Debt crisis: as it happened, April 19, 2012 The Energy Information Administration said yesterday that US crude oil supplies grew by 3.9m barrels last week. Analysts expected an increase of 400,000 barrels. The government's weekly report also said that US gasoline demand fell 2.8pc compared with a year ago. 20.35 More problems in the credit ratings industry. Egan-Jones, the minnow of the industry when compared to the likes of Standard & Poor's and Moody's, has come up against the Securities and Exchange Commission, the US market watchdog. SEC regulators are planning to vote today on whether or not to file civil charges against Egan-Jones, Reuters reported, citing documents and people familiar with the matter. The possible charges are related to alleged misstatements the firm made in its 2008 regulatory application to rate two classes of securities - asset-backed securities and sovereign debt One person familiar with the matter told Reuters the SEC may be considering suspending Egan-Jones from rating sovereign and asset-backed securities for two years. 20.00 On the first day of the IMF's spring meeting, Christine Lagarde says she is confident of raising the $400bn she thinks is necessary to have a firewall to assist any more eurozone countries needing bailouts. She has $320bn at present, but is confident of getting what she wants. We expect our firepower to be significantly increased as an outcome of this meeting. 19.10 As pointed out below (see 16.50 post), Spain's IBEX index has had a much worse day than the other major European indices. Now Business Insider has put together this chart showing the IBEX's steep decline since 2007, when the credit boom was still flourishing. 18.10 And you can listen to part of Christine Lagarde's speech at the IMF spring meeting today here, where she says there are "spring winds" but also some "dark clouds" looming over the world economy: 17.55 It's hard to know what to say about this - we appreciate a haiku as much as anyone, but should taxpayer-funded EU officials really be spending time writing them? Herman Van Rompuy, the head of the European Council, made up of the heads of state of the various EU nations, has just tweeted the haiku he has written for the 'Haiku Box' at the Japan Mission to the EU. And attached a picture of himself doing so. The subject is cherry blossom. 17.35 Telegraph commentator Jeremy Warner is in Washington DC and points out the appropriate nature of Christine Lagarde's latest accessory - a crutch. Ms Lagarde is seeking donations to boost a firewall to protect the eurozone, but she faces an unphill task and there's no certainty such protection will even work, Jeremy writes. There always seems to be some kind of accoutrement on hand when Christine Lagarde, the International Monetary Fund's managing director, makes her public appearances. In Davos this year, she'd brought her "little bag" to collect money for eurozone bailouts. For this week's spring meeting of the IMF in Washington DC, she's brought a crutch. This time it's not deliberate. She's recently undergone a knee operation. Yet it seems no less appropriate. The world economy is on crutches too. In requesting additional funds, Madame Lagarde has stressed again today that no country has ever lost money lending to the IMF. This is of course true, but then there is always a first time, and the eurozone crisis, an advanced economy fiscal meltdown quite without precedent in the IMF's 67 year history, may well be it. The amounts at stake are also much larger than ever before, and the possibility of an eventual break-up of Europe's monetary union make the risks much higher. 16.50 European markets have ended the day lower. The FTSE 100 fared the best and was practically flat, closing down a tiny 0.01pc lower at 5,744.55 points, while the CAC lost 2.1pc in Paris and the German DAX slid 0.9pc. Spain's IBEX was off 2.4pc and the FTSE MIB fell 2pc in Italy. Wall Street is till proving lsightly more resiliant, with the Dow Jones up 0.1pc at 13,051.51 and the S&P 500 risin 0.1pc to 1,386. 15.55 The latest unemployment figures from the US seem to show the improvement in the emplyment picture there is slowing down. New claims for jobless benefits fell by 2,000 people to 386,000 last week. Economists had expected the figure to fall to 370,000 people. 15.27 The Chairman of the Treasury Select Committee, Andrew Tyrie, has written to George Osborne to express his concern that the process to appointment the next Governor of the Bank of England lacks clarity: Press reports suggest that prospective candidates are being informally approached. I would be grateful if you could set out in detail the process envisaged for the appointment of the next Governor. In its Report last year on Accountability of the Bank of England, the Treasury Committee recommended that it have a veto on the appointment and dismissal of the Governor. This proposal has attracted widespread support. Regrettably, you rejected that recommendation. I hope that you will reconsider. 15.18 Credit Suisse has issued a research note, warning that it cannot exlude the possibility of a "defining crisis" that would leave us with a "radically different financial landscape in months." For those (many) of us who underestimated the impact of the LTRO on the extreme stress of late 2011, current weakness represents a second chance, in our view. The weakness and its causes mean that we need to decide whether we're going to have a proper crisis "right here, right now" or not. We go with "not" although it is not an obvious call. In which case, credit is a buy. But we are proceeding with great caution, and with the deep fear that we may be being far too "clever" in the timing. The problem being that we do see a worsening of the crisis at some point, with the defining crisis of the euro definitively in the future, and have always said "it is all about Spain." So, given the observed tendency for events to move at the "speed of thought," we absolutely cannot exclude the possibility that the defining crisis is starting and that we will have a radically different financial landscape (with the euro in it) in months. 15.06 Wall Street has opened for the day, with a mixed-bag Spanish debt sale and the upcoming IMF meeting leaving markets unfazed. The Dow Jones was down just 0.03pc in the first minutes of trade, the S&P 500 was up marginally by 0.01pc and the Nasdaq gained 0.16pc. 14.48 This morning's Spanish bond auction was hardly a roaring success, but at least it saw average bond yields of 5.74pc - under the 6pc highs we've seen recently. Unfortunately, yields have been edging upwards ever since, just as the Spanish stock market has been sliding downwards. Stephen Pope, managing partner at Spotlight Ideas, has this to say: It did not take long for the initial applause for the Spanish auction to turn into a haunting slow handclap. As we swing past 3pm in Spain, the 10 year BONO has seen the yield to maturity screech higher from a daily low of 5.781pc to 5.915pc, +9.3bps on the day. Suddenly 6pc is looming large once again. Rajoy has done as much as possible on the austerity front but in truth his supply side measures are less than popular in a nation saddled with crippling unemployment and their effect will not be realised until Q4 2012 at the earliest. The honest truth is ... Spain will fail to make 5.3pc as a deficit to GDP target this year. It will require aid and even if it is dressed up as a bank solvency plan, it will be another nation taking the bailout route. This is why the markets have turned ugly in Madrid. German Chancellor Angela Merkel walks with Spanish Prime Minister Mariano Rajoy. 14.33 As well as laying the foundations for more donations to boost the IMF's firepower, Lagarde is also offering advice on what should be done with Europe's bailout funds. She says that funds should be siphoned directly to banks, rather than being lent to struggling states. 14.28 Back in Washington, Christine Lagarde is still talking, pointing out that lending to the IMF should be a safe bet, going on past experience. But Jeremy Warner's not convinced: 14.18 While Christine Lagarde has been talking we've had a statement from Barclays announcing new conditions on bonuses for chief executive Bob Diamond and FD Chris Lucas. In the future 50pc of the deferred bonus awards that vest each year will not be paid unless the bank's return on equity exceeds its cost of equity. The bank said both executives "volunteered" to the new condition. 14.11 This from Philip Aldrick, who is also in Washington for the IMF meeting. 14.06 And on to the IMF bailout fund: Lagarde says she expects it to be "significantly" increased over the weekend of meetings. She will ask IMF members to "finish the job" and boost the resources. 14.01 Lagarde says that Europe's firewall has a "little bit missing" but shows significant determination to defend the eurozone. 13.59 Lagarde is now speaking. She says that the world economy is seeing timid, fragile recovery with high risks. The eurozone is the epicentre of those risks, she says. 13.49 Jeremy Warner is in Washington for the IMF meeting, and is currently waiting for Christine Lagarde to hold a press conference. 13.22 More bad news for Spain's shares: the IBEX 35 has slipped below 7,000 points for the first time in three years, dropping 1.33pc so far today after a 4pc fall yesterday. It's currently at 6,985 and slowly sliding further. 13.09 Britain is holding back from commiting more cash to the IMF, despite Japan, Switzerland and Poland all pledging money this week. A Treasury official, speaking to Reuters, said: We are going to Washington for the Spring meetings and we have to wait to see what other countries think - this is a global deal. 12.50 It's been a volatile day for the euro. First the Spanish bond auction sent it temporarily spiking upwards, and now murmurs of a French downgrade have caused it to plummet. It reached a low of $1.3069 but is already edging back upwards. 12.41 As we mentioned earlier, Moody's has said that Italian and Spanish borrowing costs are unsustainable. 11.55 Ambrose Evans-Pritchard has written a blog post on George Soros on his no-holds-barred attack on the euro in Le Monde: Mr Soros has some expertise in this field. His cue for launching a speculative attack - with others - on Sterling and the Lira in September 1992 came after Bundesbank chief Helmut Schlesinger told Handelsblatt that the two currencies were overvalued within the ERM peg. There would have to be a realignment. It was a clear signal that the Bundesbank did not intend to intervene in the markets to defend the ERM pegs - as it later did for France. Mr Soros already had a $1.5bn short position on sterling. He upped the ante massively the next morning. "Go for the jugular," he told his partner Stanley Druckenmiller. 11.43 Enam Ahmed, senior European economist at Moody's Analytics, warns that if Italy and Spain have to suffer high bond yields for long then they'll face a high risk of default: Results from this month's analysis of "fiscal space" by Moody's Analytics suggests that ten-year bond yields in both Spain and Italy are now above levels that can be sustained, given the weakened state of the countries' public finances. Using current economic and demographic projections, and considering the government's behaviour regarding debt problems, we estimate that Spain can add to its public debt by the equivalent 97 percentage points of GDP before it becomes unmanageable, but borrowing costs above 5.7pc will significantly raise the chance of default. 11.23 George Soros isn't beating around the bush when it comes to the euro; he's warned it "threatens to destroy the European Union" and says that if he was still an active investor he'd bet against it. The comments come in an interview published yesterday afternoon in Le Monde: The introduction of the euro has led to divergence instead of bringing about convergence. The most fragile countries of the eurozone have discovered that they are in a Third World situation, as if they were indebted in a foreign currency, with a crucial effect that there is a real risk of default. Trying to make them respect rules that don't work just makes matters worse. Sadly, the authorities don't understand this. Mario Draghi has launched extraordinary measures with his €1 trillion injection of liquidity through three-year loans. But the effect of this operation has been broken by the counter-attack of the Bundesbank. Watching the growth of the ECB's balance sheet, the Bundesbank has realised that it risks heavy loses if the euro blows up and is therefore opposed to the (LTRO) policy. Let us hope that this does not become a self-fulfilling prophesy. 11.12 Christine Lagarde is due to hold a press conference at 1.45pm. It will be interesting to see what she has to say on the size of the IMF's bailout "firepower" and if she gives any more hints on which other countries are likely to contribute. Stay tuned for that. 10.32 For the football fans among you, Robert Peston has a nice analogy for the Spanish bond auction: 10.26 France has also completed its bond auction, which was over-subscribed despite uncertainty over the upcoming election. It sold €3.5bn of two-year debt at an average yield of 0.85pc, €1.7bn of three-year debt for 1.06pc and €2.6bn of five-year debt for 1.83pc. 10.13 Markets haven't been moved far by the Spanish auction, although the euro spiked temporarily against the dollar, rising from $1.3151 to $1.3166, but slipping back to $1.3129. The FTSE is up 0.29pc, the CAC is also 0.29pc higher and the DAX has risen 0.2pc. The IBEX is still in the red, down 0.47pc. 09.59 Peter Chatwell, rate strategist at Credit Agricole, has commented on the Spanish bond auction: It's a mixed auction. From the treasury's perspective, it is good, selling the maximum amount. The reason Bunds spiked and there might be some disappointment right now is that it priced slightly cheaper than the secondary market. But, given the market volatility, I would not read too much into this. It's job done for this round. 09.45 Results from the Spanish bond auction are coming in: they reached their sales targets, but the average yield on ten-year debt was 5.743pc. At the last similar auction it was 5.403pc. For the two-year debt the average yield was 3.463pc, against 3.495pc at the last auction. So the cost of borrowing has risen for Spain but, crucially, they are below 6pc. 09.22 The City Briefing email has just landed in inboxes all around the world (sign up here), complete with a bit of background on the upcoming Spanish bond auction: So, just how acute is the pain in Spain? We'll get an answer of sorts today as the country attempts to sell €2.5bn of bonds. Given the backdrop, a smooth, successful debt auction would come as something of a surprise. Earlier this month Spain fell short when it tried to sell €3.5bn of bonds. Fast forward a few days and things are looking even more shaky - the Spanish stock market tanked 4pc yesterday amid escalating concerns around the country's economy. 09.12 So, who's promised what towards the IMF's bailout 'firepower'? These figures are based on what we've heard so far, and tally with Christine Lagarde's claimed total of $320bn - which is some way short of her target of $400bn. 08.27 The Bank of England is currently going through the process of selecting a new Governor, which seems to have prompted David Blanchflower, who sat on the MPC from 2006 to 2009, to attack the incumbent. He dismissed Sir Mervyn King as a power-crazed "tyrant" and said that he was "unprepared for the crisis" that wrecked the world economy. 08.12 Meanwhile, in Europe, the upcoming Spanish and French auctions are a topic of optimism. The FTSE 100 has gained 0.53pc in the first few minutes of trading, the DAX is up 0.67pc and the CAC has risen 0.66pc. 08.03 Tokyo stocks have closed 0.82pc down. As the Nikkei 225 opened data showed Japan had posted a record trade deficit for the year to March, with car exports down. Today's Spanish bond auction and the upcoming IMF meeting were also causing concerns. Earlier this week Japan itself pledged $60bn to the IMF. Masafumi Yamamoto, currency strategist at Barclays Capital, said: Amid growing concerns over Spanish (debt) financing, the meeting failing to agree on enough expansion of the safety net would put a selling pressure on the euro. 07.45 The Olympics owe their origins to Greece, so it's concerning that Lord Coe thinks funding problems could jeapordise the chance for Greek athletes to take part in London's Games this year. "The Greek issue is a serious issue," he's quoted as saying in the Financial Times this morning. With just 99 days to go, there are serious concerns; the budget for the Greek athletic federation was recently cut by a quarter, but staff complained that it already owed athletes and coaches €2m, prompting it to suspend all operations. Officials claim that all will be resolved in time. 07.34 A press release has been issued by Occupy London this morning (remember them?), claiming that they will "rise up again" on May 12: Let's visit those who gambled with our pensions and savings, created financial nonsense to make money out of thin air, paid hundreds of thousands to wine and dine with our "elected" representatives, were bailed out, evaded billions in taxes and secured 40% of the world's wealth for themselves. They are doing everything they can to keep the status quo. But it's time for an economy that puts people's well-being and the environment we live in before corporate profits. And they are in our way. On Saturday 12 May, we'll deliver our very own personal messages to them... An Occupy London protester is evicted from St Paul's Cathedral. 07.16 Spain and France both have bond auctions planned for today, aiming for total sales of €13.5bn. Both will be worth watching, as Spain continues to struggle with its deficit targets (and has a ten-year bond yield hovering around 6pc) and France is just days from an election. Spain is issuing as much as €2.5bn in two- and ten-year bonds, while France has set a target of €11bn. European markets are predicted to open up, as investors await news from the auctions. Futures on the FTSE 100 have risen 0.4pc, and the DAX and CAC are both up between 0.1pc and 0.2pc. The London Stock Exchange. 06.55 Earlier this week it was Japan who dug deep into its pockets to pledge a $60bn loan to the IMF, and now Switzerland and Poland have followed suit. Christine Lagarde has issued statements thanking the states for their "enduring support for the spirit of multilateralism": Ensuring the Fund has sufficient resources to tackle crises and to promote global economic stability is in the interests of all our members. I am, (of) course, very encouraged by this strong demonstration of support for the Fund, and I look forward to further commitments from our broader membership. The IMF said that Switzerland "and other countries" had pledged $26bn and that Poland had thrown in a further $8bn. That takes the total to around $320bn - still some way short of Lagarde's target of $400bn. But the IMF meeting in Washington this week will be the perfect opportunity to hit up the big emerging economies like China, Russia, Brazil and India... 06.53 As Ireland nears a referendum on the EU's fiscal pact treaty (it takes place on May 31), the Irish Times took a poll to measure the national mood: 30pc will back it, 23pc will not and 39pc are undecided. A further 8pc voted in the poll to say that they would not vote in the referendum. 06.50 A quick look at the newspaper front pages this morning: 06.45 The next eurozone country to lose its AAA rating could come from the northern European heartland, so far regarded as safer than the 'Club Med' nations which are already struggling. It could even be the Netherlands, according to Ambrose Evans-Pritchard: 06.33 The pain in Spain continues. Bad bank loans touched an 18-year high in February, as banks continued to struggle with the burst of their property bubble. Spanish house prices have collapsed by 20pc since their peak in 2007-2008, though some economists suggest the figure is closer to 30pc. 06.25 Yesterday the IMF claimed that an escalation of the eurozone debt crisis could force banks to sell assets worth up to $3.8 trillion by the end of 2013, with damaging consequences for the global economy. It said some "deleveraging," or reduction in credit made available, is necessary, but Jose Vinals of the fund warned: