Forex Market Commentaries - Reality Of Austerity Measures For Eurozone

The Reality Of Harsh Austerity Measures As Illustrated By Eurozone Member Ireland

Jan 5 • Market Commentaries • 9974 Views • 4 Comments on The Reality Of Harsh Austerity Measures As Illustrated By Eurozone Member Ireland

The impact of austerity measures is hitting hard in Ireland. Arguably the first major developed economy to suffer at the hands of the ‘Austerical’ technocratic impositions of the EU and IMF the country is now teetering on the edge of a ‘technical recession’ although to argue the technicalities of such a situation seems irrelevant given the obvious pain the country’s citizens are suffering. Ireland’s service sector slumped badly last month raising fears of a double-dip recession.

Data from Markit this morning has revealed that activity across Irish services companies fell in December, to 48.4 on its PMI index. The sector shrank (the 50-point mark separates expansion from contraction) for the first time since December 2010. Ireland’s EU imposed austerity package is continuing to strangle economic growth in the country, pushing it back into recession. The Irish economy contracted in the third quarter of 2011, with GDP tumbling by 1.9%. If it also shrank in the fourth quarter, which appears highly likely, then it would officially be back in recession.

The Irish situation is a foretelling and highlights the real ‘damage’ the austerity measures will cause to the wider Eurozone and to countries with larger economies (such as Italy) once the full impact of the measures take effect. Using Ireland as a yardstick Greece, a similar size economy to Ireland, is surely destined to enter into a deep recession, it’s austerity package was far more draconian than Ireland’s and Italy’s package is eye watering in comparison.

The sub text to the austerity measures is that the effects take time to physically bleed into the real economy; the words and diktat take months to have a visible impact, but once burrowed deep into the system the consequences can be quite devastating. Did the autocratic politicians and technocrats do enough to warn their citizens with regards to how damaging the austerity ‘packages’ would be once they unfolded? Unlikely, they’ll now simply duck for cover, and skulk, Machiavelli like, into the shadows and attempt to weather the storm of criticism..


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Market Overview

The euro is once again approaching an 11-year low versus the yen as France prepared to sells bonds today on concerns that the region’s governments and banks will struggle to raise funds. Will the full allocation be taken up is the question.

The 17-nation currency has slumped in the morning session versus most of its major peers after Greek Prime Minister Lucas Papademos warned that Greece may face economic collapse as soon as March. The Australian and New Zealand dollars weakened versus the greenback as losses in Asian stocks hit the demand for higher-yielding assets. The yuan dropped, China’s central bank lowered their daily reference rate by the most since November amid concern Europe’s debt crisis will cool demand for the nation’s goods.

The euro was little changed at 99.16 yen at 8:35 a.m. in London after falling as much as 0.2 percent to 99.07 yen. It touched 98.66 yen on Jan. 2, the weakest since December 2000. Europe’s common currency was 0.2 percent weaker at $1.2926. The dollar was also little changed at 76.80 yen.

The euro has fallen by 2.8 percent over the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as investors sought safety amid the region’s turmoil. The dollar rose 1.2 percent and the yen climbed 2.6 percent.

The pound has reached its highest level in 15 months versus the euro as debt-crisis concerns deepened as France prepares to sell up to 8 billion euros of bonds this morning. The pound climbed 0.3 percent to 82.65 pence per euro at 9:00am UK time after reaching 82.57 pence, the strongest since Sept. 13, 2010. Sterling fell 0.2 percent to $1.5587 and dropped 0.1 percent to 119.69 yen.

Sterling has risen 3.1 percent against a basket of nine developed-market peers in the past six months, making it the third-best performer after the Japanese yen and the U.S. dollar, according to Bloomberg Correlation-Weighted Indexes.

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

The Asian session ended with most major indices down. The Nikkei closed down 0.83%, the CSI down 0.97% but the Hang Seng closed up 0.46%. The ASX 200 closed down 1.08%. in Europe the main bourse indices are down, the STOXX 50 down 1.09%, the UK FTSE down 0.56%, the CAC down 0.95%, the DAX down 0.59%, the MIB down 1.79%, the IBEX down 1.79% and the ASE is down 1.7% (51.8% year on year).

Economic calendar releases to be mindful of on or before N.Y. opens

13:15 US – ADP Employment Change December
13:30 US – Initial & Continuing Jobless Claims Weekly
15:00 US – ISM Non-Manufacturing Index December

Employment data is the big news of the day preceding the NFP figure on Friday. A Bloomberg survey of analysts forecasts an increase of 178,000 from the ADP figures, compared with last month’s 206,000 rise. A Bloomberg survey forecasts initial jobless claims of 375,000, compared with the previous figure of 381,000. A similar survey predicts 3,570,000 for continuing claims, compared to the previous figure of 3,601,000.

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