Daily Market Reports | Sep 19 2011
By Greg Peel
US Treasury secretary Timothy Geithner was invited to attend the scheduled EU finance ministers' meeting in Poland over the weekend, marking the first time a non-European official has attended. Geithner could be forgiven for expecting that the invitation represented a significant step in the process to resolve the eurozone crisis, assuming that Europe was reaching out to the US for advice. Markets could be forgiven for assuming the ministers were looking to bolster the EFSF into something more substantial to support European sovereigns and banks, given Geithner was heavily involved in the implementation of the 2008 TARP in the US which, one might argue, saved the world at the time.
Geithner was thus no doubt taken aback by the icy reception.
“Why would we turn to the world's most heavily indebted nation for advice?”. “What is he doing here?” These questions generally sum up the prevailing feeling at the meeting. So rather than preparing today to trade in markets provided with a confidence boost from a new, heftier EFSF proposal, no progress has been made, the proposed facility remains limited at an inadequate E440bn, and confidence will likely fall to a new low. The latest response to the crisis from Europe's politicians is to delay the decision to hand over the next tranche of the bail-out package to Greece until October 3. Greece will run out of funds before the end of October. Holding up the proceedings is Finland's insistence on collateral in exchange for its contribution – a request European officials are yet to figure out how to accede to. Other members stand ready to also insist on collateral if the Finnish request is granted.
As to the EFSF, Germany has delayed its parliamentary vote on the facility to September 29. Austria has also delayed. France, Spain, Italy, Belgium and Luxembourg have all now voted in favour, leaving a mere twelve parliaments yet to vote. On the matter of Greece in particular, Greece's finance minister suggested over the weekend “The comments and analyses about an imminent default or bankruptcy are not only irresponsible but also ridiculous”. Up to now the minister has been well respected but to use words such as “ridiculous” in the context of dire liquidity issues have in the past proven the last act of a fool.
Dithering, delays and denial. The markets are not going to like it anymore than they have for the past two years. There is little reason to assume this week will open with anything other than markets again pricing in a Greek default. The world's major central banks have provided a temporary life line ahead of decisive political action but action remains a vague hope. As many have assumed for some time now, only when Europe is on the absolute brink of collapse will politicians be jolted into doing something effective.
In anticipation of something concrete and confidence-boosting out of Poland over the weekend, on Friday night the Dow rose 75 points or 0.7% and the S&P gained 0.6% to 1216. The SPI Overnight was up 8 points or 0.2% but these movements can largely be ignored under the circumstances. The Asian region will probably feel the brunt of market frustration today ahead of the European and US sessions tonight. US markets in particular will not be very happy about the Geithner snub.
Other market movements on Friday are likewise somewhat irrelevant. The US dollar index was up 0.4% to 76.54 and the Aussie up 0.2% to US$1.0362. Gold was up US$22.70 to US$1812.50/oz. Base metals were around a percent lower and Brent off slightly at US$115.10/bbl.
The lack of resolution in Europe will no doubt be a central consideration of this week's two-day Fed monetary policy meeting which begins tomorrow night. US economic growth is under enough internal pressure without the external pressure of loss of global confidence. On balance, there is little in recent US economic data to suggest the Fed needs to announce a QE3 package on Wednesday night which involves another balance sheet expansion through debt purchases as was the case for QEs 1 and 2. Markets are still looking toward a balance sheet “twist” instead, in which the total remains the same but the profile of maturities is skewed towards the long end by swapping from short to long. Whatever the case, markets will be holding their breath once more at 2.15pm New York time on Wednesday.
Data-wise it's a housing-centred week in the US this week, with the housing market sentiment index out tonight, housing starts on Tuesday, existing home sales on Wednesday and the FHFA house price index on Thursday. It's also a week for leading economic indices across the globe with the US release on Thursday after Japan and China on Tuesday and Wednesday. Australia has two goes at it, with Westpac reporting its leading index on Wednesday and the Conference Board its equivalent on Friday.
Another highlight for Australia this week will be the release of the minutes of the September RBA meeting on Tuesday. Economists will be looking for signs that the central bank has some contingency plan in consideration were the European situation to deteriorate further. To date, Europe has merely prevented a rate rise. On the Wednesday after the release, RBA deputy governor Ric Battelino is scheduled to speak.
There are some important economic releases in Europe this week, but they will take a back seat. On Thursday, HSBC will publish its “flash” estimate of the September manufacturing PMI for China.
On the local stock front, the ex-dividend session continues with Monday again being the most crowded.
It's a busy week for FNArena media appearances, with Rudi on Sky Business on Wednesday at noon and myself on Friday at 2pm. On Thursday at 4.30pm FNArena's Market Insight program will analyse a particular Australian listed company of significant popularity. Rudi will also make an appearance on Switser (Sky Business) on Tuesday night.
Note that readers now have direct access to the Market Insight archive and live streaming on the day by simply clicking on the box on the website with the handsome faces.
For further global economic release dates and local company events please refer to the FNArena Calendar.
