Analysis: Lenders seen swallowing Greece's 80 bln euro demand
Ben Harding
ATHENS |
ATHENS (Reuters) - Greece needs 10 times more aid in January than the 8 billion euros it is scrambling to secure by next month. International lenders are likely to grit their teeth and pay both bills to prevent a messy default that could take down Italy as well.Greece says lenders will need to frontload their proposed 130 billion euro bailout for Athens with an initial 80 billion euros because of the vast sums needed to cut private sector debt without destroying Greek banks in the process.
European leaders say Greece has consistently failed to sell state assets, chase tax evaders and slash the public sector as promised, prompting the exasperated leaders of France and Germany to openly suggest last month Athens might quit the euro.
"While they may well want to threaten Greece, when push comes to shove, euro zone governments may opt to put off disorderly default ... and the Greek government is aware of that," said Ben May at Capital Economics.
Finance Minister Evangelos Venizelos is frank about Greece's urgent need for a big slice of the second bailout -- even before its lenders from the European Union, International Monetary Fund and European Central Bank have signed off on the release of the prior loan, needed by mid-December.
"The next loan tranche ... is not like the sixth tranche of 8 billion euros but more than 80 billion euros in total," he told parliament on Tuesday, adding Greece would need it by early February at the latest.
GREECE HOLDS THE CARDS
New prime minister Lucas Papademos, a respected former European Central Bank vice-president, has made the bailout, agreed in Brussels last month, his coalition's top priority.
But while euro zone lenders appear to have the whip hand as the clock runs down, the trauma of a Greek default would still be too painful for the rest of the common currency area.
Though Greece, with 360 billion euros of debt, is a far smaller systemic risk than Italy, any withholding of financial aid would shatter an assumption that the euro zone will support any member in trouble.
Italian bond yields have burst through the psychologically key 7 percent barrier as political turmoil has stoked fears it lacks the means or will to fund its 1.8 trillion euro debt pile.
"Maybe the effect of Greece leaving the euro zone is priced in ... but the likelihood that Italy would then default has increased, so it becomes even more expensive to save Italy," said Christian Schulz, Senior Economist at Berenberg Bank in London.
Diego Iscaro, at IHS Global Insight in London, said he expected Paris and Berlin to grumble but ultimately to agree to the large tranche since Europe's EFSF bailout fund lacks the firepower to save Italy, making a Greek firewall more important.
"I think Athens' position is stronger than many on the outside realize."
THE 80 BILLION EURO QUESTION
One risk is that Greece's feuding parties use Papademos to secure the massive first installment of a new bailout program, then once his three-month mandate expires, revert to politics as usual. Since they will have had most of the money in one dollop, some may feel the remainder is not worth all the political pain.
Still, Athens can ill afford to slacken the pace of austerity as it will see little of the 80 billion euros before it flies out the door again.
Thirty billion will go to recapitalize Greek banks in order to absorb losses on a key pillar of the deal -- an agreement between banks, the EU and Greece to halve Athens' 200 billion euro debt to private sector bondholders.
To secure this private sector involvement (PSI), a further 30 billion euros will go to bondholders to sweeten the haircut, with one suggestion that they receive 30 percent of the discounted bonds in cash.
Greece said earlier on Thursday it had begun negotiations with banks to thrash out the swap of existing bonds for longer maturing, discounted paper.
Charles Dallara, head of the Institute of International Finance (IIF), which represents the banks, said before meeting Papademos in Athens on Wednesday that there was limited flexibility on the plan's terms to ensure it remained voluntary.
Adding urgency to the PSI negotiations is a tentative target for fresh parliamentary elections on February 19.
Only 20 billion euros of the 80 billion estimated by Venizelos will flow into state coffers and what it will be used for is unclear, reflecting the embryonic state of the PSI talks.
Five billion euros will go toward clearing debts to suppliers who have kept the country running, leaving the remaining 15 billion euros to pay for bond redemptions.
That war chest could be swallowed whole by a 14.5 billion euro bond which matures on March 20, according to Reuters data.
Creditors on the three-year issue are unlikely to accept any significant haircut or extension of its maturity this close to redemption, analysts said, particularly since the hit to net present value would be all the greater.
Neither Greece's finance ministry nor the country's debt agency would comment on what debt it would target with the 'spare' 15 billion euros.
In all, Greece has still to repay 8.7 billion euros up to the end of this year and 22.4 billion euros from January to end-March, Reuters data shows.
Athens estimates the PSI deal will save it 4.5 billion euros a year in interest repayments, but analysts say even that will not prevent a further default down the line, since Greek debt would still be at an "unsustainable" 120 percent of GDP by 2020.
"We would not be surprised to see further debt restructurings down the line," says Capital Economics' May.
"Greece could continue to play ball if it feels that the costs of defaulting are greater than the benefits, but in our view, at some point, Greece will feel it needs to restructure its debt again because it's simply too costly."
____________________
My Thots...
The greatest uncertainty in Greece is that of political risks.
Lucas Papademos will deliver but can he stay after Feb?
Will Antonis Samara honour the agreements that Greece under Papademos made with the Troika, should he be elected?
Showing posts with label Macro news. Show all posts
Showing posts with label Macro news. Show all posts
Thursday, November 17, 2011
Mario Monti
Italy's PM unveils anti-crisis plan
Posted: 17 November 2011 2230 hrs
ROME: New Italian Prime Minister Mario Monti said on Thursday that the future of the euro also depended on Italy, during his first speech in parliament in which he unveiled a plan to tackle the crisis.
"The future of the euro also depends on what Italy will do in the next few weeks," he said, adding that his new technocratic cabinet would implement "austerity measures" which would be balanced by "growth and equity".
The former European commissioner said Europe was living through "the most difficult years since the second world war" and warned that the European project "could not survive the collapse of the monetary union".
He said Italy must stop being considered Europe's "weak link", otherwise "we risk becoming partner to a model we have not helped build", and which could instead be built by countries "who do not want a strong Italy".
However, he added: "We don't consider the European obligations to have been imposed by external forces. It's not a case of them on one side and us on the other. We are Europe."
"We need measures to make the economy less fossilised, help new industries to grow, improve public services and favour youth and female employment."
Monti, whose economic programme had been hotly awaited by global leaders, said he intends to overhaul the labour market and pensions system, which has "unjustified privileges for certain sectors".
Both are measures the European Union has called for and their inclusion in the announced reforms is expected to reassure markets.
Monti also said he hoped to reduce labour tax and look into re-weighting estate tax, adding that the absence of property tax on main households since it was abolished under the former Silvio Berlusconi government was an Italian "anomaly".
"If we fail, if we don't carry out the necessary reforms, we will also be subjected to much harsher conditions," he warned.
The premier, who took over from the ousted billionaire Berlusconi on Wednesday, said the "absence of growth cancelled out sacrifices" and promised to respect Italy's timetable to balance its budget by 2013 and reduce its debt.
Monti's speech was well received, and the Senate speaker had to intervene and call on members of parliament to listen rather than applaud wildly.
- AFP/al
"The future of the euro also depends on what Italy will do in the next few weeks," he said, adding that his new technocratic cabinet would implement "austerity measures" which would be balanced by "growth and equity".
The former European commissioner said Europe was living through "the most difficult years since the second world war" and warned that the European project "could not survive the collapse of the monetary union".
He said Italy must stop being considered Europe's "weak link", otherwise "we risk becoming partner to a model we have not helped build", and which could instead be built by countries "who do not want a strong Italy".
However, he added: "We don't consider the European obligations to have been imposed by external forces. It's not a case of them on one side and us on the other. We are Europe."
"We need measures to make the economy less fossilised, help new industries to grow, improve public services and favour youth and female employment."
Monti, whose economic programme had been hotly awaited by global leaders, said he intends to overhaul the labour market and pensions system, which has "unjustified privileges for certain sectors".
Both are measures the European Union has called for and their inclusion in the announced reforms is expected to reassure markets.
Monti also said he hoped to reduce labour tax and look into re-weighting estate tax, adding that the absence of property tax on main households since it was abolished under the former Silvio Berlusconi government was an Italian "anomaly".
"If we fail, if we don't carry out the necessary reforms, we will also be subjected to much harsher conditions," he warned.
The premier, who took over from the ousted billionaire Berlusconi on Wednesday, said the "absence of growth cancelled out sacrifices" and promised to respect Italy's timetable to balance its budget by 2013 and reduce its debt.
Monti's speech was well received, and the Senate speaker had to intervene and call on members of parliament to listen rather than applaud wildly.
- AFP/al
_____________
My Thots....
Not yet the full Monty.
So far so good, for Italy under Monti.
Iron Ore Swaps
Published November 17, 2011 | |
BOC unit plans iron ore swaps business (SHANGHAI) A unit of the Bank of China (BOC), one of the country's top four banks, is planning to kick off an iron ore swaps business next year in a bid to tap growing demand for hedging from steel mills and traders, two sources familiar with the matter said. |
The entry of a major bank from the world's top iron ore buyer could bolster liquidity of the nascent swaps market, and signal a further warming to derivatives in China's state- dominated steel sector as prices of the main raw material become more volatile.
BOC International (BOCI), the investment banking arm of the state-owned bank, aims to provide brokerage services, proprietary trading of iron ore swaps as well as physical trading.
'The bank plans to start an iron ore swaps business in the first half of next year, with the aim of providing hedging services for domestic players first,' said one of the sources. 'It also plans to apply for clearing membership in the Singapore Exchange (SGX) next year.'
BOCI was approved as a clearing member of CME Group in March. The CME and SGX both offer clearing of iron ore swaps, with the bulk of globally traded volumes cleared on the SGX.
The source said that BOCI has also applied for category two membership on the London Metal Exchange (LME), which would give it access to all types of LME business except ring trading.
A spokeswoman for BOCI said that she could not immediately comment.
Demand for iron ore derivatives has swelled in recent years given a shift away from annual contracts for the commodity, with a growing number of investment banks and traders venturing into the sector.
The move by BOC is the latest sign that Beijing is moving onto the global stage as it looks to play a greater role in setting world prices for the raw materials that power its fast-growing economy.
Earlier this year, Chinese regulators allowed three of the country's futures brokerage firms to prepare to participate on overseas commodity exchanges.
The overseas foray by BOC and other brokerage firms will help overcome the advantage that foreign banks currently have in helping Chinese firms hedge overseas.
But growing demand from Chinese firms for hedging could also see Beijing accelerate the pace of opening domestic commodity exchanges, the world's largest by traded volume, to foreign players.
'The market certainly needs the big liquidity boost coming from China to make this a market where you can genuinely hedge physical risk,' said an iron ore swaps broker in Singapore.
'If it happens, it shows a bit of softening in China's stance on derivatives,' he said.
Last year's breakdown of a 40-year-old system of pricing iron ore annually in favour of a more flexible quarterly scheme encouraged some Chinese mills to consider hedging risks via swaps, although many remained wary.
Baosteel Group, China's second-biggest steelmaker, in September warned Chinese mills to exercise caution in trading swaps, saying that global miners were able to influence index reference prices used in swaps.
Launched in May 2008, iron ore swaps are cash- settled contracts that allow steelmakers and traders to hedge price risks.
The volume of globally traded swaps soared to an all-time high above nine million tonnes in October, with SGX clearing a record 7.5 million tonnes, as prices gyrated wildly.
Iron ore gained 25 per cent in the past 12 trading days, after sliding nearly 31 per cent in October when Chinese mills cut purchases of iron ore as lower steel prices reflected weaker demand.
Iron ore rose nearly 6 per cent to US$146.30 a tonne on Tuesday, according to the Steel Index. -- Reuters
_______________
My Thots....
Potential game changer.
Wednesday, November 9, 2011
China's CPI Release
China's Consumer Price Indices in October
Albeit, still high, the CPI is trending down for the past 3 mths.
At 5.5%, and with the Eurozone in crisis, the policymakers will likely take their foot off the brakes on Monetary policies tightening.
China's Producer Price Indices in October
PPI is a strong predictor of CPI trends and the sharply falling growth trend in the PPI augurs a soft landing for the Chinese inflation picture.
_________________________
My Thots.....
Many of the SMEs, especially local S-chips who are suffering from the recent credit squeeze caused by higher interest rates and higher RRRs, as well as a rising RMB, will be able to breathe better going forwards, as the Chinese policy makers adjust to a more pro-growth stance and ease the tighthening measures.
Tuesday, November 8, 2011
Technocrats to run national unity govts
Berlusconi humiliated in parliamentary vote
Opposition leader Pier Luigi Bersani immediately called on Berlusconi to resign, saying Italy ran a real risk of losing access to financial markets after yields on government bonds had approached the red line of 7 percent.
"I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign," Bersani said immediately after the vote.
Berlusconi has been on the ropes for weeks but Tuesday's events seem to be pushing him toward inevitable resignation.
Earlier Berlusconi's key coalition ally, Umberto Bossi, head of the devolutionist Northern League, told him to step down as the 75-year-old media magnate suffered a series of what could be mortal blows.
Bossi said Berlusconi should be replaced by Angelino Alfano, secretary of the premier's PDL party.
"We asked the prime minister to stand down," Bossi told reporters outside parliament.
Berlusconi had remained defiant ahead of Tuesday afternoon's vote on a public finance measure, rejecting calls from all sides to step down and desperately trying to win back a large group of rebels in the PDL. The vote showed that he had not been able to stem a major rebellion.
Bossi's action and the parliamentary vote could finally tip the balance against him as red lights flash on bond markets about Italy's instability.
The League, together with many members of the PDL, are believed to want Berlusconi to make way for a new center-right government capable of tackling a huge economic crisis and restoring the confidence of markets without handing power to a transitional administration.
Earlier five PDL rebels said they would not take part in the vote on public financing, sapping Berlusconi's support.
The center-left opposition said they abstained to lay bare the weakness of Berlusconi's support while allowing the passage of a bill that is vital for government funding.
"LONG AGONY"
While Berlusconi's demise has turned into what commentators are calling a "long agony," interest rates on Italy's debt have soared to levels that are causing deep concern about the survival of the euro zone if its third largest economy cannot service its debts.
Yields on Italy's 10-year benchmark bonds rose to 6.74 percent on Tuesday before dropping back. Analysts said Italy was reaching the point where Portugal, Greece and Ireland had been forced to seek a bailout.
Finnish Prime Minister Jyrki Katainen said Italy was just too big to bail out. "It is difficult to see that we in Europe would have resources to take a country of the size of Italy into the bailout program," he told parliament in Helsinki.
As the spread between Italian and German bonds -- a reflection of the extra risk of holding Italian bonds -- approached 5 percentage points, Italian employers' association leader Emma Marcegaglia said: "We can't go on like this for long."
Analysts say current interest rates, if maintained for long, would cancel out the budget savings planned as part of a painful austerity program.
_____________
My Thots....
Papandreou gone, Berlusconi going...
Likely, Greece & Italy will be run by technocrats (NOT politicians), who are pushed forward by neccessity to lead the national unity governments and who can have the credibility to negotiate with the troika and the capability to implement the measures agreed upon.
ROME |
ROME (Reuters) - Italian Prime Minister Silvio Berlusconi suffered a huge humiliation in parliament on Tuesday in a vote that indicated he no longer had a majority and ratcheted up pressure for him to resign.Berlusconi's government won a key budget vote after the opposition abstained but obtained only 308 votes compared with an absolute majority in the lower house of 316 votes.Opposition leader Pier Luigi Bersani immediately called on Berlusconi to resign, saying Italy ran a real risk of losing access to financial markets after yields on government bonds had approached the red line of 7 percent.
"I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign," Bersani said immediately after the vote.
Berlusconi has been on the ropes for weeks but Tuesday's events seem to be pushing him toward inevitable resignation.
Earlier Berlusconi's key coalition ally, Umberto Bossi, head of the devolutionist Northern League, told him to step down as the 75-year-old media magnate suffered a series of what could be mortal blows.
Bossi said Berlusconi should be replaced by Angelino Alfano, secretary of the premier's PDL party.
"We asked the prime minister to stand down," Bossi told reporters outside parliament.
Berlusconi had remained defiant ahead of Tuesday afternoon's vote on a public finance measure, rejecting calls from all sides to step down and desperately trying to win back a large group of rebels in the PDL. The vote showed that he had not been able to stem a major rebellion.
Bossi's action and the parliamentary vote could finally tip the balance against him as red lights flash on bond markets about Italy's instability.
The League, together with many members of the PDL, are believed to want Berlusconi to make way for a new center-right government capable of tackling a huge economic crisis and restoring the confidence of markets without handing power to a transitional administration.
Earlier five PDL rebels said they would not take part in the vote on public financing, sapping Berlusconi's support.
The center-left opposition said they abstained to lay bare the weakness of Berlusconi's support while allowing the passage of a bill that is vital for government funding.
"LONG AGONY"
While Berlusconi's demise has turned into what commentators are calling a "long agony," interest rates on Italy's debt have soared to levels that are causing deep concern about the survival of the euro zone if its third largest economy cannot service its debts.
Yields on Italy's 10-year benchmark bonds rose to 6.74 percent on Tuesday before dropping back. Analysts said Italy was reaching the point where Portugal, Greece and Ireland had been forced to seek a bailout.
Finnish Prime Minister Jyrki Katainen said Italy was just too big to bail out. "It is difficult to see that we in Europe would have resources to take a country of the size of Italy into the bailout program," he told parliament in Helsinki.
As the spread between Italian and German bonds -- a reflection of the extra risk of holding Italian bonds -- approached 5 percentage points, Italian employers' association leader Emma Marcegaglia said: "We can't go on like this for long."
Analysts say current interest rates, if maintained for long, would cancel out the budget savings planned as part of a painful austerity program.
_____________
My Thots....
Papandreou gone, Berlusconi going...
Likely, Greece & Italy will be run by technocrats (NOT politicians), who are pushed forward by neccessity to lead the national unity governments and who can have the credibility to negotiate with the troika and the capability to implement the measures agreed upon.
Friday, November 4, 2011
BLS EMPLOYMENT SITUATION – OCTOBER 2011
http://www.bls.gov/news.release/pdf/empsit.pdf
* Nonfarm payroll employment trended up in October (+80,000)
* Unemployment rate was little changed at 9.0 %
MoM change in K
* Nonfarm payroll employment trended up in October (+80,000)
* Unemployment rate was little changed at 9.0 %
MoM change in K
Category....................................Oct...........Aug...........Sept.................Oct.
.................................................2010.......2011........2011p...........2011p
Total nonfarm.............................171.........104............158....................80
Total private..............................143...........72............191..................104
Goods-producing........................1............-13.............29...................-10
Private service-providing1........142............85............162.................114
Government................................28............32.............-33.................-24
Thots & Observations....
1) The change in TNFP (total nonfarm payroll) employment for August was revised from +57K to +104K and the change for September was revised from +103K to +158K.
IMHO, it shows that the BLS preliminary estimates data tend to be adjusted upwards in future mths as more data streamed in; only to follow the ADP Private Payrolls data.
2) So jobs add in the previous 2 mths had been underestimated.
3) As with the ADP data, Goods-producing industries remain weak, whilst the Service Providing Industries power on.
4) Govt Sector continues to be weak, with the State govt losing 20K jobs.
ECB rate cut was pre-emptive, bond buys temporary -Stark
* Says Draghi made clear bond-buy programme is temporary* Puts onus on governments to tackle crisis via reforms
* Suggests Thursday's rate cut should have been expected
* Sees "strong cooling" of economy
By Sakari Suoninen and Eva Kuehnen
FRANKFURT, Nov 4 (Reuters) - The European Central Bank's interest rate cut on Thursday was a pre-emptive strike, policymaker Juergen Stark said on Friday, and urged the bank to call an early halt to its sovereign bond-buying programme.
The comments by Stark, who will step down from the bank's six-strong Executive Board at the end of the year, signal the ECB is not preparing to cut its key policy rate again this year.
He also stressed that the bank's programme of buying sovereign debt was temporary and dismissed suggestions it should be made permanent even as the ECB faces pressure to ramp up purchases to tackle the euro zone debt crisis.
The controversial programme has increasingly come into focus as the debt crisis has deepened due to uncertainty about Greece's future in the euro zone. Many analysts see ECB bond buying, and the firepower it could unleash, as the only way to steady markets.
Stark is quitting the ECB early this year in what sources have said is a protest against the bond-buying programme.
The ECB's new president, Mario Draghi, said on Thursday the programme was "temporary" and "limited", reiterating the stance of his predecessor Jean-Claude Trichet and suggesting Draghi wants to keep up pressure on euro zone governments engulfed by the debt crisis to reform.
"Mario Draghi made clear that this is a temporary measure and it's no secret that I have never been a particular fan (of the programme)," Stark told a conference in Frankfurt.
"I expect that we should end this programme as soon as possible, because it sets false incentives for member states, for governments to bring their budgets in order."
After the event, Stark expanded on his comments, ruling out making the programme permanent, as was suggested during the Cannes G20 meeting.
"This is not an option," he told reporters.
Stark suggested markets were wrong to have been surprised by Thursday's ECB decision to cut rates to 1.25 percent at its first policy meeting under Draghi.
"Yesterday's decision has nothing to do with pragmatism," Stark said, adding that he made the proposal to cut rates.
"We are witnessing a strong cooling of the global economy and in the euro zone."
But, he also flagged that the ECB plans to keep rates on hold until at least the end of the year.
"We anticipated the deterioration of the economic situation over the next couple of weeks, so this was a pre-emptive decision," the German said. "We never pre-commit, but I would like to stress this was a pre-emptive decision."
Stark's fellow Executive Board member, Jose Manuel Gonzalez-Paramo said on Friday that inflation should remain the central bank's priority.
"Monetary policy must remain focused on its key objective of delivering price stability," he said in Madrid.
SELF-HELP PROGRAMME
Stark's opposition to the ECB's bond buying is based on a belief, shared by many at the central bank, that the onus should be on the crisis-hit countries to make economic reforms and fears that ECB market intervention, which can reduce government borrowing costs, could reduce their incentive to reform.
Stark said euro zone countries receiving aid from their wealthier peers must use that help to put themselves on a stable footing.
"Solidarity is not a one-way street," he said. "It calls for input from both sides, from those who give as well as those who take. The financial support of the donor countries helps the crisis states to buy time to carry out reforms."
ECB bond buying has helped keep surging Italian bond yields in check as Italy's high debt has become a focus of market attention. Italy agreed late on Thursday to allow the IMF to monitor its progress in carrying through economic reforms whose delay has sapped market confidence in the country and ravaged its government bonds.
Draghi, himself an Italian, gave no hint on Thursday that the ECB's bond-buy programme would be accelerated despite the chaos in Greece threatening to engulf the much larger economies of Italy and Spain.
"At this juncture they want to stress that they don't see it as their remit to be the lender of last resort to governments," RBS economist Nick Matthews said of the ECB, adding that the central bank still wanted markets to function in an orderly way to allow the transmission of its monetary policy.
"If the governments are trying to put the Italian politicians under pressure to put in place the necessary reforms, you don't want to let them off the hook by all of a sudden buying huge amounts of their bonds," he added. "So it's a balancing act we've got here."
Matthews expected the euro zone's rescue fund, the European Financial Stability Facility, would have insufficient firepower to restore order to markets, even if it is leveraged to 1 trillion euros, and that the ECB would ultimately have to increase its bond purchases.
"We think that ultimately they will be forced to step up massively their bond purchases in order to prevent a new escalation of contagion risks across the system," said Matthews, who was among a minority of economists who forecast the ECB's rate cut on Thursday.
Posted: 04 November 2011 1832 hrs
____________
My Thots....
The 2 articles represent the dilemma facing Draghi.
A danger that the contagion effects due to Eurozone sovereign debt and banking crisis spreading to, and affecting the economies in the Eurozone, leading to stagnation or even recession.
versus
The danger that countries like Italy may see any aid as a license to be profligate.
* Suggests Thursday's rate cut should have been expected
* Sees "strong cooling" of economy
By Sakari Suoninen and Eva Kuehnen
FRANKFURT, Nov 4 (Reuters) - The European Central Bank's interest rate cut on Thursday was a pre-emptive strike, policymaker Juergen Stark said on Friday, and urged the bank to call an early halt to its sovereign bond-buying programme.
The comments by Stark, who will step down from the bank's six-strong Executive Board at the end of the year, signal the ECB is not preparing to cut its key policy rate again this year.
He also stressed that the bank's programme of buying sovereign debt was temporary and dismissed suggestions it should be made permanent even as the ECB faces pressure to ramp up purchases to tackle the euro zone debt crisis.
The controversial programme has increasingly come into focus as the debt crisis has deepened due to uncertainty about Greece's future in the euro zone. Many analysts see ECB bond buying, and the firepower it could unleash, as the only way to steady markets.
Stark is quitting the ECB early this year in what sources have said is a protest against the bond-buying programme.
The ECB's new president, Mario Draghi, said on Thursday the programme was "temporary" and "limited", reiterating the stance of his predecessor Jean-Claude Trichet and suggesting Draghi wants to keep up pressure on euro zone governments engulfed by the debt crisis to reform.
"Mario Draghi made clear that this is a temporary measure and it's no secret that I have never been a particular fan (of the programme)," Stark told a conference in Frankfurt.
"I expect that we should end this programme as soon as possible, because it sets false incentives for member states, for governments to bring their budgets in order."
After the event, Stark expanded on his comments, ruling out making the programme permanent, as was suggested during the Cannes G20 meeting.
"This is not an option," he told reporters.
Stark suggested markets were wrong to have been surprised by Thursday's ECB decision to cut rates to 1.25 percent at its first policy meeting under Draghi.
"Yesterday's decision has nothing to do with pragmatism," Stark said, adding that he made the proposal to cut rates.
"We are witnessing a strong cooling of the global economy and in the euro zone."
But, he also flagged that the ECB plans to keep rates on hold until at least the end of the year.
"We anticipated the deterioration of the economic situation over the next couple of weeks, so this was a pre-emptive decision," the German said. "We never pre-commit, but I would like to stress this was a pre-emptive decision."
Stark's fellow Executive Board member, Jose Manuel Gonzalez-Paramo said on Friday that inflation should remain the central bank's priority.
"Monetary policy must remain focused on its key objective of delivering price stability," he said in Madrid.
SELF-HELP PROGRAMME
Stark's opposition to the ECB's bond buying is based on a belief, shared by many at the central bank, that the onus should be on the crisis-hit countries to make economic reforms and fears that ECB market intervention, which can reduce government borrowing costs, could reduce their incentive to reform.
Stark said euro zone countries receiving aid from their wealthier peers must use that help to put themselves on a stable footing.
"Solidarity is not a one-way street," he said. "It calls for input from both sides, from those who give as well as those who take. The financial support of the donor countries helps the crisis states to buy time to carry out reforms."
ECB bond buying has helped keep surging Italian bond yields in check as Italy's high debt has become a focus of market attention. Italy agreed late on Thursday to allow the IMF to monitor its progress in carrying through economic reforms whose delay has sapped market confidence in the country and ravaged its government bonds.
Draghi, himself an Italian, gave no hint on Thursday that the ECB's bond-buy programme would be accelerated despite the chaos in Greece threatening to engulf the much larger economies of Italy and Spain.
"At this juncture they want to stress that they don't see it as their remit to be the lender of last resort to governments," RBS economist Nick Matthews said of the ECB, adding that the central bank still wanted markets to function in an orderly way to allow the transmission of its monetary policy.
"If the governments are trying to put the Italian politicians under pressure to put in place the necessary reforms, you don't want to let them off the hook by all of a sudden buying huge amounts of their bonds," he added. "So it's a balancing act we've got here."
Matthews expected the euro zone's rescue fund, the European Financial Stability Facility, would have insufficient firepower to restore order to markets, even if it is leveraged to 1 trillion euros, and that the ECB would ultimately have to increase its bond purchases.
"We think that ultimately they will be forced to step up massively their bond purchases in order to prevent a new escalation of contagion risks across the system," said Matthews, who was among a minority of economists who forecast the ECB's rate cut on Thursday.
Italy put under strict IMF and EU surveillance: officials
Posted: 04 November 2011 1832 hrs
CANNES, France - The International Monetary Fund and European Commission will strictly monitor Italy to reassure markets that it is meeting targets to reduce its budget deficit, European officials said on Friday.
But an Italian government source quickly denied that the agreement implied a formal "surveillance" mechanism, and said instead that Rome would seek "advice" from the IMF on the issue.
While it had been agreed earlier the EU's executive would step up monitoring of Rome, European leaders meeting on the margins of a G20 summit had decided to bring in the IMF to increase the credibility of the surveillance and reassure the markets, the senior officials said.
The IMF's advice is expected to play a complementary role to the European Commission's monitoring, added the Italian source.
Investors forced up the Italian government's 10-year borrowing cost to a euro-era record 6.402 percent on Thursday.
The European Central Bank (ECB) was forced to step in and prop up the Italian bond market in August when the rates soared above six percent, a level widely considered by experts to be unsustainable.
It was reported then that the ECB had sent the Italian government a list of policy changes to be made.
After the European Union decided to force investors to take losses on Greek bonds, attention turned to Italy, where the anaemic growth rate makes it increasingly difficult for Rome to manage its debt equal to 120 percent of output.
Italy's government adopted two austerity packages during the summer, but markets have remained sceptical that the measures will eliminate the deficit and boost growth.
At the G20 summit on Thursday, Prime Minister Silvio Berlusconi vowed to stick to Italy's target of balancing the budget by 2013 and that new austerity measures would be fully enacted by the end of the month.
An emergency Cabinet meeting on Wednesday adopted reforms including state asset sales, tax incentives for recruiting workers, measures to boost market competition and the unblocking of billions in aid for southern Italy.
The measures, which still have to go before parliament for final approval, stopped short of major changes such as higher taxes for the wealthy, a one-off levy on current accounts and a housing tax that had been mooted in recent days.
- AFP/ir
But an Italian government source quickly denied that the agreement implied a formal "surveillance" mechanism, and said instead that Rome would seek "advice" from the IMF on the issue.
While it had been agreed earlier the EU's executive would step up monitoring of Rome, European leaders meeting on the margins of a G20 summit had decided to bring in the IMF to increase the credibility of the surveillance and reassure the markets, the senior officials said.
The IMF's advice is expected to play a complementary role to the European Commission's monitoring, added the Italian source.
Investors forced up the Italian government's 10-year borrowing cost to a euro-era record 6.402 percent on Thursday.
The European Central Bank (ECB) was forced to step in and prop up the Italian bond market in August when the rates soared above six percent, a level widely considered by experts to be unsustainable.
It was reported then that the ECB had sent the Italian government a list of policy changes to be made.
After the European Union decided to force investors to take losses on Greek bonds, attention turned to Italy, where the anaemic growth rate makes it increasingly difficult for Rome to manage its debt equal to 120 percent of output.
Italy's government adopted two austerity packages during the summer, but markets have remained sceptical that the measures will eliminate the deficit and boost growth.
At the G20 summit on Thursday, Prime Minister Silvio Berlusconi vowed to stick to Italy's target of balancing the budget by 2013 and that new austerity measures would be fully enacted by the end of the month.
An emergency Cabinet meeting on Wednesday adopted reforms including state asset sales, tax incentives for recruiting workers, measures to boost market competition and the unblocking of billions in aid for southern Italy.
The measures, which still have to go before parliament for final approval, stopped short of major changes such as higher taxes for the wealthy, a one-off levy on current accounts and a housing tax that had been mooted in recent days.
- AFP/ir
____________
My Thots....
The 2 articles represent the dilemma facing Draghi.
A danger that the contagion effects due to Eurozone sovereign debt and banking crisis spreading to, and affecting the economies in the Eurozone, leading to stagnation or even recession.
versus
The danger that countries like Italy may see any aid as a license to be profligate.
ECB under Super Mario
ECB’s Mario Draghi Offers Hope He Can Do What Europe Needs.
After only three days as president of the ECB, Italy’s Mario Draghi oversaw the euro area’s first interest-rate cut in more than two years, lowering the central bank’s target rate by 0.25 percentage point to 1.25 percent. The decision surprised investors and economists, most of whom had expected Draghi to hold rates steady in his debut meeting at the ECB’s helm.
In the subtle game of monetary policy, it was a bold move, and one that could distinguish Draghi from his predecessor, Jean-Claude Trichet. The ECB’s primary mandate is to control inflation, which is currently running at 3 percent, well above the central bank’s 2 percent target. But Draghi, with the unanimous support of the bank’s 23-member Governing Council, put more weight on the deteriorating outlook for the euro-area economy, which he says is headed for a recession.
The big question now is where Draghi will stand on a larger issue: Whether the ECB will pledge the trillions of euros needed to guarantee the financing needs of solvent euro-area governments. The central bank, with the power to print euros, is the only European institution that can credibly make such a promise, which would be the linchpin of any plan to resolve finally the region’s sovereign-debt crisis.
No Backstop
Under Trichet, the ECB had been unwilling to be the euro’s backstop. Together with Germany, the bank has essentially been betting that the threat of financial disaster will maintain pressure on countries such as Italy to agree to reforms, including a European authority that could take over the finances of troubled governments. It’s a laudable goal, but one that could take years to reach, whereas a market meltdown could do irreparable damage to the global economy in a matter of weeks.On the surface, Draghi’s position is identical to Trichet’s. In a news conference yesterday, he said the central bank can’t do politicians’ jobs and act as the lender of last resort to governments. He characterized the bank’s purchases of government bonds, which amount to some 174 billion euros ($240 billion) so far, as “temporary” and necessary to restore “the functioning of monetary policy transmission channels.”
Draghi, though, has vast leeway in interpreting that last clause, which is central banker-speak for intervening in various markets to make sure interest-rate policies have the desired effect. In an emergency, it could be used to justify a blanket guarantee on newly issued government debt. After all, if credit markets freeze on concerns that European governments can no longer borrow, monetary-policy transmission channels -- even at a target rate of zero -- won’t function very well.
If and when Draghi finds himself staring into the abyss, we hope he’ll remember the mantra of Federal Reserve Chairman Ben S. Bernanke during the 2008 crisis: Do whatever it takes.
___________________
My Thots...
Shorts be forewarned.
Super Mario passed his 1st test with flying colors!!
He might be amenable to using the ECB to leverage on the EFSF for the bazooka effect (aka TARP starring Bernanke & Paulson). Something the legacy driven conservative Trichet was reluctant to do.
There should now be no doubts in the bond vigilantes' minds, whatsoever, that he will be prepared to buy bonds of Italy and Spain, in the secondary mkts to bring down premiums over bunds, to alleviate and bring down borrowing costs in a crisis.
That photo of Super Mario propping up the Euro with his finger is no illusion!!
Wednesday, November 2, 2011
FOMC Statement
Release Date: November 2, 2011
For immediate release
Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.
________________________
My Thots....
To me the biggest positive comes from the attached release :- http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20111102.pdf
if U look at Pg 2 of the slides, U will see quite a benign outlook for the US economy....
1) GDP is expected to trend up to 3 to 4+ % in 2015
2) Unemployment rate is expected to trend down to 6.5 to 7+% in 2015
3) PCE inflation is expected to trend down to 2% and stay at 2% levels from 2013 to 2015.
Now let's revert our discussion to the FOMC Statement.
3 Points stand out:-
1) The FOMC observation that 3Q outlook strengthened; in spite of weaknesses in the labour mkts and the non residential structures categories.
2) The statement that FOMC anticipates that Unemployment rate will decline---- but, only gradually towrads its 2% mandate.
3) That the FOMC is maintaining Op Twist but is prepared to do QE 3.0 (adjust the size of those holdings), if appropriate.
IMHO, a positive and benign outlook for the US economy; provided that the Eurozone do not fall off the cliff.
Greece referendum
Greek cabinet backs referendum
Posted: 02 November 2011 1027 hrs
Posted: 02 November 2011 1027 hrs
ATHENS: Greek Prime Minister George Papandreou secured the unanimous backing of his cabinet for a referendum on the eurozone debt rescue plan, government spokesman Elias Mossialos said early Wednesday.
The cabinet also approved Papandreou's decision to hold a parliamentary vote of confidence on his government, Mossialos told reporters.
Several socialist deputies had already denounced the referendum plan on Tuesday, with one member quitting the parliamentary group to fight it.
That defection left the socialists with just 152 deputies in the 300-seat parliament, suggesting that the outcome of Friday's confidence vote was far from a foregone conclusion.
At the emergency cabinet meeting called late Tuesday, Papandreou had insisted on the need for a referendum.
"The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership," he said.
Explaining his opposition to calls for an early election, he argued that "everything would stop" in an election campaign and the country would "be dragged to a risk of bankruptcy".
Papandreou added that his EU peers "had been advised" of his plans "and will respect and support" the country's efforts.
Earlier Tuesday, Defence Minister Panos Beglitis backed the referendum.
"The Greek people must assume their responsibilities on how they want the country to continue its course and exit from the crisis," he told private Skai radio.
During trading Tuesday, Greek stocks plunged 6.92 percent in response to Papandreou's surprise referendum announcement late the previous day.
Adding to the chaos, Greece's foreign minister cancelled meetings with three foreign ambassadors, while Finance Minister Evangelos Venizelos was hospitalised with an inflamed appendix.
The semi-state Athens News Agency said Venizelos had made a flurry of phone calls to senior players at the European Commission and the International Monetary Fund as well as to his German counterpart Wolfgang Schaeuble.
On Wednesday, Papandreou is due in the French resort town of Cannes to face G20 leaders at their summit on Thursday and Friday.
He will attend a working dinner with host Nicolas Sarkozy of France and German Chancellor Angela Merkel.
Also present will be EU president Herman Van Rompuy, EU commission chief Jose Manuel Barroso, eurozone chief Jean-Claude Juncker, new ECB chief Mario Draghi and IMF managing director Christine Lagarde, Papandreou's office said.
In a phone call with Merkel on Tuesday, Papandreou insisted the referendum would strengthen Greece in the eurozone and globally, his office said.
But on Tuesday, former deputy minister Milena Apostolaki quit the socialist parliamentary group, saying she would keep her seat to fight the referendum plan.
"I have an obligation to resist this erroneous political choice that divides the nation," she said in a statement.
Vasso Papandreou, head of the parliamentary economic affairs committee, then called for early elections and a temporary unity government to "safeguard" last week's eurozone deal to slash Greece's huge debt.
"The country is threatened by imminent bankruptcy," said Vasso Papandreou - no relation to the prime minister.
Another socialist deputy, Eva Kaili, threatened to defect if the government persisted with the referendum plan, and a statement from six socialist party members also called on the premier to resign.
Many analysts have warned that early elections would fail to produce a strong majority in parliament and would plunge the country into political uncertainty. Papandreou's term ends in 2013.
But with leaders of the world's 20 biggest economies getting ready for the Cannes summit which is focused on the economic crisis, Papandreou's unexpected move has triggered fears the rescue efforts could rapidly unravel.
He has faced increasing dissent within his own party over the tough austerity policies required by the EU and the IMF, which have sparked general strikes and sometimes violent street protests.
Although the EU deal agreed last Thursday included an agreement to write off 100 billion euros ($137 billion) of debt owed by Greece, Athens still has to implement a painful package of austerity measures in return.
Also on Tuesday, a state security council chaired by Papandreou replaced the heads of the general staff, the army, navy and airforce.
A defence ministry source insisted the reshuffle had been previously planned and was not linked to the political turmoil.
- AFP/fa/al
The cabinet also approved Papandreou's decision to hold a parliamentary vote of confidence on his government, Mossialos told reporters.
Several socialist deputies had already denounced the referendum plan on Tuesday, with one member quitting the parliamentary group to fight it.
That defection left the socialists with just 152 deputies in the 300-seat parliament, suggesting that the outcome of Friday's confidence vote was far from a foregone conclusion.
At the emergency cabinet meeting called late Tuesday, Papandreou had insisted on the need for a referendum.
"The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership," he said.
Explaining his opposition to calls for an early election, he argued that "everything would stop" in an election campaign and the country would "be dragged to a risk of bankruptcy".
Papandreou added that his EU peers "had been advised" of his plans "and will respect and support" the country's efforts.
Earlier Tuesday, Defence Minister Panos Beglitis backed the referendum.
"The Greek people must assume their responsibilities on how they want the country to continue its course and exit from the crisis," he told private Skai radio.
During trading Tuesday, Greek stocks plunged 6.92 percent in response to Papandreou's surprise referendum announcement late the previous day.
Adding to the chaos, Greece's foreign minister cancelled meetings with three foreign ambassadors, while Finance Minister Evangelos Venizelos was hospitalised with an inflamed appendix.
The semi-state Athens News Agency said Venizelos had made a flurry of phone calls to senior players at the European Commission and the International Monetary Fund as well as to his German counterpart Wolfgang Schaeuble.
On Wednesday, Papandreou is due in the French resort town of Cannes to face G20 leaders at their summit on Thursday and Friday.
He will attend a working dinner with host Nicolas Sarkozy of France and German Chancellor Angela Merkel.
Also present will be EU president Herman Van Rompuy, EU commission chief Jose Manuel Barroso, eurozone chief Jean-Claude Juncker, new ECB chief Mario Draghi and IMF managing director Christine Lagarde, Papandreou's office said.
In a phone call with Merkel on Tuesday, Papandreou insisted the referendum would strengthen Greece in the eurozone and globally, his office said.
But on Tuesday, former deputy minister Milena Apostolaki quit the socialist parliamentary group, saying she would keep her seat to fight the referendum plan.
"I have an obligation to resist this erroneous political choice that divides the nation," she said in a statement.
Vasso Papandreou, head of the parliamentary economic affairs committee, then called for early elections and a temporary unity government to "safeguard" last week's eurozone deal to slash Greece's huge debt.
"The country is threatened by imminent bankruptcy," said Vasso Papandreou - no relation to the prime minister.
Another socialist deputy, Eva Kaili, threatened to defect if the government persisted with the referendum plan, and a statement from six socialist party members also called on the premier to resign.
Many analysts have warned that early elections would fail to produce a strong majority in parliament and would plunge the country into political uncertainty. Papandreou's term ends in 2013.
But with leaders of the world's 20 biggest economies getting ready for the Cannes summit which is focused on the economic crisis, Papandreou's unexpected move has triggered fears the rescue efforts could rapidly unravel.
He has faced increasing dissent within his own party over the tough austerity policies required by the EU and the IMF, which have sparked general strikes and sometimes violent street protests.
Although the EU deal agreed last Thursday included an agreement to write off 100 billion euros ($137 billion) of debt owed by Greece, Athens still has to implement a painful package of austerity measures in return.
Also on Tuesday, a state security council chaired by Papandreou replaced the heads of the general staff, the army, navy and airforce.
A defence ministry source insisted the reshuffle had been previously planned and was not linked to the political turmoil.
- AFP/fa/al
____________________________
My Thots....
Does the troika, all respectable members & proponents of democracy, expect GP to ram the austerity measures down the throats of Greek citizenry?
Does the troika, all respectable members & proponents of democracy, expect GP to ram the austerity measures down the throats of Greek citizenry?
The truth of the matter is that w/o a proper mandate from the people thru some sort of a referendum, any austerity measures that George Papandreou (GP) agreed with the troika cannot be implemented with success. He had to go to the people to have the legitimacy for the huge reforms.
An election would be a total disaster as it will likely be tumultous and he would likely be thrown out.
A properly framed referendum such as " Should Greece stay in the Eurozone" would be a more safe way of gathering political legitimacy.
There are sufficient reasons to believe that a significant portion of the population are NOT paying their "dues" in taxes and faced with a choice between Greece's collapse and exit from Eurozone vs paying their "dues"; this portion of the population may even vote "Yes".
The biggest worry were the biz reports claiming that members of GP's PASOK were abandoning him for his decision to hold the referendum and that his "majority" slipped to a mere difference of "one".
With his cabinet behind him, the picture is clearing but he still has a huge challenge ahead of him.
ADP Employment Report, US ISM Report
ADP Employment Report
http://www.adpemploymentreport.com/pdf/FINAL_Report_October_11.pdf
*Total employment: +110,000
* Small businesses:* + 58,000
* Medium businesses:** + 53,000
* Large businesses:*** - 1,000
* Goods-producing sector: - 4,000
* Service-providing sector: +114,000
Addendum:
* Manufacturing industry: - 8,000
*Small businesses represent payrolls with 1-49 employees
** Medium businesses represent payrolls with 50-499 employees
*** Large businesses represent payrolls with more than 499 employees
Note: All data included in the ADP National Employment Report is based on size of payroll. In some cases, small and medium-size payrolls belong to businesses employing more workers than indicated by the size grouping.
___________________________
Thots N Observations....
1) Service Sector and the SMEs drives growth.
2) Manufacturing and the Goods Producing Sector continues to be weak.
3) The Jobs add picture could be turning.
US ISM Report
http://www.ism.ws/ISMReport/MfgROB.cfm
PMI at 50.8%
Thots N Observations....
Good news is that New Orders, Production and Employment Indices are growing
New Orders Index is at 52.4% in Oct (vs 49.6% in Sept).
Monday, October 31, 2011
PMI News
China PMI
CFLP
http://www.lifunggroup.com/eng/knowledge/research/PMI_november11.pdf
New Orders Index (NOI) was 50.5% in October, down from 51.3% in September., down from 51.3% in September.
New Export Orders Index (NExOI) dropped below the critical level of 50% in October
Taken together, the NOI and NExOI, shows that the domestic consumption is healthy and is the prime factor drving PMI growth.
Input prices index declined sharply by 10.4 ppt. to 46.2% in October (vs 56.6% in September)
---- for the first time since April 2009.
Employment index was 49.7% in October, down from 51.0% in the previous month.
HSBC
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8736
Key points
• Output growth supported by renewed expansion of overall new orders
• Growth of new export business the highest since January
• Input cost inflation eases; charges rise at faster pace
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
"The final PMI confirms the notable improvement in China’s manufacturing activities driven by rising new business from both domestic and external markets. Despite the slight uptick in output prices growth, inflation is on track for easing. This provides leeway for Beijing to fine-tune policy to strike a better balance between growth and inflation priorities. We expect stable monetary policy with targeted easing in the coming months."
S Korea PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8710
Ronald Man, Economist at HSBC in Asia said:
"Whilst uncertainty still hangs over Europe, the story in Korea is clearer. Korea’s manufacturing sector remains on track for a soft landing. The rate of contraction in October has eased, with the PMI index heading back towards the 50 no-change level. No doubt, soft global demand will hold back new orders, but a tight labour market at home and resilient Chinese growth should help Korea’s manufacturing sector push through the fourth quarter."
Taiwan PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8709
Taiwan Manufacturing PMI survey, Donna Kwok, Economist at HSBC in Asia said:
"The impact of softening Western demand is becoming more evident as output continues to cool. That said, with employment holding up better than the last downturn of 2008-2009, and with China’s manufacturing activity now stabilizing, Taiwan should be able to lean a bit more heavily on Mainland demand as it fends off the impact of US and European deleverage going forwards."
Russia PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8728
India PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8711
____________________
My Thots.....
China PMI
CFLP data and HSBC data contradicts on New Orders Index (NOI) but correlates on Input Prices Index----- this divergence could be indicative of the many changes the SMEs are undergoing on the ground level and the differing methodologies and difficulties in collecting consensus opinions/data, for the PMI, for the moment.
S Korea & Taiwan
If the HSBC data is to be believed, China's recovery in the PMI has helped arrest the fall in both nations PMI and helped in the stabilisation of their manufacturing activities.
Russia & India
Both countries PMI have bottomed and appears on the path of recovery.
CFLP
http://www.lifunggroup.com/eng/knowledge/research/PMI_november11.pdf
New Orders Index (NOI) was 50.5% in October, down from 51.3% in September., down from 51.3% in September.
New Export Orders Index (NExOI) dropped below the critical level of 50% in October
Taken together, the NOI and NExOI, shows that the domestic consumption is healthy and is the prime factor drving PMI growth.
Input prices index declined sharply by 10.4 ppt. to 46.2% in October (vs 56.6% in September)
---- for the first time since April 2009.
Employment index was 49.7% in October, down from 51.0% in the previous month.
HSBC
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8736
Key points
• Output growth supported by renewed expansion of overall new orders
• Growth of new export business the highest since January
• Input cost inflation eases; charges rise at faster pace
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
"The final PMI confirms the notable improvement in China’s manufacturing activities driven by rising new business from both domestic and external markets. Despite the slight uptick in output prices growth, inflation is on track for easing. This provides leeway for Beijing to fine-tune policy to strike a better balance between growth and inflation priorities. We expect stable monetary policy with targeted easing in the coming months."
S Korea PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8710
Ronald Man, Economist at HSBC in Asia said:
"Whilst uncertainty still hangs over Europe, the story in Korea is clearer. Korea’s manufacturing sector remains on track for a soft landing. The rate of contraction in October has eased, with the PMI index heading back towards the 50 no-change level. No doubt, soft global demand will hold back new orders, but a tight labour market at home and resilient Chinese growth should help Korea’s manufacturing sector push through the fourth quarter."
Taiwan PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8709
Taiwan Manufacturing PMI survey, Donna Kwok, Economist at HSBC in Asia said:
"The impact of softening Western demand is becoming more evident as output continues to cool. That said, with employment holding up better than the last downturn of 2008-2009, and with China’s manufacturing activity now stabilizing, Taiwan should be able to lean a bit more heavily on Mainland demand as it fends off the impact of US and European deleverage going forwards."
Russia PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8728
India PMI
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8711
____________________
My Thots.....
China PMI
CFLP data and HSBC data contradicts on New Orders Index (NOI) but correlates on Input Prices Index----- this divergence could be indicative of the many changes the SMEs are undergoing on the ground level and the differing methodologies and difficulties in collecting consensus opinions/data, for the PMI, for the moment.
S Korea & Taiwan
If the HSBC data is to be believed, China's recovery in the PMI has helped arrest the fall in both nations PMI and helped in the stabilisation of their manufacturing activities.
Russia & India
Both countries PMI have bottomed and appears on the path of recovery.
Italian Yields
Italian borrowing yields soar above 6.0%
Yields on Italian 10-year debt rose above 6.0 percent, a level widely considered unsustainable for Italy and its 1.6 trillion euros of public debt ($2.2 trillion).
In late morning deals, the Italian yields stood at 6.111 percent up from 6.011 percent on Friday and fast nearing the record high of 6.397 percent reached on August 5.
The spread, or difference, between the yield on Italian 10-year sovereign bonds and benchmark German bonds also rose to 400 basis points.
The yield on Spanish 10-year debt rose to 5.600 percent, up sharply from 5.490 percent on Friday.
Concern that the debt crisis could spread beyond Greece, Ireland and Portugal have centered on Italy and Spain, core eurozone countries with big economies. If they were pulled down, the effects would hit the eurozone and also the global economies.
The deal agreed last week was meant to solve the Greek debt crisis once-and-for all and prevent contagion by recapitalising banks, and by reinforcing the 440-billion-euro European rescue fund created at the beginning of the crisis, the European Financial Stability Facility.
"Constant pressure on long-term Italian bond yields despite a rise in share prices (last week) underlines that the sovereign debt crisis is far from over and that markets will still test politicians," analysts at Aurel BGC brokerage said.
"There clearly needs to be a solution to increase the firepower of the EFSF. China and Brazil have been called on to play a key role in the construction of Europe," they added.
The analysts said the G20 summit this week would provide further indication of exactly how last weeks European deal will develop.
Attention will now turn to the European Central Bank, whose new head Mario Draghi said the bank will continue pushing Spain and Italy rates lower by intervening directly on the secondary markets.
Analysts at BNP Paribas said they expected the ECB "to play a more active role as the Italian 10-year rates return to these key levels".
Rates for more financially sold states meanwhile fell. German rates dropped to 2.112 percent and French rates to 3.128 percent.
AFP
______________________
My Thots.....
It is no wonder that the bond vigilantes are at it again....
1st and foremost, Trichet passes the baton to Draghi on Tuesday and the shorts will like to test his mettle.
As an Italian himself will Draghi have his own "inner conflicts" on buying Italian bonds on the secondary mkts after he takes over the ECB leadership ?
Then there is Berlusconi, that percieved weak link in the Italian chain of command; the Itallian ruling elites aka bureaucrats or civil service, are well respected. Will he put his plans into actions or will he filp-flop.
Saturday, October 29, 2011
Big Banks
Published October 29, 2011 | |||
The case against scale in Wall Street Breaking up big global banks, curbing their growth beyond a certain size would be a sensible demand By TEH HOOI LING SENIOR CORRESPONDENT 'FROM Seattle to Sydney, protesters have taken to the streets. Whether they are inspired by the Occupy Wall Street movement in New York or by the indignados in Madrid, they burn with dissatisfaction about the state of the economy, about the unfair way that the poor are paying for the sins of rich bankers, and in some cases about capitalism itself,' this was how The Economist began its editorial on 'Capitalism and its critics - Rage against the machine'.
I read this article in the wee hours of the morning, on one of those nights when sleep eluded me. So the current protesters have no coherent demand, as opposed to the 'mindless' goal of the demonstrators who staged protests against the World Trade Organization (WTO) in Seattle in 1999. What would be a good demand for these protesters, I thought to myself. To get to that, first, we have to decide what are some of the problems the world is facing now, and what are some of the complaints of the masses. To me, one big problem is the stubbornly high unemployment rate. In the US, unemployment remains close to 10 per cent. The rate is higher among younger people. In America 17.1 per cent of those below 25 are out of work. Across the European Union, youth unemployment averages 20.9 per cent. In Spain, it is a staggering 46.2 per cent. Two, the excesses of the financial sector. The excesses manifest themselves in a variety of ways: in how powerful these institutions have become, in the systemic risk they pose to the global economy, in the monetary rewards they appropriate for themselves. Their size, and the phenomenon of 'too big to fail', have created moral hazard among the bankers, which has led to a ludicrous situation where gains are privatised, and the losses are socialised, as Nassem Taleb, the author of The Black Swan puts it. Three, because of the huge amounts of money controlled by a few global institutions, these big players are able to move their funds around the world at a click of a button and cause significant volatility to global asset prices. Plunges of 20-30 per cent in asset prices are no longer an outlier event. This has spooked retail investors away from the market, leaving the global financial markets the playground of a select few. Compensation Four, behavioural psychologists have identified humans' tendency to anchor. It has been documented that when people make quantitative estimates, their estimates may be heavily influenced by previous values of the item. For example, it is not an accident that a used car salesman always starts negotiating with a high price and then works down. The salesman is trying to get the consumer anchored on the high price so that when he offers a lower price, the consumer will estimate that the lower price represents a good value. So by the same token, say, for a trader who generates a profit of $1 million or $2 million a year for the company, a compensation of say $100,000 to $200,000 may be deemed fair. But if the same trader were to be given funds of $10 billion to trade, he will most certainly sniff at a compensation of $100,000 or $200,000 a year. So in other words, the concentration of funds in a few big global institutions has allowed for these bankers to demand humongous bonuses. So in my view, a sensible demand of the Occupy Wall Street protesters would be for the world to break up the big global banks, and curb their growth beyond a certain size. This can be made into an agenda at the WTO. While in its current form, the WTO negotiations revolve around getting countries to agree to dismantle trade barriers such as subsidies, tariffs, quotas etc, an added new agenda could be to get countries to agree to curb the size of their banks and financial institutions. What would be some of the benefits of such a development? One, employment can be created. Instead of x number of economists, accountants, risk managers each working for just three big banks in the country, by breaking up the banks into, say, 30 smaller ones, the requirement for economists, accountants, risk managers and so forth would be greatly enhanced. Two, breaking up the banks would eliminate much of the risks that the financial sector now poses to the global economy. The failure of any one bank would not threaten to bring down the global economy. Governments will not feel obliged to bail them out. Banks will be more responsible for their actions, they can go bankrupt, just like any other business if they are reckless in their decisions. Three, with more participants come more varied views. Hopefully we will have less of a herd mentality. No one trade can move the market. Fund managers and traders have an incentive to seek out inefficiencies or mispricing in the market, instead of attempting to move the market by sheer bulk. Shrinking bank bonuses Four, bonuses for the bankers will shrink automatically. Five, smaller institutions encourage more personalised service. This promotes a sense of community. Bankers may return to the days when they make recommendations based on what's good for their clients, not the con-the-customers-for-the-benefit-of-our-banks-and-our-bonuses mentality that, sadly, global banking has deteriorated into. As for the size of the institutions, perhaps a good benchmark would be for the financial institutions to be no bigger than, say, 5 per cent of the GDP of the biggest country in the world. This would still allow banks from smaller countries to globalise and grow. As I argued in my earlier column, on the whole, a larger number of smaller companies would result in lower profit margins and return on equity for companies. But on the flip side, more people could share in that profit pool. Also, we would create an ecology of myriad smaller companies that are likely to have more room to try new things and are less homogeneous in their thinking. Not at all a bad thing. | |||
BT
_____________________
My Thots....
Moot Points.
The big word used by Basel is SIFI ---- Systemically Important Financial Institutions.
But try, say applying it to the Sg context, and U would get a sense of the difficulties involved.
In Sg, try telling that to the Big 3, DBS, UOB and OCBC.
Will they agree to down size ?
Would it makes sense to have more banks, say breakup UOB back into UOB & OUB; breakup DBS into DBS & POSB and grant a bank license to HLF?
Eurozone news
http://www.reuters.com/article/2011/10/28/idUSL5E7LS39R20111028
Greek deal may imperil sovereign CDS market
Private sector creditors such as insurers, banks and funds will take losses of 100 billion euros on their Greek debt holdings under a new bailout pact struck this week, sharing the burden of the costly rescue with taxpayers.
But the International Derivatives and Securities Association (ISDA) -- a bank lobby that also decides whether an event triggers the CDS -- has said it's not likely that the restructuring would lead to a pay-out.
"The CDS market is being keelhauled. This certainly isn't going to help, because why would you buy a CDS if there will never be a payout?" said one well-placed industry source, referring to the Greek situation.
He projected the sovereign CDS market -- a small corner of the $25 trillion overall market -- could die out in the next year, echoing some bankers' fears.
CDS contracts are a form of protection that entitle bondholders to a pay-out in case of a default. They are also often used by investors who do not own the underlying bonds to bet on the market -- so-called "naked" CDS.
This has made them unpopular among politicians, who have blamed speculators for exacerbating Europe's debt crisis.
IT'S VOLUNTARY
The European Union agreed last week to ban naked CDS on sovereign debt, in a rule that will come into force from November 2012, already putting pressure on the sovereign CDS market even if there will be some exceptions.
A non-payout of the CDS would further take away the credibility of the market -- even if its relevance for Greece is limited: economists have estimated the net payout on Greece CDS, would only be $1.85 billion.
European politicians struck a deal with the banks in the early hours of Thursday after a night of hard-nosed negotiations, that will see them write off 50 percent of the value of their Greek government debt holdings.
The agreement with banks paved the way for a second bailout of Greece, and comes along two other measures: a forced recapitalisation of Europe's banks and bigger financing powers for Europe's EFSF bail-out fund.
The International Institute of Finance (IIF) that leads the talks from the industry side said that the deal they struck was voluntary, and that an involuntary deal could have caused a "true calamity".
"There is the unknown risk of what happens with contagion. You could have hedge funds looking at Spain or Italy after that, which could pile on pressure there and precipitate the quest for assistance," said David Watts, an analyst at CreditSights.
Banks had initially agreed to an offer for a debt exchange that would see them take a 21 percent cut. At the time, politicians and bankers also insisted that the deal had to be voluntary, to avoid a hard Greek default.
But that deal was torn up as it became clear that the conditions in Greece had rapidly deteriorated. The elements of the new agreement are unclear, and will probably have to be hammered out in the coming weeks.
The CDS market still has value for other uses, such as an insurance against a company or bank default. Sovereign CDS are also used as a proxy hedge, for instance for companies that are too small to have their own CDS in a given country.
That has been one of the main drivers of a rise in liquidity. In France, the volume was up 21 percent in the third quarter, according to data from Markit. In Germany, the rise was 14 percent, while volumes in Italy dropped 11 percent.
The problem banks and investors face is that the risk of sovereign defaults in the euro zone -- once inconceivable -- has grown more real in the past two years.
And if one of the main hedging tools disappears, that inevitably means they will be under even more pressure to reduce their exposure and start selling the bonds, pushing up the yield and therefore the financing costs for governments.
___________________________
My Thots.....
The question to ask should be :--- How much of the CDS was "naked" CDS i.e. intended for naked shorting rather than used for real hedging of risks to the underlying sovereign bonds?
The payout on the CDS bets would have amounted to USD 1.85 b. whereas the "voluntary" haircuts of 50% negotiated with IIF will amount to losses of 100b Euros. The two just does not balance. So to suggest that CDS swaps can insure the sovereign debts is being "naive".
IMHO, even if the ISDA ruled that the "voluntary" haircuts " were a default ; as Fitch has done so, it is immaterial, the CDS for sovereign debt mkt is "dead"----with or w/o the ban by the Eurozone countries.
When the definition of voluntary is so tenous---- who would want to risk using CDS to hedge their bets?
Only, the truly gungho cowboys shorts, truly naked and w/o underlying skin in the game but aiming for a high odds win would bet on such a risky outcome.
Greek deal may imperil sovereign CDS market
LONDON |
LONDON Oct 28 (Reuters) - The future of the Credit Default Swap (CDS) market -- used to hedge against the risk of a country defaulting -- may be at risk if these derivative instruments do not pay out after this week's rescue deal for Greece.An implosion of the sovereign CDS market could lead investors to buy fewer government bonds because they feel they cannot protect themselves, and risks pushing up borrowing costs for governments, especially in the euro zone.Private sector creditors such as insurers, banks and funds will take losses of 100 billion euros on their Greek debt holdings under a new bailout pact struck this week, sharing the burden of the costly rescue with taxpayers.
But the International Derivatives and Securities Association (ISDA) -- a bank lobby that also decides whether an event triggers the CDS -- has said it's not likely that the restructuring would lead to a pay-out.
"The CDS market is being keelhauled. This certainly isn't going to help, because why would you buy a CDS if there will never be a payout?" said one well-placed industry source, referring to the Greek situation.
He projected the sovereign CDS market -- a small corner of the $25 trillion overall market -- could die out in the next year, echoing some bankers' fears.
CDS contracts are a form of protection that entitle bondholders to a pay-out in case of a default. They are also often used by investors who do not own the underlying bonds to bet on the market -- so-called "naked" CDS.
This has made them unpopular among politicians, who have blamed speculators for exacerbating Europe's debt crisis.
IT'S VOLUNTARY
The European Union agreed last week to ban naked CDS on sovereign debt, in a rule that will come into force from November 2012, already putting pressure on the sovereign CDS market even if there will be some exceptions.
A non-payout of the CDS would further take away the credibility of the market -- even if its relevance for Greece is limited: economists have estimated the net payout on Greece CDS, would only be $1.85 billion.
European politicians struck a deal with the banks in the early hours of Thursday after a night of hard-nosed negotiations, that will see them write off 50 percent of the value of their Greek government debt holdings.
The agreement with banks paved the way for a second bailout of Greece, and comes along two other measures: a forced recapitalisation of Europe's banks and bigger financing powers for Europe's EFSF bail-out fund.
The International Institute of Finance (IIF) that leads the talks from the industry side said that the deal they struck was voluntary, and that an involuntary deal could have caused a "true calamity".
"There is the unknown risk of what happens with contagion. You could have hedge funds looking at Spain or Italy after that, which could pile on pressure there and precipitate the quest for assistance," said David Watts, an analyst at CreditSights.
Banks had initially agreed to an offer for a debt exchange that would see them take a 21 percent cut. At the time, politicians and bankers also insisted that the deal had to be voluntary, to avoid a hard Greek default.
But that deal was torn up as it became clear that the conditions in Greece had rapidly deteriorated. The elements of the new agreement are unclear, and will probably have to be hammered out in the coming weeks.
The CDS market still has value for other uses, such as an insurance against a company or bank default. Sovereign CDS are also used as a proxy hedge, for instance for companies that are too small to have their own CDS in a given country.
That has been one of the main drivers of a rise in liquidity. In France, the volume was up 21 percent in the third quarter, according to data from Markit. In Germany, the rise was 14 percent, while volumes in Italy dropped 11 percent.
The problem banks and investors face is that the risk of sovereign defaults in the euro zone -- once inconceivable -- has grown more real in the past two years.
And if one of the main hedging tools disappears, that inevitably means they will be under even more pressure to reduce their exposure and start selling the bonds, pushing up the yield and therefore the financing costs for governments.
___________________________
My Thots.....
The question to ask should be :--- How much of the CDS was "naked" CDS i.e. intended for naked shorting rather than used for real hedging of risks to the underlying sovereign bonds?
The payout on the CDS bets would have amounted to USD 1.85 b. whereas the "voluntary" haircuts of 50% negotiated with IIF will amount to losses of 100b Euros. The two just does not balance. So to suggest that CDS swaps can insure the sovereign debts is being "naive".
IMHO, even if the ISDA ruled that the "voluntary" haircuts " were a default ; as Fitch has done so, it is immaterial, the CDS for sovereign debt mkt is "dead"----with or w/o the ban by the Eurozone countries.
When the definition of voluntary is so tenous---- who would want to risk using CDS to hedge their bets?
Only, the truly gungho cowboys shorts, truly naked and w/o underlying skin in the game but aiming for a high odds win would bet on such a risky outcome.
Thursday, October 27, 2011
US GDP growth for 3Q2011
US GDP growth for 3Q2011
Total 2.5%
Overall, 3Q GDP growth rate is almost double 2Q GDP rate and US GDP growth appears to be on the uptrend, again.
By Components
1) Private Consumption Expenditure (PCE)..................1.72%
2) Gross Private Domestic Investments (GPDI).............0.52%
3) Net Export of Goods & Services (NEGS)..................0.22%
4) Government consumption expenditures and................0.0%gross investment (GCE &GI)
PCE
The Good news is that it is PCE i.e. Consumers that is driving growth.
Consumer driven growth is good not just for the US but also for those that trade with the US.
Within PCE, Durable Goods contributed 0.35% and Services was the star with 1.38%.
GPDI
Within GPDI, FI (Fixed Investments) at 1.60% more than offset declines in PI (Private Inventories) -ve 1.08%.
Non Residential was the star contributing 1.54%, with Residential showing a meek 0.05% out of the 1.60%
GCE &GI
Net spends of 0.6% by the Federal Govt was offset by 0.6% shrinkage by Local Govts
Real DPI (disposable personal income) decreased 1.7 % (vs an increase of 0.6 % in 2nd Q)
% PS (personal saving rate -- saving as a percentage of disposable personal income) was 4.1
% in 3Q (vs 5.1% in 2Q).
Eurozone news
http://www.reuters.com/article/2011/10/27/us-eurozone-idUSTRE79I0IC20111027
Euro zone strikes deal on second Greek package
Under the deal, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of GDP by 2020, from 160 percent now.
At the same time, the euro zone will offer "credit enhancements" or sweetners to the private sector totaling 30 billion euros. The aim is to complete negotiations on the package by the end of the year, so that Greece has a full, second financial aid program in place before 2012.
The value of that package, EU sources said, would be 130 billion euros -- up from 109 billion euros when a deal was last struck in July, an agreement that subsequently unraveled.
"The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis that is sweeping across the euro zone," French President Nicolas Sarkozy told reporters afterwards.
As well as the deal on deeper private sector participation in Greece -- which emerged after Sarkozy and German Chancellor Angela Merkel personally engaged in the negotiations with bankers -- euro zone leaders also agreed to scale up the European Financial Stability Facility, their 440 billion euro ($600 billion) bailout fund set up last year.
The fund has already been used to provide help to Ireland, Portugal and Greece, leaving around 290 billion euros available. Around 250 billion of that will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros, which will be deployed in a variety of ways.
Leaders hope that will be enough to stave off any worsening of the debt problems in Italy and Spain, the region's third and fourth largest economies respectively.
The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from China and Brazil.
The methods could be combined, giving the EFSF greater flexibility, the euro zone leaders said.
"The leverage could be up to one trillion (euros) under certain assumptions about market conditions and investors' responsiveness in view of economic policies," said Herman Van Rompuy, the president of the European Council.
"There is nothing secret in all this, it is not easy to explain but we are going to more with our available money, it is not that spectacular. Banks have been doing this for centuries, it has been their core business, with certain limits."
PROOF OF THE PUDDING WITH MARKETS
As with the July 21 agreement, which quickly broke down when it became difficult to secure sufficient private sector involvement and market conditions rapidly worsened, the concern is that Thursday's deal will only work if the fine print can be promptly agreed with the private sector, represented by the Institute of International Finance.
Charles Dallara, the managing director of the IIF, said those he represented were committed to making the deal work.
"On behalf of the private investor community, the IIF agrees to work with Greece, euro area authorities and the IMF to develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors with the support of a 30 billion euro official ... package," he said in a statement.
"The specific terms and conditions of the voluntary PSI (private sector involvement) will be agreed by all relevant parties in the coming period and implemented with immediacy and force. The structure of the new Greek claims will need to be based on terms and conditions that ensure (net present value)loss for investors fully consistent with a voluntary agreement."
Euro zone leaders will be hoping the agreement, which will also be accompanied by a recapitalization of the European banking sector by around 106 billion euros, will finally draw a line under a crisis that has roiled financial markets and threatened to tear apart the euro single currency project.
As with previous deals that have come unstuck, the test will be how financial markets respond once they have digested the details and picked apart the seams of the agreement.
"This is broadly what the market was expecting and I do not see any downside surprise here. Still we have to wait and see more details," said Dan Dorrow, director of research at Faros Trading in Stamford, Connecticut, speaking before the final deal was reached but after some details had emerged.
"They have good intentions and are going in the right direction. This represent a few steps away from the cliff. However, we have to wait for more concrete details but this obviously does not disappoint."
Jose Manuel Barroso, the president of the European Commission, said the final details on the Greek package, which follows a programme of 110 billion euros of loans granted to the country last year, would only be worked out by year-end.
And EU finance ministers are not expected to agree on the nitty-gritty elements of how the scaled up EFSF will work until some time in November, with the exact date not fixed.
As part of efforts to attract investors into the special purpose vehicle attached to the EFSF, Sarkozy said he would talk to Chinese President Hu Jintao in the coming days. Beijing has so far been a big buyer of bonds issued by the EFSF, which is triple-A rated by credit agencies.
Earlier, U.S. stocks rallied after news emerged of the intention to boost the power of the EFSF fund, while the euro fell as investors awaited details that are unlikely to be forthcoming until next month.
ITALIAN INTENT
As well as the three-way package to strengthen their crisis fighting powers and try to resolve the situation in Greece, euro zone leaders called on Italy to take more rapid action on pension reforms and other structural measures to try to avoid the economy heading the same way as Greece.
Prime Minister Silvio Berlusconi has promised to raise the retirement age to 67 by 2026, and pursue other adjustments to the country's economic model, steps the EU praised but said would only be positive if they were implemented.
"The key is implementation. This is the key. It is not enough to make commitments, it is necessary now to check if they are really implementing," said Barroso.
Leaving the summit venue at 4.30 a.m., Jean-Claude Trichet, the outgoing head of the European Central Bank, said he was cautiously optimistic that the deal could help stabilize the unrest in European financial markets and economies.
"What I heard in this European Council was the expression of the will of the heads. That is in my opinion extremely important," he told reporters. "What is backing this orientation is the will, the collegial will, if I may, of the heads of state and government that are behind it. But again no complacency -- very hard work, very hard work."
_______________________
My Thots.....
A comprehensive package?
Yes, by far the most comprehensive so far.
Not only does the package covers much ground, the fire power has been increased whilst the size of the possibility of a Greek default has been cut down to size with the 50% haircut; that haircut agreed with the bank lobby IIF essentially and primarily downsized the problem!!
That the deal was hammered out at 4am European time, shows the immense nature of the task.
Merkel had to get past the Bundestag and then hammer out the deal with the rest of the 17 nations with whimper boy Cameron sniping on the side.
Credit goes to Merkel, whom it seems is a wily politican, able to let the crisis roil and boil so as to create the necessary stimulus/impetus to get the divergent parties to have a stake in the solution seeking process.
How the EFSF will be leveraged remains to be negotiated but the Germans got their way--- the ECB can buy bonds to help support the bonds of Eurozone countries but with the word "peripheral" removed from between the 2 words in yellow; in the draft commuinique.
Put simply, in times of distress the ECB can buy bonds ( but the words, bonds of peripheral Eurozone countries simply could not stay in the draft).
The Recaps should work out as each national govt will be responsible for guaranteeing thier own portion of the banks and FIs --- spread out this way the sum of 100b Euros is not onerous to any one of the more highly exposed core nations (i.e. Germany & France).
For Greece, itself, whose banks own 30% of the sovereign debt baggage, the 50% haircut probably might jsut do the trick.
2 things must happen henceforth; for the Eurozone crisis to abate-
1) the equity mkt has voted "Yes" emphatically; which is as it is expected to do so!!
2) Next, the spreads on the Italian and Spanish debt to German bunds must now narrow and the CDS for insuring these bonds must plunge.
Check out No 2), for many times they have diverged and told different stories!! i.e the equity mkts and the bonds mkts differ!!
When they agree, the vigilantes have finally been deterred!!
Euro zone strikes deal on second Greek package
BRUSSELS |
BRUSSELS (Reuters) - Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.The agreement was reached after more than eight hours of hard-nosed negotiations involving bankers, heads of state, central bankers and the International Monetary Fund and aims to draw a line under spiraling debt problems that have threatened to unravel the European single currency project.Under the deal, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of GDP by 2020, from 160 percent now.
At the same time, the euro zone will offer "credit enhancements" or sweetners to the private sector totaling 30 billion euros. The aim is to complete negotiations on the package by the end of the year, so that Greece has a full, second financial aid program in place before 2012.
The value of that package, EU sources said, would be 130 billion euros -- up from 109 billion euros when a deal was last struck in July, an agreement that subsequently unraveled.
"The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis that is sweeping across the euro zone," French President Nicolas Sarkozy told reporters afterwards.
As well as the deal on deeper private sector participation in Greece -- which emerged after Sarkozy and German Chancellor Angela Merkel personally engaged in the negotiations with bankers -- euro zone leaders also agreed to scale up the European Financial Stability Facility, their 440 billion euro ($600 billion) bailout fund set up last year.
The fund has already been used to provide help to Ireland, Portugal and Greece, leaving around 290 billion euros available. Around 250 billion of that will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros, which will be deployed in a variety of ways.
Leaders hope that will be enough to stave off any worsening of the debt problems in Italy and Spain, the region's third and fourth largest economies respectively.
The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from China and Brazil.
The methods could be combined, giving the EFSF greater flexibility, the euro zone leaders said.
"The leverage could be up to one trillion (euros) under certain assumptions about market conditions and investors' responsiveness in view of economic policies," said Herman Van Rompuy, the president of the European Council.
"There is nothing secret in all this, it is not easy to explain but we are going to more with our available money, it is not that spectacular. Banks have been doing this for centuries, it has been their core business, with certain limits."
PROOF OF THE PUDDING WITH MARKETS
As with the July 21 agreement, which quickly broke down when it became difficult to secure sufficient private sector involvement and market conditions rapidly worsened, the concern is that Thursday's deal will only work if the fine print can be promptly agreed with the private sector, represented by the Institute of International Finance.
Charles Dallara, the managing director of the IIF, said those he represented were committed to making the deal work.
"On behalf of the private investor community, the IIF agrees to work with Greece, euro area authorities and the IMF to develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors with the support of a 30 billion euro official ... package," he said in a statement.
"The specific terms and conditions of the voluntary PSI (private sector involvement) will be agreed by all relevant parties in the coming period and implemented with immediacy and force. The structure of the new Greek claims will need to be based on terms and conditions that ensure (net present value)loss for investors fully consistent with a voluntary agreement."
Euro zone leaders will be hoping the agreement, which will also be accompanied by a recapitalization of the European banking sector by around 106 billion euros, will finally draw a line under a crisis that has roiled financial markets and threatened to tear apart the euro single currency project.
As with previous deals that have come unstuck, the test will be how financial markets respond once they have digested the details and picked apart the seams of the agreement.
"This is broadly what the market was expecting and I do not see any downside surprise here. Still we have to wait and see more details," said Dan Dorrow, director of research at Faros Trading in Stamford, Connecticut, speaking before the final deal was reached but after some details had emerged.
"They have good intentions and are going in the right direction. This represent a few steps away from the cliff. However, we have to wait for more concrete details but this obviously does not disappoint."
Jose Manuel Barroso, the president of the European Commission, said the final details on the Greek package, which follows a programme of 110 billion euros of loans granted to the country last year, would only be worked out by year-end.
And EU finance ministers are not expected to agree on the nitty-gritty elements of how the scaled up EFSF will work until some time in November, with the exact date not fixed.
As part of efforts to attract investors into the special purpose vehicle attached to the EFSF, Sarkozy said he would talk to Chinese President Hu Jintao in the coming days. Beijing has so far been a big buyer of bonds issued by the EFSF, which is triple-A rated by credit agencies.
Earlier, U.S. stocks rallied after news emerged of the intention to boost the power of the EFSF fund, while the euro fell as investors awaited details that are unlikely to be forthcoming until next month.
ITALIAN INTENT
As well as the three-way package to strengthen their crisis fighting powers and try to resolve the situation in Greece, euro zone leaders called on Italy to take more rapid action on pension reforms and other structural measures to try to avoid the economy heading the same way as Greece.
Prime Minister Silvio Berlusconi has promised to raise the retirement age to 67 by 2026, and pursue other adjustments to the country's economic model, steps the EU praised but said would only be positive if they were implemented.
"The key is implementation. This is the key. It is not enough to make commitments, it is necessary now to check if they are really implementing," said Barroso.
Leaving the summit venue at 4.30 a.m., Jean-Claude Trichet, the outgoing head of the European Central Bank, said he was cautiously optimistic that the deal could help stabilize the unrest in European financial markets and economies.
"What I heard in this European Council was the expression of the will of the heads. That is in my opinion extremely important," he told reporters. "What is backing this orientation is the will, the collegial will, if I may, of the heads of state and government that are behind it. But again no complacency -- very hard work, very hard work."
_______________________
My Thots.....
A comprehensive package?
Yes, by far the most comprehensive so far.
Not only does the package covers much ground, the fire power has been increased whilst the size of the possibility of a Greek default has been cut down to size with the 50% haircut; that haircut agreed with the bank lobby IIF essentially and primarily downsized the problem!!
That the deal was hammered out at 4am European time, shows the immense nature of the task.
Merkel had to get past the Bundestag and then hammer out the deal with the rest of the 17 nations with whimper boy Cameron sniping on the side.
Credit goes to Merkel, whom it seems is a wily politican, able to let the crisis roil and boil so as to create the necessary stimulus/impetus to get the divergent parties to have a stake in the solution seeking process.
How the EFSF will be leveraged remains to be negotiated but the Germans got their way--- the ECB can buy bonds to help support the bonds of Eurozone countries but with the word "peripheral" removed from between the 2 words in yellow; in the draft commuinique.
Put simply, in times of distress the ECB can buy bonds ( but the words, bonds of peripheral Eurozone countries simply could not stay in the draft).
The Recaps should work out as each national govt will be responsible for guaranteeing thier own portion of the banks and FIs --- spread out this way the sum of 100b Euros is not onerous to any one of the more highly exposed core nations (i.e. Germany & France).
For Greece, itself, whose banks own 30% of the sovereign debt baggage, the 50% haircut probably might jsut do the trick.
2 things must happen henceforth; for the Eurozone crisis to abate-
1) the equity mkt has voted "Yes" emphatically; which is as it is expected to do so!!
2) Next, the spreads on the Italian and Spanish debt to German bunds must now narrow and the CDS for insuring these bonds must plunge.
Check out No 2), for many times they have diverged and told different stories!! i.e the equity mkts and the bonds mkts differ!!
When they agree, the vigilantes have finally been deterred!!
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