In the eye of the storm

The rout in global markets continues as the bad news mounts up. Failure to achieve concrete results from the meeting of eurozone finance ministers yesterday together with intensifying banking sector concerns and weaker global manufacturing surveys left a sour taste for investors. Aside from the selloff in global stocks the EUR fell to an eight month low and looks on track to test psychological support around 1.30 versus USD.

Attention continues to be focussed on the Greece. Greece’s failure to meet its deficit targets did not appear to derail the prospects of the country receiving it’s next loan tranche but discussions between the Troika and Greek officials are ongoing and payment to Greece may not now be made until November. European officials have indicated that they will reassess Greece’s deficit targets combining 2011 and 2012 targets, suggesting some leeway for Greece to be able to qualify for the next loan tranche.

One reason that markets are reacting negatively is the hints from Eurozone officials that the agreement reached in July on a second bailout for Greece may need “technical” revisions which has been perceived to imply bigger write downs for Greek bond holders compared to the haircuts of 21 percent agreed back in July.

There seems to be no end to the problems for the EUR and markets are clearly running out of patience. Over the near tem there appears to be little to prevent sentiment from deteriorating further. What is needed is a clear plan and this is clearly not forthcoming. Greece remains in the eye of the storm but as yet there is no plan to ring fence the country and avoid a deeper fallout globally.

Elsewhere risk currencies in general continue to be hit, with the AUD in particular facing pressure as the RBA hinted at prospects of interest rate cuts in the weeks ahead. The outright winner is the USD and further gains are likely as risk aversion continues to intensify despite the fact that the US has it’s own problems to deal with. As we move further into October the potential for more volatility remains high.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: