Stocks retraced their earlier gains on Wall Street on Tuesday closing 1.33% up on the day having spent the majority of the day up circa 200 points or 2%. Despite the waves of optimism due to the various solutions floated by the official bodies in Euroland the question of Greece once again reared its head to extinguish some of the hope.
However, that was not the only issue to dampen positive sentiment. Confidence among U.S. consumers stagnated in September to reach a new two-year low. The share of households stating it was increasingly difficult to find a job climbed to the highest level recorded in almost three decades. “Consumers remain very concerned about their income, employment and the state of the economy,” – John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “All of these factors point to even weaker labor market conditions as we get closer to the end of the year.”
The Financial Times reports that up to seven of the seventeen nations using the euro believe private creditors should absorb bigger losses on their Greek bond holdings, a division that may threaten an agreement reached with private investors in July. The paper cited unnamed senior European officials. This once again suggests that the fifty percent haircut option is still not ‘off the table’.
Chancellor Angela Merkel hosted Greek Prime Minister George Papandreou for talks in Berlin on Tuesday as credit default swaps indicate a more than 90 percent chance that Greece won’t be able to meet its debt commitments. Given its 2-5 year borrowing can be at rates of circa 70% this should come as no surprise. Papandreou tested the strength of his parliamentary majority on Tuesday evening as lawmakers voted on a property tax that was key to persuading the European Union and International Monetary Fund to release an aid instalment of circa €8bl in order to avert default. It passed, much to the ire of the gathering protesters outside the Greek parliament in Athens. Some officials are suggesting that plans are now under way to boost the assets available to cut Greece’s debts and recapitalize banks. But Germany said there were no plans to increase the size of the fund for a regional bailout. Berlin faces a key vote on Thursday to increase the facility’s scope.
German Chancellor Angela Merkel may fall short of the majority she needs in her coalition for a reform of the euro zone rescue fund meant to stop the sovereign debt crisis spreading. Proposals to leverage up the €440 billion bailout fund to multiply Europe’s financial firepower make it harder for Merkel to unite her fractious centre-right coalition. The Bundestag is sure to approve a widening of the scope of the European Financial Stability Facility agreed by European leaders in July, the opposition Social Democrats and Greens indicate that they will vote for the measure on Thursday.
European markets recovered ground on Tuesday buoyed by the apparent positive steps European policy makers were making towards the resolutions being floated. The FTSE closed up 4.02%, the STOXX up 5.31%, the CAC up 5.74% and the DAX up 5.29%. Brent crude closed up circa 3.30%. The FTSE equity future is currently down 0.75% and the SPX down 0.1%. The dollar has made significant gains versus yen but faded versus sterling and the euro. The euro exploited weakness versus yen and also made slight gains versus the dollar having retraced its one percent gain. It lost ground versus the franc and remained fairly static versus sterling. Sterling made significant gains versus yen which overall was the weakest currency in Tuesday’s trading sessions.
There are no significant data releases to be published tomorrow that may affect the morning and early afternoon session.