Second Greek Bailout Agreed and Met with Market Skepticism

February 21, 2012

EU finance ministers in Brussels reached agreement on a Greek bailout in the wee early hours of Tuesday.  EUR/USD initially advanced to $1.3294 but settled back to $1.3222 currently, a net overnight loss of 0.2% for the common currency.  The dollar also has climbed 0.9% against the Australian dollar, 0.6% versus the kiwi, 0.3% relative to the loonie and sterling, and 0.1% against the yen and Swiss franc.  The yuan is unchanged.

Investor doubts that the Greek deal will do any more than stave off a very near-term default are also reflected in declines of 0.7% in the German Dax and Paris Cac.  The Nikkei fell 0.2%, and the British Ftse is 0.3% softer.  Stocks earlier had risen 0.9% in China, 0.8% in Australian and India, 0.7% in New Zealand, 0.6% in Indonesia, and 0.4% in Thailand.

The yields on 10-year German bunds and Japanese JGBs edged a basis point higher. 

Oil and gold prices are up 1.2.% and 0.7% at $104.51 per barrel and $1738.70 per ounce.

The Greek deal must secure the approval of the individual member legislatures.  Another source of gloom is Greece’s own track record of not delivering promised asset sales, spending cuts, and lower debt/GDP targets amid ongoing street violence in the country.  The deal

  • is supposed to cut debt to 120.5% of GDP by 2020.
  • sets up a Greek bond exchange with private holders to begin on March 8 with a haircut of 53.5%.
  • provides EUR 130 billion of fresh aid to Greece.
  • exempts the ECB from the debt exchange but stipulates that the ECB does not get to keep profits on its Greek debt.
  • asks national central banks to earmark 1.8% of GDP to the plan.
  • provides for a permanent on-location presence of monitors to ensure that promised Greek budget cuts are being done.
  • establishes an escrow account to house outside aid to Greece, so that it isn’t misspent.
  • did not immediately indicate the IMF’s share of the package.

Released minutes from the Reserve Bank of Australia’s February 7 meeting revealed no urgency to augment the two rate cuts in late 2011, calls the European debt situation still fragile, and indicates scope for further monetary policy easing in the future "if demand conditions [in Australia] were to weaken materially."

New Zealand’s index of 3-year expected inflation slowed to a 10-quarter low of 2.5% in 4Q11 from a reading of 2.8% in the third quarter.

Japan’s all-industry index, a supply-side monthly gauge of all activities in the economy, rebounded 1.3% in December after a 1.0% tumble in November.  The index in December was unchanged from the fourth-quarter average and down 0.5% from December 2010.  It posted a 0.8% drop in 2011 as a whole, reflecting the drag exerted by the Sendai earthquake last March.  In December, industrial production and the tertiary services index went up by 3.8% and 1.4%, while construction and public spending fell 1.9% and 0.4%.

Hong Kong’s jobless rate ticked down to 3.2% last month from 3.3% in December.  Malaysian unemployment held steady at 3.1% in December.  Wholesale turnover in Singapore, like other indicators, was slammed by heavy flooding.  Such fell 4.0% last quarter and by 5.3% from the final quarter of 2010. 

The Swiss trade surplus narrowed much more sharply than forecast in January, printing at CHF 1.553 billion after December’s CHF surplus of CHF 2.01 billion.  Swiss M3 money growth accelerated to 8.2% in the year to January from a 12-month increase of 7.4% in December. 

British fiscal accounts for January were reported.  Public-sector net repayments of GBP 10.7 billion compared to GBP 8.0 billion a year earlier and net borrowing in December of GBP 11.1 billion.  The Public-sector net cash requirement of minus GBP 16.9 billion was 29.4% smaller than a year earlier, but net debt had increased to 63.0% of GDP from 58.3% in January 2011.

Dutch consumer confidence strengthened a single point to minus 36 in February, while the Danish consumer sentiment index rose 2.2 points to minus 4.8.  Finnish unemployment increased from 7.4% in December to 7.8% in January but was less than the 8.2% level a year earlier.

South Africa’s index of leading economic indicators slid 0.4% in December.  However, the coincident indicators index went up 1.1%.

The key Turkish interest rate was left unchanged as expected at 5.75%.

U.S. markets will reopen after yesterday’s President’s Day closure.  There are no U.S. data releases scheduled, however.  Canadian retail sales and wholesale sales will be reported today.  Consumer confidence in the euro area is another scheduled release.

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

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