Daily market commentary

19, Mar 2010

Greece issues continues to weigh on the euro

Someone may have been doing some rough calculations as to how much German taxpayers will end up in hock for if an EU rescue package for Greece is forthcoming….. and the politicians didn’t like the outcome. This provoked comment from Chancellor Merkel that mirrored those of her Finance Minister earlier in the week which in effect dismissed chances of a monetary rescue package from within the Community, instead directing the Greeks to the IMF. The Greek prime Minister took up the challenge, complaining about the delay in any progress and apparently resolved to the fact that Eurozone cash was not on the table. He told the European Parliament that his country was running out of patience and that in fact Greece was already subject to a ‘full IMF austerity regime’ but without benefiting from any of the IMF related advantages i.e. reduced cost of funding. He said that savings that they were achieving through the strict cost cutting measures, rather than going to reduce their budget deficit, were finding their way into the pockets of bond-holders through spiralling interest rate costs. As if to back up his argument, Greek 10-year bond yields yesterday spiked again, up by 17 basis points to 6.26% - this as opposed to the 3.15% yield currently seen in the German equivalent. On the back of the wrangling, the Euro dropped by a couple of cents against the Dollar. Personally, it looks as though the Euro still has further to go with the attempts to project unity amongst the Euro zone members dissipating by the day. Next week’s EU summit meeting is assuming evermore importance given that the immediate future for the Euro itself could depend upon what emerges - expect markets to be very dubious heading into the Thursday start.

Yesterday, Sterling had a good day, making gains across the board. As before, the reasons touted for this move appear tenuous at best and as before, Sterling making headway against the Euro was greeted by a member of the BoE/MPC putting a cautious bent on the UK’s economic revival and short term prospects. It was Andrew Sentence’s turn yesterday and he, like Kate Barker, commented on the prospects of a ‘double-dip recession’ in the UK and also mentioned that the depreciation of the Pound has been ‘significant’. This is becoming a regular occurrence and whilst it is possible that every time is just a co-incidence, I feel that we are becoming aware of where the BoE would like to see Sterling until an export-led recovery at least begins to take shape. Today, further talk of Exxon of the States sniffing around the UK based BG Group could underpin Sterling against the Dollar but with the lack of any data other than Canadian CPI, the day looks likely to be finished before it even begins.

Global equities had mixed fortunes on Thursday with, as expected, European stocks closing mostly down as the ongoing Greece debt crisis weighed on sentiment once again. In the US however, the Dow saw its eighth straight day of gains closing at its 17-month high with blue-chip stocks in the US boosted by some robust corporate results and benign inflation figures. Slipping commodity prices however, saw energy stocks drag the S&P 500 down 0.03%. Asian stocks this morning took their lead from the Dow rather than the S&P and European indices are expected to follow suit. Without further spats within Europe, activity in stock markets is the only hope for moves in currencies today.

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