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Greek Debt Crisis: Answers to Frequently Asked Questions
Highlights
- An acceleration in deposit withdrawals, combined with the prospect of an anti-austerity party winning the next election, has brought to the fore concerns about a potential Greek exit from the euro zone.
- Our base case assumption is that under the most likely scenario, the Greek election will lead to a government that sticks to an EU/IMF program, even if the terms are renegotiated.
- However, we do believe that Greece needs a further restructuring of its debt and we do think the country will ultimately exit the euro - we're just not convinced that Europe is ready for this to happen at the moment.
- If an accident does occur and Greece does leave the euro in the near term, it would have global financial ramifications that could range from severe to catastrophic. ...
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Risky trade getting hammered
Higher yielders remained under pressure as uncertainty continues to surround markets. The lack of assurance of an Imperative action on Greece from the euro leaders in their informal summit today makes things further vague for the destiny of the risky trade. While markets lack a conclusive expectation for the outcome of the summit majors look skeptical around key support levels.
During a teleconference earlier today, the Eurogroup Working Group (EWG); which consists of the officials preparing the meetings of finance minister, and form the board of the ESF as well, agreed that euro zone countries must consider and prepare for the consequences of a Greece exit. The move could have further negative impact on the common currency.
While Later today, the finance ministers are expected to unveil ...
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Weekly Economic and Financial Commentary : 19/05/2012
U.S. Review
To QE3 or Not To QE3: That is the Question
- Some market participants are beginning to speculate about another round of quantitative easing. Although recent growth indicators have not been particularly stellar, the economy is still growing. Moreover, core CPI inflation in the neighborhood of 2 percent means that the threshold for more QE is relatively high.
- Overall, indicators were positive during the week. Housing starts increased by 2.6 percent in April, the Empire Manufacturing index improved to 17.09 in May from a 6.56 print in April and retail sales printed a 0.1 percent increase in April, in line with expectations.
To QE3 or Not To QE3: That is the Question
QE3 seems to have more lives that a cat; it comes back into the forefront of the U.S. economy discussion ...
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Weak Outlook for Australia
Forex News and Events:
The S&P GSCI Index reversed its 2011 gains in the last six consecutive trading sessions. As a matter of fact, the index tracking 24 commodities broke down 7.6% from a high of 684.15 on April 30th to a more than four-month low low of 634.25 during yesterday’s trade session. This downturn in commodity prices can be explained on the one hand by headlines from the Euro area, as markets seem to be pricing in a second round of elections in Greece as well as a probable EU exit. On the other hand, the marked slowdown of commodity-intensive economies such as China -see Newsletter May 14- pushed prices lower in light of atrophied demand and lower infrastructure investments. From the foreign exchange perspective, the Australian dollar having experienced a 34% appreciation ...
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Poor employment picture doesn't help the greenback
The U.S. economy created 115,000 new jobs in April, below market consensus of around 170,000 and the last month’s revised up reading of 154,000. Meanwhile, unemployment rate ticked lower to 8.1% from 8.2% on a declining labor force of nearly 350,000 workers. Earnings dropped as well, printing zero percent growth.
The figures all indicate a sluggish employment recovery, hinting the economy is still far from normal employment levels of pre-crisis times. Thus, we may see further pressure on the U.S. dollar as QE3 expectations could build up.
The EUR/USD pair has been trading in narrow range since morning and before the NFP, however the pair is currently attempting to regain upside momentum on a weaker dollar, a retest of 1.3175 resistance is possible now, and a break above could lead to 1. ...
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NFP Fever Heats Up
The markets have managed to shrug off some fairly dismal services sector PMI data from the Eurozone, as the US non-farm payrolls data comes into focus. Arguably the most important economic data release of the month, the markets expect 160k but our prop model suggests a slightly weaker reading of 136k. Labour market data in April was fairly mixed but the overall bias was to the downside with the 4-week moving average of initial jobless claims rising more than20k over the month.
Payrolls reports have the power to set the tone for how markets, and the dollar in particular, trade for the rest of the month. The weaker March NFP report stopped the rally in USDJPY in its tracks, for example. So what can we expect from today's report? Essentially the magic number is 200k – this is the amount of ...
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RBA still dovish
FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
The RBA’s quarterly Statement on Monetary Policy provided further colour on the decision to cut the cash rate by 50 bp on Tuesday. End-2012 forecasts for both core inflation and GDP were modestly downgraded. This came as a minor relief to FX investors, some of whom had feared such a large rate reduction might need substantial forecast downgrades in order to justify it. AUDUSD climbed 20 pips afterwards but eventually gave back all gains. Our analysts team note though that the bank’s assessment of domestic growth now appears to be much less upbeat. They also expect next week’s budget to confirm suspicions that a very significant amount of fiscal drag is in the pipeline over the coming 12 months. Consequently they now expect another 50 bp ...
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Euro drops as uncertainty weighs before U.S. jobs data
(Reuters) - The euro slid against the dollar for a fourth day on Thursday as European Central Bank chief Mario Draghi gave a more upbeat assessment of the region's economy but left the door open for policy easing, keeping investors cautious a day before key U.S. labor market data.
Trade was choppy, with the euro temporarily bouncing from a two-week low, after Draghi said the euro zone economy was likely to recover this year, although the outlook remained vulnerable to downside risks. He spoke after the ECB kept rates unchanged at 1 percent.
While the euro initially rose after Draghi's comments, the "market reaction soon became muted because the ECB really did not change anything, and it was pretty much status quo," said Mark McCormick, G-10 currency strategist at Brown Brothers Harriman ...
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Asia Session: NZD Is Unexpectedly Hit Hard
The kiwi took a hammering on the back of a huge surge in the NZ unemployment rate, with the rate blowing most estimates out of the water with the 6.7% print from a revised 6.4 %. Also, whist employment growth increased slightly more than expected at 0.4% q/q (exp. 0.3%) it is still a fairly soft showing, thus it highlights the problems facing the NZ labour market as the country attempts to regain its footing after the financial crisis and the earthquakes around Christchurch.
There was also a significant jump in the participation rate as workers flooded back into the labour force, both those looking for work and people currently working. Overall, we expect conditions in the labour market will improve during 2012 as a result of reconstruction efforts and a generally improving economic ...
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