Tag Archives: Greece

Markets Plummet – An Overview

10 May

We have seen markets plummet since the elections over last weekend, down to lows of 2012 as investors took flight from stocks at risk of being dragged down by troubles in the Eurozone. This sell-off  seems to have been triggered, at least in part, by fears that a planned coalition government in Greece will tear-up the austerity deal underpinning the country’s recent €240billion (£190billion) bail-out.

The FTSE 100 Index saw £26 Billion wiped off its value following a further slide of over 100 points. This is a third day running of major sell-offs across most stock markets following concerns over the future of the Eurozone.

Alexis Tsipras, whose Syriza party came a surprise second in Sunday’s poll, is insisting his country’s bailout deal with the EU and IMF is ‘null and void’.

As well as uncertainty over Greece, fears that Spain will need to bail out its banking sector caused that country’s 10-year bond yield to soar again above the ‘unsustainable’ 6% level. This is perilously close to the 7% interest rate on government borrowing that prompted Greece, Portugal and Ireland to seek bailouts.

Financial analysts said the current market turmoil was likely to continue. It appears unlikely that a Greek coalition would be formed considering the rhetoric from the various party leaders, so uncertainty was likely to reign for a while.

‘The worst case scenario for the EU is if Greece leaves the Eurozone and undertakes a disorderly default. It is difficult to see why the country would do this but then again it only takes one angry politician to change history – Greece is staring into the political and financial abyss. Whilst a less likely scenario, if it did happen it could have huge ramifications for the rest of Europe.

A default for Greece looks likely and a departure from the Euro in the next 18 months is expected – this scenario has in excess of 66% outcome expectation – good chance of happening. Greece would not be allowed to walk away from its debts and financial obligations, if it leaves the euro. The likely scenario would be it would be given a greater period of time to repay its debts. The sanctions against Greece, if it attempted to renege on its debts, does not bear thinking about.

These are grave concerns and the ramifications for the Eurozone, global economic prosperity and stock markets are huge.

Investing is about taking best advantage of the market cycle while avoiding the periods of market panic – I am pleased to say, we hold a defensive strategy across all my clients and so we have avoided the worse of the declines and are well placed to benefit from the market opportunities expected to be created by the current market turmoil.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Second Bail Out Secured For Greece

12 Mar

Greece has secured its second bailout on Friday, hopefully giving Greece an opportunity to restore its struggling economy to health. I believe that the bailout deal was the only way to restore the country to economic health.

The write-down/hair-cut/controlled default was possibly the worst technical default a country has suffered with bondholders being forced to take part in a debt-swap deal through collective action clauses (CAC) on Friday. Over 80% (circa 83.5%) of creditors agreed to the deal, which allowed Greece to force the remaining to accept the deal, leading to 100 billion euros being wiped off Greece’s debts by reducing the value of their bonds.

There still remains concerns that Greece will end up needing a third bailout following the unpopular austerity measures, while Greece is still in Recession. Greece needed the 130 billion euro bailout from the European Union and the International Monetary Fund as it had a debt-to-GDP ratio of around 160% (which was unaffordable) and current unemployment of circa 20%. The bailout is expected to be finalised later today. 

The Greek Bond Debt Restructuring Is A Success?

9 Mar

Almost 95% of private creditors have taken up the Greece bond swap offer by the Thursday evening deadline, lightening Greece’s debt burden. This is planned to avoid a default on Greece’s debt liability and has seen bond holders accepting losses of almost 75% on the value of their investments.

The European Union and International Monetary Fund made this bond swap a pre-condition for final approval of the 130 billion euros ($170 billion) bailout, which was agreed last month. The results are expected to be announced on Friday morning and Finance Minister Evangelos Venizelos will hold a news conference before a call with Eurozone Finance Ministers in the afternoon. The result provides good news for the Greek government.

Despite the success of this program, the deal does not resolve Greece’s debt problems but rather reduce its debt liability from 160% of its Gross Domestic Product (GDP). It buys Greece some time to try to restart the economy, which is suffering a recessionary cycle. The concerns of a contagion spreading to other European countries and fear of the threat of failure receded and this led to a rise in the financial markets on Thursday. Bank stocks led the rise, with the risk premium on Italian and Spanish government bonds, amongst others, falling.

In the Friday conference call, Eurozone ministers could decide to clear the overall bailout package but I believe the decision will be delayed until the face-to-face meeting on Monday. To avoid default, Greece must have funds available of 14.5 billion Euros on 20th March to repay maturing bonds. The growing fear and expectation is this will not be the last bail-out needed for Greece; and at some point the Eurozone and their other International Partners will say “no-more”. The question is, “What happens then?” But for now stability is hoped for and expected.

To contact me, email :- welshmoneywiz@virginmedia.com

Finally, a Greek Deal: What Next for Markets? (Article by catherine Boyle in CNBC on 21.02.2012)

21 Feb

The second Greek bailout deal was finally clinched in the early hours of Tuesday morning.

LdF | Vetta | Getty Images
 

European markets and the euro were initially expected to rally after the market open – but a troika report leaked to the Financial Times could exacerbate fears in the market that Greece may not be able to hit its bailout targets and drive markets down again.

“Short term you’re still in the vagaries of what politicians do day-to-day. This is still a sentiment-driven market,” Ian Harnett, European Strategist, Absolute Strategy Research, told CNBC.“The big message has got to be that the European governments want to keep the euro together and that will lead to a weaker euro.”

A weaker euro (EUR=X 1.32   -0.0045 (-0.34%)) could help countries in the single currency bloc in the medium term.

“The key for us is fundamental monetary policy. The exchange rate has to do the work,” Harnett said.

The euro is expected to move upwards on the news in the short term. “A break of 1.3350 in EUR/USD looks necessary to trigger the next round of stops, which could then see a move into the high 1.30s,” currency strategists at Lloyds wrote in a research note.

The lack of the opportunity for devaluation, which was used to help solve the Asian crisis of late 1990s, will limit opportunities for growth, Jonathan Tepper, Partner at Variant Perception, told CNBC.

The “internal devaluation” provided by austerity measures such as wage cuts will not provide the necessary medicine, he believes. While Latvia and Ireland have achieved some relative success using these methods, he argues that their rising emigration levels shows that they have not been entirely successful.

“The idea that somehow Greece and Portugal will be able to restore competitiveness or that the imbalances between the core and periphery will be able to solve themselves is slightly ridiculous,” he said.

Concerns about the other peripheral economies still remain, and bond yields are set to rise again, Harnett believes, as “governments will have to pay for this in some way.” Rising bond yields led to Portugal, Ireland and Greece seeking bailouts earlier in the crisis.

“Portugal is next in line. You don’t need to have anything more than fourth grade math to understand that the wedge becomes further out when you’re borrowing at 14 percent and you’re contracting,” said Tepper.

“Greece will have to restructure their debt, Portugal will have to, Ireland will if they’re smart.”

And Greece’s own problems are far from solved. Large-scale privatizations of state-backed assets still haven’t begun.

“The best-case scenario for Greece put forward is still a 120 percent debt to GDP (gross domestic product) ratio. Clearly getting the private sector involved will get Greece an enormous debt burden that it can’t service,” he said.

Its economic problems include soaring unemployment, a current account deficit of around 10 percent and exports which are still not at pre-crisis levels.

“Greece still doesn’t have a proper growth model, and that’s really the main source of worry,” Guntram Wolff, Deputy Director, Bruegel, told CNBC.

European Shares Gain on Greek Bailout Bet (Article by Joanne Frearson in Reuters on 17.02.2012)

17 Feb

European shares rose on Friday to hit a six and a half month high as investors bet that Greecewould sign a deal to secure a second bailout by Monday and avoid a messy default, which could have rippling effect in the financial markets.

A key gauge of Europe’s investor ‘fear’ fell on the Greece optimism, with the Euro STOXX 50 volatility index, which is based on sell- and buy-options on the Euro STOXX 50 , down 4.5 percent – the lower the index the higher investor appetite for risk.

Investor sentiment improved after euro zone officials said the finishing touches were being put on the bailout package, which would include a debt swap deal whereby the real value of bonds held by financial firms would fall by about 70 percent.

Banking stocks, which have correlated with the euro zone sovereign debt crisis due to their exposure to it, featured among the best performers, with the STOXX Europe 600 Banks index up 1.3 percent.

Greek bank shares were also high among the winners as investors bet the Greek deal would go ahead on Monday, with the Athens bourse’s banking index up 7.7 percent.

“Market is remaining strong because of the reasonable news out of Greece, but generally investors are only trading for the short-term,” Mark Foulds, head of equity sales at ETX Capital, said.

“They are being attracted by the more volatile sectors such as the banks which will do well if there is a second Greece bailout, although this could shift to the more defensive sectors if it does not happen.”

The positive mood about Greece was also supported in the bond markets, with yields falling in Italian and Spanish government bonds.

There have been concerns that high debt levels in the countries, especially Italy, were at unsustainable levels after 10-year bonds hit 7 percent in January – a level where other countries have sought a bailout.

 

At 0942 GMT, the FTSEurofirst 300 index of top European shares was up 0.6 percent at 1,083.76 points, hitting a six and a half month high.

The index had managed to hold above its 61.8 percent Fibonacci retracement at 1,062.24 from its February 2011 high to its September 2011 low since the beginning of February.

It was now moving towards the next resistance level at 1,113.73 – the figure it reach in July 2011 before a massive sell-off which saw it hit its September 2011 low.

“A satisfactory result in Greece could give it the impetus to push higher still, with around 1,100 the obvious target. Conversely, a break through its short-term uptrend, near 1,065 or so, would signal that the bulls are jumping ship,” Bill McNamara, technical analyst at Charles Stanley, said.

 

RESULTS HELP GAINERS

Some company results showed firms were dealing the debt Greek crisis.

Aegon jumped to the top of the leader board, up 5.4 percent, as investors looked through a fourth-quarter profit miss, with analysts noting they expected the company to do well due to cost cutting and restructuring.

The Dutch insurer also said the bottom of the euro crisis is probably behind us, although continued volatility and uncertainty in the financial markets were expected.

SNS Securities analyst Lemer Salah recommended the insurer with a “buy” rating and price target of 4.50 euros, which implies an upside of nearly 14 percent.

Lafarge jumped 4.7 percent to become a top riser after the world’s largest cement maker said it would continue its cost cutting plans after its 2011 profit was hit by write-offs linked to Greece.

Although overall earnings news has been mixed, out of the 53 percent of companies that have reported earnings, 51 percent have either beat or met expectations and 49 percent have missed them, according to Thomson Reuters StarMine data.

UBS said that on the back of the results so far “we see small downgrades to come and continue to estimate earnings down 5 percent from a top-down perspective this year.” (Reporting by Joanne Frearson; Editing by Jon Loades-Carter)

Global Stocks Fall as Greek Bailout Delay Dampens Mood (Article by Chikako Mogi in Reuters on 16.02.2012)

16 Feb
 
Traders work at their desks in front of the DAX board at the Frankfurt stock exchange February 2, 2012.  REUTERS/Alex Domanski

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange February 2, 2012.

TOKYO (Reuters) – Asian shares fell and the euro slipped to a 3-week low on Thursday as another delay in cementing a crucial bailout for Greece underscored how far Europe is from resolving a debt crisis that threatens the stability of the financial system.

A three-hour teleconference between euro zone finance ministers failed to resolve all the issues surrounding a second aid package for Athens, putting off any decision on the matter until Monday at the earliest.

“It’s not clear whether Athens will be able to secure funds needed to redeem bonds on March 20,” said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ.

Financial bookmakers expected European stocks to follow Asian shares lower, with financial spreadbetters calling the main indexes in London .FTSE, Paris .FCHI and Frankfurt .GDAXI to open down by 0.8 percent to 1 percent. .EU .L

U.S. Treasuries and the dollar edged up as investors sought safety, while riskier commodities lost ground.

“It … seems that the market is in review mode now after the strong gains in risk assets with investors re-assessing the risks/rewards and reviewing strategies,” said Chris Weston, an institutional dealer at IG Markets in Melbourne.

MSCI’s broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 1.5 percent, more than wiping out all the gains made in the previous session, when riskier assets such as stocks and emerging Asian currencies rose broadly on hopes Athens would finally be granted the rescue funds.

Japan’s Nikkei .N225 outperformed its Asian peers to record a six-month high, before losing steam to close down 0.2 percent. .T

The euro slid 0.4 percent to touch a 3-week low near $1.30 as uncertainty over the bailout package put the single currency under renewed pressure.

Reflecting deep-rooted mistrust of Greece’s commitment to deliver reforms in exchange for the rescue, several EU sources said on Wednesday that euro zone finance officials were examining ways of delaying part or even all of the second bailout program while still avoiding a disorderly default.

Delays could possibly last until after the country holds an election expected in April, they said.

A debt swap agreement between Greece and private-sector holders of Greek bonds, however, could go ahead, possibly allowing Greece to avoid missing the March 20 deadline to pay a 14.5 billion euro bond redemption payment.

Greece said it has met all the conditions set by the European Union and the International Monetary Fund for a 130-billion-euro rescue fund needed to meet the vital debt repayment date in March.

As well as hitting stocks, the jitters over Europe put other riskier assets under pressure. Copper lost more than 1.5 percent and oil also fell, while the commodity-linked Australian dollar edged down.

Asian credit markets weakened, another sign of faltering confidence, with the spreads on the iTraxx Asia ex-Japan investment grade index widening by about 5 basis points.

The safe-haven dollar rose 0.2 percent against a basket of major currencies .DXY, while the yield on benchmark 10-year Treasury debt eased to 1.91 percent from 1.93 percent in late U.S. trade.

TIRED, NOT AFRAID

But while markets fell, the drop appeared to be limited.

“The weakness was neither intense nor broad-based enough to resemble a ‘risk-off’ event; markets seemed tired, but not afraid,” Barclays Capital said in a note.

Data on Wednesday showed the euro zone economy shrank at the end of 2011 and a mild recession was likely as the debt-stricken south reels under the weight of the sovereign debt crisis. Bigger economies France and Germany may remain resilient.

On Wall Street, the CBOE Volatility index VIX .VIX or “fear gauge,” while hovering near a 1-month high, appeared to be capped. The index measures expected volatility in the S&P 500 index .SPX over the next 30 days, and its rise is regarded as a sign of increased risk aversion.

Analysts say markets are vulnerable to some corrections after rising since the start of the year in a move largely due to global liquidity injections from central banks aimed at containing the debt crisis and supporting economic growth.

MSCI’s Asia ex-Japan stock index has risen nearly 14 percent this year, while the Nikkei has added 9.5 percent and the S&P 500 Index .SPX 7 percent.

Gold has gained 10 percent and U.S. crude has climbed nearly 11 percent.

U.S. crude eased 0.3 percent to $101.48 a barrel on Thursday after gaining more than a dollar the day before. Brent crude was little changed around $118.90, after scaling an 8-month high on Wednesday on concerns over supply disruptions.

U.S. data showed a solid underpinning for the economic recovery on Wednesday, with U.S. manufacturing output rising in January, a gauge of factory activity in New York state hitting a 1-1/2-year high in February and optimism among home builders approaching a five-year high this month.

But U.S. stocks eased about half a percent after the Federal Reserve’s minutes from its January meeting showed some officials were concerned over high unemployment.

Greece and The Greek Debt Crisis

10 Feb

I am a fee charging financial adviser (but the commission option is available) at Jewell & Petersen Ltd based in Cardiff, South Glamorgan. Follow me on Twitter and LinkedIn.

Greece’s deadline of Monday 6th February 11am came and went, the requirement  was to have sorted out its agreement with private bondholders. In the agreement had to be a new set of austerity measures in order to trigger the release of the next phase of bailout funds. Given the progress of EU politics, this ‘deadline’ passed by and Greece hasn’t defaulted  as yet, markets haven’t collapsed and world events continue.

Monday’s deadline’ passed with the usual posturing by leaders from Germany and France. The gist from both were broadly the same as spoken last time. The negotiators from the Greek government and its creditors  let a deadline pass.

There is, however, a real deadline looming. On 20th March 2012, Greece has to repay a large chunk of debt to those holders of its sovereign debt. It cannot pay this debt off without the next tranche of bailout money from the European Union and IMF.

The European Union is looking for Greece to enact several severe budgetary cuts. This is to show it’s intent about getting the framework, structure and plan for its finance in place to achive a resolution to its debt crisis. Greek politicians are nervous about agreeing to policies that they fear won’t work and could ignite social tensions. Some of these tensions have overflowed in recent days.

European Union leaders are becoming more impatient with Greece. Although, it’s not a one-sided debate where Germany and France can pressurise Greece into action. Consider this statement made by the leader of the Eurogroup leader and Luxembourg Prime Minister Jean-Claude Juncker:

“If we force them out or push them so much that they resign, we would still be forced to support Greece and would today have to invest unimaginable sums. That would be at least as expensive as the now virtual costs of the aid credits up to now.”

The Greek government knows that the European Union would have no choice but to pay for a huge bill if it forces Greece out of the Euro. This situation is expected to continue until both sides are satisfied.

“Time is running out,” says Chancellor Merkel. This may be true but the real deadline that matters to investors is 20th March, where despite all posturing debt will have to be repaid and the money must be available to meet that payment.