Asian equities recovered modestly on Tuesday from an acute selloff in the previous session fueled by brewing instability in Ukraine. Shares in Tokyo and Sydney clawed back losses after sinking to new lows on Monday.
Commenting on Monday’s risk aversion in financial markets, Patrick Chovanec, Chief Strategist at Silvercrest Asset Management told CNBC’s Asia Squawk Box, “The geopolitical significance of (Ukraine) is huge. The economic (impact), not so much. I think it is important to put into perspective that Ukraine’s gross domestic product (GDP) is only about 7 percent of Greece, and it is not part of any global supply chain… So i think markets are a little over reacting to the economic impact, even if things get worse in Ukraine.”
Russia on Monday cemented its control over Ukraine’s Crimean peninsula after Russian President Vladimir Putin declared he had the right to invade his neighbor. As the crisis deepened, the United States has suspended all military engagements with Russia, including military exercises and port visits, as part of Washington’s response.
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Greece’s international lenders have agreed that a lower capital ratio can be used in a second stress test of the country’s major banks, bringing it in line with a European banking benchmark, a banker close to negotiations told Reuters on Thursday.
The country’s central bank has run a second health check on National Bank (NBGr.AT), Alpha Bank (ACBr.AT), Piraeus Bank (BOPr.AT) and Eurobank (EURBr.AT) to assess whether last summer’s 28 billion euro recapitalization has left them capable of absorbing future shocks as bad loans keep rising.
The ‘troika’ of lenders from the International Monetary Fund, European Commission and European Central Bank had wanted the test to be based on a Core Tier 1 capital adequacy ratio of 9 percent, the same as that used in the first round of domestic health checks in 2012.
That rate reflected the high rate of bad loans in Greece’s banking sector.
But the lenders agreed to cut the rate to 8 percent for the second check, bringing it into line with the benchmark used for European bank stress tests.
“The troika has agreed to a Core Tier 1 ratio of 8 percent in the baseline scenario,” the banker said.
The lower reference rate will mean lower capital needs for Greece’s four main banks.
The four are expected to need about 5 billion euros ($6.83 billion) in extra capital, two senior banking sources told Reuters last week, near the bottom of estimates that have ranged from 4.5 billion to 15 billion euros.
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The jobless rate in Greece reached a record high of 28% in November, according to newly released government figures.
The rate increased from 27.7% in the previous month. For those under the age of 25, unemployment hit 61.4%.
Harsh austerity measures have led the Greek economy to shrink by a quarter in four years.
However, other economic indicators have suggested that there are signs of recovery.
The BBC’s Mark Lowen in Athens says the bleak unemployment numbers are in contrast to a message that the government has been trying to push: that Greece has turned a corner, with six years of recession due to end this year and light on the horizon.
He says the contrast with pre-crisis Greece is stark. Before the country received its first 110bn-euro ($150bn; £90bn) bailout in May 2010, the jobless rate was under 12% here.
Slight growth is expected this year and the deficit now wiped out, apart from interest payments on the bailout.
But our correspondent says that the government fears it will take a big hit in local and European elections in May.
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Japan’s economic growth is expected to have quickened at the end of last year as consumers ramped up spending ahead of a planned sales tax hike, but analysts say that Tokyo may have to inject fresh stimulus to brighten the outlook.
Lukewarm exports and wages growth have undercut some of the economic gains of the past year, and recent turmoil in emerging markets have also raised worries that Japanese shipments may fail to pick up the pace.
The median from a Reuters poll of 26 economists forecast Japan’s economy to have grown 0.7 percent in the October-December quarter from the previous three months.
That would be faster than a 0.3 percent expansion June-September and mark the fifth consecutive quarter of growth. The median translates into an annualized increase of 2.8 percent. The Cabinet Office will release the data on Monday.
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China’s central bank published rules on Thursday governing investment by wealth management products (WMPs) in the country’s bond market, in a move aimed at containing risks posed by banks’ off-balance-sheet business.
WMPs are short-term investment products that banks market to customers as higher-yielding alternatives to traditional deposits.
In principle, banks simply manage WMP assets on behalf of clients, with the client, not the bank, exposed to losses if the assets decline in value. But analysts warn that China’s banks’ are increasingly exposed to the loans, bonds and other off-balance-sheet assets underlying WMPs.
That is due in part to the maturity mismatch between short-dated WMPs and longer-dated bonds and the loans that underlie them. This mismatch often forces banks to use their own funds to make cash payouts on maturing WMPs when the underlying assets have not yet matured.
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Greek bond yields fell sharply on Wednesday after a media report said European Union officials were weighing extending the maturity of loans to Athens to 50 years, which could ease the debt burden on Greece.
Citing two officials with knowledge of the discussions, Bloomberg said the next bailout for Greece may include extending the maturity to 50 from 30 years, and cutting the interest rate on some previous aid.
An official close to Greece’s debt negotiations with the troika had told Reuters as early as October that Greece may swap a big chunk of its bailout loans with a 50-year government bond as a way to achieve debt relief once it attains a primary budget surplus this year.
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Switzerland agreed to share information on Greek accounts held in Swiss banks on Tuesday, but declined to compensate Greece for tax income lost in the past from undisclosed accounts.
The two countries remained divided on how to solve the problem of untaxed Greek money held in secret Swiss accounts, even after Tuesday’s meeting between Swiss Finance Minister Eveline Widmer-Schlumpf and her Greek counterpart Yannis Stournaras in Athens
Greece wants to levy taxes on Greeks’ holdings in Swiss banks, and wants the Swiss government to pay a deposit towards these taxes. The Greek government also wants Switzerland to pay a deposit towards taxes Greece did not receive in the past.
Widmer-Schlumpf said Greece’s request to receive taxes for past funds was outdated – despite Switzerland having struck an arrangement to that effect with the U.K.
“We should be moving towards a different direction,” Widmer-Schlumpf said. However, Stournaras insisted: “We would like to have a similar model to the British one.”
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Greece may be in line for its third aid package from European Union paymaster Germany, according to a report by influential German magazine Der Spiegel.
Germany’s finance ministry, led by minister Wolfgang Schaeuble, has prepared a five-page plan for a new 10-20 billion euros ($13.5-$27 billion) aid package for the struggling Mediterranean state, according to the report in Der Spiegel which has been denied by the ministry.
The ministry told CNBC that it would wait to see how the current program was running and discuss further actions later this year.
The plan includes a “limited follow-up program” to the two bailouts worth 237 billion euros, which have already been received by Greece from the troika of international lenders including the European Central Bank (ECB), European Commission and International Monetary Fund (IMF).
Such a plan might not be popular in Germany, which has been the biggest euro zone contributor to bailing out Greece, Portugal, Ireland and Spain during the crisis.
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It been awhile since we have used this word, however, capital market seems to have decided they want to dust it off and bring it back. Expect this word to be used more in defense of last weeks late market meltdown. Many have been hesitant to use the word to describe both Thursday’s and Friday’s market moves. Why? The word typically refers to a financial shock in a vulnerable country that spills over into previously healthy economy. And that is what is happening – almost all emerging market currencies are falling against the dollar – and investors are worried about the domino effect. If the sell off escalates, similar to last August and September in Asia, then the compounding effect will be similar – the masses will run hard to the exits.
All of this is occurring only one day after the International Monetary Fund (IMF) released its revised global growth forecasts. IMF chief, Christine Lagarde, and her crew raised growth estimates for Japan, Europe, and the U.S., but reduced them for Latin America and Russia. Growth in the developed world is stabilizing, but not so in emerging markets. It seems that the gears of the global economy are shifting, and they are increasingly shifting toward instability in the developing economies.
Investors have taken cash from emerging Asian stock and bond funds for the eighth consecutive week as of January 22 according to EPFA data. A total of $1.4-billion left funds, more than twice the $671-million of the previous week.
- Spain Unemployment Rate Remains at 26 Percent
- BoE Decouples Rates From Job Recovery
- France Continues to Struggle Flash PMI Continues To Drop
- Silvio Berlusconi Target of New Investigation on Corruption Charges
- Italian Finance Minister Says Economy is Recovering but Jobs Lagging
- Carney Hints End of Forward Guidance
- UK Advice to Europe Repatriate Jobs
- Euro Gets a Boost From Positive PMIs
- BoE Policy Maker Warns Interest Rate Hike Would Hurt Recovery
- Don’t Expect Europe To Fly Even Though Recession May Be Over
- UK Unemployment Falls to 7.1 Percent
- George Soros to Open Health and Legal Aid Centres in Greece
- UK Manufacturing Rises in January
- Greek 2012 Deal Architect Says Greek Crisis is Off The Table
- The Different Faces of Youth Unemployment Europe
- German Regulators to Visit Deutsche London Office
- Number of Jobs Available In London Fell By 42%
- London House Prices Slowing Down
* GBP Gross Domestic Product
* USD Durable Goods Orders
* USD Consumer Confidence
* USD Fed QE3 Pace
* USD FOMC Rate Decision
* NZD Reserve Bank of New Zealand Rate Decision
* EUR German Unemployment Rate
* EUR German Consumer Price Index
* USD Gross Domestic Product
* USD Personal Consumption
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* CAD Gross Domestic Product
* CNY Manufacturing PMI
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