Weekly Reports | Jun 17 2011
By Greg Peel
Friday night and the ensuing weekend will be a suspenseful time in Europe. EU and IMF officials will be meeting on Sunday to see if they can't nut out a solution to providing Greece with a another round of bail-out funds on top of the existing total, but success here means Germany will have to back down on its insistence Greek debt is restructured, one presumes. While France is intent on holding off on restructure, the biggest hurdle is the ECB who has stated emphatically that any restructure would constitute a “default” under eurozone rules and that means the ECB would not be allowed to hold Greek debt as collateral.
It seems thus cut and dried – a restructure would be pointless given such restrictions. Probably the worse outcome, nevertheless, would be another failure to reach any agreement. Of three possible outcomes – restructure, no restructure or no decision – the uncertainty implied by a lack of decision would be more destructive to market confidence than were a restructure to go ahead. A lack of decision would shift Greece even closer to the brink of default in the market's eyes.
But in the meantime, Greece needs to pass a fresh austerity bill through parliament to satisfy IMF conditions for receipt of a tranche of the already existing bail-out fund. The government is in chaos, and passage of the bill is in no way certain. No bill, no money. And no money, one presumes, would lead to Greece being unable to cover its obligations, ergo, default.
Will the EU-IMF let it get to this point? One might think not. Or could we end up with Greece being sacrificed, and the “ring-fenced” to prevent contagion to Portugal et al? Seems dangerous. It brings back thoughts of Lehman.
Either way we may have a nervous but flat night tonight in offshore markets if a waiting game is required. Or all hell could break loose on the news flow.
It rather makes next week's economic data releases somewhat of an afterthought, but there are still some important ones. And let's not forget the US currently has its own issues to deal with.
Tonight is the US sees the Conference Board leading economic index and the fortnightly UMich consumer sentiment index. Next week sees existing and new home sales and the FHFA housing market sentiment index, along with the Chicago Fed national activity index and durable goods.
The Fed will release a new monetary policy statement on Wednesday and Ben Bernanke will hold another one of his four-per-year press conferences afterward. One presumes there's little more the Fed can say at this point that hasn't already been said, but traders will be jumpy anyway. And on Friday, the week will culminate in the final revision of US March quarter GDP.
One also presumes there will not be anything surprising in the minutes of the RBA's June meeting which will be released on Tuesday. No doubt Glenn Stevens' speech this week summed up current RBA policy. It's a quiet week for Australia economically speaking, with the ABARE second quarter commodities forecasts and the Conference Board leading index being the other highlights.
Greece has again become a distraction from the underlying performance of the eurozone economy, but ECB monetary policy is also is the frame. Trichet hinted at a July rate rise at the ECB's June meeting, but have circumstances changed? Next week sees both the ZEW survey and the German IFO business survey which are popular indicators of the state of the European economy.
Next week Japan will also release its May trade balance, which should provide some indication of whether the expected turnaround is progressing.
For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.
