The exiting bailout stories are scheduled to come thick and fast in 2014. The much heralded ‘poster boy’ for good austerity behaviour, Ireland, exited in late 2013. But despite the muted celebrations very little has changed visibly in the country’s economy. Unemployment is still incredibly high (in terms of European standards), whilst approximately 400K of the brightest and best have exited the country since 2009 in a brain drain not seen since the 1980’s. And had they not migrated the unemployment data would have been much worse. House prices collapsed by over 50% in certain areas and have shown little appetite in terms of a recovery.
Much has been made of the boom in tech start-ups in Ireland, however, that masks the reason why so many large tech companies such as Google and Paypal chose to set up in Ireland; an incredibly low corporate tax rate and tax breaks, combined with a compliant desperate work force prepared to accept extremely low wages.
On Monday we learned that Greece will be the next to leave a bailout programme imposed by the troika. Greece won’t be needing a third aid packages according to the country’s prime minister, Antonis Samaras, as he insisted that citizens could look to 2014 with confidence.
Samaras told long-suffering Greeks that the end of the country’s financial assistance plan was in sight after almost four years of painful austerity, and that the New Year would bring the prospect of normality.
[quote]In 2014 we will make the big step of exiting the loan agreement. In 2014, Greece will venture out to the markets again and start becoming a normal country. There will be no need for new loans and new bailout agreements.[/quote]
Greece is expected to finally leave recession in 2014, whilst investor confidence in the country has grown throughout 2013. The yield, or interest rate, on its 10-year bonds has fallen to around 8%, compared with 30% at the peak of the crisis, as traders regained faith that the debt would be repaid. Greek government bonds were one of the best-performing assets in 2013, returning approx. 47%.
Pending Sales of U.S. Existing Homes Rise Less Than Forecast
Contracts to purchase previously owned U.S. homes rose less than forecast in November, indicating higher borrowing costs are holding back the recovery in residential real estate. A gauge of pending home sales increased 0.2 percent, the first gain in six months, after a 1.2 percent drop in October that was larger than initially reported, the National Association of Realtors said today in Washington.
Futures positions
Hedge funds and other large speculators added to bets that the euro will rise versus the dollar as of Dec. 24 for a four straight week. The difference in the number of wagers on a gain in the shared currency compared with those on a decline, or net longs, totalled 32,172. Investors were short the euro as recently as Nov. 29.
Futures traders increased bets that the yen will decline against the greenback to their highest level since July 2007. The difference in the number of wagers on a decline in the yen compared with those on a gain, or net shorts, was 144,000, compared with net shorts of 130,223 a week earlier.
The greenback comprised 61.4 percent of total allocated foreign exchange reserves in the third quarter, down from 61.8 percent in the second quarter, according to International Monetary Fund data. The euro had the second-biggest allocation, with 24.2 percent, up from 23.9 percent.
Market overview at 10:00 PM UK time December 29th
The DJIA closed up 0.16%, the SPX down 0.02%, NASDAQ down 0.06%. Euro STOXX closed down 0.34%, CAC down 0.05%, DAX down 0.39% with the UK FTSE down 0.29%. Looking towards equity index futures the DJIA future is currently up 0.11%, SPX down 0.10%, NASDAQ down 0.13%. STOXX future is up 0.03%, DAX future up 0.15%, CAC future up 0.28% with the UK FTSE equity index future down 0.15%.
NYMEX WTI crude closed the day down 1.06% at $99.26 per barrel, NYMEX nat gas closed the day up 1.44% at $4.43 per therm. COMEX gold fell again down 1.42% at $1196.80 per ounce with silver on COMEX down 2.31% at $19.58 per ounce.
Forex focus
The loonie rose 0.6 percent to C$1.0646 per U.S. dollar in Toronto’s afternoon session after dropping to C$1.0728. The currency touched C$1.0738 on Dec. 20th, the lowest since May 2010. One loonie buys 93.93 U.S. cents. The loonie is down 6.8 percent versus the greenback this year, the biggest annual decline since 2008, while dropping 3.2 percent in the fourth quarter and 0.3 percent this month. The Canadian dollar rose from the almost the lowest point in more than three years on bets the currency had fallen too far, too fast after the Federal Reserve announced it would slow its monetary stimulus programme.
The loonie is down 4.5 percent this year versus nine developed nation currencies tracked by the Bloomberg’s Correlation Weighted Indices. The yen has posted the biggest decline, with a 17 percent drop, while the U.S. dollar added 3.3 percent.
The euro added 0.4 percent to $1.3797 per dollar late New York time, after increasing to $1.3893 on Dec. 27th, the strongest since October 2011. The shared currency rose 0.3 percent to 145 yen. The dollar fell 0.1 percent to 105.10 yen, after touching 105.41, the most since October 2008.
The euro gained for a fourth day versus the dollar as Italy sold 3 billion euros ($4.14 billion) of government bonds amid falling borrowing costs, boosting confidence in the region’s economy. The 17-nation currency rose as European Central Bank President Mario Draghi said he sees no need for further rate cuts, according to a Der Spiegel report. The dollar retreated from a five-year high against the yen as Treasury 10-year bond yields fell for the first time in six days.
Bonds
The 10-year yield dropped three basis points, or 0.03 percentage point, to 2.97 percent late New York time. It climbed to 3.02 percent on Dec. 27th, the highest since July 2011. The price of the 2.75 percent security due in November 2023 increased 7/32, or $2.19 per $1,000 face amount, to 98 3/32.
Two-year note yields were little changed at 0.38 percent. Thirty-year bond yields fell as much as four basis points to 3.89 percent after increasing earlier to 3.96 percent, the highest level since August 2011. Treasury 10-year notes gained for the first time in five days as yields at almost a two-year high drew buyers betting the securities have already priced in an improving U.S. economy and an end to Federal Reserve bond purchases in 2014.
Fundamental policy decisions and high impact news events that could affect trader sentiment on December 30th
Tuesday witnesses a bank holiday in Germany, however, there’s a raft of data published in the USA that’s of interest. Firstly, the leading house price index is published courtesy of Case Shiller, the print is expected to show USA home prices rising by 13.4% year on year. The Chicago PMI is published, excepted in at 61.3, down from the previous month’s figure of 63. The Conference Board in the USA publishes its latest data and a reading of 76.5 is expected, significantly above the 70.4 previously. Later in the evening China’s manufacturing PMI is published courtesy of Markit Economics, the anticipation is for a published figure of 51.3, a slight fall from the 51.4 previously.
