Wall Street rode to the rescue to flagging European markets, writes Nick Fletcher, helping them end the day in positive territory - just. This seemed unlikely initially, when a shock fall in Germany ZEW confidence index was following by the country’s government cutting its growth forecasts and a fall in eurozone industrial production. But spirits revived after a positive set of results from US companies, notably Citigroup. So the closing scores showed:

• The FTSE 100 finished up 26.44 points or 0.42% at 6392.68
• Germany’s Dax added 0.15% to 8825.21
• France’s Cac closed 0.23% to 4088.25
• Italy’s FTSE MIB edged up 0.09% to 19,155.85
• Spain’s Ibex ended 0.17% better at 10,204.9

On Wall Street, the Dow Jones Industrial Average is currently 136 points or 0.84% higher.

On that note it’s time to close up for the evening. Thanks for your comments and we’ll be back tomorrow.

Back to Germany, briefly, and finance minister Wolfgang Schäuble has denied that the German economy is in ‘crisis’.

Asked about the decision to slash growth forecasts today, Schäuble told a news conference in Luxembourg:

“You can see from the forecasts that the German government expects the weakness to be temporary and that next year already, according to the available figures, it will slowly pick up.”

A growth rate of 1.2%, 1.3% is not particularly wonderful and the lowering of the forecasts compared to what we had announced is not pleasing but it’s no reason to start talking about a crisis.”

Michael Noonan says that he will cut the top rate of income tax from 41%, to 40%.

It’s the first in a series of planned tax cuts for workers, he declares.

With the Double-Irish tax loophole being consigned to history (eventually), Ireland will also introduce a “knowledge development box” to encourage firms to conduct R&D in the Republic.

Henry McDonald explains:

As predicted the controversial “double Irish” tax avoidance scheme enjoyed by the likes of Apple is gone, to be phased out in four years.

Ireland is also introducing a “patent box” scheme already in operation in Britain, which awards corporations for centering their technogical innovations in the country and being awarded themselves with generous tax breaks. It goes to show conscious and indeed nervous the Irish political classes can be when it comes to pressure from their EU and global trading partners, specifically their opposition to Irish state tax deals with multi nationals.

Although of course the 12.5% corporation remains in tact so beloved not only by global companies based in the Republic but also U2’s frontman Bono!

Last week, Bono argued that the low tax environment had helped Ireland claw its way to prosperity

The notorious Double-Irish Tax Loophole is being closed after a storm of controversy over the way multinational firms have been cutting their tax bills.

The double Irish loophole allows US companies to reduce their tax bill by moving most of their taxable income from an operating firm in Ireland to an Irish-registered firm in an offshore tax haven.

Michael Noonan announces that new rules are being brought in, to ensure that all firms incorporated and registered in Ireland will “automatically” pay tax there.

However, firms have until the end of 2020 to comply, so it’s not an immediate clampdown.

Michael Noonan says that the Irish government now expects the economy to grow by 3.9%.

That’s a big increase on the 2.7% growth expected in April. And quite a contrast, on the day that Germany cuts its growth forecasts.

Noonan is also confident that Ireland (unlike France) will easily achieve the 3% deficit target set by Brussels.

Finance minister Michael Noonan begins delivering the Irish budget for 2015, declaring that it contains plans to “grow the economy” and help the unemployed find jobs.

Time to recap, before turning our attention to the Irish Budget this afternoon.

The economic problems bubbling away in Europe have been exposed again this morning, as the German government slashed its growth forecasts amid fresh gloomy data.

Berlin now expects growth of just 1.2% this year, and 1.2% in 2015 (down from 1.8% and 2%), in the face of slowing export growth.

Economy minister Sigmar Gabriel blamed geopolitical tensions and global economic problems overseas, saying:

“The German economy is steering through rough foreign waters.

Geopolitical crises have also increased uncertainty in Germany and moderate growth is weighing on the German economy.”

The downgrades came shortly after German investor sentiment hit its lowest level since 2012, according to the ZEW Institute’s survey.

ZEW’s chief economist reckons Germany could have fallen into recession in the last quarter. Clemens Fuest said:

“It can’t be excluded that the third quarter will turn out to be negative, but I wouldn’t expect a longer recession, mainly because the domestic fundamentals in Germany are solid.

But other economists are gloomier, with Hargreaves Lansdown warning that Europe’s largest countries could drag the whole eurozone into recession.

The International Energy Agency added to concerns over global growth, slashing its demand forecasts for next year. That has pushed the Brent crude oil price down to a new four-year low of $87.57 per barrel this lunchtime.

Other data this morning has indicated that the euro area is sagging into a low-growth, low-inflation trap.

Industrial production across the wider eurozone fell in August, down 1.8% month-on-month.

Eurostat reports that the largest monthly decreases in industrial production were registered in Hungary (-5.8%), Germany (-4.3%) and Croatia (-4.1%).

This helped to send the euro down one cent agains the US dollar, at $1.265.

In the UK, the inflation rate has tumbled to just 1.2%, a five-year low (and almost the lowest in a decade).

Supermarket price wars and the falling oil price are pushing down living costs.

Economists predict that the CPI could even drop to 1% or lower, which would force the Bank of England governor to write a letter of explanation to George Osborne.

The situation is more worrying in the eurozone, with France’s inflation rate now just 0.4% and Italy deeper in recession.

The ONS also reported that UK house prices rose by 11.7% year-on-year in August, the same rate as in July. London prices are up over 19%.

And in Dublin, the government is preparing to announce the 2015 budget. Michael Noonan, finance minister, is expected to announce some help for pensioners, and parents. Here’s our preview

The downturn in the German economy, along with France’s malaise and Italy’s problems, could potentially drag the eurozone back into recession even as ‘peripheral’ countries recover.

So warns Ben Brettell, senior economist at Hargreaves Lansdown:

Economic sentiment in Germany turned negative for the first time since 2012 according to today’s ZEW survey data. October’s reading was far worse than economists had forecast and means the index has now fallen for ten successive months.

The most severe problems in the euro zone have so far been limited to the periphery, with the core remaining in relative good health. However, in recent months we have seen a shift. Some peripheral economies are now registering decent growth, whilst the core looks in trouble.

Together, Germany, France and Italy are responsible for 66% of euro zone GDP. None registered any positive growth in Q2, with Germany and Italy contracting 0.2% and France flatlining. Looking forward the signs aren’t good – in addition to today’s ZEW survey, data released last week show German exports declined 5.8% in August. As Russia’s biggest EU trading partner, Germany stands to lose most from Russian trade sanctions.

Given the relative size of these three economies in the euro zone it is perfectly possible they will drag the whole bloc into recession. The threat of deflation was also highlighted again today, with prices falling 0.2% year-on-year in both Italy and Spain. I believe Mario Draghi will eventually be forced to embark on a quantitative easing programme – though he will have to overcome stiff opposition from the Bundesbank first.

Breaking: the German government has just slashed its growth forecasts for this year, and 2015.

It now expects growth of just 1.2% this year, down from 1.8% back in April.

And in 2015, it now expects growth of 1.3%, down from 2.0% six months ago.

Economy minister Sigmar Gabriel is blaming geopolitical crises, and moderate global growth, for holding back the German economy (so reliant, of course, on exports to other countries).

So far this year, German GDP grew by 0.7% in January-March, and then shrank by 0.2% in March-April.

There’s no indication whether the Ministry believes Germany actually fell into recession in the last quarter, as the ZEW Institute (see 12.16pm) and many economists fear.

The news comes just hours after ZEW reported the worst German confidence figures in over two years (see 10.07am).

The German economy ministry has also slashed its trade forecasts.

Exports are now expected to rise by 4.0% this year, down from 4.7%. But Berlin is hoping for a bounceback in 2015, raising its forecast from 5.1% growth to 5.5%.

Domestic demand is also weaker than forecast in April, before the eurozone slowdown. It is now expected to rise by just 1.4% this year, down from 1.9% in April.

This isn’t a surprise, given the blizzard of disappointing economic news in recent weeks. But it reinforces concerns over the European economy, and intensifies the pressure on the European Central Bank to unleash further stimulus measures.

The slump in German investor confidence this month, to a two-year low, may show that Europe’s largest economy is in recession.

That’s according to the chief economist of ZEW, Clemens Fuest.

He told Reuters:

“It can’t be excluded that the third quarter will turn out to be negative, but I wouldn’t expect a longer recession, mainly because the domestic fundamentals in Germany are solid,”

“On the export side, there are some negative factors, Ukraine and others. But there is also hope, the U.S. economy is recovering. Overall, the situation is not as bad as people seem to think currently,”

As covered earlier (details), ZEW’s monthly index of morale has fallen to minus 3.6%.

That suggests investors and analysts are alarmed by the deteriorating eurozone economy, its impact on Germany, and geopolitical clashes in eastern Ukraine

Interestingly, Fuest also suggested that Berlin risks being seen as “dogmatic”, if it insists on running a balanced budget rather than increasing borrowing to stimulate growth.

Germany certainly wouldn’t struggle to find buyers for a debt splurge. Investors have been piling into bunds again today, driving down the yield on its 10-year debt to record lows. That’s a sign that they anticipate low growth and low inflation, and want somewhere safe to put their money....

At 1.2%, Britain’s inflation rate is still higher than many European neighbours, such as Sweden where new inflation data has also come in below forecasts.

Economics correspondent Phillip Inman reports:

While France edges closer to negative inflation after a fall to 0.4% in September this morning, Sweden is already there. Last month Swedish inflation fell to -0.4% year-on-year in September, below consensus of a 0.1% decline.

HSBC economist James Pomeroy reckons interest rate cuts could be just around the corner in Sweden, Europe’s second largest non-eurozone economy after the UK.

He said:

“Aside from oil and the currency, the Riksbank recently commented that increased competition in Sweden was keeping price increases down. Competition from overseas and e-commerce was cited as one of the key reasons for low price increases - and looking at the sector breakdown of inflation, only restaurants and alcohol show any price increases on a year-on-year basis.

Pomeroy added:

“Prices were much softer on both the headline and core measures, rising just 0.2% and 0.3% month-on-month respectively, when September data usually benefits from a seasonal pick-up in prices. The effect of a weaker oil price is yet to be fully reflected as this will be more prevalent in the October numbers, but there were signs that this was having an effect, as household fuel and transport saw a significant slowdown. As a result, we expect the inflation data to be weaker in the coming months, prompting the Riksbank to cut rates to 0% in December.”

More gloom.... industrial production across the eurozone slumped in August, according to new figures from Eurostat.

It’s the latest sign that Europe’s economy weakened over the summer.

Output declined by an alarming 1.8% month-on-month in August alone, meaning it was 1.9% lower than a year ago.

It was driven by a 4.8% slump in creation of “capital goods”, or heavy-duty machinery, which. Intermediate goods production fell by 0.7% and non-durable consumer goods by 0.2%, while durable consumer goods increased by 0.2% and energy by 1.2%.

Eurostat reports that the largest decreases in industrial production were registered in Hungary (-5.8%), Germany (-4.3%) and Croatia (-4.1%).

Worrying signs, especially with predictions that Germany could have slipped into recession....

The highest increases were seen in Denmark (+6.9%), Portugal (+3.1%) and the Netherlands (+1.3%).

Yikes. Economic optimism in Germany has taken an almighty shunt.

The ZEW Institute’s monthly survey of investor expectations tumbled to minus 3.6% this month, down from 6.9 in September.

This is the first time since November 2012 that the ZEW has been in negative territory.

ZEW blamed geopolitical tensions and weak economic development in parts of the eurozone.

But it also recognised that recent economic data from Germany has been weak, with factory orders, output and exports all sliding in August.

The ‘current conditions’ measure hit its lowest in over four years, showing that firms are suddenly finding conditions tougher.

The ONS has also reported that UK house prices rose by 11.7% year-on-year in August, the same rates as in July.

As usual, London’s red-hot property market pushed the average up.

• Annual house price increases in England were driven by an annual increase in London of 19.6% and to a lesser extent increases in the South East (12.3%) and the East (11.6%).
• Excluding London and the South East, UK house prices increased by 7.8% in the 12 months to August 2014.

Today’s report shows that UK food prices are down by 1.5% over the last year, while motor fuels prices are down by 6.0%.

That’s the main reason that Britain’s inflation rate has fallen so much in the last year:

The ONS says that “increased supermarket competition,” the strong pound (until recently!) and falling crude oil and petroleum prices are likely factors.

Breaking: the UK inflation rate has fallen sharply in September to its lowest level since 2009.

The annual consumer prices index rose by just 1.2% last month, down from a 1.5% increase in August.

That’s a much larger fall than expected, and takes a lot of pressure off the Bank of England to raise interest rates soon.

On a monthly basis, prices were unchanged.

Details and reaction to follow!

Here’s our Dublin correspondent, Henry McDonald, on Ireland’s 2015 budget which is being announced this afternoon:

Praised across Europe and indeed the world as the EU’s “poster child” for enduring six years of austerity cuts without Greek-style mass violent protests, Ireland prepares today for another budget which will determine the fate of the Fine Gael-Labour coalition.
Although budget 2015 will be far from a giveaway one there will be some measures to ease the pain applied on Irish citizens’ pockets since the Republic was forced to make swingeing cuts in its public services and welfare in order to placate the IMF and EU when the state was bailed out from national bankruptcy.

And while unemployment is falling and growth continues to rise albeit marginally, the sight of tens of thousands of angry people on the streets of central Dublin last Saturday protesting about the introduction of water charges has reminded the government that while it can be flattered in Brussels it will be battered by the electorate over that one issue, possibly even fatally wounded when the water bills start mounting up to the 2016 general election.

In response to growing anger over water charges, Irish Finance Minister Michael Noonan is expected to introduce a number of measures including an extra €100 for that section of the electorate in Ireland no government can ignore - the pensioners. The new €100 payment will be specifically targeted for the grey vote to help them pay water charges.

Among the other moves aimed at easing austerity will be:

• a reduction from 0.75 per cent to 0.15 per cent levy or tax on people’s pensions with a promise to abolish it next year.
• a 1 per cent the top rate of tax, from 41per cent to 40per cent.
  
• fewer families on lower incomes will have to pay the Universal Social Charge, an extra tax brought in during the bail-out to help pay for public services.
  

There will also be extra spending for social housing and the recruitment of more Gardai to counter public concern about rising crime levels across the Republic but especially in Dublin.

Oh dear, more weak inflation data from Europe.

The Italian consumer prices index has fallen to minus 0.2% in September, the lowest rate in decades.

With prices also falling in Spain, and rising at a lower rate in France (see earlier), Europe’s low-flation problem appears to be worsening....

Just in. The International Energy Agency has cut its forecast for oil demand next year, recognising that global growth will be weaker the than thought.

In its latest monthly report, the IEA said the recent falls in the oil price are partly due to weaker supply, and suggested they could fall further.

It says:

“Recent price drops appear both supply and demand driven. Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.”

It now expects oil demand in 2015 to rise by 1.1 million barrels per day, down from 1.4 million previously, to 93.5 million bpd.

Most European stock markets have lost ground again this morning, with the French CAC losing 0.3%.

After recent sharp falls, traders appear to be sitting edgily until the German ZEW confidence data is released at 10am.

Marc Ostwald of ASM Investor Services explains:

With markets as jumpy as they are, and increasingly despondent about Eurozone prospects, it may be the German ZEW survey that catches most attention...

Here’s the state of play:

Heads-up. The European Court of Justice has begun examining whether the European Central Bank’s bond-buying plan, which helped calm the eurozone crisis, is legal.

The case, against the Outright Monetary Transactions scheme announced in 2012, was brought by the German Bundesbank.

A decision isn’t expected until next summer.

The case centres on whether OMT breaches the rules banning the ECB from lending money to individual governments, or “monetary financing”.

OMT has never been activated, but it would allow the ECB to buy bonds issued by a eurozone government.

If the ECJ rules against the OMT, that could also hamper the ECB from further unorthodox measures to ease the crisis, fight deflation and spur growth.

The FT’s Peter Spiegel is at the scene:

Lower energy price have dragged France’s inflation rate down to its lowest level in nearly five years.

Prices fell by 0.4% month-on-month in September, dragging the annual consumer prices index down to +0.3%, or +0.4% on an EU-harmonised basis.

INSEE, the French statistics body, said that falling energy prices were the main factor, down 2.5% compared with a year ago. Fresh food prices rose, though.

The VIX index, which measures volatility, has hit its highest level since 2012, the height of the eurozone crisis.

That’s another sign of growing angst in the financial markets....

Ouch. The City has been hit by a shock profits warning from fashion group Mulberry, and it looks like a big one.

Mulberry has warned that profits for the full year, to March 2015, are expected to be “significantly below current expectations”.

Chief executive Bruno Guillon quit Mulberry in March, after his strategy of making its handbags and accessories ever more expensive and exclusive backfired.

The company admits that conditions haven’t improved since:

As reported on 12 June 2014, the company anticipated a challenging year. The first half was expected to be particularly difficult, with it taking some time for the measures implemented after the April management change to take effect. Actual trading conditions have been more difficult than expected, in part due to the continuing headwinds affecting the luxury sector.

Shares are expected to slide when the London stock market opens....