Anxiety Attack over Greek Debt Slams Equities

September 19, 2011

Weekend developments from Europe were worrisome.

  • More street protests in Athens.
  • Euro leaders still haggling over terms of their July 21 aid agreement to Greece.
  • Greek PM Papandreou cancels planned trip to United States and U.N.
  • Teleconference scheduled today for EU troika and Greek finance minister.
  • Next tranche of Greek aid from IMF and EU contingent on Greek implementation of new austerity.
  • Greek Finance Minister Venizelos projects deeper decline in GDP than assumed earlier and says the 2012 priority is more spending cuts.
  • In Berlin State election, the Free Democrats (FDP), who’ve been urging kicking Greece out of the Euro Group, took just 1.8% of the vote.  The FDP is the junior partner in the national coalition, so this outcome is a major rebuke to Chancellor Merkel’s handling of the Greek debt crisis.  The CDU itself took just 23.4% of the vote, and the Social Democrats will continue to be the senior partner in Berlin government’s state coalition.

Stocks in Europe have declined so far by 3.2% in Germany, 2.9% ion France, and 2.1% in Britain.  Earlier in the Pacific Rim, share prices lost 2.8% in Hong Kong, 2.1% in Indonesia, 2.0% in China, 1.1% in Singapore and India, 1.3% in Taiwan, 1.2% in Malaysia, 1.0% in South Korea and 1.6% in Australia.

The dollar is mostly higher, with gains of 1.2% against the Australian dollar, 1.0% versus the euro, 0.8% relative to the Swiss franc, 0.7% against the kiwi, 0.4% against sterling, and 0.3% versus the Canadian dollar.  The yuan is unchanged.

Japanese markets were closed for Respect for the Aged Day.  Japan also has a holiday on Friday to celebrate the equinox. 

The yen has traded narrowly and firmly between 77.00 per dollar and 76.68.

Switzerland’s franc/euro peg continues to hold.  Such traded overnight between 1.2052 and 1.2082.

On today’s revival of deep risk aversion, ten-year German bund and British gilt yields are seven basis points softer, and a drop in Treasury yields is indicated in the futures.  The Greek 10-year yield rose to 22.45%.  Oil prices fell by 1.3% to $86.78 per barrel, and gold firmed 0.3% to $1819.30 per ounce.

U.S. President Obama, whose ratings continue to slide, will reportedly propose deep deficit cuts today to fund his recommended jobs bill.

Construction orders in the euro area recovered 1.4% in July after dropping 1.3% in June.  Such were 0.5% greater than the 2Q average level and 1.2% above their year-earlier level.  While German construction orders advanced 3.2% in the latest reported month, they fell by 2.8% in Portugal, 0.7% in The Netherlands, and 0.1% in France.

The Dutch current account surplus in 2Q of EUR 13.2 billion was 5.9% smaller than in 1Q.  Producer prices in Finland slid 0.1% last month but were 5.5% higher than in August 2010. Greece’s current account deficit narrowed over 40% to EUR 902 million in July.

Britain’s Rightmove house price index increased 0.7% on month, a four-month high, and 1.5% on year in September.

New Zealand consumer confidence held steady in 3Q.  New Zealand’s services index edged down 0.6 points to 53.9 in August, a three-month low.

A 6.9 earthquake in Northern India and Nepal has killed at least 36 people.

No U.S. economic data releases are scheduled today.  Gonzalez-Paramo of the ECB Executive Board’s six members speaks publicly today.

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

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