Investors are wary as inspectors from the EU and IMF head to Greece in order to forensically scrutinize their revised austerity plans. German Chancellor Angela Merkel has her own issue, attempting to defuse a revolt within her own government ahead of the absolutely crucial vote on Thursday to expand Europe’s bailout fund. The international auditors return to Athens on Thursday to deliver a verdict on whether or not Greece’s tougher austerity measures qualify for aid to avert a default that would plunge the country into bankruptcy.
Inspectors from the European Union (EU) and International Monetary Fund (IMF) quit Greece on September 2, after the government failed to convince its measures were robust enough (in terms of deficit cuts and economic reforms) to deserve further payments under its €110 billion bailout. Before returning, the EU/IMF mission, known as the “troika,” demanded written assurances by Greek authorities that the new pledges will be met. Prime Minister George Papandreou and Finance Minister Evangelos Venizelos provided assurances in letters they sent to the troika. The contents were not made public, but the troika visit is conditional on the letters being convincing. Analysts expect the talks to smooth the path for the sixth bailout tranche for Greece, money the country needs to quite simply avoid running out of cash next month plunging the euro zone into an even deeper crisis.
Joerg Kraemer, an economist at Commmerzbank;
I think euro zone finance ministers will in the end release the next tranche of bailout payments for Greece. They will not dare turning off the tap on Greece right now, it’s a political decision.
Commodity stocks drove Wall Street down in late Wednesday trade, the declines in energy and metals prices hit investor concerns regarding overall global economic weakness and Europe’s debt crisis. A seven percent drop in the price of copper (a leading indicator for the global economy) led to a drop of 4.5 percent in the S&P materials index. Silver plunged 5 percent to lead losses in 23 of 24 commodities tracked by the S&P GSCI Index. This commodities gauge has slumped circa ten percent since the end of June, heading for its worst quarterly loss since a 44 percent plunge in the fourth quarter of 2008
Wednesday’s final declines places the SPX on course for its worst quarter since the financial crisis in the fourth quarter of 2008. The four day rout last week erased $1 trillion from U.S. equities amid concern Greek insolvency and default is inevitable. The decline left the S&P 500 trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets – Bloomberg.
The euro also reversed early gains versus the dollar, investors watched for signs of progress in Europe’s efforts to stem the debt crisis. Treasuries trimmed losses, the 10-year note’s yield capped the biggest four day increase since January 2009. The SPX lost 2.1 percent to 1,151.06 at the close in New York after climbing 0.8 percent earlier and rallying 4.1 percent over the previous three sessions. The euro weakened 0.2 percent erasing a 0.8 percent advance. Ten-year yields rose two basis points to 1.997 percent. Oil lost 3.8 percent after U.S. supplies increased last week.
Man Group Plc crashed a stunning twenty five percent, the most since November 2008, after the world’s biggest hedge fund said its assets under management will decline by $6 billion amid the “suppressed” demand for its investment products.
The SPX closed down 2.07%, the Russell index collapsed by 4.51% to leave it negative year on year. The UK FTSE closed down 1.44%, the DAX, CAC, STOXX, closed down by a mean of approx.1%. The FTSE equity future is currently down circa 1% and the SPX future is flat. The CAC future is down circa 1% and the DAX future down 0.53%. Sterling is down versus dollar, yen and flat versus the franc. The Aussie dollar has fallen hard versus the USA dollar. The euro has fallen versus all the major pairs.
Publications of note that may affect the morning London session sentiment include the following;
07:00 UK – Nationwide House Prices Sept
09:30 UK – Net Consumer Credit Aug
09:30 UK – Mortgage Approvals Aug
09:30 UK – M4 Money Supply Aug
10:00 Eurozone – Consumer Confidence Sept
10:00 Eurozone – Economic Confidence Sept
10:00 Eurozone – Industrial Confidence Sept.
Notwithstanding the troika ‘visit’ the various Eurozone consumer publications could affect market sentiment. Industrial confidence is expected to fall sharply – a survey of analysts by Bloomberg predicts a figure of -5, from last month’s figure of -2.9. Predictions for the other two surveys suggest similar readings to previous months.