Letting Greece Default Next Month Now Seen as Acceptable Gamble by Many

February 16, 2012

The once unthinkable possibility of a Greek default is now being discussed openly and is preferred by many inside and outside of Greece.  The passage of time is largely responsible for this transformation.  Contagion to other euro area members is considered less likely because of greater resources to resist such and the view that Greece’s circumstances are truly unique.  Street violence in Athens underlines the otherness of the Greek case, making that culture more akin to the middle east than to sophisticated Europe.  Pro-default sentiment has hardened in The Netherlands and Finland, whose governments want to delay any final decision on additional aid until after Greek elections in April, that is beyond the March 20th drop dead deadline.  In any case, there will not be a vote by the euro group earlier than Monday.  Tensions between Germany and Greece also continue to intensify.

Risk off trading is also being fueled today by the decision of the Moody’s credit rating agency to put 114 European financial institutions on watch for a possible downgrade.  Moody’s also is considering three-notch downgrades for UBS and Morgan Stanley and two-notch downgrades for a slew of other money center banks and brokers.

The dollar rose overnight by 1.0% against the kiwi, 0.6% versus the euro (which busted through $1.3000 to a $1.29 handle), 0.5% relative to the yen and Swissie, 0.4% against the loonie, 0.3% versus the Aussie dollar, and 0.1% against sterling and the yuan (which again is softer than 6.30).

Share prices fell by 1.7% in Australia and Taiwan, 1.4% in South Korea, 1.1% in Singapore, 0.7% in Malaysia, 0.5% in China, and 0.6% in Indonesia and Thailand.  Japan’s Nikkei lost a relatively small 0.2%, but stocks in Germany, Britain and France are down by 0.8%, 0.6%, and 0.4%.

Ten-year sovereign debt yields have dropped three basis points in Germany, two bps in Japan, a single bp in Britain, and Treasury futures show a possible 4-point decline at the U.S. open.

Oil and gold prices are 0.5% lower at $101.29 per barrel and $1720.10 per troy ounce.

Because of euro debt concerns, the Swedish Riksbank shaved its repo rate to 1.5% from 1.75%.  This was a second ease following a 25-bp central bank rate cut announced on December 20.  Officials revised down forecasts for economic growth and inflation as well as the likely future interest rate path.

Japanese stock and bond transactions generated a JPY 1.114 trillion inflow last week on top of a JPY 1.258 trillion inflow in the week of February 4.

Foreign direct investment in China was 0.3% smaller last month than a year earlier.  The level of FDI declined for a third straight month.  China continues to be a difficult place to conduct business for outsiders, and both inside and outside China is slowing.

Australian labor statistics for January were surprisingly strong.  The jobless rate fell to 5.1% from 5.2%, defying expectations of a further increase.  Jobs went up by 46.3K, most in a half year, as the number of part-time and full-time workers climbed by 34.0K and 12.3K.  Analysts anticipated a rebound of only 10K in total employment.  A Deputy Governor of the Reserve Bank of Australia gave an upbeat speech depicting trend growth and in-target inflation in the future.  A gauge of expected inflation over the coming year dipped to 2.5% in February from 2.8% predicted in January. 

New Zealand job ads fell 2.7% last month on top of a 2.6% drop in December.  New Zealand’s business purchasing managers index weakened to a score of 50.5 last month from 51.9 at end-2011, and consumer confidence declined 2.8 points in February to a reading of 113.3.

Singapore’s fourth-quarter GDP contraction was revised to a smaller 2.5% decline from 3Q and an on-year advance of 3.6%.  Real GDP rose 4.9% in 2011, a third as much as the torrid 14.8% leap in 2010.  South Korean department store sales were 4.1% weaker last month than in January 2011. 

Revised Spanish GDP showed a drop of 0.3% from 3Q, the first quarterly decline in two years, and a tinier on-year uptick of 0.3%, least since 2Q10.  Mainland

GDP in Norway rose 0.6% last quarter and 2.6% in 2011.  Overall GDP growth slowed to a quarterly 0.5% advance from 1.1% in 3Q.

British consumer confidence according to the Nationwide measure improved nine points to a five-month high of 47 in January but remained lower than the 55 reading last March.

Portuguese unemployment jumped to 14.0% last quarter from 12.4% in 3Q.  After Greece, Portugal where GDP has dropped in each of the past five quarter is considered most vulnerable in the euro debt wars.  Czech CPI inflation increased to 3.5% in January from 2.4% in December.

Italy’s current account swung to a EUR 0.4 billion surplus in December from a EUR 3.5 billion deficit in November.  Merchandise exports were 5.7% greater than a year earlier, while imports declined by 8.4%.

South African wholesale turnover rose 0.4% in December and 6.1% from a year before.  Turkish consumer confidence ticked higher to 92.2 in January from 92.0 in December and 91.0 in November.

Several North American data releases are scheduled today: U.S. housing starts, building permits, producer prices, the Philly Fed manufacturing index, and weekly jobless insurance claims; Canadian manufacturing shipments, orders and inventories as well as security transactions with non-residents; and Mexican GDP.  U.S. Treasury Secretary Geithner testifies on the proposed Obama budget, and Fed Chairman Bernanke will be speaking at an FDIC conference on community banking.

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

Tags: , , ,


Comments are closed.