Taking a step back it has been incredible to witness the ‘volte-face’ performed by Greek politicians. How quickly the door has been slammed in the face of the democratic process and how those politicians have re-grouped in order to protect the banks and markets is breath taking. Not once but twice in the space of five days Greece’s highest elected officials have ridiculed public opinion and ran rough shod over their process. The anger and disappointment that not only have the Greek people been deprived of a referendum, but now a cosy cabal of the political elite has been chosen, (without any reference to the democratic process), is unlikely to heal the rift between the government and ‘ordinary’ Greeks.
Both sides in the Greek parliament will meet again today to decide who will be the head of the new government, with a separate meeting to discuss the time frame and the government’s mandate. Feb. 19 is the “most appropriate” date to hold new elections, according to a statement yesterday from the Finance Ministry, a month after the date which was provisionally ‘pencilled in’ to hold a referendum on the austerity measures.
The chatter in the mainstream media is now intensifying with regards to Italy, a country which needs to borrow circa €300 billion in 2012 to simply stay in the game. The travails of Europe’s third largest economy will also hit France whose banks not only have huge exposure to massive Greek write downs but are equally exposed to Italy’s predicament.
Italy’s Prime Minister Silvio Berlusconi’s majority is disappearing the day before a key parliamentary vote that could see his government ousted unless he steps aside. Even his closest allies are now pressuring him to step aside after the ‘contagion’ from the region’s sovereign debt crisis escalated. Italy’s borrowing costs to euro-era records. Two Berlusconi allies defected to the opposition last week, and a third quit late yesterday. Six others called for Berlusconi to resign and seek a broader coalition in a letter to newspaper Corriere della Sera. More than a dozen more are ready to ditch the premier’s coalition, Repubblica daily reported yesterday. Berlusconi said yesterday he was confident he still had a majority. The desertions may deprive him of the needed support in the lower house for tomorrow’s vote on the 2010 budget report.
Investor concern about Italy’s ability to cut the region’s second-biggest debt load sent the yield on the nation’s 10-year bond 20 basis points higher to 6.57 percent. The yield on 10-year Italian debt rose 20 basis points to 6.568 percent at 9:02 a.m. in Rome. That’s close to the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. That pushed the difference in yield, or spread, with the German securities about 23 basis points wider to 477 basis points. The difference in yield, or spread, with benchmark German bunds also widened to a euro-era record. In a bid to boost confidence.
Yunosuke Ikeda, analyst of foreign-exchange research at Nomura Securities Co.
[quote]The market’s focus is shifting to Italy. Yields on Italian bonds may continue to rise unless Berlusconi resigns. The euro is likely to inch lower amid the flow of rather bad news out of Europe.[/quote]
France was set to announce 8 billion euros or more in cuts and tax hikes on Monday, imposing more pain on voters to protect its credit rating and rein in its deficit in a gamble for President Nicolas Sarkozy six months from an election. Sarkozy’s centre-right government says extra savings are urgently needed to keep France’s finances from going off the rails, since it cut its growth forecast for next year to 1 percent from 1.75 percent last week.
Prime Minister Francois Fillon is due to announce the cuts at 1100 GMT on Monday and they come on top of 12 billion euros in savings the government announced just three months ago. Ratings agencies have been hinting they could cut France’s prized top credit rating because of its slowing growth and its potential liability for the cost of bailouts in the European debt crisis. Without ever mentioning the word “austerity,” ministers from Sarkozy’s centre-right government spent the weekend defending the need for fiscal vigilance amid fears of mounting debts in Western states. Preserving France’s coveted AAA credit rating through deficit reduction plans has been a key goal of Sarkozy, who in recent months has cast himself as a responsible steward amid the turmoil of the seemingly unending euro zone crisis.
European finance chiefs return to Brussels today on a mission to convince global leaders that they can shield countries such as Italy and Spain from the spreading debt crisis by bulking out their bailout fund. As political turmoil envelops governments in Athens and Rome, finance ministers from the 17-member euro area will work on the details of plans to increase the muscle of the European Financial Stability Facility. Leveraging the fund would aim to ramp up its spending capacity to 1 trillion euros ($1.4 trillion).
Even before the framework for the EU’s new tools is fleshed out, European leaders have struggled to entice investment from outside the region. Chancellor Angela Merkel said last week that G-20 nations wanted to know more before pledging money to the International Monetary Fund to lend to the EFSF. Merkel told reporters at the G-20 summit in Cannes, France, on Nov. 4 that there were “hardly any countries here that said they will join up” with the EFSF. French President Nicolas Sarkozy said a deal may not come before February.
The MSCI All Country World Index slipped 0.4 percent and the Stoxx Europe 600 Index decreased 1 percent at 8:02 a.m. in London. Standard & Poor’s 500 Index futures dipped 1 percent. The 17-nation euro weakened 0.4 percent to $1.3727 and lost 0.5 percent to 107.34 yen. The franc slumped after the central bank signalled it is ready to act if the currency’s strength threatens Switzerland’s economy. Italian 10-year bond yields jumped to a euro-era record. Gold rose 0.8 percent.
Market snapshot at 9:45 am GMT (UK time)
The Nikkei closed down 0.39%, the Hang Seng closed down 0.83% and the CSI closed down 0.99%. The ASX closed down 0.18% and the SET is currently up 0.09%. The STOXX is currently down 1.81%, the UK FTSE down 1.39%, the CAC down 1.52%, the DAX down 1.64%, down circa 13.4% year on year.
Currencies
The franc declined to a two-week low versus the euro on speculation that the Swiss National Bank will act to further limit its strength, the currency fell versus all 16 of its major peers tracked by Bloomberg after SNB President Philipp Hildebrand said the central bank expects it to weaken further, adding to bets the bank will adjust its cap of 1.20 francs per euro set on Sept. 6. The euro slid for a second day versus the dollar and the yen as Italian Prime Minister Silvio Berlusconi faces a vote tomorrow amid pressure to resign. The franc depreciated 1.2 percent to 1.2350 per euro as of 9:10 a.m. in London, after touching 1.2379, the weakest level since Oct. 20. It declined 1.8 percent to 90.05 centimes versus the dollar. The euro fell 0.6 percent to $1.3716 and lost 0.7 percent to 107.16 yen. The dollar fell 0.2 percent to 78.12 yen.
Swiss inflation unexpectedly slowed to a negative rate in October, data today showed. Consumer prices decreased 0.1 percent from a year earlier after rising 0.5 percent in September, the Federal Statistics Office in Neuchatel said today. Economists forecast prices to rise 0.2 percent. The franc, sought in times of financial turmoil, has risen 8.8 percent versus the euro in the past 12 months, threatening Swiss exports and boosting the risk of deflation.
The pound rose for a third day versus the euro as speculation that European leaders are failing to come to grips with the sovereign debt crisis boosted demand for British assets as a haven. Sterling extended its biggest weekly gain versus the 17- nation currency since January. The pound climbed 0.4 percent to 85.71 pence per euro at 8:48 a.m. London time. It rose 2 percent last week, the biggest increase since the five days though Jan. 7, when it strengthened by 3.2 percent. Sterling weakened 0.2 percent to $1.6002. The U.K. currency gained 0.7 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations.
There are no significant economic calendar data releases that may affect afternoon market sentiment.
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