The news that Greece has approved austerity measures that will help the country get closer to fiscal responsibility has generated a significant market response and is causing a great deal of speculation among investors. Some things investors are considering is how Eurozone finance ministers will respond to the measures and whether the European Central Bank will adjust rates. Investors are also eyeing the new foreclosure agreement in the U.S. and considering how the upcoming budget announcement will play in the wider global investment outlook. For more on this continue reading the following article from TheStreet.
The dollar is trading softer against the majors and emerging markets after Greece passed the latest austerity bill. The EuroStoxx 600 is currently 0.7%, with bank shares up 0.8%. Asian stocks are also higher, with MSCI Asia Pacific up 0.6%.
1. The approval by the Greek parliament of the latest austerity package now shifts the focus to the Eurogroup meeting of finance ministers on Wednesday for their support. The new austerity proved too much for the Greek government and a cabinet reshuffle is needed. Political pressure will mount to set a date for the elections. The successful Greek vote helped the foreign currencies, but the yen and Swiss franc, recover from the pre-weekend slide.
2. With the European Central Bank focused on liquidity provisions (another three-year Long-Term Refinancing Operation in two weeks and new collateral rules), and some data suggesting eurozone contraction is not accelerating, a rate cut is unlikely next month. Mario Draghi himself offered a small clue. He previously said there were "substantial downside risks," but last week he dropped the "substantial" to say that there were "downside risks."
3. U.S. economic data reported last week points to a sharp upward revision in the fourth quarter when it is released later this month (Feb. 29). The BEA had assumed that wholesale inventories rose $17 billion in December and last week we learned they rose by $56 billion. The inventory build-up may not dampen Q1 growth prospects, but instead are a recovery from the drawdown in Q3. The trade figures may also be worth a couple tenths of a percentage point. Q4 GDP may come in 3.2% or a little higher after the preliminary estimate was for 2.8%.
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4. U.S. data in the coming days is expected to show that the growth momentum has been largely sustained here in Q1. Retail sales and industrial production figures will be robust for January while the Empire and Philly Fed surveys will give evidence that the momentum carried into February.
5. The U.S. foreclosure settlement is likely to do two things: First, the pace of forecloses is likely to increase after falling by a third last year; second, it will reduce the amount of money owed by as many as 1 million households. There is some talk that it could be a precursor to Fannie and Freddie writing down some mortgage principle.
6. U.S. President Obama will present the next fiscal year’s budget. It is part of his presidential campaign. It will project the deficit falling from 8.5% of GDP this fiscal year to 5.5% in the fiscal year beginning in October. It will combine longer term deficit reduction with more immediate stimulus.
7. The Bank of England announced last week an extension of its asset purchases. By subtly changing the segments of the bond market, it will purchase shorter-term maturities and less long-term. Thus, this round of QE combines an element of Operation Twist. Tomorrow the UK reports January consumer price index numbers and the risk to the consensus -0.5% forecast is to the downside as last year’s VAT hike drops out.
8. The Bank of Japan two-day meeting concludes Tuesday and although it is not expected to do anything, the press conference may be more revealing. Political pressure is mounting on the BOJ to do more to combat deflation. GDP from the October-to-December quarter was reported earlier today and showed a larger-than-expected decline (-2.3% annualized vs -1.3% expected). The economy is expected to expand again in the current quarter, helped by the fourth reconstruction budget approved by the cabinet last week.
9. Sweden’s Riskbank meets on Thursday. The consensus calls for a 25 basis point rate cut to 1.5% in the face of slowing growth and benign inflation pressures. Two new members of the board appear somewhat more dovish. The Riskbank GDP forecasts may be cut and this may also fuel speculation for an April cut as well.
10. China’s Vice President Xi Jinping, who is tipped to be the next president, visits the U.S. this week. The yuan reached a 18-year-high last week ahead of the visit. The near-term constructive outlook for the euro also bodes well for the near-term outlook for the yuan. Meanwhile, the PRC is dealing with its own local government debt problem by encouraging banks to extend the maturities especially if there is a strong social interest or utility — such as highway construction, but not say for a town square. Many of the local government loans were how the fiscal stimulus in 2008 to 2009 was delivered. An estimated third of such loans mature this year.
This article was republished with permission from TheStreet.
