Possible Game-Changer in the Greek Debt Crisis

July 10, 2015

The latest Greek proposal of reforms for financial support contains a broad range of concessions that go beyond what Greek voters overwhelmingly rejected by referendum.  It includes such areas that were taboo until now such as higher VAT on restaurants, pension reform, labor market reform, and a corporate tax hike.  In return, Greece would get a 3-year bail-out and be able to stay in the European Economic and Monetary Union.  The plan must be approved by the Greek parliament, the German parliament, eurozone finance ministers, and the EU Council.  Time is very short, but markets are seizing on this unexpected development in a wave of risk-on bets.

The dollar fell overnight by 1.5% against the Swiss franc, 1.4% relative to the euro, and 1.0% vis-a-vis sterling.  The U.S. currency advanced 1.0% against the yen, which had served as another safe haven alternative to hedge against Grexit and a Greek default.  The dollar has slipped 0.4%, 0.2% and 0.1% against the Aussie, New Zealand, and Canadian dollars.  The yuan is steady.

Share prices have soared 2.9% in Spain, 2.7% in Italy, 3.0% in France, 2.2% in Germany and 1.3% in Britain and Switzerland.  In the Pacific Rim, the Nikkei closed down 0.4% and further below 20,000, but share prices jumped another 5% or so in China and by 3.2% in Hong Kong.

Movements in 10-year sovereign debt yields have been very diverse, rising nine basis points (bps) in the U.K., 8 bps in Germany, 13 bps in Australia, 3 bps in France and Japan and by 4 bps on Treasury futures but plunging 25 bps in Portugal, 17 bps in Spain and 16 bps in Italy.

WTI oil and Comex gold firmed 0.4% and 0.3% to $53.20 per barrel and $1,162.79 per ounce, respectively.

Japanese consumer confidence rose 0.3 points to 41.7 in June, a 4-month high and 3.3 points above last November’s low.  Japanese domestic corporate goods prices dipped 0.2% on month and fell 2.4% on year in June.  Such had risen 4.4% in the prior 12 months to June 2014.  Over the latest statement year to mid-2015, import prices and export prices respectively tumbled 17.6% and 4.2%.

Loans for homes in Australia were 6.1% lower in May than a year earlier; the drop was twice as steep as expected and followed a 0.7% rise in April.

Malaysian industrial production growth accelerated in May with gains of 1.5% against April and 4.5% from a year earlier.

Turkey’s current account deficit widened half a billion dollars to $3.99 billion in May.

French industrial production increased 0.4% in May, the best result in three months, after a 0.8% drop in April.  Output recorded a 12-month 2.8% increase.

Greek industrial output declined 1.7% on month and 4.0% on year in May. 

Italian industrial production increased 0.9% on month and 2.6% on year in May.

In Finland, where austerity was dutifully undertaken to comply with eurozone rules, industrial output fell 0.7% in May and 5.1% on year in May.

The British total goods and services trade deficit in May of GBP 393 million was more than 78% smaller than April’s GPB 1.834 billion gap and even further down from March’s GBP 3.15 billion deficit.  Indeed, it was the tiniest deficit since June 2013.  The merchandise trade deficit of GBP 8.0 billion was down from GBP 9.387 billion in April and GBP 10.705 billion in March.  Exports dipped 0.1% on month, while imports fell by 4.1%.

British construction output fell 1.3% in May, its fourth month-on-month decline in the first five months of 2015.  Construction was just 1.3% above the year-earlier level, down from a 4.6% on-year increase in January.

Finland’s current account swung from a EUR 849 million deficit in April to a EUR 338 million surplus in May.  France posted a EUR 0.3 billion current account surplus in May.  The Portuguese and Cypriot trade deficits in May totaled EUR 1.08 billion and EUR 250 million.  Romania had a EUR 55 million trade deficit.

Among released price data today, German wholesale prices edged down 0.2% in June and 0.5% on year.  Mineral fuels in the month plunged 2.0% from May and 10.5% from mid-2014.  Danish consumer prices were flat on month and 0.7% higher on year in June.  Norwegian consumer prices climbed 0.3% on month and 2.6% on year last month.  Norway’s PPI rose 0.3% but was 4.9% lower than a year before in June.  Portugal’s CPI slid 0.1% from May and was 0.8% higher than in June 2014.  Romanian consumer prices recorded a monthly rise of 0.5% and an on-year advance of 1.2% in May, most since last November.

Fed Chair Yellen and Boston Fed President Rosengren speak publicly today.  Canadian monthly labor statistics arrive, and so do Indian and Swedish industrial production and U.S. wholesale turnover.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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