Rating agency Standard & Poor’s said today that the idea put forward by French banks to “rollover” Greece’s debt would likely be considered a default. European politicians and bankers had expressed confidence last week that the French proposal would not trigger a default, but S&P said the plan would involve losses to debt holders, and would likely be considered a “selective default” rating.
Source: Reuters
A surprise 0.6 percent decrease in monthly retail sales could convince the Reserve Bank of Australia to hold off on an interest rate hike. The decline in May’s retail sales marked the largest drop in seven months and came as a bit of a shock to analysts expecting a 0.3 percent increase.
“The softness was across sectors and regions, so there’s little sign of the pick-up in economic momentum that the RBA was expecting,” said Brian Redican of Macquarie Bank. “The consumer clearly doesn’t need any more encouragement from the RBA to stay on the sidelines. It lessens the need for another hike.”
Source: BBC News
The problems facing the Eurozone are so far only the tip of the iceberg says foreign exchange analyst Standard Chartered Plc.
“We’re going to get a continuation of the problems that Ireland, Portugal, Spain and others are suffering,” said Callum Henderson, Standard Chartered’s global head of foreign-exchange research in Singapore. “The fundamental issue is these are countries that have relatively large debts, large budget deficits, large current-account deficits, they don’t have their own currency and they can’t cut interest rates. The only way they can get out of this is to have significant recessions.”
Source: Bloomberg
Saying that a return to recession “doesn’t seem likely”, US Federal Reserve Chairman Ben Bernanke did not however rule out further Fed spending and quantitative easing. Pointing out lagging employment and weaker-than-expected growth, Bernanke made the case for an expansion of the $600 billion bond purchase program revealed last month.
“We’re not very far from the level where the economy is not self-sustaining,” Bernanke said in an interview broadcast yesterday by CBS Corp.’s “60 Minutes” program. “It’s very close to the border. It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting.”
Source: Bloomberg
The euro lost ground on Monday as EU finance ministers meet in Brussels to discuss how best to tackle the ongoing debt crisis. The meeting comes on the heels of news that ratings agency Moody’s has downgraded its assessment on Hungary’s bonds highlighting “increased concerns about the country’s medium- to long-term fiscal sustainability”.
The euro fell to 1.3277 dollars in early-morning trading after closing at 1.3415 dollars in New York on Friday.
Source: AFP News
The monthly ADP Employer Services survey shows that US employment fell by 10,000 during the month of August, the first monthly job loss since January. This flies in the face of a survey of economists that forecast a gain of 15,000 jobs.
“The labor market is really in peril as businesses are just being very cautious,” said David Semmens, an economist at Standard Chartered Bank in New York, the only economist surveyed to accurately forecast the loss in private jobs. Today’s figures “will drag down expectations for the Friday payrolls report. The stability surrounding the recovery is declining.”
Source: Bloomberg
For the first time in four months, China’s Purchasing Manager Index (PMI) recorded an increase rising to 51.7 in August from 51.2 in July. A number above 50 on the index indicates an increase in activity.
The latest result will ease concern that growth is waning in China which is seen as a vital component in leading the global economy to recovery.
Source: BBC News
Prices for single-family homes rose half a percent in May according to the latest Standard & Poor’s/Case Shiller home index survey. The results, based on an examination of home prices in twenty US cities, showed a greater-than-expected 0.2 percent increase.
“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still does not indicate that the housing market is in any form of sustained recovery,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.
Source: Reuters
Several iconic Canadian companies have reported dramatic increases in both revenue and profit this week, boosting the Canadian dollar by more than half a cent to 97.45 US cents. The Toronto Stock Exchange (TSX) is also expected to open higher this morning as additional earnings reports are made public.
Source: The Canadian Press
For those requiring further proof that the balance of power within the global economy has shifted to China and away from the US, today’s surge in the markets should provide ample evidence that change is afoot. Describing as “groundless” rumors that China was questioning its stake in European holdings, a statement posted on the State Administration of Foreign Exchange website noted that “Europe has been, and will be one of the major markets for investing China’s exchange reserves”.
Investors were so emboldened by this shot of confidence, the resulting buying spree lifted the Standard & Poors 500 Index back above 10,000 points soon after the market opened. The endorsement also helped reverse the euro’s slide that had been threatening to hit a four-year low.
Commodities also gained with crude for July delivery jumping 3.3 percent to $73.88 a barrel by mid-day trading in New York. This helped the Canadian dollar regain some of its recent losses to its US counterpart when investors abandoned the “loonie” for the perceived safety of the greenback earlier in the week. By 11:00 AM in New York, the Canadian currency was up more than a cent and half to 94.70 US cents.
China’s showing of support for the euro was without question, largely responsible for today’s new-found optimism, but events in Europe itself also contributed to the positive mood. Announcing plans to trim spending, two of the EU’s “problem children” were clearly hoping to send a message to investors – but also the EU and the International Monetary Fund – that they were confronting their respective budget gaps.
By a margin of a single vote, Spain’s parliament approved a plan that would reduce government spending by 15 billion euros (US$18.4 billion). Italy also recently outlined spending cuts totaling 24 billion euros (US$37.3 billion) over the next two years. It would seem that all it takes is an economic crisis of unmatched precedence, to help Europe’s chronic over-spenders see the light and take actions towards greater financial responsibility. If only that were true.
Unfortunately, I believe it is a little early to proclaim that Italy and Spain have seen the light. The measures barely received government approval in Spain, and Italy’s Prime Minister Silvio Berlusconi is also facing pressure at home to ease up on all the talk about spending cuts. We’ll see how resolute the respective leaders are if and when they face the same level of public outcry witnessed in Greece.
Italy
Spain
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