Markets rallied yesterday for no apparent reason other than that the Greek government’s negotiations with the troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, hadn’t broken down irrevocably. Greek PM Papademos postponed a meeting with his coalition partners for the second consecutive day as terms for the second aid package remain unresolved. The expectation of the markets is that final terms are being completed for the EUR 130 billion rescue package today. The package has been under discussion since July and we are somewhat surprised at international investors’ patience and optimism. It appears that statements from Sarkozy and Merkel that Greece will not be allowed to go bankrupt have done the trick for now and the EUR rallied to as high as 1.3289 today.

In news that seems to have been largely ignored by the markets, Fed Chairman Bernanke made comments that the US unemployment rate understates the weakness in the US labour market and that he was particular troubled by the very high levels of long term unemployment. The USD continues to weaken across the board with the commodity currencies such as the AUD and CAD making strong gains.

Yesterday, the Dow Jones rose to its highest levels since May 2008 on hopes that the situation in Greece will soon be resolved as a final draft of the conditions of the second bailout package is completed. Coca Cola shares rose 1% on better than expected earnings and 7 out of 10 groups in the S&P 500 rose. The S&P 500 closed 0.2% higher at 1,347. Asian share markets rose more than 1% while European bourses are higher by 0.5% in mid session.

]]> http://forexbl.com/2012/02/08/market-outlook-for-february-8-2012-2/feed/ http://forexbl.com/2012/02/06/three-explanations-for-the-ecb-position-on-greek-debt-restructuring/ http://forexbl.com/2012/02/06/three-explanations-for-the-ecb-position-on-greek-debt-restructuring/#comments Mon, 06 Feb 2012 17:46:33 +0000 admin http://forexbl.com/2012/02/06/three-explanations-for-the-ecb-position-on-greek-debt-restructuring/  
Joseph Stiglitz over at The Guardian writes three possible explanations for why the European Central Bank is pushing for a 50% voluntary cut, that will not be considered a “Credit Event” so no insurance will be paid out.
1. ECB knows/suspects that the affected banks have not bought insurance.
2. ECB fears that the lack of transparency could make an involuntary default lead to a credit market freeze (think Lehman in 2008).
3. ECB is trying to protect the insurers.
 
He argues that…



Read the full article on forexblog.oanda.com.

After a meeting on Sunday, Mr. Papademos said that the political leaders agreed on some of the basic points of the international lenders’ demands, including spending cuts equal to 1.5% of gross domestic product in 2012 and reduction of supplemental pension benefits to Greek workers. The most difficult terms, where the government hasn’t yet reached agreement, are wage cuts, labour reforms and a plan to recapitalize Greece’s banks.

Prime Minister Lucas Papademos faces a strong internal opposition to the terms requested by the European Commission, IMF and European Central Bank—also known as the troika. Greek government officials say the reduction in wages being sought by the troika will only deepen the country’s recession and widen its budget deficit, because it will reduce both tax revenues and contributions to its teetering pension funds.

Unions representing both Greece’s public sector and private industry have scheduled a nationwide strike for Tuesday in protest against painful reforms.

Wall Street Journal

Markets rallied on Friday after the release of much better than expected US employment data. The non-farm payrolls data showed an increase of 243,000 in January which was well over the median economist’s forecast of 140,000. Furthermore, the unemployment rate dropped to a three year low at 8.3%. Market analysts, who were extremely bearish at the beginning of the year are now making grand announcements such as ‘the stars are aligning’ to push markets higher. The contrarian in us is now extremely cautious and we expect the USD to make a comeback after losing ground last week as the better than expected data has seen the likelihood of further quantitative easing fall. The EURO has retraced lower during the European trading session to as low as 1.3030 after opening in Asia above 1.3115.

In more sobering news, the situation is coming to a head in Greece with the government there expected to respond to the troika and demands by its international creditors for increasingly severe austerity measures within the next couple of days. It has become apparent that Greece is finding it difficult to come to an agreement with its creditors. The IMF has said that a worsening debt crisis in Europe could cut China’s growth in half. In China, Chinese Lunar New Year sales grew at the slowest pace since the 2009 financial crisis and a full 3% lower than last year at 16%. There are increasing signs of slowing consumer spending in China which does not bode well for the increasing numbers of foreign retailers rushing into the Chinese market. The Australian dollar has eased off highs at 1.0796 on Friday to fall more than a cent to as low as 1.0685 today.

US equity markets rose to their fifth weekly gain last week after the release of the much better than expected US employment data. The Dow Jones is now trading at its highest levels since May 2008 as financial and technology companies gained more than 3%. The S&P 500 closed 1.45% higher at 1,344. Stocks in Asia were largely higher while the continuing Greek tragedy has seen European bourses trading down about 0.5%.

]]> http://forexbl.com/2012/02/06/market-outlook-for-february-6-2012/feed/ http://forexbl.com/2012/02/06/greece-slides-closer-to-default/ http://forexbl.com/2012/02/06/greece-slides-closer-to-default/#comments Mon, 06 Feb 2012 12:53:40 +0000 admin http://forexbl.com/2012/02/06/greece-slides-closer-to-default/ Yet another deadline has passed without resulting in an agreement on the terms for establishing a new rescue package for Greece. The 130 billion euro ($170 billion) in emergency funding earmarked for Greece is contingent on the Greek government agreeing to, and abiding by, a program of severe spending cuts to address the country’s chronic overspending.

Patience is wearing thin amongst the “troika” comprised of the European Central Bank, the International Monetary Fund, and the European Commission that will provide and oversee the funding. The mounting frustration was evident in comments German Chancellor Angela Merkel made yesterday before the press in Paris:

“We want Greece to stay in the euro,” she told a news conference. But she added: “I want to make clear once again that there can be no deal if the troika proposals are not implemented. They are on the table, time is of the essence. Something needs to happen quickly.”

Source: Reuters

Since the turn of the year, nearly every asset class has been on a tremendous bull run.

Precious metals in particular have benefited, as gold and silver have rallied back from their recent lows. Gone are calls for a “gold bubble”. Gold has risen in price throughout January and now sits near $1745 per ounce. Silver has gained as well, and is currently approaching $34 per ounce.

The precious metals may have been getting a boost from the actions of central bankers, who continue to make the yellow metal a seemingly great alternative currency.

Last week, in the Federal Reserve’s statement, the Federal Open Market Committee promised to extend low rates through 2014, and possibly into 2015. In August the Fed had promised to keep rates low until at least mid-2013. Now, the FOMC has extended that promise for at least an additional year.

In August, that rate pledge drew three dissenting votes from regional Fed presidents. However, as the FOMC’s membership shifts from year-to-year, those members no longer have a say in the FOMC’s decision.

Philadelphia Fed’s Charles Plosser —who dissented in August but now no longer has a vote—spoke on Wednesday and derided the move. He attacked it from a bullish perspective, continuing to state his long-standing opposition: that the economy is improving and low rates will not be appropriate for much longer. In that case, to prevent runaway inflation, the Fed would have to hike rates prior to their promised date.

While keeping rates low may contribute to economic growth in the short term, the move has begun to draw fire from some commentators and money managers.

In his monthly letter, Bill Gross—the world’s largest bond fund manager—attacked the move, stating that it could actually have a negative effect.

Ultimately, if the Fed keeps interest rates low, it could spur inflation as investors pile out of a weakening dollar in favor of precious metals. Under this scenario, investors may anticipate the US dollar index to fall while the price of gold may rally.

Still, as other central bankers continue to ease, the dollar index may not give much ground. The US dollar index is a measure of the dollar’s value against other fiat currencies.

Bank of England officials have mentioned undertaking further quantitative easing, while the European Central Bank continues to step into the European bond market from time to time. The Bank of Japan may attempt to weaken its yen once again, in the face of slumping Japanese manufacturing.

The US dollar index dropped 0.5% during early trading on Wednesday, as the EUR/USD pair moved up over 0.64%.

Since the turn of the year, nearly every asset class has been on a tremendous bull run.

Precious metals in particular have benefited, as gold and silver have rallied back from their recent lows. Gone are calls for a “gold bubble”. Gold has risen in price throughout January and now sits near $1745 per ounce. Silver has gained as well, and is currently approaching $34 per ounce.

The precious metals may have been getting a boost from the actions of central bankers, who continue to make the yellow metal a seemingly great alternative currency.

Last week, in the Federal Reserve’s statement, the Federal Open Market Committee promised to extend low rates through 2014, and possibly into 2015. In August the Fed had promised to keep rates low until at least mid-2013. Now, the FOMC has extended that promise for at least an additional year.

In August, that rate pledge drew three dissenting votes from regional Fed presidents. However, as the FOMC’s membership shifts from year-to-year, those members no longer have a say in the FOMC’s decision.

Philadelphia Fed’s Charles Plosser —who dissented in August but now no longer has a vote—spoke on Wednesday and derided the move. He attacked it from a bullish perspective, continuing to state his long-standing opposition: that the economy is improving and low rates will not be appropriate for much longer. In that case, to prevent runaway inflation, the Fed would have to hike rates prior to their promised date.

While keeping rates low may contribute to economic growth in the short term, the move has begun to draw fire from some commentators and money managers.

In his monthly letter, Bill Gross—the world’s largest bond fund manager—attacked the move, stating that it could actually have a negative effect.

Ultimately, if the Fed keeps interest rates low, it could spur inflation as investors pile out of a weakening dollar in favor of precious metals. Under this scenario, investors may anticipate the US dollar index to fall while the price of gold may rally.

Still, as other central bankers continue to ease, the dollar index may not give much ground. The US dollar index is a measure of the dollar’s value against other fiat currencies.

Bank of England officials have mentioned undertaking further quantitative easing, while the European Central Bank continues to step into the European bond market from time to time. The Bank of Japan may attempt to weaken its yen once again, in the face of slumping Japanese manufacturing.

The US dollar index dropped 0.5% during early trading on Wednesday, as the EUR/USD pair moved up over 0.64%.

With the reclassification, Germany, Finland, and the Netherlands are the only countries to retain triple-A rated status. When expanding to all of Europe, only two more countries – the UK and Switzerland – can claim top status, and the UK’s hold on triple-A is tenuous.

The following graphic compares the debt for most of the European economies together with their current credit rating. The 10-year bond yield is represented by the anchor dragging behind each economy – the bigger the anchor, the greater the drag on the economy.

At a Glance: European Debt and Credit Ratings

Created by OANDA

With the reclassification, Germany, Finland, and the Netherlands are the only countries to retain triple-A rated status. When expanding to all of Europe, only two more countries – the UK and Switzerland – can claim top status, and the UK’s hold on triple-A is tenuous.

The following graphic compares the debt for most of the European economies together with their current credit rating. The 10-year bond yield is represented by the anchor dragging behind each economy – the bigger the anchor, the greater the drag on the economy.

At a Glance: European Debt and Credit Ratings

Created by OANDA