Hopes were dashed when the G-20 meeting ended without a resolution to the Greek crisis. While no one expected the G-20 to solve the problem, having all of these finance ministers in one place there was optimism that some good would come out of it. But alas, the drama continues, causing one analyst to claim, “Greece burns while Germany fiddles.”
What this has accomplished is not only causing the yield on Greek bonds to rise, but contagion is starting to spread to Portugal. As yields continue to rise, the cost of borrowing becomes more expensive for the issuer which in turn makes it less economically feasible to service debt. The longer this Greece thing plays out, the worse it may get for other members of the EU.
So clearly today is marked by risk aversion, despite signs that inflation may be picking up in Australia. German consumer confidence was higher, perhaps because Germans believe that they won’t bail out Greece so there is no problem! Not sure what they are thinking over there.
US consumer confidence figures are due out, and some housing data from the US and UK are adding to the risk aversion in the market today. World stock markets are lower, as are commodities.
In the forex market:
Aussie (AUD): Producer Prices advanced 1% from the fourth quarter marking the fastest rise in almost two years showing signs that inflation may be on the way. The Aussie is holding up remarkably well despite the risk-aversion in the market. It is higher vs. all but the Dollar and Yen. Tomorrow brings the CPI figures which are a truer gauge of inflation.
Loonie (CAD): The Loonie is lower on risk fears as well as oil prices which are down roughly 1% to 83.25. Oil inventories are expected to rise which could slow the demand for the “black gold” adding further downward pressure on the Loonie. There’s no real news for Canada until Friday when they announce GDP figures so expect the Loonie to trade on risk themes this week.
Kiwi (NZD): The Kiwi is lower on risk themes as well, and tomorrow the market will get the RBNZ interest rate decision. The market is expecting rates to remain unchanged, but there was speculation that they could signal a future hike based on recent good economic news. However, the problems with the Euro zone mean that there is too much risk in the market which may delay any signals.
Euro (EUR): Well consumer confidence was higher in Germany, yay! I’m not sure how anyone can be confident in the Euro situation unless you were sure that it wouldn’t affect you. Perhaps this is telling about Germany’s role in this crisis and how their hesitation to act may collapse the entire economic union. As bond yields continue to move higher for suspect countries, contagion may be so great that massive defaults occur. This Greece thing needs to be buttoned up FAST. Oh, and everyone’s corporate citizen of the year candidate, Goldman Sachs, decided to add fuel to the fire by claiming that bailout may be closer to $200 billion, more than three times the current deal. Someone check their Euro CDS positions please!
Pound (GBP): The Pound is lower this morning as home loans rose less-than expected in a sign that the housing market may not be rebounding as robustly as previously estimated. Hung parliament concerns are to the fore-front again, so expect the Pound to trade sideways going into the May elections unless global risk-aversion takes all markets lower.
Dollar (USD): US consumer confidence figures are due out later this morning and Fed Chairman Bernanke is set to speak this afternoon about financial reform. Tomorrow is the FOMC interest rate decision which is expected to leave rates unchanged. The Dollar is higher on risk-aversion against all but the Yen.
Yen (JPY): The Yen is up the most this morning as the un-wind of carry trades due to risk aversion is creating demand for Yen. Japanese companies have been reporting strong corporate earnings which have buoyed Japanese stocks.
As I mentioned yesterday, we are starting to see signs of inflation in the market despite that the fact that everyone sells stocks and commodities and runs to the US dollar when risk-aversion crops up.
Until the EU can get the Greece situation rectified and provide support for its members, there will be risk in the market. EU ministers have been out saying that global recovery is taking place at different speeds and recovery is not happening as fast for the EU. Noted.
There are a slew of CPI figures due out this week which will show how inflation is faring around the globe. While rates aren’t expected to rise in countries where economic recovery is tenuous, look to the price of gold to see where we are in the inflation spectrum.
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