Despite the efforts of the greatest economic minds available to the European ministers the very best the forecasters, quants, policy ‘makers and shakers’ could devise during the tortured weeks of ‘Merkozy’ meetings was leveraging the initial bailout fund by five times its value to then (fingers crossed) sell the Eurobond paper to Japan, Asia and any BRICS nation that would be prepared to buy into the plan on the basis that if they didn’t their largest market might implode.
Having had time to absorb the overall impact of the provisional decisions reached last week the Greek prime minister has finally suggested that the Greek people should have the final say on an austerity package that will cripple their country for decades, far beyond the negative 5.5% growth predicted for 2012. The secular bear market rally experienced last week was severely over cooked, the market literally bought hope, investors didn’t buy the rumour neither are they selling the news this morning. The words “orderly default” and “contagion” will now be constantly re-visited and regurgitated over the coming months with the referendum scheduled for January 2012.
Dora Bakoyanni, former foreign minister and leader of the small centre-right Democratic Alliance party.
[quote]I never expected Papandreou to take such a dangerous and frivolous decision. All the international media will say that Greece itself is putting the EU deal at risk.[/quote]
Rainer Bruederle, a leader in German Chancellor Angela Merkel’s centre-right coalition said on Tuesday he was “irritated” by Papandreou’s announcement, the parliamentary floor leader for the Free Democrats said;
[quote]This sounds to me like someone is trying to wriggle out of what was agreed – a strange thing to do. One can only do one thing: make the preparations for the eventuality that there is a state insolvency in Greece and if it doesn’t fulfill the agreements, then the point will have been reached where the money is turned off.[/quote]
Once again the mainstream media will point the finger at Greece when the elephant in that corner of the Eurozone room is Italy whose bond costs are dangerously approaching levels at which most commentators would suggest are unsustainable. The key inflection point for Italy’s bonds could be regarded as 7.0%, if that figure is breached then then Italy’s solvency may begin to be brought into question.
On Monday the five-year Italian yield rose 16 basis points, or 0.16 percentage point, to 5.91 percent at 4:04 p.m. London time after climbing to 5.99 percent, the highest since September 1997. The 4.75 percent note due in September 2016 fell 0.635, or 6.35 euros per 1,000-euro ($1,396) face amount, to 95.490. Two-year yields increased as much as 33 basis points to 5.08 percent, the most since 2000.
Amongst the banks who have been hit due to the poor sentiment prevalent this mornings is Credit Suisse. Credit Suisse Group AG, the second largest Swiss bank, said it will cut about 1,500 more jobs and reorganise its securities unit after the division reported its first quarterly loss since 2008. Credit Suisse fell the most in almost three years in Zurich trading as third-quarter net income of 683 million Swiss francs ($776 million) missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg. Credit Suisse dropped as much as 10 percent, the biggest intraday decline since December 2008, and was down 9.7 percent at 23.11 francs as of 9:12 a.m. in Zurich. The stock is down 37 percent this year, compared with a 30 percent decline at larger rival UBS AG and a 27 percent fall in the 46-company Bloomberg Europe Banks and Financial Services Index.
China’s largest manufacturers produced at their slowest pace in October since early 2009, purchasing managers’ data shows, signs of an improvement at smaller firms and a sharp fall in factory-gate prices suggest no swift change to interest rates. China’s official purchasing managers’ index (PMI) fell to 50.4 in October from 51.2 in September, negating expectations of a rise. The National Bureau of Statistics suggested the drop on weak European and U.S. economies.
Australia’s central bank has cut interest rates for the first time since 2009. The Reserve Bank of Australia this morning reduced its key lending rate to 4.5 percent from 4.75 percent, saying Europe’s woes are starting to hit Asian trade. RBA Governor Glenn Stevens indicated that easing inflation had allowed the nation’s first rate cut since April 2009. The local currency and government bond yields fell.
Markets
The Nikkei closed down 1.77%, the Hang Seng closed down 2.49% and the CSI closed up 0.08%. the ASX 200 closed down 1.52% and the SET is down 1.92%. European markets have reacted badly to Greece’s suggestion of a referendum. The euro has fallen for a third day against the dollar and German government bonds have jumped. Commodities slid as China’s manufacturing growth cooled. The MSCI All Country World Index dropped 1.3 percent as of 8:02 a.m. Standard & Poor’s 500 Index futures lost 1.4 percent. Australia’s dollar slumped 1.3 percent after the central bank cut interest rates. German 10-year bund yields decreased 17 basis points to 1.86 percent. Oil retreated for a third day. Copper fell 1.7 percent.
European bourses have been hit hard in the early part of the morning trading session, at 9.14am GMT the STOXX is down 3.35%, the FTSE is down 2.06%, the CAC 3.07% and the DAX is down 3.36%. the MIB is down 3.55%. The ASE, Athens main stock exchange index is down 5.87 %, its year on year fall is now 46.25%.
Economic calendar releases that may affect the afternoon sessions’ sentiment
14:00 US – Construction Spending September
14:00 US – ISM Manufacturing October
A survey of analysts compiled by Bloomberg showed a predicted figure of 52 for manufacturing from last month’s figure of 51.6.
