Awaiting Greek Parliamentary Vote of Confidence

June 21, 2011

A vote of confidence on Prime Minister Papandreou’s reshuffled cabinet and almost EUR 80 billion of proposed Greek budget cuts and asset sales is due later today.  Investors are optimistic he will survive, because a negative vote would precipitate fresh elections and probable Greek default, an outcome that is too difficult to contemplate.  Approval is a necessary condition for the next EUR 12 billion tranche of IMF/EU/ECB aid for this beleaguered economy but would still leave many details to be worked out.

Stocks in Asia and Europe are higher.  Equities climbed 1.8% in Indonesia, 1.7% in South Korea, 1.4% in Thailand and The Philippines, 1.3% in Australia, Singapore and Pakistan, 1.2% in China and Hong Kong, and 1.1% in Japan.  In Europe, the Paris Cac, British Ftse and German Dax have so far recovered 0.8%, 0.6%, and 0.5%.

The yields on 10-year Japanese JGBs and British gilts firmed a basis point, while that on German bunds is steady.

Oil bounced 1.1% upward to $94.24 per barrel.  Gold edged 0.2% higher to $1545.00 per troy ounce.

The dollar declined overnight by 0.3% against the euro, Swissy, Canadian dollar and kiwi.  It lost 0.1% against the yen and yuan but is unchanged versus the Aussie dollar and sterling.

The major economic data releases so far today are a 1.5% rebound in Japan’s all-industry index and a big drop in the German and eurozone ZEW indices of investor confidence.

  • The 1.5% advance of Japan’s all-industry index in April followed a quake-inspired 6.4% drop in March and left this supply-side measure of all activity 2.5% below the 1Q11 average level and 4.1% weaker than its value in April 2010.  In the latest month, industrial production and services went up by 1.6% and 2.6%, while construction and public spending fell by 5.2% and 0.5%.
  • The German ZEW expectation index printed in June at negative 9.0 following readings of +3.1 in May, +7.6 in April, +14.1 in March and +15.7 in February.  The index was also well below its long-term average of 26.2.  The current situation component fell to 87.6 from 91.5 in May.  Euroland’s ZEW expectations index swung to minus 5.9 in June from +13.6 in May and +31.0 in March.  The possibility of a Greek default has been mostly responsible for this significant deterioration in the mood of investors.

Belgium consumer confidence weakened to minus 3 in June from +1 in May.  Germany’s index of coincident indicators was unchanged for a second consecutive month in April.  Greece posted an EUR 2.3 billion current account deficit in April.  Year-over-year Swiss M3 money growth slowed to 5.6% in May from 7.0% in April, and a new forecast from the KOF Institute predicts slower Swiss growth of around 1.9% next year after 2.8% in 2011 because of the strong Swiss franc and weaker Euroland demand. Irish producer prices increased 1.3% in May but were still 0.6% lower than a year earlier. Finland’s unemployment eased to 9.8% in May from 10.5% in April and May 2010.

British monthly public finance data were released showing net borrowing of GBP 15.756 billion in May compared to GBP 16.463 billion a year earlier and GBP 7.748 billion in April.  The public-sector net cash requirement amounted last month to GBP 10.812 billion, down from GBP 18.017 billion in May 2010.  Debt has risen from 53.8% of GDP in May 2010 to 60.6% of GDP as of last month.

Staying with Britain, the CBI monthly survey of U.K. industrial trends produced a much better-than-expected reading of +1 in June versus minus 2 in May and a forecast of minus 5.  This was the second best result of 2011, eclipsed by a reading of +5 in March.

Minutes from the Reserve Bank of Australia’s meeting on June 7 revealed that whereas officials anticipating a future need for further tightening because of a likely gradual rise of inflation and above-trend economic growth, there is no sense that a move has to be done just yet insofar as non-resource sector activity is “quite subdued.”  The central bank has implemented seven hikes of its Official Cash Rate already, each by 25 bps.  The OCR was last raised to 4.75% in November.

On-year Hong Kong GDP growth accelerated to 7.2% in the first quarter from 6.4% in the final quarter of 2010.  Hong Kong CPI inflation also picked up to 5.2% overall and 5.1% core in May from 4.6% and 4.4% in April.  Malaysia’s jobless rate held steady at 3.0% in April.  China’s central bank is tightening rules for offshore transactions in yuan to cut down on speculation. 

South Africa’s current account deficit increased to 3.1% of GDP in 1Q11 from 1.0% of GDP in 4Q10.  South Africa’s index of leading economic indicators fell 0.4% in April, but consumer confidence scored a slightly better-than-expected reading of +11 in 2Q11.

Scheduled U.S. data today include the usual weekly chain store sales figures plus monthly existing home sales.  Canada reports retail sales and the index of leading economic indicators.  Acting IMF Director Lipsky and Swiss National President Hildebrand speak publicly today.  The FOMC begins a two-day meeting that will in part prepare Chairman Bernanke for next month’s semi-annual congressional testimony.  Bernanke will give a key press conference starting at 18:15 GMT tomorrow.  The Fed’s policy decision will be reported Wednesday at 12:30 EDT (16:30 GMT).

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

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