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Markets relieved after Italy agrees €17bn bank rescue – as it happened

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All the day’s economic and financial news, including a TUC conference on insecure work and reaction to Italy’s €17bn taxpayer-funded bank deal

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Mon 26 Jun 2017 11.25 EDTFirst published on Mon 26 Jun 2017 02.56 EDT
A Veneto Banca bank branch in Venice, Italy.
A Veneto Banca bank branch in Venice, Italy. Photograph: Alessandro Bianchi/Reuters
A Veneto Banca bank branch in Venice, Italy. Photograph: Alessandro Bianchi/Reuters

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Nils Pratley: Italian deal isn't progress

And finally, here’s our financial editor Nils Pratley on the Italian banking deal, and its worrying implications for the long-term health of the Eurozone banking sector....

One cannot get around the fact that the spirit of the relevant EU banking directive has been ignored. The rules apply, except when they don’t, it seems. That has two important consequences. First, as Capital Economics argues, the “doom loop” between Italian banks and the Italian government remains a worry. If taxpayers can be on the hook at two regional banks, they may also be exposed if and when the banks more important and the sums significantly greater.

Second, as the thinktank also points out, the cause of banking and fiscal integration in the eurozone has just suffered a serious jolt. In the next round of collective risk-sharing, eurozone states are supposed to guarantee deposits in each others’ banks. It is now hard to imagine Germany rushing to join such a scheme.

So forget the market’s initial cheery response to this Italian bank job: a short-term problem has been fixed only by raising major long-term uncertainties. That does not sound like progress.

And that’s probably all for today; thanks for reading and commenting... GW

After a strong start to the day, the stock market rally is fizzling out in late trading.

The FTSE 100 is now up only 0.3%, or 25 points, having gained nearly 60 points this morning.

Chris Beauchamp of IG says the weak American manufacturing orders figures released a couple of hours ago dented the mood in the City.

An afternoon wobble has dented what had been a very positive day for stock markets. Another apparently order bank rescue for the eurozone, this time in Italy, plus a robust German IFO reading, had put markets on the front foot in the early part of the session. Even the UK government appeared to get its act together, with a deal between the Conservatives and the DUP putting the Tories across the threshold for a majority. But once again the summer malaise appears to be getting the better of equity markets, with gains being surrendered as London heads towards the close, with a disappointing US durable goods figure not helping matters.

Unsurprisingly, financial names are in high demand in London following the Italian banking news, which is helping to keep the FTSE 100 in positive territory. But it is clear that for now investors are none too keen on pushing global markets higher. It could be a long summer.

Silvia Merler, fellow at Bruegel, has published a really good analysis of last night’s Italian bank deal.

Here’s her conclusion:

Overall, this episode confirms a pattern in the management of Italian banking sector problems over the past years. Authorities try to kick the can down the road and often let political considerations outweigh economic issues.

We have seen this in the delay of MPS’ recapitalisation until after the constitutional referendum, in the creation of Atlas [Italy’s bank bailout fund], and in the never-ending effort to shield retail junior bondholders to whom the sale of those product should have instead been better prevented.

And we see it again here, in the use of generous liquidation aid. Some in Italy will see this last turn as a happy ending. Others will see it for what it actually is: a political choice.

In Brussels, this episode will perhaps finally demonstrate that harmonising bank insolvency law is an indispensable complement to BRRD, as argued strongly by others before. As long as this is not done, the door remains open for the use of national insolvency frameworks to escape from resolution.

My two cents on the story of Veneto Banca and Popolare di Vicenza. #Italy #banchevenete https://t.co/AmMf6puF76)

— Silvia Merler (@SMerler) June 26, 2017

US durable goods orders slide

The latest US economic data is out....and it’s weaker than expected.

Orders for durable goods shrank by 1.1% in May. That’s nearly twice as large a drop as expected, and suggests US companies were more cautious about buying new machinery and electrical equipment last month.

It’s the second monthly fall in a row, and the biggest drop in six months.

This has knocked the US dollar, and also driven down the yield (or interest rate) on US government debt. That shows that Wall Street is dialling back its expectations for US interest rate rises.

Rates slide after mediocre durable goods report. https://t.co/CPRgUDknVI pic.twitter.com/Bt2cKwZhCA

— Joe Weisenthal (@TheStalwart) June 26, 2017

Andrew Hunter of Capital Economics says the data shows businesses cut back on capital investment this quarter:

May’s durable goods data suggest that, after rising at a 7.2% annualised pace in the first quarter, business equipment investment has expanded at a much more modest pace in the second, which would fit with the slightly weaker tone of some of the surveys.

Nonetheless, with consumer spending growth on course for a big acceleration, overall GDP growth is still likely to have rebounded quite strongly.

Helena Smith
Helena Smith

Back in Greece, efforts to resolve the row between striking municipal rubbish workers and the government have collapsed.

Unionists are now vowing to continue their walkout until Thursday amid warnings of a public health crisis as temperatures surpass edge towards 40 degrees Celsius, and rubbish continued to pile up.

From Athens, Helena Smith reports:

After abruptly ending talks with interior minister Panos Skourletis, the head of the municipal worker’s union, Nikos Trakas, demanded that prime minister Alexis Tsipras intervene.

Skourletis, he said, had thrown out the union’s counter-proposal – following the government’s olive branch offer of extending short-term contracts and permanent job status to around 2,500 workers – after five minutes. “We will continue the fight and on Thursday we will demand to see the prime minister of the country because the interior minister is incompetent,” he said.

Meanwhile Thessaloniki’s mayor, Yannis Boutaris, has announced that he will outsource rubbish collection to private contractors as piles of garbage gather almost a week after the strike began. Temperatures are set to hit 43 degrees Celsius on Wedsnesday.

A pile of garbage outside a Pet shop, in Piraeus, near Athens, today. Photograph: Petros Giannakouris/AP
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Gold hits five-week low

Gold has hit a five week low this morning, as investors move money into riskier assets like shares.

The price of an ounce of gold bullion fell 1.2% at $1,240, its lowest level since 17 May.

Craig Erlam, senior market analyst at OANDA, attributes the moves to relief over the Italian banking deal, and the Conservative-DUP pact signed this morning.

The one notable piece of news over the weekend came from Italy where an agreement was reached that will avoid winding down two Italian banks, the good assets of which will be transferred to Intesa Sanpaolo. The resolution seems to have appeased both the European Commission and the Italian government, both of which have been at loggerheads as to how to deal with the failing banks, as well as investors with financials across the board being boosted by the announcement.

Reports this morning of an agreement between the Conservatives and Northern Ireland’s DUP have seen the pound pop higher, albeit only marginally given that the deal has been widely anticipated and doesn’t offer the kind of stability that a majority or even full coalition would. The deal will see Northern Ireland receive an extra £1 billion over the next two years in exchange for the DUPs support for May’s minority government. With the deal now agreed, the next question is whether May will remain in charge throughout that period.

The improved sentiment in the market is weighing on safe haven assets, particularly Gold which is down more than 1% on the day. Gold recovered back towards $1,260 towards the end of last week but has been sold heavily this morning, hitting its lowest level since the middle of May at one point. A sustained break below $1,240 could trigger a move back towards $1,220, which has been a very notable level on numerous occasions this year.

As this chart shows, gold took a tumble early this morning, sparking chatter in the City that a traders could have made a fat-finger error....

The gold price today Photograph: Thomson Reuters

The pound has nudged a one-week high, after UK prime minister Theresa May finally secured an agreement with Northern Ireland’s DUP party.

Sterling gained almost half a cent at one stage to $1.2759, the highest since 19 June, as the City welcomed a rare piece of political certainty.

The deal isn’t cheap, though; the DUP have secured an extra £1bn in spending on Northern Ireland over the next two years, in return for promising to support the Conservatives in confidence and budget votes.

This has already caused a stir, with critics wondering which ‘magic money tree’ is providing the cash and other UK regions suggesting they should get more funds too.

Over in Milan, branches of Veneto Banca and Banca Popolare di Vicenza have opened as usual today.

And there are no signs of panic. That will please Italy’s finance minister, Pier Carlo Padoan, who pledged last night that it would be business as normal, following the sale of these ‘good’ assets to Intesa SaoPaolo.

People line up at a cash machine of a Veneto Banca branch in Milan, Italy, Monday, June 26, 2017. Photograph: Luca Bruno/AP
People walk past by a Veneto Banca branch in Milan. Photograph: Luca Bruno/AP
A couple leaves a Banca Popolare di Vicenza branch in Milan. Photograph: Luca Bruno/AP

Let’s get back to Italy...where the Bank of Italy has revealed that the rescue of the world’s oldest bank, Monte dei Paschi di Siena, is complete.

Here’s the Reuters’ newsflash:

BoI Deputy Governor: Monte Paschi's Precautionary Recapitalisation Has Been Finalised - RTRS

— LiveSquawk (@LiveSquawk) June 26, 2017

Six months ago, the Italian government decided to bail out Monti dei Paschi, after efforts to raise capital from private investors failed (as with the Veneto banks).

Since then, officials have been negotiating with EU authorities over how to handle the rescue. A draft plan was drawn up earlier this month, that will see some bond-holders “bailed in”, taking a financial hit.

Rome is also expected to inject state funds into MPS, by tapping into a €20bn fund created last year (which is also being used to finance last night’s deal for Veneto Banca and Banca Popolare di Vicenza)

One last line from the TUC conference on insecure work, from Ioana Cerasella Chis of the University of Birmingham:

Bradford Uni researchers have interviewed 48 workers - among them, many had more than one job; some doing up to 7 jobs at once #insecurework pic.twitter.com/WdllqzBR9s

— Ioana Cerasella Chis (@CerasellaChis) June 26, 2017

Retail workers often do overtime with short notice; there's a lack of control over working hours particularly in this sector #insecurework pic.twitter.com/8mCdx4qo8c

— Ioana Cerasella Chis (@CerasellaChis) June 26, 2017

Dashing from job to job, trying to fit in domestic responsibility; children are affected; ppl rely on patchwork arrangements #insecurework pic.twitter.com/2bnb4pHQIk

— Ioana Cerasella Chis (@CerasellaChis) June 26, 2017
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Miatta Fahnbulleh, research director at the IPPR, argues that Britain’s economy would be more productive if workers benefitted from better protections.

Rather than simply worrying about job creation, Fahnbulleh says organisations should consult with staff to redesign and improve the workplace.

M. Fahnbulleh - @IPPR
Productivity has been consistently lagging behind other countries. The productivity problem is linked to #insecurework pic.twitter.com/zKvrpQ6qMo

— Ioana Cerasella Chis (@CerasellaChis) June 26, 2017

Stefan Baskerville of the New Economics Foundation is also at the TUC conference.

He argues that the increased digitalisation of the labour market is creating more insecurity for workers, and giving employers more power to control workers, including through algorithms that assess performance.

big set of questions abt data, digitisation&surveillance on what it means for working conditions says @NEF Stefan Baskerville #Insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

S. Baskerville, Nef
Each part of Deliveroo workers' work is monitored; workers produce data processed through algorithms #insecurework pic.twitter.com/s5GRPQxDji

— Ioana Cerasella Chis (@CerasellaChis) June 26, 2017

Here’s a thought....would company bosses care more about pay and conditions if their tax rate depended on it?

Interesting idea fr @ippr @Miatsf Workers cd vote on if their employer's a good corporation, result cd influence their corp tax rates

— Katie Allen (@KatieAllenGdn) June 26, 2017

Union chief: Workers need proper rights, not 'flexibility'

Ouch!

Sally Hunt, general secretary of the University and College Union has slapped down Matthew Taylor’s argument that workers enjoy the flexibility of today’s labour market.

Hunt points out that the boom in self-employment and zero-hours contracts is a recipe for exploitation.

On flexibility, I don't meet many people enjoying two-way flexibility, says @ucu Sally Hunt #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

"Rights not the right to ask is what employees and workers should have", says @ucu Sally Hunt #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

Sally Hunt to @RSAMatthew, I don't see examples of two-way flexibility. I see people exploited & with no option for recourse. #insecurework

— TradesUnionCongress (@The_TUC) June 26, 2017
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Despite his comments about protecting ‘flexible’ work, Matthew Taylor does concede that many workers in the Gig economy are unable to save for their pensions or pay for sickness insurance.

Taylor says we shd move to more consistent way to tax employment but budget u-turn by chancellor on self-employed tax shows hard in practice

— Katie Allen (@KatieAllenGdn) June 26, 2017

Taylor: tax changes shd go hand in hand w/ better protection for self-employed. Many not saving for pension, without insurance for sickness

— Katie Allen (@KatieAllenGdn) June 26, 2017

Next up at the TUC conference is Matthew Taylor, chief executive of the Royal Society, who is conducting a government review into modern employment practices.

After a tweet warning his audience not to expect too much (!), Taylor reveals that his inquiry should be published in a couple of weeks:

Matthew Taylor says probably a "couple of weeks away" from publishing his govt commissioned report into modern employment #insecurework pic.twitter.com/UlUzNc7OM0

— Katie Allen (@KatieAllenGdn) June 26, 2017

However...Taylor then argues that many workers appreciate the “flexibility” in today’s labour market; and that the priority has to be to get people into work.

"The most important anti poverty strategy we have is to make sure people can get jobs" says Matthew Taylor #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

"Wages are rising fastest at the bottom" thanks in part to living wage and tightness of labour mkt says Matthew Taylor #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

We must recognise that most people who are atypically and flexibly, want to work that way, says Matthew Taylor #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017

Matthew Taylor says his report will make recommendations to preserve 2-way flexibility but tackle 1-way flexibility where only employer wins

— Katie Allen (@KatieAllenGdn) June 26, 2017

Top line of my report will be:All work in Britain must be good work, and fair with scope for progression, says Matthew Taylor #insecurework

— Katie Allen (@KatieAllenGdn) June 26, 2017
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TUC conference on flexible work begins

Back in London, the TUC’s conference on Britain’s insecure jobs market is underway.

The session begins with a warning about the growth in contracts that don’t provide any fixed hours work:

Zoe Smith,care worker, tells TUC #insecurework conf, "more and more agencies are popping up now" "much more likely to end up on zero hours" pic.twitter.com/xyVnjmam6Q

— Katie Allen (@KatieAllenGdn) June 26, 2017

TUC general secretary Frances O’Grady is now warning that this boom in insecure work is actually hurting the UK economy:

Insecure work has big human costs & heavy financial penalty. raises benefits bill, hits productivity, dents tax revs says @FrancesOGrady

— Katie Allen (@KatieAllenGdn) June 26, 2017

"Zero hours, zero tolerance", "bring back overtime pay" and sort out better enforcement of rights says @FrancesOGrady #insecurework conf.

— Katie Allen (@KatieAllenGdn) June 26, 2017

TUC's Frances O'Grady to govt: "If you are serious about tackling insecurity, scrap those [employment] tribunal fees and do it now" pic.twitter.com/you39yjXd2

— Katie Allen (@KatieAllenGdn) June 26, 2017

On the rise on #insecurework, @FrancesOGrady: "we have a great opportunity to reverse this tide of casualisation"

— Katie Allen (@KatieAllenGdn) June 26, 2017
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We now have confirmation that the Italian bank rescue deal is jolly good news for investors who own debt issued by the two Veneto-based lenders.

The value of bonds issued by both banks has soared this morning, after it became clear that bondholders would be spared losses (much to the anger of German MEP Markus Ferber).

The FT has the details:

Veneto Banca and Banca Popolare di Vicenza senior bond prices rocketed up more than 15 points on Monday, after the Italian government shielded the notes from losses in its wind-down of the two lenders.

The senior bonds had been trading at steep discounts to face value, reflecting investors’ fears that they could be “bailed-in” – a process whereby losses are imposed on private creditors to lessen the cost to the taxpayer. But over the weekend the EU commission signed off a scheme that will see Intesa Sanpaolo take on the good assets of the two Venetian banks, while also fully protecting senior bondholders.

Vicenza’s €750m 2020 senior note was trading at around 85 cents on the euro on Friday, according to Tradeweb prices, but soared up to 102 cents on Monday morning. Veneto’s €500m 2019 senior bond surged from 88 cents to 103 cents over the same period.

Venetian banks’ senior bonds surge after swerving bail-in https://t.co/xqceix8SZF

— Financial Times (@FinancialTimes) June 26, 2017

I’m sure that Italian taxpayers are absolutely delighted for these bondholders...

Markets boosted by Italian bank deal and German confidence

The Italian bank rescue/wind-up has helped to spark a relief rally across Europe’s stock markets.

Shares are up in London, Milan, Madrid, Paris and Frankfurt, as investors welcome the news that two of Italy’s fragile lenders have been dealt with.

The Italian FTSE MIB index is the top performer, up almost 1.5% this morning. Inteso Sanpaolo is still up almost 4%, with other banks also gaining ground.

European stock markets at 10.15am today Photograph: Thomson Reuters

David Madden, market analyst at CMC Markets, explains:

European equity markets are higher on the day as two Italian banks were rescued over the weekend. The deal will result in Vento Banca and Banca Popolare di Vicenza being wound down, and the good assets of both banks will be sold to Italy’s largest retail bank, Intesa Sanpaolo, and the Italian government will should the burden of both banks bad assets.

The bailout could cost the Italian tax payer up to €17 billion. There are still questions still hanging over the Italian banking sector, but for now investors are content with the Continent’s financial health.

The jump in German business confidence, to a record high, has also cheered investors.

Joshua Mahony of IG says the IFO report has bolstered confidence in the eurozone economy.

The German economy appears to be in rude health, if today’s record Ifo business climate figure is anything to go by. According to Ifo, German businesses are ‘jubilant’, and it is clear that investors feel the same way, with the record high reading sparking a sharp move higher for the DAX, while gold immediately shed 1.4%.

This is just the latest in a long line of encouraging economic indicators, with the eurozone seemingly emerging from years of decline at the very moment that the UK decided to leave the EU.

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