Forex Market Commentaries - Eurozone and La Dolce Vita

La Dolce Vita – The Sweet Life, Full of Pleasure and Indulgence is Finally Over as the New Reality Begins to Takes Shape

Nov 4 • Market Commentaries • 1479 Views • No Comments

La Dolce Vita, Italian for “the sweet life” or “the good life” is a 1960 comedy-drama film written and directed by Federico Fellini.

The film is a story of a passive journalist’s week in Rome, and his search for both happiness and love that will never come. Generally cited as the film that marks the transition between Fellini’s earlier neo-realist films and his later art films, it is widely considered one of the great achievements in world cinema.

A rare moment of clarity has emerged from analysts and their words have been set free by certain formally passive mainstream media journalists. BNP Paribas analyst Luigi Speranza wrote in a research note late on Thursday;

Italy holds the key to the euro zone debt crisis. Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU.

“The pressure on Italy to solve its debt problems is increasing. Markets are still sceptical about Italy and another more expensive auction can’t be ruled out,” said Christian Reicherter, an analyst at DZ Bank in Frankfurt.

It’s quite a refreshing experience to witness analysts publishing opinions getting straight to the heart of the matter, whilst falling short of calling the Greece debacle “a side show” it could signal a move in the right direction in terms of debate on the real issue at the heart of Europe, “how to manage the perilous €600 billion bond debt of Italy?”

Whilst media focus is on the Greek government and its instability Prime Minister Silvio Berlusconi’s government also inched closer to collapse after more loyalists defected on Thursday. Italy is under severe pressure from financial markets and its European peers, and has agreed to have the IMF and the EU monitor its progress with long delayed reforms of pensions, labor markets and privatisation, senior EU sources said on Friday. It is Greece MK II by any other description.

Berlusconi apparently agreed to the ignominious intrusion in late-night talks with euro zone leaders and U.S. President Barack Obama on the sidelines of a G20 summit in Cannes, France. The concession by Berlusconi was an attempt to shore up his country’s perilous position on bond markets, where its borrowing costs soared well above 6 percent this week, raising doubts about its long-term ability to cope with a debt pile of 120 percent of gross domestic product.

Concern is growing that Italy, the Eurozone’s No. 3 economy and biggest government bond market, could go the way of Greece and require a bailout without rapid action. Berlusconi has repeatedly promised to make deep reforms, balance the budget in 2013 and trim the public debt, but there are doubts about his commitment. A clause in a draft communique for the Cannes summit, obtained by Reuters, showed Italy would only be held to bring its budget “close to” balance in 2013 as part of a package of economic pledges aimed at reducing economic imbalances.

European Central Bank President Mario Draghi has signalled he’d rather use interest rates than the printing press to bolster growth as the debt crisis drags the euro-area economy toward recession. Bond yields have soared in Italy and Spain, after euro-area leaders raised the prospect of Greece leaving the 17-nation currency bloc. Draghi believes the debt crisis is stifling growth and a “mild recession” is probable. The central bank will possibly lower rates next month to reverse the two increases carried out under Trichet earlier this year, economists said.

Athens will remain a focal point for policy makers and investors today as Prime Minister George Papandreou faces a confidence vote in parliament. The planned referendum on his country’s bailout was withdrawn yesterday after it split his party, hit financial markets and draw criticism from euro leaders that it may cost Greece its membership in the seventeen nation currency zone. Opposition leader Antonis Samaras rejected sharing power with Papandreou and has called on the premier to quit.

The squabbling over Greece’s future in the euro zone may push Europe’s economy into recession and reduce companies’ ability to compete internationally, according to executives of some of the region’s biggest corporations.

BMW, Bayerische Motoren Werke AG, is planning for slower economic growth next year and possibly a recession which may lead the world’s largest maker of luxury vehicles to reduce production, Chief Financial Officer Friedrich Eichiner said on an earnings conference call yesterday. Growth has slowed for high-end carmakers from a record pace in the first half as Europe’s debt crisis unsettles consumers. Daimler AG, maker of Mercedes-Benz, last month reported its first earnings decline since the third quarter of 2009, burdened by expenses for new models.

Most European stocks have variously climbed for a third day after Greece reduced the risk of a disorderly default by abandoning ideas of the referendum on a bailout plan. Asian shares gained while U.S. index futures were little changed. The Stoxx Europe 600 Index advanced 0.2 percent to 242.59 at 8:30 a.m. in London. The gauge has retreated 2.6 percent this week due to the Greek referendum issues surrounding the nation’s latest bailout package, spurring concern that a rejection of the measures may push the country into default. The MSCI Asia Pacific Index jumped 2.5 percent, while Standard & Poor’s 500 Index futures dropped 0.1 percent before the NFP jobs report.

 

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Commerzbank has declined 4.6 percent to after reporting a third-quarter loss as it wrote down the value of Greek government-debt holdings. The bank reported a net loss of 687 million euros after a 113 million-euro profit a year earlier, missing the average 679 million-euro analyst estimate. Royal Bank of Scotland Group Plc gained 1.9 percent to 23.24 pence, Britain’s biggest government-controlled bank posted a 63 percent fall in third-quarter profit as the sovereign-debt crisis eroded revenue at its securities unit. Operating profit, excluding accounting gains from so-called debt-valuation adjustments, fell to 267 million pounds from 726 million pounds a year earlier. Analysts had estimated a profit of 343 million pounds, according to a Bloomberg survey.

Chinese stocks rose in morning trade capping the biggest gain among major Asian indexes this week, as Greece signaled it won’t hold a referendum on a bailout package and on speculation China will take more measures to boost growth. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed for a fourth day, rising 20.20 points, or 0.8 percent, to 2,528.29 at the close. It gained 2.2 percent this week, the most among major Asian markets ranked by Bloomberg. The CSI 300 Index advanced 0.7 percent to 2,763.75. The Shanghai Composite has rebounded 9.1 percent from this year’s low on Oct. 21, after the government announced measures to help small businesses through easier access to bank loans and said it will lower the threshold for payment on value-added and business taxes for small companies.

The Shanghai Composite has fallen 10 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation that’s near a three-year high. It’s valued at 11.9 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Yields indicate banks are becoming more reluctant to lend, widening the difference between the rates for three-month dollar loans and the overnight index swap to a 28-month high. Billionaire investor George Soros said Greece faces the danger of a disorderly default, raising the spectre of a run on lenders in other countries. Ten-year yields were little changed at 2.08 percent at 8:58 a.m. London time, according to Bloomberg Bond Trader prices. The 2.125 percent security maturing in August 2021 traded at 100 14/32. The record low of 1.67 percent was set on Sept. 23.

Markets
Market snapshot reading at 10:15 am GMT (UK time)

The Nikkei closed up 1.86%, the Hang Seng closed up 3.12% and the CSI closed up 0.71%. The ASX 200 closed up 2.62%. European bourses have increased tentatively, naturally all eyes are on Greece and the vote of confidence in the Greek parliament this evening, Italy and any announcements from the G20. The STOXX is up 0.67%, the UK FTSE is up 0.76%, the CAC is up 0.70% and the DAX up 0.19%. The ASE (Athens main bourse) is down 0.85%, 49.53% down year on year. The SPX equity index future is flat. Spot gold is down $3 an ounce.

Economic calendar data publication that may affect market sentiment at or during the ‘New York’ session.

12:30 US – Change in Non-farm Payrolls October
12:30 US – Unemployment Rate October
12:30 US – Average Hourly Earnings October
12:30 US – Average Weekly Hours October

It’s NFP day on the USA. A Bloomberg survey of analysts yielded a median estimate of 95,000 new jobs created compared to a previous figure of 103,000. The median figure from a Bloomberg survey of analysts was a rate of 9.1% for unemployment which remains unchanged from last months figure.

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