More Confusion about Where Greece Stands

November 3, 2011

News from Greece seems to change by the minute.   Next week’s referendum has been put off until at least December 4.  Other Europeans want it to be a simple vote on whether Greece keeps the euro or not, but specific wording remains undecided.  A vote of confidence in Prime Minister Papandreou tomorrow is not a certainty, either.  Some think he will resign instead.  It’s possible that he’s already lost his majority, and a rift with his finance minister is widening.  The next EUR 8 billion troika loan to Greece will not be given until a referendum vote confirming that Greece remain in the EU is secured.  French President Sarkozy issues the riot act to all nations that they either obey last week’s EU bailout or leave. 

G-20 leaders are assembling in Cannes, France for their summit.  A draft reportedly includes tougher language on foreign exchange policy commitments.

China meanwhile decided against investing in the EFSF without better understanding of the program’s details.  The yuan was fixed at its strongest dollar level since a revaluation in July 2005 launched its controlled appreciation.

Czech and ECB interest rate policy decisions are due today.  Some think the ECB might cut but that’s a minority view.  This is the first ECB meeting to be chaired by Mario Draghi, who will preside over a press conference starting at 13:30 GMT.  Draghi is Italian, and Italy remains a major object of potential contagion should Greece bolt EMU and the EU. 

The dollar overnight has lost 0.5% against the Swissie, 0.4% relative to the euro, 0.3% versus sterling and the loonie, 0.2% against the yuan and 0.1% against the yen, which barely retains a handle of 78 despite Monday’s Ministry of Finance intervention, its fourth such operation since September 2010.

In the Pacific Rim, stocks fell by 2.5% in Hong Kong, 1.5% in South Korea and Indonesia, 1.2% in The Philippines, 1.8% in Taiwan, 0.9% in Singapore, 0.6% in Malaysia, and 0.3% in Australia.  Japanese markets were closed for Culture Day.  In Europe, the Paris Cac and German Dax are 1.0% and 0.7% higher.  The British Ftse edged up 0.2%.

The 10-year British gilt and German bund yields firmed by five and four basis points.

Gold and oil prices are each 0.3% stronger at $1734.40 per ounce and $92.82 per barrel.

Several national service-sector October purchasing manager survey results were released.

  • Britain’s PMI revealed decelerating activity with a reading in services of 51.3, down from 52.9 in September and almost as low as August’s 8-month low of 51.1.  Earlier this week, the U.K. manufacturing PMI was announced to have swung to a sub-50 contractionary score of 47.4 from 50.8.  U.K. growth in 3Q improved more than forecast, but momentum apparently ebbed again at the start of the fourth quarter.
  • Two sets of Chinese service PMIs were reported.  The government’s CFLP index weakened to 57.1 in October from 59.3 in September, but the HSBC purchasing managers index showed a second month of quickening service-sector activity.  Such printed at 54.1 after 53.0 in September and 50.6 in August.  54.1 represents a four-month high.  The HSBC composite PMI (manufacturing and non-manufacturing) rose to 52.6 in October from 51.5 and was the best score since May.
  • J.P. Morgan’s global manufacturing PMI straddled the 50 no-change line for a third straight time, with a score of 50.0 after 49.8 in September and 50.2 in August.
  • Hong Kong’s PMI recovered to a three-month high of 49.0 in October from 45.9 in September.
  • Russia services PMI of 53.5 in October was similar to September’s 53.5 but well below its long-run mean score of 56.6.  The composite Russian PMI reading of 52.5 after 52.3 was the second lowest score since September 2010.
  • India recorded readings of 49.1 and 50.3 in its services and composite purchasing manager surveys.  Each was slightly better than September results.
  • The United Arab Emirates shot a 53.4 in October after a PMI reading of 52.3 in September and a 15-month low of 50.9 in August.
  • Australia’s Performance of Services index slid below 50 to 48.8 in October from 50.3 in September and 52.1 in August.  Such had also printed at 48.8 in July.

The Hong Kong Monetary Authority, which subordinates its domestic monetary policy to the goal of enforcing the Hong Kong dollar’s fixed peg against the greenback, left its key interest rate at 0.5%.  This expected move one day after the FOMC announcement was essentially an automatic response.

Australian retail sales increased by an as-expected 0.4% in September and were 2.4% greater than a year earlier.  Sales increased 0.6% in the third quarter.

New Zealand labor statistics for the third quarter were weaker than anticipated.  The jobless rate ticked up to 6.6% from 6.5%.  Analysts had expected a drop.  Jobs rose just 0.2% on quarter and by a smaller-than-expected 1.1% on year.

Turkish inflation accelerated more than expected in October.  The CPI went up 3.3% on month and to a 12-month increase of 7.7% from 6.2% in the year to September.  The producer price index rose 1.6% and 12.6% from a year earlier, up from 12.2% in the year to September.

Hungary’s trade surplus widened 41% on month to EUR 500 million in October.

Scheduled U.S. data releases today involve factory orders, quarterly productivity and unit labor costs, the non-manufacturing purchasing managers index, and weekly jobless insurance claims.  Investors will continue reacting to yesterday’s somber and dovish remarks from the Fed and will be sizing up the substance and style of incoming ECB President Mario Draghi.  He comes to the reputation trained as an economist, honed by plenty of political experience, and with a reputation as an anti-inflation hawk.

Headlines from Athens and Cannes remain the wild card.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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