Italy’s Traffic At A Standstill On Monday Whilst Germany Discovers New Avenues To Avert The Eurozone Crisis
Christine Lagarde, head of the International Monetary Fund, has urged European leaders to commit greater resources to protecting the eurozone. Lagarde said that the European Stability Mechanism should be enlarged beyond its current €500bn limit, giving more firepower to protect Italy and Spain. Lagarde also proposed that the new fiscal compact should include provisions for eurobonds, and warned that the global economy could be dragged into a downward spiral.
EU finance ministers gathered in Brussels to discuss the crisis. Austrian and Dutch officials took a hard line on the Greek negotiations, warning that private creditors could be forced to take losses if a voluntary deal can’t be reached.
Greece pushed back its target for presenting a final deal to its creditors to 13 February. The news broke tonight. Earlier, finance minister Venizelos said that negotiations with the private sector had gone well, despite the head of the Institute of International Finance warning over the weekend that the IIR had reached its maximum potential losses.
Italy was hit by widespread traffic disruption as part of protests over Mario Monti’s economic plans. Taxi drivers went on strike in major cities, while truckers blocked some key highways.
France and Germany both held successful debt auctions on Monday. Investors paid almost zero percent to hold German debt for a year, but France saw certain yields rise.
Germany floated the idea of combining Europe’s two rescue funds, in a concession to bolster the fight against the fiscal crisis as Greece bargained with bondholders over debt relief.
Germany may be open to boosting the combined aid limit from 500 billion euros when a permanent fund runs alongside the temporary fund starting in July, government officials in Berlin said. The need for a beefed-up fund was dramatised by haggling between Greece, the trigger of the two year old crisis, and its creditors over debt reduction to stave off default.
Market Overview
The euro strengthened to an almost three-week high against the dollar as French Finance Minister Francois Baroin said negotiations between Greece and its private creditors were making “tangible progress”.
The 17-nation currency gained versus 13 of its 16 major counterparts as European Union finance ministers gather in Brussels to discuss a Greek debt swap, budget rules and a financial firewall to protect indebted nations. Norway’s krone and Canada’s dollar rallied versus the dollar as oil gained after the European Union agreed to ban crude imports from Iran.
The euro gained 0.6 percent to $1.3013 at 5 p.m. New York time after rising to $1.3053, the highest level since Jan. 4. The common currency advanced 0.6 percent to 100.25 yen, while the dollar was little changed at 77.02 yen.
The dollar has weakened 1.5 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen is little changed, and the euro has slipped 1.7 percent.
Canada’s dollar appreciated to within a cent of parity with the U.S. currency as leading economic indicators increased for a sixth month in December, according to Statistics Canada. The loonie gained 0.5 percent to C$1.0086 per U.S. dollar. It has not traded above parity since Nov. 1.
The pound fell 0.7 percent to 83.59 pence per euro after profit alerts increased by more than 70 percent in the final quarter of 2011 at U.K.-listed companies, the biggest jump since the first three months of 2001, according to Ernst & Young LLP.
The Standard & Poor’s 500 Index rose for a fifth day, led by the energy sector/s, as natural gas rebounded from a 10-year low and investors weighed Europe’s efforts to tame its debt crisis. The euro approached its strongest level of 2012 whilst Treasuries fell.
The S&P 500 climbed 0.1 percent to close at 1,316.0 at 4 p.m. in New York, the Dow Jones Industrial Average slipped 11.66 points to 12,708.82 after earlier in the session topping the highest closing level since May. Natural gas jumped 7.8 percent as Chesapeake Energy Corp. planned to cut production following a slump in prices. Oil snapped a three-day slump. The euro added 0.8 percent to $1.3032. Greek bonds rose and Italy’s 10-year yield reached a six-week low. Ten-year U.S. Treasury note yields increased four basis points to 2.06 percent.
Oil rose 1.3 percent to $99.58 a barrel, snapping a three-day fall, after the EU agreed to ban crude imports from Iran, raising concern over supplies in the Middle East. The S&P GSCI gauge of 24 commodities increased 1.1 percent.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/january-24-am-2012/
Market Commentary by FXCC - Greek & Euro Ministers Play Game Of Show & Tell With Private Bondholders
Following yesterday’s meetings in Brussels, Greek ministers have insisted that banks must accept a lower interest rate on the new Greek bonds that they will receive as part of the ‘swap’ deal. The 4% coupon demanded by the Institute of International Finance (IIF) (who represent Greek creditors) is not deemed to be acceptable. The move is likely to raise fears that Greece will not agree a deal with its lenders in time in order to avoid a disorderly default.
Banks and other private institutions represented by the Institute of International Finance (IIF) say a 4.0 percent coupon is the least they can accept if they are going to write down the nominal value of the debt they hold by 50 percent.
Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro zone finance ministers effectively backed the Greek government’s position at Monday’s meeting, a position that the International Monetary Fund also supports.
Jean-Claude Juncker, the chairman of the Eurogroup countries, said Greece needed to pursue a deal with private bondholders with the interest rate on the replacement bonds below 4.0 percent;
Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4 percent for the total period, which implies the interest comes down to well below 3.5 percent before 2020.
Later today the International Monetary Fund will publish its latest economic forecasts for the world economy. A draft version of the report leaked last week, so markets are already expecting the IMF to slash its growth predictions.
The EU services PMI improved to 50.5 from 48.8, while manufacturing was still in decline, with the index at 48.7 versus 46.9. All readings are five-month highs but remain at historically subdued levels, Markit noted.
There are rumours that Portugal needs a second bailout. Despite Lisbon’s labour market reforms, markets fear the country could be next in line to default after Greece – whose debt deal with private creditors has just been rejected by eurozone finance ministers. According to Markit, Portuguese debt insurance costs have now hit record levels.
The German economy appears to have had a decent start to the year (and will avoid recession). The latest PMI survey shows manufacturing in Europe’s largest economy grew in January for the first time since September. This briefly boosted the euro to $1.3021 from $1.3006.
Market Overview
European stocks fell from a five-month high and Australia’s dollar weakened amid a stalemate between regional policy makers and Greek bondholders over how to resolve the nation’s debt crisis. The euro edged down from a three-week high on Tuesday and European shares opened lower after the region’s finance ministers rejected an offer by private creditors to restructure their Greek debt, raising the spectre of a default.
The Stoxx Europe 600 Index retreated 0.7 percent as of 8:00 a.m. in London. Standard & Poor’s 500 Index futures lost 0.3 percent. The Australian dollar slumped versus 15 of its 16 major peers. Copper and oil climbed at least 0.2 percent and natural gas extended yesterday’s 7.8 percent surge. Treasuries held four days of declines.
Market snapshot as of 10:00am GMT (UK time)
The Nikkei closed up 0.22% and the ASX 200 closed down 0.02%. European bourse indices are down in the morning session as Greek default fears begin to once again stalk the markets consequently evaporating optimism. The STOXX 50 is down 0.67%, the FTSE is down 0.54%, the CAC is down 0.65%, the DAX is down 0.61% the ASE (Athens exchange) is down 2.74%, 52.89% year on year.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/greek-euro-ministers-play-game-of-show-tell-with-private-bondholders/
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