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Eurozone crisis live: Recession fears ease after services data

• Better than expected UK services data eases fears
• Summit of Greek party leaders postponed until tomorrow
Eurozone services grow again, while retail sales fell 0.4%
US jobs data at 1.30pm
Today’s agenda
• Live blogging now: Julia Kollewe

10.39am: A quick look at the markets reveals that the FTSE is now up nearly 30 points at 5825, a 0.5% gain, after a lacklustre start to the day. It received a boost from strong UK services data. Service sector firms in the eurozone returned to growth last month, a welcome fillip to European stock markets. Germany’s Dax climbed 23 points, or 0.35%, while France’s CAC was up 15 points, or 0.46%.

Gold prices have hit 11-week highs as expectations that US monetary policy will remain ultra-loose boosted investor appetite for bullion. And Brent crude climbed above 2 a barrel after Iran’s supreme leader Ayatollah Ali Khamenei warned that Tehran would retaliate over an oil embargo “at the right time”.

10.10am: We never go very long without something important happening in Greece, the ground zero of the eurozone crisis, and Helena Smith in Athens has news of a development there today.

It now seems that the long-awaited meeting between prime minister Lucas Papademos and the three party leaders backing his interim government has been pushed back to tomorrow.

That’s not good news and suggests that political heads are less than pleased with the outcome of talks, so far, between govenrment officials and visiting debt inspectors attached to the EU and IMF. The Greek media is billing the meeting as Papademos’ toughest challenge since being appointed to the post last November. The technocrat economist has made it clear that if he doesn’t come out with carte blanche backing for the hard-hitting austerity measures Athens’ foreign lenders are demanding in exchange for aid, the country will not get the money it so badly needs to repay the 14.5 bn euro in bond repayments that mature on March 20, thus plunging it into a far from orderly default. The support has to be unanimous: if one leader balks “there will be a problem,” said the government spokesman Pandelis Kapsis.

“Everything hangs on that meeting …. we will all be waiting to see whether it is white smoke that emerges from the chimney when the leaders emerge,” said one TV commentator.

There is much talk this morning that with Greece’s debt swap negotiations looking no nearer to being concluded than they were a month ago, the EU and IMF may be forced to give Greece a “bridging loan” to cover the bonds in March. “We are at the limits of official bankruptcy,” said Kapsis hightlighting the gravity of the moment.

10.07am: Retail sales dropped 0.4% in the eurozone in December despite Christmas trading, disappointing economists who had pencilled in a 0.3% rise.

9.52am: Looks like Britain may just escape a double dip. The surprise improvement in services came after manufacturing unexpectedly returned to growth last month, while construction firms became more upbeat despite slowing activity.

Chris Williamson, chief economist at Markit, which compiles the PMI surveys, said:

The pace of UK economic growth picked up momentum at the start of 2012, with businesses reporting the largest increase in activity for ten months. The data fuel hopes that the UK economy may avoid a slide back into recession – defined as two consecutive quarters of economic decline – following a 0.2% contraction of gross domestic product (GDP) in the final quarter of last year.

The three PMI surveys for the UK collectively indicated the fastest rate of economic growth at the start of 2012 since last March, with the combined Output Index rising for the third month running from 53.2 in December to 55.5. As such, the surveys suggest that the pace of GDP growth may have picked up to approximately 0.5% in January.

9.28am: Over to the UK. The services PMI has climbed to 56 from 54 in December, the highest since last March, easing recession fears. Optimism in particular improved among firms.

9.20am: The European PMIs are out. The situation has improved in the eurozone, where service industries returned to growth in January with a PMI reading of 50.4, compared with 48.8 in December.

The composite PMI, which also includes manufacturing, rose to 50.4 from 48.3 in December. Markit, which compiles the surveys, talked of stabilisation, with the readings the highest in five months.

Howard Archer, chief UK and European economist at IHS Global Insight, said:

The overall return to modest growth in the eurozone services sector in January indicated by the purchasing managers’ survey boosts hopes that eurozone economic activity is stabilising after GDP contraction that we estimate around 0.4% quarter-on-quarter in the fourth quarter of 2011.

Among the individual eurozone countries, it was encouraging to see a marked pick up in services activity in December in Germany and, to a lesser extent, France. Services activity also saw significantly reduced contraction in Spain in January, but there was little reduction in Italy’s decline. Ireland also saw further modest contraction in services activity in January.

Nevertheless, a number of elements are still soft in the purchasing managers’ surveys and it is very possible that the eurozone will suffer further overall contraction in the first quarter of 2012. Significantly, the purchasing managers survey showed that overall incoming new business still contracted in January as did outstanding business, albeit at reduced rates. In addition, overall employment edged down in the services and manufacturing sectors for the first time since April 2010.

The region is still facing major headwinds, notably including increased fiscal tightening in many countries, rising unemployment and ongoing major concerns and uncertainties over the sovereign debt crisis which are likely to constrain businesses’ investment decisions. Meanwhile, relatively muted global growth is limiting export orders.

9.04am: With the bankers still universally blamed for the current crisis, it seems relevant to mention that Sir Phillip Hampton, chairman of RBS, has gone on the Today programme to defend the decision to give Stephen Hester a £1m bonus.

Jill Treanor, our city editor, was listening in and reports that although he conceded that bankers’ pay has become too high, Hester deserved his bonus and that he was paid less than his peers. Hampton said that Hester had ‘one of the most challenging demanding jobs in the world of business”.

Pay has been high for too long … particularly in the banks, particularly in the investment banks, shareholders have done pretty badly and employees have done pretty well certainly over the last 10 years.

That needs to be corrected. It actually isn’t a society or fairness issue, it’s a straightforward business issue. Too much of the money has not been going to the right place.

8.54am: The Hungarian airline Malev has gone bust, it has been announced this morning, in the latest symptom of the country’s economic crisis. Malev, which has debts of £180m, says its has ceased operations and grounded all its flights to “minimize damage” after its financial situation became unsustainable.

It is a member of the Oneworld airline alliance which also includes American Airlines and British Airways, but made a loss of £75m in 2010.

It stopped all its flights as of 0500 GMT today, Reuters reports. Prime Minister Viktor Orban said on state radio that two Malev planes are still abroad – one in Tel Aviv, the other in Ireland.

8.25am: The market has opened pretty flat this morning with the FTSE100 currently down 1.7 points. Asian markets were similarly subdued overnight with the consensus being that traders are waiting for the US jobs figures at 1.30pm. Some 200,000 jobs were added in December so the January figures are unlikely to be repeated with forecasts in the 150,000 region and the overall unemployment rate expected to remain at 8.5%.

Even so, if Alex Ferguson was a US political commentator he would undoubtedly be saying that it’s squeaky bum time for President Obama. Or maybe squeaky ass time, if we’re talking American. (Wouldn’t sound right from Ferguson though would it?)

Anyway, let’s say it will be closely watched by the White House where Obama’s re-election hopes rest squarely with the performance of the economy.

8.05am: We’re all set for another day in the life of the eurozone crisis and here are the main events in and around that today:

• First we’re expecting numbers on the services sector in Italy, Germany and others with the latest PMI surveys out shortly before 9am
• Eurozone retail sales due at 10am and expected to be poor.
• UK services PMI out at 9.30am.
• And the markets will be waiting keenly for US jobs data in the form of non-farm payrolls at 1.30pm.
• Finally we’ll still be waiting for any news on what haircut Greece’s private creditors will have to take.

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