Greek Debt Back In The Headlines

Greek Debt Back In The Headlines

Will the Euro remain in its present form come 2012? Greece appears to be scuppering the chances of this and all the news since Friday related to its financial situation has been negative. This has run alongside negative ratings action from Fitch and S&P plus the large scale protest vote at the Spanish elections.

Friday afternoon’s markets became fearful over the repercussions of a heavy defeat for the ruling Socialist party in Spanish elections on Sunday. The fear is that the newly elected representatives will reveal a much worse set of budget situations than had been originally thought, putting the Governments austerity plans into jeopardy. This morning, Fitch has downgraded the Greek sovereign rating by 3-notches from BB+ to B+ and retained its negative watch. Fitch cited a greater risk that the EU/IMF funding will be delayed and added that they would regard any debt rescheduling as been a default event. This news emerges with 2 negative news articles this morning. The first, according to the Greek press, being that the IMF had suspended its quarterly review of the country’s fiscal consolidation programme until a time when further austerity measures have been drawn up. The second article, which comes from Switzerland claims that without the next lot of funding from the IMF/EU by the end of June, Greece would be insolvent by 18th July. Adding to the Eurozone financial uncertainty is Standard & Poor’s decision to downgrade Italy‘s long-term rating outlook to negative from stable pointing to weak growth prospects. With little Eurozone data released for today, the Euro has slipped back below 1.40 against the Dollar.

Sterling had a positive start after comments from the BoE/MPC voting member, Spencer Dale helped the currency. In an interview with the FT, he made it clear that his hawkish stance had not been compromised despite the minutes indicating that his decision to vote for higher rates at May’s meeting had been finely balanced. One can only assume that his views have been hardened by the release of April’s much stronger CPI data – a set of numbers not seen by the committee prior to May’s policy meeting outcome.

Today is going to be all equity and debt market related with global markets all sharply lower on opening while Eurozone bond yields soar. We have seen the yield on German 10-year bunds test the 3% level whilst the returns on peripheral Eurozone equivalent bonds rose sharply. The Euro itself is sharply weaker all round and it will be a long week for the single currency.

Report by Tim Lewis