BBC News - Eurozone There are concerns that low inflation could harm the eurozone's nascent recovery

The rate of inflation in the eurozone remained at 0.5% in June, marking the ninth consecutive month of below-target growth in the 18 member states.

There are concerns that low inflation could harm the eurozone's nascent recovery

Earlier this month the European Central Bank (ECB) introduced fresh measures designed to boost the eurozone, including a "below-zero" interest rate and cheap, long-term bank loans.

ECB president Mario Draghi has referred to inflation below 1% as being in "the danger zone".

The bank wants inflation to be near 2%.

Flash estimates from the EU statistics office, Eurostat, show that the service industry was the only sector to report significant price growth, with a rise of 1.3%, but food, alcohol & tobacco prices were down 0.2%, and industrial goods remained unchanged.

Separate figures from the eurozone showed that retail sales in Greece enjoyed their strongest annual rise in more than two years in April, up 7.3% compared with the year before.

In Germany, retail sales in May were up 1.9% compared with the year before, but down 0.6% compared with April's figures.

Earlier this month, the ECB became the first major central bank to introduce negative interest rates, in an effort to to get money moving into the stagnant eurozone economy.

There had been concerns that the eurozone could slip into deflation, raising fears that consumers might spend even less because they would expect prices to fall in future months.

Howard Archer, an economist at IHS Global, said there may be "some relief" within the ECB that eurozone inflation did not weaken further in June.

"Nevertheless, the ECB will likely have been hoping that inflation would actually edge a little higher in June following a marked move back up in German inflation," he added

Bloomberg News - Italian Debt Swells to Rival Germany as Bond Yields Slide

Photographer: Alessia Pierdomenico/Bloomberg

Matteo Renzi, Italy's prime minister, is under pressure to push through spending cuts and foster growth in an economy burdened by the threat of deflation and the highest number of people unemployed in modern history

As Italy’s borrowing costs fall to new lows, its debt is rising to the most ever.

The country owed 5 percent more in April compared with a year earlier, with debt reaching 2.15 trillion euros ($2.9 trillion), Bank of Italy figures show. That matches the outstanding borrowing ofGermany, the largest economy in Europe and the most of any country on the continent, at the end of last year, according statistics office Eurostat.

While Germany is scheduled to grow 2 percent this year, Italy will expand 0.3 percent in 2014, according to a Bloomberg survey. To ensure its debt is sustainable, Prime Minister Matteo Renzi is under pressure to push through spending cuts and foster growth in an economy burdened by the threat of deflation and the highest jobless rate on record.

“In our forecasts Italian debt will overtake Germany by the end of the year,” said Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London. “It is particularly important that the government moves ahead with the promised reforms to firm the sovereign credit rating and strengthen further investors’ appetite for Italian assets.”

In the meantime, the repayment of arrears to state suppliers, the contributions to the euro-area rescue funds, lower tax revenue due to the effects of the record-long economic slump and financial servicing costs keep adding to Italy’s debt load.

With the European Central Bank backstopping the euro over the past two years, the yield on 10-year Italian bonds meanwhile fell to as low as 2.69 percent this month, narrowing the premiumover equivalent German bunds to the least in three years. Italy’s 10-year yield was little changed at 2.84 percent as of 8:54 a.m. Rome time.

Pace Accelerated

In the first four months of this year, Italy’s debt rose by 77 billion euros, almost as much as the total 79.8 billion euros it grew in 2013, according to the the country’s central bank.

The ECB on June 5 unveiled an unprecedented round of measures to help its record-low interest rates feed through to the economy. They included cutting its deposit rate to minus 0.1 percent, which made the ECB the first major central bank to take one of its main rates negative.

ECB actions will boost Italy GDP in coming years, Bank of Italy Deputy Director General Fabio Panetta said.

“Based only on the effects recorded so far on currency exchange and market rates, we can estimate a cumulative stimulus to output in the three years 2014 to 2016 of about half a percentage point,” Panetta said at a June 19 event in Rome.

Renzi’s government is seeking a return to growth after a recession that lasted more than two years. The Italian economy, the euro region’s third-biggest, contracted 0.1 percent in the first quarter before industrial production resumed increasing in April, national statistics agency Istat said on June 10.

Rebooted Rally

The weak growth prospects were cited by Standard & Poor’s when it kept a negative outlook in its June 6 review of Italy’s credit rating. S&P said the ECB “helped reduce financing tensions for many euro zone members, including Italy.”

Italian borrowing costs fell to record lows this week at sales of April 2016 zero-coupon notes and six-month bills as the prospect of continued accommodative monetary policy from the ECB rebooted a rally in euro-region bonds. The Treasury in Rome plans to auction as much as 8 billion euros of debt maturing between 2019 and 2024 today.

This year, Italy foresees increasing its debt ratio to 134.9 percent of gross domestic product from 132.6 percent in 2013, relying on the sale of stakes in the nation’s postal office and air traffic controller to prevent a further increase, according to the government’s economic and financial plan passed in April. Debt is projected to fall to 125.1 percent of GDP by 2017.

Ambitious Forecast?

The government is counting on growth of 0.8 percent this year to help meet its budget goals. That forecast contrasts with business lobby Confindustria, which cut its estimates for GDP in 2014 to 0.2 percent from an increase of 0.7 percent previously.

Italy’s “fiscal policy needs to strike a delicate balance between setting the debt ratio on a downward path while avoiding excessive tightening that derails the fragile recovery,” the International Monetary Fund said in a report this month. “More needs to be done to bring down the high level of public debt and strengthen the resilience of public finances.”

The IMF also said in the June 17 report the government’s “privatization efforts should be completed quickly.”

Finance Minister Pier Carlo Padoan said last week that he shared the IMF’s call to cut the debt-to-GDP ratio and that the government’s privatization plan is “ambitious.”

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

Bloomberg News - Gold’s Flow East Seen for 20 Years as Incomes Increase Demand

Photographer: Brent Lewin/Bloomberg

Gold bangles are put on a bride's wrist during the tea ceremony of her wedding in Hong Kong, China.

The global flow of gold from west to east that helped to make China the world’s largest user will probably last for up to two decades as rising incomes spur demand, according to the China Gold Association.

China’s consumption, which increased to a record 1,176.4 metric tons in 2013, is expected to be “more or less the same” this year, Zhang Bingnan, vice-chairman and general secretary at the association, said in an interview in Singapore. China accounted for about 28 percent of global usage last year, according to the London-based World Gold Council.

Purchases in China accelerated last year after a 28 percent price slump, and the country displaced India as the biggest bullion buyer while European consumption shrank. Demand in China will rise about 25 percent in the next four years as an increasing population gets wealthier, the council said in April.

“In the next 10 to 20 years the trend probably won’t change because there is more gold in the west and less of it in the east,” said Zhang, who also addressed an industry conference in the city-state yesterday. “As incomes in the east rise, demand for gold will follow a similar trend and continue in the future whether in China or India or other developing countries, unless there’s some extraordinary event.”

Gold for immediate delivery was at $1,312.69 an ounce at 3:24 p.m. in Singapore, up 9.2 percent this year and headed for the first back-to-back quarterly increase since 2011. The decline last year was the most since 1981 as holdings in exchange-traded products fell and equities rallied.

Council’s Outlook

China’s consumption this year will probably be sustained above 1,000 tons as long as the economy expands at 7 percent, Albert Cheng, the council’s managing director for the Far East, said in February. By 2017, Chinese demand may expand to at least 1,350 tons, the council said in a report in April.

“There are less investment options in the east compared with the west, and the notion of gold as an insurance is inherent in eastern society,” said Zhang. The flow of bullion from west to east “is normal and balancing,” he said.

The Shanghai Gold Exchange plans to start international bullion trading priced and settled in yuan in the third quarter, Chairman Xu Luode told the conference, while Singapore Exchange Ltd. said that it would introduce a kilobar contract.

Global fabrication demand may increase 4.5 percent this year, underpinned by a rise in Chinese consumption, Australia’s Bureau of Resources and Energy Economics said in a quarterly report yesterday. Chinese banks and the government are trying to increase their influence on world gold markets, it said, citing the plans by the Shanghai exchange and looser import rules.

Financing Deals

As much as 1,000 tons of gold in China may be tied up in financing, the council estimated in April. China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals, according a report on the National Audit Office’s website. The report was delivered at a National People’s Congress meeting June 24 and posted online.

Credit Suisse Group AG and Goldman Sachs Group Inc. are among banks expecting prices to extend losses into a second year as holdings in gold-backed exchange-traded funds contract to the least since 2009 and the U.S. Federal Reserve cuts stimulus.

Physical demand from China or India won’t be sufficient to offset further sales by bullion investors once the Fed’s path from tapering to tightening becomes clearer, Credit Suisse analyst Tom Kendall wrote in a June 23 report. While demand in key emerging markets is hugely important, the direction of U.S. monetary policy and real interest rates remains paramount in setting the gold price for the time being, he wrote.

Goldman’s View

Gold faces “significant downside” on the back of higher real interest rates, Goldman said in a June 23 report that detailed the bank’s asset-allocation strategy. Bullion was forecast dropping to $1,050 in 12 months, Goldman said.

“Physical gold demand remains unsupportive as Chinese buyers remain on the sidelines,” Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd., wrote in a report today. Bullion will resume a decline, dropping to $1,180 an ounce at the end of the year, ANZ said.

“We’re seeing quite a slow pace of demand in certain parts of the world,” Scott Morrison, chairman of Metalor Technologies SA, said in an interview on Bloomberg Television today, without giving details. The company, which is opening a refinery in Singapore to tap growth in Asia, is pleased with the announcement of the new contract in the city-state, he said.

The growth in Chinese consumer and industrial bullion demand is expected to continue, Morrison said. Metalor has been instrumental in helping Chinese banks organize gold leases, build factories to service the relocation of the industry from Europe and North America to China, and supply metal for those businesses, he said.

Asia accounted for 63 percent of total consumption of gold jewelry, bars and coins last year, up from 57 percent in 2010, according to council data. Sales across the region surged after bullion tumbled into a bear market in April 2013.

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Jasmine Ng in Singapore at jng299@bloomberg.net

BBC News - South African miners return to work after wage deal

Thousands of miners at South Africa's biggest platinum mining firms have returned to work, a day after unions signed a wage deal to end a five-month strike.

Employees at Anglo America Platinum, Impala Platinum and Lonmin will have to undergo medical checks and safety training before they begin work again.

The firms said it would be "some time" before they resumed full production.

The "safety and wellness of employees was paramount", the companies said.

The firms estimate the strike has so far cost them more than 24bn rand ($2.3bn; £1.3bn) while employees have lost about 10.6bn rand in wages.

"It is our sincere hope that our companies, our industry, our employees and all other stakeholders will never again have to endure the pain and suffering of this unprecedented strike period. None of us, nor the country as a whole, can afford a repetition," the chief executives of the three mining firms said in a joint statement.

The miners need medical checks and safety training before they return

Reuters News - Manufacturing picks up pace in leading economies; Europe lags

Workers on the assembly line replace the back covers of 32-inch television sets at Element Electronics in Winnsboro, South Carolina May 29, 2014.

(Reuters) - Global manufacturing activity appeared to accelerate in June, buoyed by a return to growth in China and Japan and the fastest expansion in the U.S. factory sector in more than four years.

Surveys of manufacturers around the world released on Monday gave some positive signals for the global economic outlook, but dark clouds remained over Europe, where an unexpectedly sharp fall in French business activity dragged on the wider euro zone.

The data suggested Beijing's targeted stimulus measures and Japan's improving labor market were helping domestic demand in Asia's dominant economies.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose more than expected to 50.8 in June from 49.4 a month earlier. The 50-point level separates growth in activity from contraction.

"The authorities' mini-stimulus is filtering through to the real economy," said Qu Hongbin, chief economist for China at HSBC.

China's government has unveiled a series of modest measures to support economic growth in recent months, including reserve requirement cuts for some banks that could encourage lending.

The Markit/JMMA flash Japan Manufacturing PMI also rose in June, hitting 51.1 and showing the first growth in three months.

External demand remained weak for the two export powerhouses, and some analysts think China may need more stimulus to offset a cooling housing market and avoid a sharp slowdown in economic growth.

Japan's weak exports also take the gloss off the government's efforts to breathe new life into its economic reform agenda.

But in a more positive sign for global demand, U.S. factories showed their strongest growth in activity since May 2010, with Markit's preliminary PMI rising to 57.5.

That bolsters expectations U.S. factories will grow busier in the second half of this year, said Barclays economist Cooper Howes.

While the data was generally positive for the factories of the world's biggest economies, there were more worrisome signs within Europe.

Germany and France went their separate ways again, with German business activity expanding robustly, albeit at a slower pace than last month, while France's private sector shrank at the fastest rate in four months.

"The recovery has not gained as much traction as people had hoped," said Jessica Hinds at Capital Economics. "It's definitely a concern."

Markit's composite PMI, based on surveys of thousands of companies across the 18 countries that use the euro, fell to 52.8 from May's 53.5. That was well below the consensus in a Reuters survey and matched the lowest forecast polled.

Markit said that with a robust recovery taking place in some euro zone periphery countries, the data still point to second-quarter economic growth of 0.4 percent.

Germany, Europe's largest economy, was again the driving force although its composite PMI eased to 54.2, while the French index slumped to 48.0, its lowest reading since February.

Also somewhat worryingly for the European Central Bank, a composite PMI sub-index measuring output prices held below the 50 mark for the 27th month, coming in at 49.7 as firms kept cutting prices despite soaring input costs.

Inflation in the euro area slowed to just 0.5 percent in May, prompting the ECB to cut interest rates to record lows and offer new long-term loans to banks to help boost lending to euro zone companies.

"The further weakening of the PMI vindicates the ECB's recent decision to implement further monetary easing and will keep fears of a Japanification of Europe firmly alive," said Martin van Vliet at ING.

European stocks fell after the euro zone data in contrast with the upbeat numbers from China that earlier lifted Asian shares and the Australian dollar. [MKTS/GLOB]

(Reporting by Aileen Wang in Beijing and Jason Lange in Washington; additional reporting by Stanley White in Tokyo and Jonathan Cable in London; Editing by Chizu Nomiyama)

BBC News - Libya adopts $48bn 2014 budget

Libya's interim parliament has adopted a 2014 budget worth $48bn (£28bn), after delays due to the unrest that has plagued the country.

The official Lana news agency said the budget was based on an oil price of $100 per barrel, with production of 800,000 barrels per day.

It forecast a deficit of $8 billion.

Libya's oil-dependent economy has been struggling since the 2011 uprising that toppled dictator Muammar Gaddafi.

Rebels blockaded oil export terminals last year, hurting the economy.

Contraction

Their seizure of four terminals slashed output from 1.5 million barrels per day to just 200,000 barrels per day.

Libya, which relies on oil for 96% of its gross domestic product, says the blockade has cost the country more than $14 billion in lost revenues.

An International Monetary Fund-World Bank assessment on Libya this year forecast that a contraction of gross domestic product that reached 5.3% last year would widen to 8% in 2014.

Reuters News - Euro zone bailout fund ESM considering non-euro bond issuance

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013

(Reuters) - The euro zone permanent bailout fund, the European Stability Mechanism (ESM), may issue bonds denominated in other currencies than the euro next year to attract new investors, the ESM's Managing Director Klaus Regling said on Thursday.

The 500 billion euro fund was created during the euro zone sovereign debt crisis as a backstop for governments cut off from markets. It can lend to distressed sovereigns in exchange for a programme of strict reforms.

"We are looking at a possibility of raising funds in other markets in other currencies. So far, all our activities are in Europe," Regling said.

Such foreign issuance would help the ESM attract new investors for example from among those U.S. hedge funds that invest only in instruments denominated in dollars and similarly with Japanese investors.

He said that all future lending from the fund will remain in euros, so if the ESM raises funds in foreign currencies, it will have to hedge and need additional instruments.

"So we are looking into this possibility, but we do not intend to do anything of this sort this year," Regling said.

Ireland, Portugal, Greece, Spain and Cyprus have received conditional loans of 230 billion euros from the ESM and its predecessor, the European Financial Stability Facility (EFSF) since 2010.

The EFSF has stopped providing new loans in July 2013 and the ESM became the only institution to deal with potential emergency financing requests from euro zone countries.

Ireland, Spain and Portugal have successfully exited their bailout programmes, with Lisbon being the latest one in May.

Greece and Cyprus are the two remaining euro zone countries receiving financial assistance from the EU and the International Monetary Fund.

"In the case of Greece all interest payments are deferred for 10 years. Greece has saved 4.7 percent of GDP in 2013, or 8.6 billion euros, due to its EFSF programme when compared to the assumed market cost of funding," the ESM said in its annual report.

"ESM and EFSF loans have allowed programme countries to reform and regain investorconfidence. It is now of key importance that countries continue delivering on their reform agenda," Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers, said on Thursday.

The ESM has 80 billion euros of paid-in capital and 620 billion euros of callable capital, which makes it the biggest institution of its kind in the world.

Because it has to invest its 80 billion euro capital to preserve its value, it was also one of the big world investors in the world now, Regling said, adding the ESM investment strategy was very cautious.

(Reporting by Martin Santa, editing by Jan Strupczewski)

BBC News - US central bank cuts growth forecast for 2014

The US Federal Reserve has cut its growth forecast for 2014 because of the harsh winter weather.

One big question for Fed watchers is when the central bank will raise its short-term interest rate

The central bank is now predicting growth of between 2.1% and 2.3% for this year, down from its March forecast of 2.8% to 3%.

However in its accompanying statement, the bank said that economic activity had "rebounded in recent months".

As expected, it has also trimmed back its stimulus programme by $10bn (£5.9bn) a month to $35bn.

The central bank has been buying bonds to keep long-term interest rates low and encourage banks to lend.

This is the fifth cut in purchases since December and it is expected to stop buying bonds altogether by the autumn.

However the chair of the bank, Janet Yellen, stressed that this was not a pre-set programme and if necessary it would change course.

As far as interest rates go, the bank said they would remain near zero "for a considerable time" after the bond buying ends.

Questioned as to how long that might be, Ms Yellen said there was "no mechanical formula" and that it "depends on how the economy progresses".

Analysis: Andrew Walker, BBC's economics correspondent

It was another small step in withdrawing the exceptional policies the Fed undertook in the wake of the financial crisis. But it was very clear from Janet Yellen's comments that it will be a long time before the US is truly back to health.

The Fed's main interest rate is currently close to zero and it's likely to stay there for a "considerable time". And when they do start raising it, the Fed's policy makers expect it to be a long wait before it gets back to levels that would be considered normal.

They remain concerned about the residual effects of the financial crisis, which they suggest means the economy's potential to grow may be lower.

So here we are, seven years on from the onset of the crisis, looking at an economy that was actually relatively quick to rebound, and still the lingering after effects will last for years more. So too will the need for treatment in the form of abnormally low interest rates.

Fed chair Janet Yellen said there was "no mechanical formula" for when rates would rise.

Currently, most market watchers do not expect them to rise until at least the middle of 2015

Ward McCarthy, chief financial economist at Jeffries and Fed watcher for 30 years, said:

"It's clear they do not have a specific time frame for rate rises. But there also seems to be a wide range of opinions internally as to how quickly they should normalise rates [once they start rising]."

'Steady as she goes'

Mr Ward thinks interest rates will rise in the second half of 2015.

"Janet Yellen has made clear the condition of the labour market is the top priority and she's still very dissatisfied with it. She wants to buy as much time as possible for people on the fringes of the labour market to get back in."

On inflation, Ms Yellen said she expected it to remain at or below the target of 2% until the end of 2016. Low inflation would enable the bank to keep interest rates low.

The Federal Reserve expects growth to pick up again in 2015, sticking to its prediction of 3% to 3.2% expansion.

"Economic activity will expand at a moderate pace and labour market conditions will continue to improve gradually," the central bank said.

"Household spending appears to be rising moderately and business fixed investment resumed its advance."

Kim Rupert from Action Economics in San Francisco said: "Steady as she goes, with respect to policy. [They] want to make sure the recovery is for real and is in place and are still maintaining a very accommodative posture."

BBC News - Bank of England names London Chinese currency clearing hub

The Bank of England has appointed one of China's "big four" banks as the Chinese currency clearing bank in London.

The appointment is part of a plan to make London a key offshore Chinese currency clearing centre

The China Construction Bank will be the London renminbi clearing house.

The appointment is part of a plan to make London a hub for Chinese currency dealing.

Standard Life chair Sir Gerry Grimstone said renminbi trading is the most important issue facing the City of London at the moment.

In March, the Bank of England signed a memorandum of understanding with the People's Bank of China setting out the deal.

The banks have said they want to encourage the cross-border use of renminbi, or yuan, to rebalance the global economy.

Bank of England governor Mark Carney said the appointment was an "important milestone", because the Chinese bank would "play a valuable role in facilitating greater use of the RMB [renminbi] for trade, investment and other economic activities in the UK".

Mr Grimstone, who chairs financial services trade body TheCityUK and Standard Life, helped broker the memorandum.

He said the deal could help to secure City jobs for decades.

"We're moving down a track very rapidly where London is going to become... the offshore centre for trading renminbi," he told the BBC.