.45am: French business climate indicator for October. Forecast 98 reading from 99 in September. • 8.40am: ECB president Jean-Claude Trichet, ECB’s Juergen Stark, EU commissioner Olli Rehn all speaking in Poland • 9.00am: Germany’s IFO business climate indicator for October. Forecast 106.3 from 107.5 in September. • 9.00am: Sarkozy scheduled to speak at G20 conference on development • 9.30am: ONS publishes UK public finances for September . PSNB forecast at £12.15bn vs £13.16bn August. • 3.30pm: US Economic Cycle Research Institute releases weekly activity index 8.11am: To catch up on Thursday’s events, my colleagues’ blog covered developments in Europe as they happened . A quick run-down: • Dimitris Kotsaridis, a 53-year-old construction worker, died during a second-day of violent clashes in Greece • Communist and anarchist groups clashed, while riot police used stun grenades to clear the streets • The Greek parliament approved the latest austerity package , although one ruling MP broke ranks • European leaders will hold a second summit next week, admitting they won’t reach a deal this weekend • Troika warned that Greek economy will shrink 15% between 2009 and 2012 8.33am: And now to the markets: European shares are reversing some of Thursday’s losses made on euro zone dithering. Any big solution on Sunday seems off the agenda but markets are pinning their hopes on a Wednesday result and so the FTSE 100 is up 16 points at 5400, France’s CAC40 is up 23 points – that’s almost 1% – at 3107 and Germany Dax is up 17 points at 5783. On Wall Street last night shares finished with modest gains after a choppy session while in Asia , there’s a fairly calm picture, with the Hang Seng and the Nikkei both close to the unchanged mark. 9.00am: And now to France. Another day, another downbeat economic indicator. France’s manufacturing sector appears to be in a gloomier mood with an official confidence index dropping to 97 in October from 99 in September. That was the lowest in more than a year and below an eocnomists’ forecast for 98. Meanwhile, France’s Le Figaro newspaper is reporting that Paris is ready to downgrade its economic growth forecast from a current 1.75% pencilled in for 2012. The report follows a move by Germany on Thursday to nearly halve its growth forecast for 2012 to 1% from 1.8%. And just when markets thought it was safe to enjoy a moment of optimism ahead of the coming summits, ratings agency Standard & Poor’s is doing its best to bring them back down to earth. It said it will likely cut the ratings of five European countries , including France, if the region slips into recession and government borrowing rises. 9.07am: Germany’s closely watched IFO business climate index has come in slightly ahead of forecasts at 106.4, compared with predictions for 106.3. 9.24am: ING Financial Markets economist Carsten Brzeski sends through this reaction to the softer German IFO reading : The drop was almost equally driven by weaker current assessment and some further downward correction of expectations. The positive take is that the drop in expectations of latest months has slowed down. Recent developments in financial markets and confidence indicators have brought back the bad memories of 2008 when the German economy fell into a deep black hole. Could Greece 2011 be the same as Lehman 2008? In our view, despite all similarities with 2008, there are currently important differences: orders at hand are much higher than in 2008 and inventories are much lower. Fortunately, this is not 2008 and the economy should not collapse. Economic fundamentals are simply too sound. 9.34am: Britain’s public finances were not in quite the state economists had feared in September . A rise in tax receipts and no change in government spending left public sector net borrowing excluding the temporary effects of financial interventions at £14.1bn, according to the Office for National Statistics . That was a smaller deficit than the £15bn forecast on average by economists. 9.40am: Now back to the bigger picture and the multi-trillion-dollar question of sorting out the euro zone. Stock markets may be moderately higher but economists do not share their (albeit muted) optimism. Gary Jenkins, head of fixed income at Evolution Securities, says yesterday “must have been one of the most extraordinary days in the history of the capital markets, even though nothing actually happened.” We had leaks, counter leaks, hints and allegations but nothing of substance. The Sunday deadline has been moved to Wednesday as Germany and France cannot agree on how to increase the efficiency of EFSF funds ( according to the WSJ there is “disagreement between Germany and France over virtually every point…”). The Sunday summit will still take place (asked why a German official said “…good question…” according to the FT ). Considering the importance of the discussions and there potential impact upon the European economy, global capital markets and the future of the EU itself a delay of a few days is neither here nor there in the overall scheme of things. However the suggestions that they are still far apart on how to make best use of the EFSF is of some concern. After the announcement that Sunday’s summit would be more of a social occasion, which unsurprisingly was taken badly by the markets, there was a rumour that in fact they had agreed a new €940bn fund by combining the EFSF and the ESM. Now call me a cynic but on a day when it is clear that they cannot agree on the key points how on earth do they reach agreement to basically double the real size of the bailout fund? Especially after all the problems in getting parliamentary agreement across Europe for the small amendments to the EFSF? Seems to me that they are just throwing the market a bone to try and keep it sweet until Wednesday. 9.46am: Well we have at least one happy finance minister in Europe this morning. UK chancellor George Osborne has welcomed the public finance data. A year into from the coalition’s austerity drive, the Treasury say the smaller-than-expected September budget gap shows the government’s progress in delivering its deficit reduction plan. A spokesman for the Treasury says in a statement: One year on from the spending review, and despite the global economic turbulence stemming from the crisis of confidence in the euro zone, today’s figures show the government’s progress in delivering its deficit reduction plan. At the halfway point in the fiscal year, half of the fall in borrowing forecast for the whole year has been achieved. Howard Archer, economist at IHS Global Insight says the official data this morning is indeed welcome news for the government, but the deficit battle is far from over: The September public finance figures provided some very welcome good news for George Osborne as they came in below expectations and showed improvement on 2010. Furthermore, the Chancellor is currently on track to meet his full year fiscal targets, although the weakness of the economy and rising job losses suggest that he will have a major battle over the second half of the fiscal year to achieve his goals. 9.59am: Paul Donovan, senior economist at UBS has sent us his scathing take on developments ahead of the eurozone summits: Donovan says: “The euro has a binary choice in the long term – integrate or break up. In the near term there are three inter-related problems to resolve: Greek default; Greek bank recapitalisation by a supernational authority; euro area bank recapitalisation. “There is little point speculating on the details of the next three summits. Euro 1 seems certain to disappoint. The Euro 2 outcome may or may not disappoint. The G20 will do nothing of note (that is what the G20 always does). “In almost two decades as a professional economist I can not recall witnessing as much confusion and policy incompetence as this last week has shown. Regardless, we must hope that the euro can be made to work. The alternative is too hideous to contemplate.” 10.12am: Now, this is a clever interactive graphic tweeted by Peter Thal Larsen at Reuters Breakingviews. How to split the pain of a Greek restructuring: the latest calculator from @breakingviews and @reutersflasseur http://r.reuters.com/wuw54s The Greek mullet – think haircut – allows you to play around with the ways public and private creditors could split the pain of Greek restructuring. The graphic lets you choose whether to act today or wait till 2012 (can you guess which one European leaders would go for – think summits PLURAL). It also allows you to play around with debt to GDP ratios – something that is supposed to have been set years ago but, like many things right now in the eurozone – is up in the air. A handy one for Angela and Nicolas to have a look at perhaps. 10.49am: Time for a mid-morning markets round-up. France and Germany have promised to come up with an “ambitious, global response” to the eurozone crisis and that all the important bits of it will be “definitively adopted” on Wednesday “at the latest”. As one market player said this morning, this may be little more than bone-throwing to turbulent markets, but for now stock market traders in Europe seem pacified. The FTSE 100 is up 43 points, or 0.8%, at 5427 while France’s CAC40 is up 32 points, or more than 1%, at 3117 and Germany’s DAX is up 37 points, or 0.7%, 5803.78. Brent crude is holding above $109 a barrel but on foreign exchange markets there appears to be quite a bit more caution around the coming bailout summits and the euro has slipped against most other major currencies. 11.10am: Thanks for reading so far and if you would like to continue to follow the eurozone crisis over the weekend, here’s a helpful schedule of events to come from analysts at Citi. • Today: Eurogroup meeting, starting at 1pm London Time • Tomorrow: ECOFIN (finance ministers) meeting; General Affairs Council meeting; Merkel and Sarkozy have another meeting; meeting from 6.30pm UK time of EU leaders belonging to the centre-right European People’s Party (EPP) grouping (Currently 17 out of 27 European Council members belong to this grouping, including France, Germany, Italy and Ireland.) • Sunday: EU Council meeting of the heads of state and government in the morning, followed by euro area summit in the afternoon. But what do Citi’s analysts think will be achieved by all this talking? With the parties taking more time for negotiations, we remain confident that there will in the end be an agreement on a package which includes a leveraged version of the EFSF (probably up to around €1,000bn) to support sovereign bond purchases… While the package in the end is likely to tick all boxes, the overall outcome will not solve the sovereign debt and banking problems in Europe and therefore is likely to disappoint markets, in our view. 11.21am: And now a plea. I have searched in vain for the full text of Thursday’s communique from France and Germany. Well almost in vain. Here’s a French copy of it on the Elysee Palace website with the all important “au plus tard mercredi” phrase. But we’d like to give everyone a chance to read about what is going to happen “by Wednesday at the latest” in full in English. If you have found the communique text, please do give us a shout with a link. Does the fact it’s impossible or near impossible to find tell us anything about how much commitment we should attribute to its vows? 11.34am: Germany has sought to enlighten us over the need for two summits rather than just one on Sunday. According to Angela Merkel’s spokesman a key German parliamentary committee needs time to approve key decisions, otherwise the Chancellor would be travelling to the summit without a mandate. Reuters reports that spokesman Steffen Seibert said there had to be two summits – on Sunday and on Wednesday – because there had not been time for the lower house’s budget committee to study proposals in detail – and in German – in time for Sunday’s meeting. 12.21pm: Get out your European phrase books, it’s time to update them. We thought it was about time for a round-up of metaphors and buzz words ahead of the summit. Our first phrase comes from the ECB’s Juergen Stark who warns “there is a risk that water damage is much larger than damage done by the fire” when it comes to sorting out the crisis with ballooning rescue packages. It was British prime minister David Cameron who talked of the need for a ” big bazooka ” approach. The FT (subscription) quotes this from a European official: “We’ve lost the main parachute and we’re on the reserve chute and we’re not sure that will even work.” Britain’s foreign secretary William Hague maintained that euro was a burning building with no exit Were the eurozone to break up, it might be called Eurogeddon, as suggested by a special report from the Economist Intelligence Unit entitled: After Eurogeddon: What break-up of the eurozone could mean for financial markets, business operations and the global economy Michel Barnier, internal market commissioner, has gone for a fever metaphor: “It is not the thermometer that causes the fever,” he said. “But the thermometer has to work properly to ensure you do not exaggerate the fever.” Please share your favourites with us. 1.35pm: An update now from my colleague David Gow in Brussels who has been hearing plenty about behind-the-scenes workings ahead of the weekend meetings : It seems as if all those commentators highlighting huge differences between France and Germany are barking up the wrong tree. At least, that’s the mood music coming live from Berlin where government sources insist the two agree on practically everything apart from technical issues. Anyone who suggests otherwise “is simply wrong.” The real reason why the decisions on the “comprehensive and ambitious” plan alluded to last night by Merkozy cannot be taken until Wednesday – and Wednesday it is – is the unprecedented dragging of feet by unnamed officials entrusted with preparing Sunday’s summit(s) and the spate of ministerial meetings that have just kicked off with the eurogroup. “There will be no decisions but preparation of decisions,” is the word from Berlin. It’s even being put about that the French are not even asking to use the ECB to help leverage the bailout fund, the EFSF, as the Elysée and Bercy (finance ministry) know it’s simply not a runner for the Germans. Rather, we are indeed talking about first-loss insurance and, much more intriguingly, a role for the IMF in boosting the EFSF’s firepower. Somehow, and I’m not entirely clear about this, even with an extensive briefing, eurozone countries in trouble or being prudential could use their access to the IMF’s special credit facilities via the EFSF or the IMF could itself bolster the eurozone fund. Anyway, Berlin sees this and the insurer option as being the most promising – and maybe Christine Lagarde, IMF managing director, can explain all this weekend. Either way, leveraging the EFSF will be decided upon on Wednesday – and so might the bigger haircuts for private creditors in restructuring Greek debt. Even now, the troika’s report on Greek debt sustainability has not been delivered to the eurogroup as the IMF and European commission disagree. It was promised on Wednesday morning, Wednesday evening, throughout Thursday and now it’s gloriously sunny Friday – and, well, we’re still waiting. 1.44pm: John Redwood, chairman of Evercore Pan Asset’s investment committee, has sent us his latest view of the euro zone situation and he reiterates his advice to investors to steer clear of Europe: The disagreements between France and Germany come down to a simple and big divide. France wants the EU to behave like a single country and to print, devalue and borrow as the US and UK do. Germany has no wish to underwrite the extra spending of certain members of the Eurozone and has a fear of inflation. She is not happy about the idea of a laxer monetary policy, with devaluation and more money printing. It is best to avoid European investments. 1.57pm: We have just heard from some major banks what they want out of the European Financial Stability Fund. According to IFR – a division of Reuters – a group of 10 European financial institutions have sent a letter to the EFSF to back a proposal for insurance of parts of eurozone sovereign bonds. The letter was signed by Allianz, Axa, Banco Popular Espanol, Commerzbank, Deutsche Bank, Generali, Mediobanca, MunichRe, PIMCO, and Unicredit. 2.04pm: So we know what banks are demanding from this weekend. What about Europe’s citizens? Campaign group Avaaz has been running a petition demanding leaders agree on a “fairer EU bailout”. It says 485,805 have backed the claim that “EU leaders are using the wrong approach to the euro zone crisis and must put people not bankers first”. The citizens – from all EU Member States – demand a eurozone bailout that “serves the public interest and doesn’t reward the banks and speculators which have helped cause the crisis”. Avaaz campaign director Luis Morago says: For three years leaders have stubbornly stuck with a banker-led approach, taking the EU to the edge of the abyss. European citizens want real change now. Today half a million people are demanding that leaders stop listening to speculators, and put people first. The financial gamblers who got us into this mess can’t be allowed any more free public money. Avaaz says its petition will be presented on a mobile billboard that will circle the summit location this Sunday ahead of the arrival of the heads of state. 2.19pm: Before I hand over for the rest of the afternoon to my colleague Juliette Garside, here’s a markets update: The FTSE 100 is up 75 points, or 1.4%, at 5459, the CAC40 in France is up 51 points, or 1.6%, at 3135 and Germany’s DAX is up 134, or 2.3%, at 5900. My colleague Nils Pratley has been wondering what all the calm is about . He doesn’t expect it to last. On foreign exchange markets, the pound has hit a six-week high against the dollar while inn commodity markets, oil is rallying on optimism over this weekend’s summit while copper and gold prices are higher on day but look set to end lower over the week as a whole. 2.49pm: Hello and welcome back to the live blog with me, Juliette Garside Summary of today’s developments: Stock markets in Europe pacified by France and Germany’s promise of an “ambitious, global response” to the eurozone crisis on Wednesday The pound has hit a six-week high against the dollar Oil, copper and gold is rallying on optimism over this weekend’s summit Campaign group Avaaz calling for leaders to put people not bankers first 3.11pm: more from David Gow in Brussels: Europe’s unions are worried sick that finance ministers will use the crisis to dismantle collective wage bargaining – and threatened them with legal action if they do. This, of course, is exactly what is happening in Greece where a “socialist” government is being forced by the troika to undo national agreements and get all pay awards done at company or even plant level. This is what the ETUC, often a forgotten actor, says: “There is a real danger that these rules (on excessive imbalances) will be used to push for brutal fiscal austerity, to impose excessively high and fast deficit reduction targets and systematically roll back social benefits, public services and public investments. Decentralised and uncoordinated bargaining along with downwards flexibility of wages would be prompted so as to weaken the bargaining position of workers and trade unions. Downward wage competition within countries and between countries might follow.” The ETUC, headed by Bernadette Ségol, warns it will systematically use the wage safeguard clause to prevent such a race to the bottom and tells the neo-liberals to take their hands off Europe’s social model. “Once again,” it says, “workers and their families are asked to pay for the banks. It is time to put an end to a dysfunctional system where workers are prisoners of casino capitalism.” 3.16pm: Capital markets in the United States made a solid start, with the Dow Jones and Nasdaq both up over 1.7% in early morning trading. US traders were betting the European summit would deliver a solution and allow markets to return their focus to corporate results. John Brady, senior vice president at MF Global in Chicago, said: Today will be all Europe, everything Europe. It is all about the summit this weekend. The Dow Jones industrial average was up 1.77% or 205 points to 11746, while the Nasdaq composite rose 1.71% to 2644. The Standard & Poor’s 500 index rose 13.6 points or 1.12% to 1229, and according to Thomson Reuters datea, 109 of the companies listed in the ranking that had reported financial results by Thursday have topped analysts’ expectations. 3.32pm: Groupon’s long awaited initial public offering has today been filed with market regulator the Securities and Exchange Commission. The online coupon pioneer is seeking a valuation of $11.4 billion (£7.2bn) in what will be the largest tech stock float since LinkedIn shares began trading on the New York Stock Exchange in May. The Chicago company is offering 30 million shares, or 4.7% of its 632.8m outstanding stock, at $16 to $18 each, to raise up to $540m. Groupon is due to meet with investors as early as next week to gauge demand, with the offer set for completion on 3 November, according to Bloomberg. The company had previously hoped to raise $750m, but its earlier filing in June had to be revised due to declining investor demand. Groupon reported revenue of $430.2m in the three months to end September, an increase of 9.6% on the previous quarter. The numbers show growth has slowed in the third quarter. The second quarter had shown a 33% rise compared to the first three months of the year. Net losses, however, have narrowed to $10.6m in the third quarter, from $49m a year earlier, according to Groupon’s filing. The net loss for the first nine months of 2011 is $239m. Groupon now has nearly 143m subscribers to its email list, an increase of 24% on the previous three months. Of these, nearly 30m had purchased a coupon. 4.43pm: US stocks are rising to levels not seen since early August, according to Reuters. The Dow Jones continues its recovery, up 1.9% to 11768. General Electric, the world’s biggest maker of jet engines and electric turbines, is adding to the cheer with today’s upbeat third quarter financial results. Strong demand from Brazil, Russia and China drove profit up 18%, countering the effect of the slowdown in Europe and North America. General electric says it expects earnings to rise at a double digit percentage next year. Chief executive Jeff Immelt told investors: Our emerging market growth was very strong. it was a good quarter in a volatile environment. However, General Electric’s shares were down about 1.6% in morning trading after its profit margins were revealed to be weaker than forecast. 4.54pm: European stocks ended the week on a positive note, with investors confident that the forthcoming round of summits would halt contagion from the Greek debt crisis. The FTSE 100 closed up 1.93%, or 103.97 points at 5488.65, while the FTSEurofirst 300 index of top European shares provisionally closed 2.5% higher at 977.72 points, the highest rise in two weeks. Chancellor George Osborne will attend a meeting of European finance ministers in Brussels tomorrow, ahead of a European Council on Sunday. France and Germany have promised a firm solution after further talks on Wednesday. Speaking ahead of the summits, Osborne said: The coming days will be critical for resolving the crisis in the Eurozone. I am convinced of everyone’s commitment to this. A resolution to the Eurozone crisis would be the biggest boost to growth in Britain and around the world. Patrice Perois at Kepler Capital Markets warns the rally could be short lived, with today’s merriment leading to headaches next week. He told Reuters: People are afraid of being caught on the wrong side before the meeting. It’s a rumour-driven market, clearly not controlled by long-only guys and there’s a risk of hangover next week. Today’s highlights: • The FTSE 100 closed up 1.93%, or 103.97 points at 5488.65 • United States indexes made their strongest gains since August • France’s Le Figaro newspaper predicted Paris would downgrade the 1.75% economic growth forecast pencilled in for 2012 • Groupon filed a long-awaited £11.4bn initial public offering • A group of 10 Euro banks and insurers wrote to the European Financial Stability Fund requesting insurance for parts of sovereign bonds That’s all for the live blog today. European debt crisis Economics Europe Europe Greece France Germany Katie Allen Juliette Garside guardian.co.uk

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