Daily Market Reports | Feb 10 2012
By Greg Peel
The Dow closed up 6 points while the S&P added 0.1% to 1351 and the Nasdaq rose 0.4%.
Last night Greek prime minister Lucas Papademos announced that he and the opposition representatives had finally reached agreement on austerity measures after their marathon of negotiation. The last sticking point on pension cuts, which had Asian zone markets nervous for a period yesterday, has been overcome. The protagonists had been given somewhat of a deadline, within the greater deadline, given the EU finance ministers have already gathered in Brussels and will now assess the Greek leaders' tweaked offering.
We thus now await the ministers' approval and the approval of the ECB and IMF. Then the package has to go to the Greek parliament, and passage will depend on whether the government and opposition parties can ensure all their representatives toe the party line. Presuming that is the case, the troika should then give the green light to Greece's E120bn bail-out fund for 2012.
What of the other issue, that of the bond restructure? No new news there it seems, but now that the ECB has reluctantly agreed to take its own haircut on Greek bond holdings then presumably that can also go ahead. Nor have we heard anything new on Germany's demands for management of the Greek budget to be taken out of Greek hands – a demand the Greeks wholeheartedly rejected – as a condition of the bail-out. Perhaps we can now assume that Greece won't default in March when its big debt rollover is due.
So can we finally forget about Greece and move on? Not a chance. In April Greece holds a general election and the current polls suggest the Papademos government will be obliterated. The winners will come from the anti-EU Left, but as to whether that disparate group can form a government is unclear. What is clear is that the Greek parliament will swing firmly away from any meek path of EU submission. That E120bn does not come in one lump with a bow tied around it. It comes in periodic tranches, and for each tranche to be paid Greece must show the troika that it's doing the right thing budget wise. All through 2011 every tranche deadline threatened European collapse, so while we may be a little more sanguine in 2012 we still have to suffer the same torture.
And then there's the small matter of “what about me”. When the ECB conceded on a Greek haircut earlier in the week, Ireland immediately said “well we expect the same”. Portugal will be next, and then yada yada yada.
Wall Street desperately wants to forget about Greece. After two years of that which cows excrete from Europe, Wall Street has come to realise Europe always stumbles over the line in the end, if not before making the whole process as lengthy and painful as possible. The US stock market rally into 2012 has shown that financial markets have decided to move on regardless. Foresight or blind faith? We really don't know yet.
What we do know is that the supposedly positive news out of Greece last night has barely moved the Wall Street needle given the news is only confirmation of that already assumed.
The ECB had a monetary policy meeting last night and Mario Draghi left the cash rate unchanged at 1% as expected. He noted a little more stability in the European economy but voiced concerns over signs of credit tightening. He would not be drawn on just what sort of haircut the central bank would take on its Greek bonds but confirmed that it would not involve an ultimate loss.
The Bank of England is also worried about tightening credit, austerity headwinds and wider eurozone uncertainty. Enough to announce at its meeting last night that while the cash rate will remain at 0.5% the central bank will step up its quantitative easing. I think that makes it QE3 for the BoE.
The pound did not suffer as a result, and indeed the euro was also steady in a night of minimal currency movements. The US dollar index remains at 78.58 and the Aussie at US$1.0789. Gold is off a tad to US$1728.70/oz.
The big domestic news on Wall Street last night was that of a settlement to the long running investigation into spurious mortgage foreclosures stemming back to the beginning of the GFC. In a deal brokered by the government, America's five biggest lenders have agreed to “settle out of court” as it were with a US$25bn package to assist homeowners who lost their houses and homeowners who remain close to losing their houses. The deal was struck with 49 states (Oklahoma declined) and the president declared the settlement as a means of now moving forward.
US financial stocks did not take much of a hit on the news given the deal ends uncertainty surrounding what might otherwise have proven an interminable series of court cases. Indeed, Wall Street did very little at all last night.
A possible resolution in Greece and more monetary stimulus from the UK helped base metals to 1-2% gains in London last night. Oil's quiet advance is also now somewhat relentless, with West Texas rising US$1.04 to US$99.75/bbl and Brent US96c to US$118.69/bbl. While the WTI price really means little to anyone much, a move into triple digits usually has a psychological impact.
The US bond market had a risk-off feel about it last night as the ten-year yield jumped 7 basis points to 2.04%, mirroring an easing of yields in Greece.
The SPI Overnight rose 5 points.
The RBA will release its quarterly Statement on Monetary Policy today and China will publish its January trade balance. Newcrest ((NCM)) is the earnings season highlight today.
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