pofme.com Euro Losses Relatively Tame
Considering Threat Level on Greece Has Jumped
Posted by POFME on April 23rd, 2010
• Dollar Rallies on Growing Greek Default
Concerns Despite Stubborn Risk Trends
• Euro Losses Relatively Tame Considering Threat
Level on Greece Has Jumped
• British Pound Drifts Through Lending and
Mortgage Figures, Can GDP Rouse Traders?
• Canadian Dollar Tripped up by Monetary Policy
Report, Looks to Heavy-Hitting Data
• Japanese Yen Receives Another Warning About its
Financial Health
Dollar Rallies on Growing Greek Default Concerns
Despite Stubborn Risk Trends
It was a crazed and unusual day for the financial
markets. Investor sentiment was delivered a shock by
startling developments in Greece’s painful descent
into default; but the reaction would not be as
straightforward as one would expect. Taking on its
own progression through the day, the action began
with news from the European Union’s statistical
group that Greece’s initial estimates for its own
debt load were low ball figures. Now at 13.6 percent
of GDP (with the possibility that it could
eventually top 14 percent), this floundering nation
is finding itself in an even deeper hole that it
will have to dig itself out from. Adding to this
burden, the revision to its deficit would draw a
downgrade from Moody’s, officially raising the
possibility that default and further boosting its
cost of financing. What does all of this mean for
the global financial markets and more specifically
the dollar? The risks to general stability across
the speculative markets have grown substantially
over the months all while positioning has pushed
further out onto a limb. What is needed to curb risk
appetite and ultimately lead to an unwinding of this
premium build up is a definitive catalyst. If Greece
were indeed to fall into arrears, the implications
would obviously be dire for the euro; but could also
catalyze a credit seizure and market-wide financial
crisis. In this scenario, the greenback will be
bolstered by its safe haven appeal. And, while some
would argue that the United States’ own debt load
could encourage an unfavorable slant though
sovereign debt risk; the inevitable flight to safety
will likely be so aggressive that the dollar will
attract funds from overextended emerging markets and
comparatively risky advance economies.
Moving from the dollar’s role as a harbor from
turmoil to its own fundamental appeal, we have
actually seen the case for yield-based strength
temper over the past week. In contrast to the rise
in its value as a safe haven, interest rate
forecasts have notably slumped. Fed Fund futures are
now only pricing in a better than 50 percent chance
of at least a quarter point hike until December.
More sensitive to the fluctuations in expectations,
market forecasts through overnight index swaps (from
Credit Suisse) are pricing in a mere 71 basis points
of hikes over the coming 12 months. This is
significantly below the near 100 basis points
forecasted just a few weeks ago; and more
importantly, it cuts the premium that the Fed held
over the ECB (56 bps) and BoE (56 bps)
significantly. Where is this doubt seeping in?
Ironically, the IMF’s upgrades to US GDP may
actually have something to do with it. While the
figures for 2010 and 2011 were upgraded, the notable
downshift in pace between the two years is becoming
harder to ignore. Like its peers, the world’s
largest economy is likely to cool as the
responsibility for growth is shifted from government
stimulus to actual business and consumer demand. The
greater detraction though comes from the inflation
argument. Without price pressures, the Fed could
keep rates low to promote growth and fiscal
stability through the foreseeable future. It is only
the side effect of rapid inflation that makes this
impossible to sustain. However, today’s
factory-level inflation data for the month of March
further reduced fears of such an event. While the
headline annualized pace of the Producer Price Index
was 6.0 percent (in line with expectations), the
core figure for the same period was a mere 0.9
percent. There isn’t much pressure in the pipeline.
The other notable fundamental release for the day
was the rise in existing home sales for last month.
The 6.8 percent jump in deals to a 5.35 million rate
of turnover for the year doesn’t fully offset the
sharp declines in December in January; but it does
point to much needed stability. Looking ahead to
tomorrow, we may see some temporary volatility
through durable goods and new home sales data.
Related: Discuss the US Dollar in the DailyFX
Forum, Dollar Enjoys Safe Haven Status, Loses
Interest Rate Potential
Euro Losses Relatively Tame Considering Threat
Level on Greece Has Jumped
How much more convincing do policy officials need
that Greece is on the path to default. News today
that the nation’s deficit-to-GDP ratio is 0.9
percentage points higher than originally reported
(at 13.6 percent) and could further rise an
additional 0.5 percentage points has further added
to a burden that had already seemed insurmountable.
Before this announcement there was doubt that the
country could rouse the necessary funds to fund its
debts while riding out a probable recession to meet
the necessary austerity cuts to meet the EU’s
conditions for accessing loans. The hole is now even
deeper and Moody’s has subsequently reduced Greece’s
Sovereign credit rating to A3. Fortunately the ECB
announced changes to its collateral rules that
prevented such a change from preventing the
country’s ability to access liquidity from the
central bank. This will only lengthen the long, hard
road to recovery; and the economic and social impact
this will have will not likely be tolerated.
Politicians are probably already going through the
logistics of a default; but when will the market?
British Pound Drifts Through Lending and Mortgage
Figures, Can GDP Rouse Traders?
Yet another round of heavy-hitting economic data
from the United Kingdom has crossed the wires with
only limited impact on the pound itself. Thursday
ushered in a larger than expected increase in
mortgage approvals through March (52,000) as well as
smaller than expected increases in public. However,
it is important to put these timely changes into
context. Housing is at risk of stalling in a
recovery born largely through a lack of supply. More
importantly, public debt has soared over time and
led sovereign debt risk to dangerous levels. The
regular fundamental docket requires a real shock to
overcome the stabilizing effect of the upcoming
general election. Perhaps the advanced 1Q GDP data
can step up…
Canadian Dollar Tripped up by Monetary Policy
Report, Looks to Heavy-Hitting Data
Yesterday, the IMF upgraded its growth outlook for
Canada from 2.6 to 3.1 percent. Today, the Bank of
Canada set its own prediction for 1Q growth to an
impressive 5.8 percent clip. Everything seems to be
going the loonie’s way. However, there is reason for
doubt. Despite the leading rate of recovery,
Canada’s recovery is also destined to cool according
to the central bank as stimulus gives way to
consumer spending.
Japanese Yen Receives Another Warning About its
Financial Health
It is difficult to see the Japanese yen for its own
merits. The low interest rate and active sentiment
changes have pegged the single currency as a carry
currency in heavy risk-based winds. However, Japan
is the world’s second largest economy and a vast
source of capital. The stability of this wealth is
at risk according to Fitch. The rating agency set
its debt-to-GDP forecast a 2.1 percent and warned of
a future downgrade.
ليست هناك تعليقات:
إرسال تعليق