It’s quite fascinating to note that whilst there is a Chinese delegation visiting Washington to meet with Barack Obama a European delegation is visiting Beijing. Whilst in the USA the Chinese officials have been very vocal their support of Europe (and the euro in isolation) similarly the European delegation in Beijing have been met with equal support. Yet it’s proved impossible for American to obtain any commitment from China as to concessions on the USA debt, tariffs, or strength of the renminbi (yuan). The Chinese appear to have (diplomatically) nailed their colours to the mast. This commitment and Germany and France producing positive GDP figures has appeared to negate the potential impact a disorderly Greece default would have on the markets…
China will invest in euro zone government debt and has confidence in the euro, the country’s central bank governor stated Wednesday, whilst also calling on European leaders to produce more attractive investment products for China. China, which holds the world’s largest currency reserves, can provide help through avenues including the central bank and its sovereign wealth fund, said People’s Bank of China Governor Zhou Xiaochuan.
Any bigger role in solving the debt crisis would be via the International Monetary Fund and the European Financial Stability Fund, or EFSF. Zhou Xiaochuan said in a speech at the University of International Business and Economics in Beijing;
[quote]We also hope that the euro zone and EU can innovate their mechanisms to offer new products that are more helpful for Sino-Europe cooperation. At the G20, our state leaders promised European leaders that, amid the global financial crisis and the Europe sovereign debt crisis, China will not cut the proportion of euro exposure in its reserves. Some people had cast doubt or suspicion over the currency, but for the People’s Bank of China, we have always been confident in the euro and its future. We strongly believe European countries can work together to handle the challenges. They are able to solve the sovereign debt crisis. The PBOC firmly supports the ECB’s recent measures to address the difficulties.[/quote]
Vice Finance Minister Zhu Guangyao, who is visiting the United States with leader-in-waiting Xi Jinping, also sought to reassure Europe of China’s support.
[quote]China’s commercial investment in Europe has continued, under the principles of safety, liquidity and appropriate returns. We have not adjusted out investment structure. That, it should be said, has been China offering its true trust and support at a crucial moment in European countries addressing their sovereign debt problems.[/quote]
Greece Deal Suspended
Time is running out for Greece, it faces default if it can’t meet 14.5 billion euros in debt repayments due on March 20, some EU leaders are suggesting that Athens should leave the euro zone currency union.
Euro zone finance ministers have shelved plans for a meeting on Wednesday on Greece’s new international bailout, citing that party leaders in Athens failed to provide the required commitment to reform. European Union ministers downgraded the talks to a telephone conference call, killing any chance of approving a 130 billion euro bailout on Wednesday which Greece needs to avoid a messy bankruptcy/disorderly default. Greece had failed to say how it would fill a 325 million euro gap in budget cuts promised for 2012 and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.
European Council President Herman Van Rompuy said whilst in Beijing leaders would do all they could to keep the 17 country euro zone together;
[quote]At the heart of the project, is the peace, prosperity and democracy in the European Union. So don’t underestimate the strong political will to defend the euro zone and that’s the message we want to convey.[/quote]
In China with European Commission President Jose Manuel Barroso, Van Rompuy is trying to secure investment for the ailing union, the two leaders are presenting a vision of a united, committed, stable bloc, committed to protecting all of its members and citizens.
Europe’s Economy Contracts
Europe’s economy contracted in the fourth quarter for the first time in 2 1/2 years as the region’s debt crisis undermined confidence and forced governments from Spain to Greece to toughen budget cuts. Gross domestic product in the 17-nation euro area fell 0.3 percent from the prior three months, the first drop since the second quarter of 2009, the European Union’s statistics office in Luxembourg said today. Economists forecast a drop of 0.4 percent, the median of 42 estimates in a Bloomberg News survey shows. In the year, the economy grew 0.7 percent.
Market Overview
Both Germany’s and France’s economies have performed better than economists forecast in the fourth quarter, despite the sovereign debt crisis ravaging economies of their smaller euro-area partners. GDP in Germany, Europe’s largest economy, fell 0.2 percent from the third quarter, beating economists’ median prediction for a 0.3 percent decline. The Federal Statistics Office in Wiesbaden also revised third- quarter growth to 0.6 percent from 0.5 percent. The French economy, Europe’s second largest, grew 0.2 percent in the fourth quarter, beating the median forecast for a 0.2 percent contraction.
European Equities climbed whilst commodities rallied to a six-month high after China pledged to invest in Europe’s bailout funds. Emerging-market shares gained the most in a week, while the dollar weakened.
The MSCI All-Country World Index added 0.6 percent at 9:20 a.m. in London, following a 0.4 percent drop yesterday. The MSCI Emerging Markets Index rose 1.1 percent. Standard & Poor’s 500 Index futures gained 0.5 percent. The Dollar Index fell 0.2 percent. The German 10-year bund yield rose one basis point and the similar-maturity Italian yield jumped eight basis points.
Market snapshot at 10:30 am GMT (UK time)
Asian Pacific markets enjoyed a very strong rally in the early morning session, the Nikkei closed up 2.30%, the Hang Seng closed up 2.14%, the CSI closed up 1.09% whilst the SET, the Thai main index closed up 1.81%. The Thai main market index has recovered remarkably since reaching its October 4th low of 855, at 1126 the index has recovered by circa 32%. The ASX 200 closed up 0.25%.
European indices have been buoyant in the morning session, the STOXX 50 is up 1%, the FTSE is up 0.32%, the CAC is up 0.97%, the DAX is up 1.22%, the ASE is down 2.23%. The SPX equity index future is up 0.62%, ICE Brent crude is $0.68 per barrel whilst Comex gold is up $9.80 an ounce.
Forex Spot-Lite
The euro strengthened 0.3 percent to $1.3175, and climbed 0.4 percent versus the yen. The pound weakened against 13 of its 16 most-traded peers before the Bank of England delivers its quarterly inflation report.
The pound fell versus the euro for a second day on speculation the Bank of England may signal it’s considering more bond purchases to stimulate the economy when it publishes economic and inflation forecasts today. The pound fell 0.4 percent against the euro to 83.99 pence at 10:00 a.m. in London, and was little changed at $1.5685, after dropping to $1.5645 yesterday, the least since Jan. 27.
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