Greek/German Bond Spreads Widen
The already troubled euro remains under pressure as spreads widen between Greek and German bonds. A lack of details about the timing and amount of the EU/IMF aid package caused investors to sell the euro. The euro fell against the dollar for the seventh straight trading session and briefly fell below $1.33. Last Friday Greece requested aid and tried to reassure markets that the 45 billion Euros ($60.5 billion USD) loan package will arrive soon enough to prevent a default by the debt hobbled nation. On Monday German Chancellor Angela Merkel said that Greece will have to implement even more austerity measures and prove the measures are sustainable to obtain German approval for the aid package. The gap between German and Greek bonds widened to 679 basis points, the highest since the euro was launched in 1999. The lack of details about the EU loan package has made investors wary. Marco Annunziata of UniCredit MIB stated, “It is extraordinary that a euro zone member country finds itself a mere three weeks away from a potential default, with a clear possibility that uncertainty will only be resolved at the last minute.”
French Finance Minister says Greece Must Adopt Additional Austerity Measures
French Finance Minister Christine Lagarde also stated that Greece must adopt additional austerity measures to gain France’s approval of the loan package. Lagarde recognized that investors have perceived the situation surrounding the agreement as “chaotic” causing euro volatility and sending bond spreads to record levels. Lagarde said the EU must address the Greek debt crisis together and said that there will be no default by Greece and that “it will take what it will take” to save Greece. Lagarde also said that Greece must cut wages ‘significantly’, cut more spending and raise the retirement age. Lagarde said that the IMF will monitor Greece’s implementation of further austerity measures. The French Finance Minister believes that Greece got itself into the currency situation by using inaccurate statistics to report on its budget and deficits. Lagarde said that the E.U.’s statistics agency, Eurostat, must have the power to monitor the budgets of EU member nations. Lagarde pointed out that future growth will require solid public finances and that nations cannot borrow from future generations to fuel [present growth.
Euro Falls vs. Dollar, Yen
The euro fell 0.5% against the US dollar to $1.3323 and fell 0.1% vs. the Japanese yen trading at 125.55 yen. Michael Malpede of Easy Forex in Chicago stated, “Aid for Greece still doesn’t seem like a completed deal, so all the uncertainty about the timing and details of a Greek plan limits demand for euro.”
Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.
Greece Calls For Activation of Loan Package
According to experts at Commerzbank AG the euro may be in for a short bounce after the Greek bailout package is implemented. The risk of the bailout failing is small as a failure could destroy the credibility of the EU and its multi nation currency. Should the EU be slow in implementing the loan package the IMF would still be able to provide loans in a timely manner. Greece has called for the activation of the EU aid package and will need 45 billion euros ($60 billion USD) this year. Greek Prime Minister George Papandreou asked for the implementation of the loan package after rising borrowing costs and investor fears of a default prompted the prime minister to ask for aid. High borrowing costs have undermined the Athens government’s ability to cut the nation’s 300 billion euro deficit. In a live broadcast Papandreou said, “It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created. The time that was not granted to us by the markets will be given to us by the support of the euro zone.” In recent weeks Greek officials have repeatedly said they would not seek outside help but market pressures forced the Athens government to make the tough decision.
Stock Gains Limited by Greek Concerns
European stocks rallied briefly and the euro gained a modest 0.1% but gains were limited by concerns that the aid package will be a short term solution at best. Investors are also concerned that Greece may have to implement more austerity measures limiting growth in a nation already plagued by high unemployment. On Thursday thousands marched in the streets of Athens demanding that the government not bow to pressure and cut spending further. Austerity measures have included tax hikes and wage and pension cuts. Many analysts fear that Greece’s debt crisis could spread to other EU member states most notably Portugal and Spain. Simon Brown of Prospreads in London stated, “On the one hand it could be perceived a relief that Greece is taking the financial help but it does not address the systemic risk and begs the question as to whether countries like Spain may look for the same rescue package in the near future.”
Austerity Measures Unpopular
The decision to ask for aid was made after a grueling seven hour cabinet meeting and some ministers voiced fears of further austerity measures which are unpopular throughout the country. Ben May of Capital Economics said, “This certainly does not mark the end of the crisis, there’s still much further to go. They’ve still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness.”
Quick Forex Tip: The International Currency Trading market has no central exchange like stock and commodities markets. Currency markets are dispersed throughout the world and the primary trading centers are, in order of importance, London, New York and Tokyo. The geographic dispersal means that markets are always open somewhere in the world and traders can jump on the internet and hopefully make very profitable trades at any time of the day.
Greece May Need More Austerity Measures
Greek borrowing costs are in the news in advance of the April 20th meeting between the Athens government and the EU, ECB and IMF. Greek borrowing costs have reached new highs. On Wednesday 10 days of talks will begin in Athens and will address austerity measures Greece will have to take well into 2010 to prevent default. Also on the table will be a discussion of the 30 billion euro loan package that EU finance ministers agreed to earlier in the month. The talks had originally been scheduled for Monday but fell victim to the ash cloud which has disrupted air travel across Europe. New data showing that Greece’s unemployment rate had risen caused market concerns in addition to the ongoing fiscal crisis in Greece. EU officials said that the talks would take place by videoconference if necessary. Greek Finance Minister George Papaconstantinou said the aid mechanism would only be used if needed. Papaconstantinou said there was “no chance” that Greece would fail to cover May’s borrowing costs . Colin Ellis of Daiwa Capital Markets stated, “We now expect Greece to have to tap some form of external aid to get through May… (but) until you actually get that announcement you could see spreads continue to drift.”
ECB Official Says Greece Could Need 80 Billion Euros to Avoid Default
European Central Bank Governing Council member Axel Weber said that Greece may need as much as 80 billion euros in aid during the next few years to prevent default. Weber also said the situation in Greece is worsening and that “the numbers are changing all the time.” Piet Lammens of KBC in Brussels stated, “The markets are considering more and more the prospect that not only will there be a (Greek) support package, but on top of that, debt holders will have to get some restructuring of their bonds.” On Tuesday Greece paid investors 3.65% in an attempt to attract investors to 1.95 billion euros of 13-week T-bills Jens-Oliver Niklasch of LBBW said, “It looks like the T-bill sale was quite successful in terms of them having raised more than they initially planned. But the borrowing cost was quite high. Greece won’t be able to cover its financing needs with T-bills.”
High Borrowing Costs Could Make Recovery Impossible for Greece
IMF Chief Economist Olivier Blanchard said that lending finds to Greece at high interest rates will make economic recovery for the already debt ridden nation impossible. In an interview with Le Monde Blanchard stated, “Of course, Greece must tighten its belt to pull itself out of the trouble it got itself into. But lending it rescue funds at high interest rates doesn’t make sense, because it would make a recovery impossible.” Recently implemented austerity measures include tax hikes, wage and pension freezes and remain unpopular.
Quick Forex Tip: Most forex brokers offer those interested in e currency trading training courses and demo accounts. Demo accounts allow new traders to trade in real time without risking actual funds. Many experts recommend that new traders use a demo account until they feel comfortable and confident trading. These trading platforms are available from most brokers. Additionally, there are several trading platforms available for free on the internet, offering access to a wide selection of currency pairs.
Investors Dump Risky Assets
The euro fell on Friday as investors and traders remain concerned how Greece will refinance its debt. The rise in risk aversion benefitted the US dollar and the yen which are regarded as safe haven currencies. Declines in equities caused investors to dump riskier assets in favor of the dollar and yen. Recent US retail sales data also supported the dollar. Niels Christensen of Nordea in Copenhagen stated, “Risk aversion and speculation of Yuan revaluation is supportive for the yen. We’ve had some good data out of the U.S. lately, including retail sales on Wednesday, and the recent backdrop is supporting the dollar, while the Greece situation is weighing on the euro.” The Athens government has asked for talks with the EU and the IMF and many believe that the meeting is a first step for the troubled nation to seek outside aid. Details about how the loan mechanism would be implemented remain unclear causing investor concern. The euro was down We’ve had some good data out of the U.S. lately, including retail sales on Wednesday, and the recent backdrop is supporting the dollar, while the Greece situation is weighing on the euro.” The euro was down 0.3% vs. the dollar trading at $1.3533 and against the yen the euro fell 0.8% to 125.34 yen.
Pound Falls on Gridlock Concerns
The pound fell on concerns that upcoming elections could result with no clear victory for either party resulting in political gridlock which could hamper the UK’s ability to deal with ongoing economic problems. The high yielding Aussie dollar came under pressure and fell 0.4% vs. the greenback to $0.9310 and against the yen the Aussie fell 0.8% to 86.29 yen. The yen also gained on speculation that China may tighten policies and Greece may request the implementation of the $61 billion aid package. The dollar has fallen for the past two weeks against the yen after financial giant Goldman Sachs was charged with fraud by the US government making US assets less attractive to investors. Vassili Serebriakov of Wells Fargo & Co stated, “The Greece story isn’t going away soon, and we expect further tightening from China. That’s triggered some caution in the market, and that’s why you’re seeing the yen doing better.”
Kiwi and Aussie Under Pressure
The Kiwi dollar fell 2.1% against the yen 65.31 yen on speculation that investors will unwind recent carry trades. The Aussie dollar remains under pressure for the same reason. Markets will be watching the results of this weekend’s conference of EU finance ministers and Monday’s talks between Greece and EU and IMF representatives.
Quick Forex Tip: Selecting a reputable forex broker has been made easy thanks to broker reviews and forex forums on the internet. There are lists of individual forex broker available on the net making it easy for new traders to compare forex brokers. Broker review sites contain the real life experiences of traders who have worked with individual forex brokers and can be a very valuable source of information.
Moderate Growth and Subdued Inflation
Fed Chairman Bernanke testified in front of the Joint Economic Committee of Congress and said that he sees moderate growth and subdued inflation. Bernanke cited the fast paced growth of US Gross Domestic Product during the fourth quarter. Bernanke said the growth was a result of a realignment of inventories and credited stimulus programs also. Bernanke stated that, “growth in private final demand will be sufficient to promote a moderate economic recovery.” And said there were “significant restraints” and expressed concern that 44% of the unemployed have been jobless for more than six months. Bernanke said inflation was ‘subdued’ and told lawmakers that “the moderation in inflation has been broadly based, affecting most categories of goods and services.”
Rates to Remain Low
Regarding rate hikes Bernanke did not address the issue in his testimony but addressed the issue during the question and answer period. In response to questions about rate hikes Bernanke said, “The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period.” Bernanke qualified his statements by saying that the Fed’s commitment to low rates is based on certain economic conditions such as underused productive capacity, high unemployment and limited inflation expectations. Bernanke added, “If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that.”
Bernanke Expresses Caution
Bernanke warned that the risk of economic contraction is “not negligible” and that growth has been slowed by weakness in the construction industry and massive state and city budget problems. Bernanke cited signs that layoffs are slowing and said employment “has turned up.” Analysts say that Bernanke’s comments showed caution about economic recovery. Jeffrey Friedman, of Lind-Waldock in Chicago stated, “It implies he won’t be tinkering with short-term interest rates in the near future.” Lawmakers asked questions about China’s currency policies which has become a Washington talking point in advance of next week’s G 20 meeting. Bernanke was asked if the Chinese Yuan, which many experts consider undervalued, was a factor in causing the global recession. Bernanke said it was just one of many factors causing the recession. Bernanke said, “I think it would be good for the Chinese to allow more flexibility in their exchange rate. It would give them more autonomy in their monetary policy so they could address inflation and bubbles within their own economy.”
Quick Forex Tip: Education is very important for anyone interested in forex online currency trading. Many factors influence currency exchange rates including economic reports, political conditions, and market psychology. Fortunately there are many excellent training programs available for free on the internet to help novice traders gain a thorough understanding of forex markets and the fantastic opportunities they provide investors.
Euro Pulls Back From Early Gains
The euro pulled back from early gains after the Greek debt auction showed that investors demand high yields to hold Greek debt. Greece easily sold its issue of 6 and 12-month T-Bills and raised about 1.56 billion euros. High borrowing costs have made it difficult for Greece to manage its massive deficit. The high premium demanded by investors makes it likely that Greece will need additional financial aid. On Monday the euro rose near a one month high of $1.3691 after EU finance ministers agreed on an aid package for Greece but fell as investors sought clarification about the aid plan. Marc Chandler, of Brown Brothers Harriman stated, “With the Greek bill auction behind it, the market may lack a clear focus, but sentiment towards the euro remains poor, even though there had been some short-covering in the futures market in the most recent reporting week.” Despite the successful auction of Greek debt investors remained concerned about the yield Greece has to pay and some believe borrowing costs for Greece are not sustainable. Audrey Childe-Freeman also of Brown Brothers Harriman stated, “The higher yield confirmed the high risk premium demanded for Greek assets and that has put the euro bears in a stronger position. The euro was already showing signs of fatigue.”
Greek Finance Minister Says Greece Will Stick With Market Based Funding
Despite the sale of Greek t bills many investors believe that at some point Greece will be forced to seek outside aid. Greece sold 1.56 billion Euros of 6-month and 1-year treasury bills which may fill short term needs for the debt ridden nation. Analysts say that Greece faces a long hard road to recovery. Ben May of Capital Economics stated, “Today’s successful Greek short-term debt auctions will further ease fears about Greece meeting its near-term financing needs, but it still faces an uphill struggle to return the public finances to a sustainable position.”
Greece to Reduce Public Sector Debt by One Third
The Athens government is trying to reduce the public sector deficit by about a third to 8.7% of GDP but high borrowing costs and an economic contraction of 2% may make achieving that goal difficult. Greek Finance Minister George Papaconstantinou said that Greece will not ask for outside aid and will stay with its plan of market based funding. Papaconstantinou told the Greek Parliament, “We are sticking to our target and I believe we will continue to borrow from markets smoothly, as we did today with the T-bills. The Greek government has not asked for the mechanism to be activated, although it remains available if needed.”
Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.
Loonie Hit by Canadian Jobs Report
The Canadian dollar which hit parity with its US counterpart last week pulled back after a report that showed that Canadian employers added fewer jobs than had been forecast. The Loonie has gained 4.8% against the greenback so far this year. Despite the loss many believe the loonie is headed for further gains. Samarjit Shankar of Bank of New York Mellon Corp stated, “The Canadian dollar has come a long way since March, and the job number is reason for a pause. You’ll see resistance as you approach parity.” On Friday the Loonie fell as much as 0.6% during the day the largest decrease since March 24. Currently one Canadian dollar fetches 99.42 U.S. cents. Referring to the Canadian jobs report Toronto-based chief economist at Canadian Imperial Bank of Commerce Avery Shenfeld stated, “This is essentially an on-trend report. Had we had a significant retreat in employment, that might have had markets second-guessing the strength of the Canadian economy, but this is within the margin of error in the survey for what the consensus forecast was.” Shenfeld believes the Loonie will strengthen to 98 Canadian cents per U.S. dollar possibly by September. Last month Bank of Canada Governor Mark Carney said he was open to raising rates from 0.25% as soon as June 1st.
Pound Gains on Positive Data
On Friday the pound gained vs. the US dollar and is headed for the second straight week of gains. Producer prices in the UK rose faster than forecast in March adding to the perception that recovery in the UK is gathering momentum. A report by the National Institute of Economic and Social Research showed that GDP had rose0.4% during the first quarter. The Bank of England left rates at historic lows of 0.5%. Harry Adams of Schneider Foreign Exchange said the producer price data “was a nice boost for sterling,” and also said, “The pound may have a good couple of weeks” and may gain to $1.55 next week, should it close above $1.5350 today” In late Friday trading in London the pound gained 0.6% trading at $1.5374.
EU Finance Ministers to Hold Teleconference Sunday
The Greek fiscal crisis continues to pressure the euro and EU finance ministers will hold talks on Sunday to discuss the details of the earlier EU/IMF agreement which established a rescue mechanism for Greece. Also participating in the teleconference will be the European Central Bank and the European Commission. Greece suffered yet another blow last week after Fitch’s ratings agency downgraded Greece to BBB- just above ‘junk’ status and also said further downgrades are possible. Fitch’s outlook for Greece remains negative. Monday may be a pretty exciting day for currency markets!
Quick Forex Tip: The International Currency Trading market has no central exchange like stock and commodities markets. Currency markets are dispersed throughout the world and the primary trading centers are, in order of importance, London, New York and Tokyo. The geographic dispersal means that markets are always open somewhere in the world and traders can jump on the internet and hopefully make very profitable trades at any time of the day.
Borrowing Costs “Barbaric”
On Thursday markets hammered Greek bonds and banking stocks pushing borrowing costs for the Athens government higher and some speculate that the troubled nation will apply for aid from last month’s EU IMF rescue package. Borrowing costs for Greece have skyrocketed as the premium investors demand for holding Greek debt rose for the third day in a row. Investors remain wary of last month’s loan mechanism created by the EU and the IMF due to a dearth of details about the agreement. Many now believe that the Athens government is left with no alternatives and will have to ask for EU aid. Chris Pryce, senior Greece analyst for rating agency Fitch stated, “Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend do it and how much would be involved. It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.” The Greek government has promised to cut its public finance deficit to 8.7% of Gross Domestic Product this year. Some of Greece’s austerity measures have sparked protests, strikes and near riots.
Spread Levels ‘Insane’ Says Greek Official
Greece has repeatedly said it prefers to borrow from markets and will approach the IMF only as a last resort. Greek spokesman George Petalotis stated, “For the time being it is not necessary to activate the aid mechanism. The EU/IMF safety net is there to guarantee that Greece is not alone.” He also called rates demanded by investors as “barbaric.” The 10 year spread between German and Greek bonds widened to almost 463 basis points on Thursday. Two year Greek bond yields rose more than 100 bps to almost 8%. Panagiotis Dimitropoulos of Millennium Bank in Greece stated, “Spread levels today are insane, they are not levels for a euro zone country. It seems Greece is being pushed toward the aid mechanism.” Standard & Poor’s said that Greece is at risk of a downgrade if high borrowing costs continue.
Trichet Says EU IMF Agreement is ‘Workable’
European Central Bank President Jean Claude Trichet said that Greece is in no danger of defaulting. Trichet insisted that the support mechanism devised at last month’s EU summit is “workable” and “a very, very serious commitment” by EU members. Trichet told reporters, “I would say that taking all the information I have, that default is not an issue for Greece.”
Quick Forex Tip: Most forex brokers offer those interested in e currency trading training courses and demo accounts. Demo accounts allow new traders to trade in real time without risking actual funds. Many experts recommend that new traders use a demo account until they feel comfortable and confident trading. These trading platforms are available from most brokers. Additionally, there are several trading platforms available for free on the internet, offering access to a wide selection of currency pairs.
