Concerns Mount as Greek PSI Deal Remains Elusive

January 24, 2012

The German Dax, Paris Cac and British Ftse have fallen 1.5%, 1.3%, and 0.9%.  Many bourses in Asia remained shut for the Lunar New Year.  Stocks fell 2.2% in Sri Lanka and 0.8% in New Zealand but rose 1.5% in India and 0.2% in Japan.

The euro faltered after touching $1.3065, its strongest level since January 4.  On balance, the dollar shows overnight gains of 0.6% against the Australian dollar, 0.4% versus the loonie and yen, 0.2% relative to the euro, and 0.1% against the Swiss franc and kiwi.  Sterling and the yuan are steady.

Gold and oil prices slipped 0.7% and 0.4% to $1667.20 per ounce and $99.14 per barrel.

There has been scant movement overnight in 10-year sovereign debt yields.

ECOFIN deliberated in Brussels over Greece for a second straight day.  EU finance ministers turned down the latest PSI (public sector involvement) offer from holders of Greek debt.  A voluntary PSI deal is needed to avoid a Greek default in March.

The Bank of Japan Policy Board left its monetary settings unchanged following a five hour 40 minute meeting over two days.  The overnight money target range was left at 0.0% to 0.1%, and no comment was made about the asset purchase plan.  Officials expect activity in Japan to remain more or less flat for the time being and for core inflation to hover around zero.  New forecasts downgraded projected GDP growth in FY11 and fiscal 2012.  BOJ Governor Shirakawa highlighted the risks of an elevated yen in his subsequent press conference, which fanned precautionary yen selling against the possibility of intervention.

The Bank of Japan balance sheet receded to JPY 132.8 trillion on January 20 from JPY 139.3 trillion on January 10 and JPY 143.0 trillion at the end of 2011.

Japan’s Cabinet Office indicated that a sizable fiscal deficit will persist late into this decade even if the sales tax is increased to 10%.  Despite debt of more than 200% of GDP, the 10-year JGB yield is only 1.01%.

The Reserve Bank of India cut its cash reserve requirement to 5.5% from 6.0% to soften liquidity conditions but did not cut key interest rates because of inflation concerns.

Australia’s indices of leading and coincident economic indicators respectively fell 0.3% and rose 0.2% in November.

Flash euro area purchasing manager survey results for January were better than forecast, but weakness in orders underscored the fragility of the regional economy.

  • The composite euro zone-wide PMI topped 50.0 for the first time since August, rising 2.1 points to 50.4 in January.  The services PMI rose 1.7 points to 50.5, while the manufacturing PMI also advanced more than predicted, climbing to 48.7 from 46.9 in December.  Factory production posted a 50.0 reading, up from 47.1 in December and 45.7 in November.
  • Germany showed the most improvement.  The German composite PMI printed at a 7-month high of 54.0 after 51.3 in December and 49.4 in November.  Services (54.5) had the best score since June, while manufacturing (50.9) was above 50 (connoting expanding activity) for the forst time since September.
  • The preliminary French composite PMI was at a 5-month high of 50.9, up from 50.0 in December, 47.0 in November and 46.5 in October.  The scores in manufacturing and services were 48.5 and 51.7 in January.  Factory output contracted at the slowest pace in six months.

Euro area industrial orders fell 1.3% in November, which was a smaller drop than feared.  Core orders declined for a third straight month.  Orders in November were 2.7% weaker than a year before, and October-November orders were 4.0% less than their 3Q average level.

Germany’s leading and coincident indices of economic indicators both fell by 0.2% in November.

Britain recorded larger fiscal deficits in December than expected.  Public sector net borrowing totaled GBP 10.79 billion, while the public sector net cash requirement reached GBP 22.89 billion last month.  Debt totaled 64.2% of GDP at the end of 2011.

In the Czech Republic, both business sentiment (89.4 after 87.7) and consumer confidence (76.4 after 71.8) improved in January.

Finland’s 7.4% jobless rate in December surpassed expectations but was lower than 7.9% a year earlier.

South Africa’s index of leading economic indicators improved 0.6% in November after a 0.2% rise in October.

In last night’s Florida primary debate from Tampa, Romney and Gingrich had contentious exchanges.  President Obama will deliver his third annual State of the Union address tonight with a focus upon economic matters.

Central banks in Turkey and Hungary will announce interest rate decisions today.

Canadian retail sales and the Richmond Fed manufacturing index get released today.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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