Following yesterday’s meetings in Brussels, Greek ministers have insisted that banks must accept a lower interest rate on the new Greek bonds that they will receive as part of the ‘swap’ deal. The 4% coupon demanded by the Institute of International Finance (IIF) (who represent Greek creditors) is not deemed to be acceptable. The move is likely to raise fears that Greece will not agree a deal with its lenders in time in order to avoid a disorderly default.
Banks and other private institutions represented by the Institute of International Finance (IIF) say a 4.0 percent coupon is the least they can accept if they are going to write down the nominal value of the debt they hold by 50 percent.
Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro zone finance ministers effectively backed the Greek government’s position at Monday’s meeting, a position that the International Monetary Fund also supports.
Jean-Claude Juncker, the chairman of the Eurogroup countries, said Greece needed to pursue a deal with private bondholders with the interest rate on the replacement bonds below 4.0 percent;
[quote]Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4 percent for the total period, which implies the interest comes down to well below 3.5 percent before 2020.[/quote]
Later today the International Monetary Fund will publish its latest economic forecasts for the world economy. A draft version of the report leaked last week, so markets are already expecting the IMF to slash its growth predictions.
The EU services PMI improved to 50.5 from 48.8, while manufacturing was still in decline, with the index at 48.7 versus 46.9. All readings are five-month highs but remain at historically subdued levels, Markit noted.
There are rumours that Portugal needs a second bailout. Despite Lisbon’s labour market reforms, markets fear the country could be next in line to default after Greece – whose debt deal with private creditors has just been rejected by eurozone finance ministers. According to Markit, Portuguese debt insurance costs have now hit record levels.
The German economy appears to have had a decent start to the year (and will avoid recession). The latest PMI survey shows manufacturing in Europe’s largest economy grew in January for the first time since September. This briefly boosted the euro to $1.3021 from $1.3006.
Market Overview
European stocks fell from a five-month high and Australia’s dollar weakened amid a stalemate between regional policy makers and Greek bondholders over how to resolve the nation’s debt crisis. The euro edged down from a three-week high on Tuesday and European shares opened lower after the region’s finance ministers rejected an offer by private creditors to restructure their Greek debt, raising the spectre of a default.
The Stoxx Europe 600 Index retreated 0.7 percent as of 8:00 a.m. in London. Standard & Poor’s 500 Index futures lost 0.3 percent. The Australian dollar slumped versus 15 of its 16 major peers. Copper and oil climbed at least 0.2 percent and natural gas extended yesterday’s 7.8 percent surge. Treasuries held four days of declines.
Market snapshot as of 10:00am GMT (UK time)
The Nikkei closed up 0.22% and the ASX 200 closed down 0.02%. European bourse indices are down in the morning session as Greek default fears begin to once again stalk the markets consequently evaporating optimism. The STOXX 50 is down 0.67%, the FTSE is down 0.54%, the CAC is down 0.65%, the DAX is down 0.61% the ASE (Athens exchange) is down 2.74%, 52.89% year on year.
