Some euro-zone countries no longer want Greece in the bloc, Finance Minister Evangelos Venizelos has said. He accused the states of “playing with fire”, as Greece scrambled to finalize an austerity plan demanded by the EU and IMF in return for a huge bailout.
Mr Venizelos promised to clarify the plan before a conference call with euro-zone bosses due at 16:00 GMT. Greece needs to convince lenders that it will make enough savings, and that its politicians will enact the changes. [...]
Read the full article on forexblog.oanda.com.
February 15, 2012
EZ States want Greece Out
February 7, 2012
Market Outlook for February 7, 2012
Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 7, 2012
Markets eased yesterday as the Greek government continues to struggle to make the necessary austerity budget cuts to qualify for more financial aid and avoid an ever more likely default. Pressure is mounting on the Greeks to meet the conditions of the EUR 130 billion bailout as PM Papademos negotiates into the second day with the so-called troika. Chancellor Merkel made her frustrations clear by saying “I can’t understand why we need a few more days. Time is running out.” The French and Germans are coming up with increasingly ‘creative’ solutions to the Greek problem by yesterday proposing the setting up of an account for Greek interest payments to ensure that lenders are paid. We aren’t sure that guaranteeing interest payments that are already highly discounted on junk debt will do any good. The EUR is largely unchanged during the Asian and is trading at 1.3120.
Nicolas Sarkozy said at a meeting in Paris that allowing Greece to “go bankrupt is not an option.” It is messages like this that undermine the process that the Europeans are attempting to undertake. Leaders need to let the Greek government know that bankruptcy is an option if they do not comply with the conditions of the bailout package. If bankruptcy is not an option than the Greeks will simply continue to flout agreements in an attempt to get a better deal while the relatives continue to support the black sheep of the family at all costs. Today, the Reserve Bank of Australia surprised investors by keeping its benchmark rate unchanged at 4.25%. The market had priced in a 0.25% cut and the decision saw the AUD rise sharply from just above 1.0700 before the announcement to as high as 1.0825.
US equities eased yesterday with the Dow Jones falling from almost 4 year highs on renewed concerns over the Greek refinancing and debt swap deal as a planned meeting of Greek leaders was delayed as a joint response had yet to be agreed upon. The S&P 500 was largely unchanged at 1,344. Asian stocks closed lower today while European bourses are down 0.5% in mid-trade.
January 27, 2012
Week in FX Europe Jan 22-27
Plans for the Greek Private Sector Involvement remain a source of considerable uncertainty for peripheral markets, and the inconclusive result of negotiations over the past few days will leave the EUR and risk complex vulnerable to a large correction. However, the EU economic and monetary commissioner has indicated that authorities are very close to concluding their talks, either later today or over the weekend. Will the market add to the risk trades that have been applied since the Fed, earlier this week, increased its “free money” term length by 18-months? So far it’s been too tempting for the market to refuse and risk is being added accordingly.
The mixed signals from the Euro-zone debt market means investors need to tread with caution. Thus far, ECB liquidity has boosted demand for Spanish and Italian debt. The same cannot be said for Portugal. Peripheral bond yields have resumed their collapse this week, with Italian 10-year yields down -18bp to +5.84%, a long way from that +7% imploding benchmark. Portugal remains the outlier, with yields still under upward pressure. Perhaps if China invested in Europe we would not care so much?
Below are some other highlights of the week:
EUROPE
- EUR: Greek talks were expected to show something of substance last weekend. Not unexpected, this week began with Greece failing to yield agreement on the public sector involvement. Negotiators have been squabbling over the coupon that restructured bonds will carry.
- EUR: The single currency opened lower in the Chinese New Year and despite all the negatives, soared through last weeks highs allowing the techies to start talking about outside weekly reversals as the currency remains elevated.
- EUR: Analysts expect that even a successful conclusion to discussions would still leave the actual degree of private sector uptake unclear. EUR bears are still looking for that top, as default risks will not fully ‘abate’.
- FRF: French January business confidence surprised weak, falling to 91 from 94. The market had been expecting a small uptick, especially after the German IFO and EU PMI prints.
- EU: Portuguese debt worries have resurfaced to add to Greek default concerns.
- EU: Finance Ministers reject Greek debt swap offer, coupon demands too high.
- S&P’s Chambers: Greece ‘In all likelihood’ is down to a selected default. However, this default is not expected to destroy the credibility of EMU.
- EU: Euro-zone flash PMI’s came in firmer than expected with the composite back above 50 after four-months in contraction territory. This suggests that the region ‘should avoid a collapse in output’ and another quarter in the GDP ‘red’. Manufacturing PMI rose to 48.7 from 46.9 and services PMI rose to 50.5 from 49.0.
- GER: Their numbers were strong with manufacturing PMI at 50.9 and services PMI at 54.5. Big picture, data should help the Scandis and CE3 currencies.
- ESP: Spain saw strong demand at its bill auction. Spanish Treasury sold +EUR2.51b of 3-and 6-month bills. The bid-to-cover was high in both issues.
- EU: With Greek PSI negotiations inconclusive, the IMF is pushing for the ECB’s to take a haircut along with PSI as a means of distributing losses back to governments. However, the ECB and German coalition remains opposed to taking a loss on ECB holdings. Expect the heavy peripheral issuance schedule to remain a key factor in keeping the bulls on their toes.
- GER: German ifo surprised higher with the expectations component at 100.9, above the consensus for 99 and up from 98.6 previously (the third consecutive rise) and suggests a GDP growth rate of +0.5% q/q.
- GBP: UK GDP contracted more than expected in Q4, down -0.2%, q/q, vs. -0.1%. The weakness was driven mainly by soft industrial production in October and November and poor services at the start of the quarter.
- GBP: BoE minuets deferred the decision on more QE until next month, as expected. The assessment on the economy was somewhat less pessimistic as members judged the most serious downside risks have abated. However, others understood that the “risks of undershooting the target meant an expansion of the QE program is likely to be required”.
- FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
- HUF: Hungary sold HUF +48b worth of bonds (+13b more than expected). This would suggest that market perception of HUF risk has improved. PM Orban has softened his stance on recent legislation and indicated that he is willing to adjust their policies in order to win financial backing from the EU and IMF.
- SEK: Manufacturing confidence surprised soft, falling to -14 vs. -11. Analysts believe that weak growth and the recent sharp moderation in core-inflation allows for a rate cut by the Riksbank at the next meeting.
- EU: Peripheral bond yields have resumed their collapse, with Italian 10-year yields down -18bp to +5.84% (Friday Morning). However, Portugal remains the outlier with yields still under upward pressure.
- EU: On Friday, Rehn indicated that PSI talks are very close to conclusion, either today or over the weekend.
- EU: Euro area M3 growth has slowed significantly to +1.6%, y/y, from +2.0%.
- CHF: Swiss KoF leading indicator dropped to -0.17 this month from +0.01 in December (ninth consecutive monthly decline and the first negative reading in two years). However, the release is at odds with the recent upward surprise in the PMI back above 50.
- Fitch: Downgrades Belgium, Italy and Spain.
- PLN: Poland recorded above consensus 2011 GDP growth of +4.3%, y/y.
Should continue to attract foreign capital and support the PLN.
November 29, 2011
Aussie (AUD) Back To Parity With USD!
The Australian dollar “Aussie” has moved back to parity with USD in a sign of things to come. The markets have been on edge for some time due to the Euro debt crisis but are looking for a “Santa Claus” rally into the close of the year. With the EU Finance Minister meeting taking place today, confidence could be restored quickly.
One thing to consider though when looking at the Aussie is that they are closely tied to China economically and raw materials, which they export. As commodity inflation continues to rise, the Aussie dollar will benefit.
While everyone Central banker around the globe will shout that inflation is not a problem, commodity prices tell a different story. So the Aussie dollar looks poised to rise further , as carry traders buy Aussies for the interest they receive on the “hidden inflation story”.
Potential price target of 1.0250 by the end of the week.
Forex Market Outlook 11/29/11
This morning has started out with the same vigor as yesterday’s market posting early gains on the news of a successful Italian bond auction and riding what looks to at least initially be two days of gains in a row. Global stocks and commodities are higher to start the day, with US dollar weakness.
In Italy, 3-year notes had a bid to cover of roughly 1.5x meaning that there was good demand for the debt contrasted with last week’s German auction that was only 65% subscribed. It should be noted that the yield on the Italian debt was close to 8%, which is a Euro-era high and nearly twice what it was as early as 2 months ago.
What does this tell us? Well, a couple of things. For starters, it shows that the markets have some confidence that Italy will not default and that there may be an increased pace of getting the plans in place to combat this crisis. If the market feels that they can pick up some short-term debt at high yields before credible actions begin to reduce those yields, then that’s a pretty good trade.
But it also tells us that Germany may have some funding problems going forward, as the market deems yields too low to justify the “safe haven” of the Bund, which may not actually be that safe when Germany’s exposure to the rest of Euro zone debt is taken into consideration. In other words, why receive 2% in Germany when you can receive 8% in Italy for nearly the same outcome. If Italy goes down, it would likely take Germany down as well so it’s better to be compensated at a higher level.
Today begins a two-day meeting of EU Finance Ministers that is expected to produce an agreement on how to leverage the ESFS and the actions that will be permitted at the ECB. After pressure from the Obama administration, the need to act for Europe is now.
On the data front, economic confidence figures in the Euro zone came in lower than expected, but wasn’t that expected? So overall, the Euro is pulling back from earlier highs and our chart of the day from yesterday is still in tact, with EUR/USD having held that 1.3430 level.
Overnight in Japan, retail trade figures came in better than expected, showing a gain of 1.9% vs. an expected gain of .7% and household spending decreased just .4% which is better than the decrease of 1.5% that was expected. Perhaps that had to do with the jobless rate which came in worse than expected, showing 4.5% vs. an expected 4.2% which incidentally is half of what the US jobless rate is. Friday’s NFP numbers here should confirm the continued bad news of 9% unemployment unless discouraged worker have left the workforce.
In the UK, home prices came in higher than expected showing that inflation may remain stubbornly high despite the protestations of the BOE who claim that prices will magically fall back to their 2% target within the next year from the current 5% they are experiencing. While this expectation is the justification for monetary easing, the hard data suggests otherwise. Mortgage approvals came in higher than expected.
And lastly here in the US, home price figures will be do out later this morning are expected to show modest declines and consumer confidence figures are expected to show gains from last month but are still near historic lows. I suppose the news of the better than expected “Black Friday” sales and yesterdays “Cyber Monday” sales which also came in better than expected (up 18% from last year) belie those figures. Or it could just be boredom.
Fitch ratings agency finally acted on the Super committee’s failure on debt reduction and moved the US outlook to negative, which means that there is now a 50% of a US credit downgrade within 2 years. Yay for politics!
Meanwhile the markets are giving back earlier gains but are likely to rebound if we can get through the remainder of the Euro session without any negative news from the Finance Ministers meeting. So it looks like we’ll continue to trade the range, albeit a larger one.
November 18, 2011
Week in FX: Europe Nov. 13-18
It was a week of spreads. The failure of the ECB to wholly stabilize Italian, Spanish and French yields, despite political developments in Italy, had the market applying risk aversion trading strategies slowly all week. Most EUR relief rallies provided the market better opportunities to either exit their riskier positions or instigate further negative bets. As the slow-motion risk meltdown continues it has allowed the dollar and the yen to trade broadly firmer. The Swiss, as a reserve currency, has been taken out of the equation because of the SNB revaluation actions.
The absence of an aggressive ECB bid has further boosted perceptions of systemic risk in the Euro area.The surprise to most has been how orderly and gradual the FX moves have occurred. Normally, with any risk aversions trading strategy decision, “Panic” seems to be the outlier as investors all run for the exits at the same time.
Below are some other highlights of the week:
EUROPE
- The week started with the Italian parliament passing key growth measures, and Mario Monti been given a mandate to form a government. He will wear two hats, that of Prime Minister and Finance Minister.
- Italy successfully auctioned EUR3b in 5-year bonds with a healthy bid to cover, but the size of the offering was well below typical auction size.
- Euro area IP fell -2%, m/m, in September after a +1.4% rise in the previous month. This was a tad better than the market consensus for a -2.3% fall. The weak trend is likely ongoing.
- On Tuesday, Italy’s 10-year yield pushed back through +7% before coming off following reports of ECB buying. French and Spanish bonds continued to underperform.
- UK: September inflation printed a touch below expectations at +5%, y/y, down from +5.2% in August. The decline in food and transport prices helped. The core (ex-food and energy) accelerated to +3.4%, y/y and above the +3.2%, y/y forecast.
- UK: Governor King’s ‘letter’ continues to emphasize downside risks to growth stemming from global uncertainties, with inflation more likely to undershoot the +2% target in the medium term.
- EUR: Growth remains subdued at +0.2%, q/q, in Q3. Digging deeper, the German and French economies expanded at +0.5% and +0.4% respectively. Elsewhere was weaker. Including weaker PMI’s and confidence indicators, analysts note this indicates “a recession risk”.
- EU: German ZEW survey printed below consensus at -55.2, the lowest level in three-years.
- UK: BoE Inflation reported inflation at about +1.5% at the end of the forecast period, down from +1.9% in the August report.
- EU: The Euro-bond market continues to send danger signals, with Spanish yields up sharply following its 10-year bond auction on Thursday, Italian 10-year yields again trade above +7%, and French 10-year yields managed to print new highs for the year.
- EUR: Spain successfully auctioned EUR3.6b of 10-year bonds. Bid-to-cover on the auction was a “reasonable” +1.54 times. However, the amount sold was below the EUR4b on offer.
- ECB again bought Spanish and Italian bonds, but ‘not in sufficient size to stabilize the market’.
- German government comments continue to warn against viewing the ECB as a lender of last resort for European governments. Rhetoric provides another reason to pressurize the EUR.
- UK: Retail sales rose +0.6%, m/m, well above consensus forecast for a -0.3% fall. Note that deteriorating labor market conditions does not support this trend. With the BoE inflation projection below 2% in the two year horizon based on the current size of QE, analysts now expect further QE extension next quarter.
- SEK: Average house prices fell in September, dropping – 7.1%, y/y. This should support expectations for a rate cut by the Riksbank. Futures market pricing in a -50bp cut by Q1.
October 31, 2011
Japan Intervenes– Finally Weakens Yen (JPY)!
I was just saying on Friday that the market was expecting some sort of intervention in the Japanese yen as it approached the 75 level vs. USD which we called the “line in the sand”. Well it didn’t have to get quite that low to induce government intervention.
The Ministry of Finance took unilateral action and sold Yen as they claimed that one-sided speculation was responsible for the Yen’s rise and that the gains didn’t support the fundamentals. It seemed obvious that this move would occur after the announcement of the Euro debt crisis resolution.
The USD/JPY pair moved some 4% on this action and reached 79, only to pull back to around 78. It should be noted that this is the third time there has been intervention in the currency this year, all of which were unsuccessful other than slowing the pace of Yen gains. What may make this time different though is a potential coordinated action with the Bank of Japan to further weaken the Yen.
This has helped cause USD strength today and has increased risk aversion which has sent stocks and commodities lower. The markets may try to test the resolve of the government but I think this time may be different. Should a major risk event cause a flight to safety, Yen may not be the best palce to be going forward.
October 26, 2011
Finance Minister Says No Recession Likely for Canada
Canadian Finance Minister Jim Flaherty told a press conference on Tuesday that despite uncertainty in the Eurozone and a slowing U.S. economy, he expects Canada will remain resistant to recession. Nevertheless, the Finance Minister noted that he is prepared to act if necessary noting that the government will consider further stimulus spending if conditions warrant.
Despite the Minister’s optimism, recent feedback shows that the Canadian economy is slowing with a more modest level of growth now expected in the coming months. Acknowledging the revised outlook, the Minister noted that the government will keep close tabs on the situation and is prepared, if necessary, to provide stimulus as was done during the previous recession.
Comments from Bank of Canada
On the topic of stimulus spending, the Bank of Canada voted to maintain the current 1 percent overnight rate noting that “considerable stimulus” remains in the Canadian economy. This was due to previous government spending and the continuation of record-low interest rates. This comment was taken as a sign that the Bank of Canada does not intend to intervene at this point and interest rates are expected to remain unchanged well into next year.
The Bank of Canada statement did raise eyebrows, however, with a prediction that the Eurozone would likely fall back into recession next year. While the Bank expects the recession in Europe to be short-lived, the potential impact of negative growth in the Eurozone, together with a downgraded outlook for U.S. growth, were cited as potential risks to growth in Canada.
October 17, 2011
Germany Says Quick Debt Solution Are Just “Dreams”
Global markets received a shock today following comments by a highly-placed German official that seemed to run counter to the growing optimism for the upcoming European summit. The meeting, which is scheduled for October 23rd, is expected to produce the final version of the debt relief plan hashed out over the past few months. The plans also likely made up much of the agenda of the G20 Finance Ministers meeting held in Pairs over the weekend.
Steffen Seibert – spokesperson for German Chancellor Angela Merkel – said at a meeting in Berlin on Monday that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled”.
Ouch. So much for daring to dream.
Following Seibert’s comments, the euro fell from a one-month high against the dollar declining by more than a cent to $1.3766 during mid-morning trading in New York today. Market sentiment also moved away from the euro with less than 40 percent of traders holding long positions in the EUR / USD currency pair by 11:00 am Monday morning.
European banks also spoke out against rumors that they could be forced to take a 50 percent loss on Greek debt. While the idea that Greek debt holders would face some degree of “haricut” has long been considered part of an eventual bailout, the banks claim they earlier agreed to cuts of 21 percent; their position is that losing half of their holdings could force them into hardship.
October 11, 2011
FX: Europe’s Unresolved Crises
Safe-haven buying drove US bond yields to the lowest level since 1950, and the dollar rose as the tumultuous summer of 2011 drew to a close with no solution in sight to the twin banking and debt crises in the eurozone.
Read more: Global Finance