Several conflicting news reports came out in the overnight hours and during the morning trading session, and both reports created some minor fluctuations in the US market. Of interest, though, is that the fluctuations truly were minor. The first report provided some hope of compromise on the Greek Debt situation, and indeed the US market was up a solid 100+ points in early trading. Reports had surfaced that Greece would get a six-month extension to pay off its debt, and that provided a bit of market optimism given the looming February 28th deadline for compliance.
Mid-way through the morning session, however, German Finance Minister Wolfgang Schaeuble threw a large barrel of ice-water on that notion, stating that any claims of an extension are false. The market reacted by pulling back all of its gains since the open, and briefly traded flat. Very briefly. Almost immediately, in fact, the market started to trend back towards its early highs.
As of this writing, however, the market is back up nearly 100 points, despite WTI Crude being down 4.25% for the morning. To all appearances, the market is now shrugging off both the Greek situation and the very volatile price of oil. What is likely is that the impact of both have already been factored into a market dealing with these issues for the last several months.
Specific to Greece, there will almost certainly be a compromise brokered at the last minute. With a GDP the size of the state of Missouri - there are 22 states with a higher GDP than Greece - there's relatively little concern that Greece alone can have a significant impact. Rather, the true concern is how Italy and Spain will respond should Greece ultimately leave the the Eurozone. Compared to Greece's $283 Billion GDP, Spain weighs in at $1.358 Trillion, and Italy tips the monetary scales at $2.071 Trillion. Their economies are significant, and there's a very real concern that, should Greece leave the Eurozone, they could soon follow.
Greek Defence Minister Panos Kammenos outlined a "Plan B" yesterday, although it's doubtful that this is truly a viable plan. According to Kammenos, if no compromise is reached, Greece would seek financial aid elsewhere. "It could the United States at best, it could be Russia, it could be China or other countries," he said. The phraseology suggests that he has not yet explored these options with the countries in question, so for the moment it's pure speculation - and possibly political rhetoric - on his part.
It's doubtful the US would jump into this mix, potentially antagonizing European allies, and Russia is in no financial position to bail out anyone. Stronger ties between Russia and Greece would be interesting politically, but it's doubtful that Russia would be willing or able to open their already strained coffers to purchase those closer ties. China is a possible financier that does have the ability to bail out Greece, but would they be willing to do that when there is so little potential gain from the deal? China is heavily dependent upon exports, primarily to Europe and the US. Greece adds little to that mix, and a Chinese bailout could be perceived as a slap to France and Germany - the two primary antagonists in the current Greek saga.
Wednesday is the day where it should get interesting. European finance ministers are meeting in Brussels tomorrow to review the situation, and Greece is expected to put new proposals on the table at that meeting.
Greek Finance Minister Yanis Varoufakis is expected to detail what's being called "10 surprise reforms" which are expected to replace many of the austerity measures that were part of the original agreement. (The new government was elected on a platform that included the elimination of the current austerity measures.) He is also expected to request a bridge program that would keep the government solvent while they work on a revised debt deal. So far, that has been rejected by Germany, but it's possible it could gain traction when all of the finance ministers meet tomorrow.
It appears that the new government is simply asking for time to assess the mandate of the latest election and reconcile that with their obligations under the current bailout agreement. It's not an unreasonable request, and it would appear that the actions in today's stock market agree that some type of compromise is highly likely. Tomorrow should prove interesting, especially if Germany continues to take a hard-line no-compromise stance. In the end, though, I do expect a solution that reworks the terms of Greece's bailout, implements the new reforms, and allows Greece to remain in the Eurozone. Anything short of that benefits neither Greece nor the Eurozone.
Showing posts with label Russia. Show all posts
Showing posts with label Russia. Show all posts
Tuesday, February 10, 2015
Sunday, February 08, 2015
An Economic Look Ahead to the Week of February 9
As we near the end of this quarter's earnings season, focus will once again turn to geopolitical news and the numerous economic releases that are spread throughout the month. Here's what we're following for the week of February 9th. As a reminder, the following Monday is a holiday in the US and markets will be closed.
Greece vs the Eurozone
On the geopolitical front, the big news continues to be the standoff between Greece and the Eurozone. No progress was cited this weekend in settling the issue of Greek debt, and one official noted that it truly was a case of 1 versus 18 in the negotiations. The two sides remain extremely far apart in their positions, indicating that the crisis will continue for the foreseeable future. The current bailout expires February 28th, and there is nothing to suggest that the standoff won't continue through to the 11th hour.
Essentially, Greece is requesting authority to issue additional short-term debt and to receive profits from the ECB and other central banks that were gained by holding Greek debt. Greece is, in effect, requesting a bridge agreement to keep the government running while they detail a new debt and reform program. The Eurozone is having none of it, however, with even leftist France and Italy taking a hard-line stance against any concessions to Greece.
While a compromise by the end of February is likely, the interim will see continued volatility due to the uncertainty surrounding Greece's financial future as well as its future in the Eurozone. Now, its not in anyone's best interests to see Greece leave the Eurozone, so some compromise is extremely likely before push comes to shove later this month. Don't expect logic to prevent wild market swings in the meantime, however.
China
Switching continents from Europe to Asia, the economic news coming out of China continues to worsen. This evening, China released their import and export numbers, and both were extremely below the market consensus estimates. Chinese exports in January came in at -3.3% versus a projected 6.3%. Imports were just as bad, coming in at -19.9% versus a projected -3%. These two dismal numbers will fuel fears that the Chinese economy is slowing at an even greater rate than anticipated. The import number is especially troubling since it suggests a slow-down in the Chinese industrial sector. The government is expected to reduce their GDP forecast for 2015 to 7%, however given the new data, it's possible the forecast will be even lower. The translation for us, of course, is increased market volatility.
Ukraine vs Russia
Finally, news out of the on-going Ukraine and Russia squabble continues to degrade. I'm skeptical, however, that this will drive much market action, however, since the effects of the conflict appear to already be factored in. More likely, news of an agreement would spur some positive market action, however, continued conflict appears now to be the accepted status quo. I'm keeping an eye on reports that the US is considering arms shipments to Ukraine since that may produce short-term trading opportunities, but beyond that I don't see this situation adding much to the economic picture in the near future.
With the geopolitical backdrop now in focus, let's take a look at what economic releases are coming this week.
Monday, February 9.
12:00 EST 15:00 GMT - US Labor Market Conditions Index. I'm looking for a value in excess of 6.8 to indicate continued growth in the job market. The Participation Rate is hovering in the 62.7 range, and unemployment is in the 5.6% range, so I'm looking to this number (currently at 6.1) to paint a broader picture of the overall health of the labor market.
20:30 EST 01:30 GMT - China's Consumer Price Index and Producer Price Index. These two numbers are a good measure of inflation in the Chinese economy. The CPI is forecast to be 1.0 (down from1.5) and the PPI is forecast to be -3.8, down from -3.3. If that holds, they will confirm the continuing belief of an economic slowdown in China.
Tuesday, February 10.
01:45 EST 06:45 GMT - Swiss Unemployment.
03:15 EST 08:15 GMT - Swiss CPI. Normally we wouldn't pay much attention to the Swiss Unemployment or CPI numbers, however in light of recent action by the Swiss Bank and the resulting market volatility here in the States, we'll watch these numbers and pay attention to any reaction here as a result. Unemployment is forecast to hold steady at 3.2% and the CPI is expected to drop to -0.6%, down from -0.3%.
08:20 EST 13:20 GMT - Jeffery M. Lacker Speech. The President of the Richmond Fed is the featured speaker at the 30th Annual Emerging Issues Forum, Innovation Reconstructed in Raleigh, North Carolina. His speech is entitled "Education, Innovation, and Economic Growth." His comments are being watched as a signal for volatility in the strength of the US Dollar.
12:00 EST 15:00 GMT - US Wholesale Inventories. This number is expected to drop to 0.1% down from 0.8%. Wholesale Inventories are used as a means of predicting the GDP for the quarter and the year. In effect, a lower number signals a growing economy and a higher number signals a weakening economy. This one will move the markets if it does not come in at the consensus value.
Wednesday, February 11.
08:00 EST 13:00 GMT - Richard Fisher Speech. The President of the Dallas Fed is the featured speaker at a breakfast being held at the Economic Club of New York. He is expected to discuss how the Fed currently views the US economy and the value of the US Dollar. Fed watchers will be dissecting his comments to ascertain when the Fed will begin interest rate hikes.
Thursday, February 12.
02:00 EST 07:00 GMT - Eurozone Harmonized Consumer Price Index. Germany will release their CPI at the same time. The German number will show the rate of inflation in Germany, and the Harmonized number will show the rate of inflation using a methodology incorporated across the entire Eurozone. The German CPI is expected to drop to -0.3% and the Harmonized CPI is expected to drop to -0.5%. Both demonstrate a deflationary trend that further confirms the weakness in the European economy.
05:00 EST 10:00 GMT - European Industrial Production. This number shows the volume of production of industries such as factories and manufacturing. Increased production is indicative of a growing economy whereas decreased production is indicative of a slowing economy. Interestingly, the number is forecast to increase to .3%, up from -0.4% last month.
08:30 EST 13:30 GMT - US Jobless Claims. This is a weekly number and reflects the number of new unemployment claims. There's no consensus number published, however the previous week's number was 278K. In general, a larger number indicates weakness in the economy and a smaller number indicates strength.
08:30 EST 13:30 GMT - US Retail Sales. Here's the big release in the US for the week. This number is widely used as an indicator for consumer spending. The consensus is for the number to improve to -0.5%, up from -0.9%. Any deviation from the consensus will drive the markets accordingly.
Friday, February 13.
01:30 EST 06:30 GMT - France and Germany's GDP. Of the two, the German number is the one that's expected to move the market. The Quarter-over-Quarter number is forecast to grow to 0.3%, up from 0.1%.
05:00 EST 10:00 GMT - Eurozone GDP. The Year-over-Year GDP for the Eurozone is the number being closely watched, and is expected to hold steady at 0.8%. Weakness in this number will have an adverse effect on the US markets heading into the long weekend. The Quarter-over-Quarter number is also expected to hold steady at 0.2%. Something to watch will be divergence between the two numbers with the QoQ value being treated as an indicator for the year ahead.
09:55 EST 14:55 GMT - US Reuters/Michigan Consumer Sentiment. This is a measure of how likely consumers are to spend money, based on their feelings about the overall economy. The forecast is for the number to hold steady at 98.1.
Greece vs the Eurozone
On the geopolitical front, the big news continues to be the standoff between Greece and the Eurozone. No progress was cited this weekend in settling the issue of Greek debt, and one official noted that it truly was a case of 1 versus 18 in the negotiations. The two sides remain extremely far apart in their positions, indicating that the crisis will continue for the foreseeable future. The current bailout expires February 28th, and there is nothing to suggest that the standoff won't continue through to the 11th hour.
Essentially, Greece is requesting authority to issue additional short-term debt and to receive profits from the ECB and other central banks that were gained by holding Greek debt. Greece is, in effect, requesting a bridge agreement to keep the government running while they detail a new debt and reform program. The Eurozone is having none of it, however, with even leftist France and Italy taking a hard-line stance against any concessions to Greece.
While a compromise by the end of February is likely, the interim will see continued volatility due to the uncertainty surrounding Greece's financial future as well as its future in the Eurozone. Now, its not in anyone's best interests to see Greece leave the Eurozone, so some compromise is extremely likely before push comes to shove later this month. Don't expect logic to prevent wild market swings in the meantime, however.
China
Switching continents from Europe to Asia, the economic news coming out of China continues to worsen. This evening, China released their import and export numbers, and both were extremely below the market consensus estimates. Chinese exports in January came in at -3.3% versus a projected 6.3%. Imports were just as bad, coming in at -19.9% versus a projected -3%. These two dismal numbers will fuel fears that the Chinese economy is slowing at an even greater rate than anticipated. The import number is especially troubling since it suggests a slow-down in the Chinese industrial sector. The government is expected to reduce their GDP forecast for 2015 to 7%, however given the new data, it's possible the forecast will be even lower. The translation for us, of course, is increased market volatility.
Ukraine vs Russia
Finally, news out of the on-going Ukraine and Russia squabble continues to degrade. I'm skeptical, however, that this will drive much market action, however, since the effects of the conflict appear to already be factored in. More likely, news of an agreement would spur some positive market action, however, continued conflict appears now to be the accepted status quo. I'm keeping an eye on reports that the US is considering arms shipments to Ukraine since that may produce short-term trading opportunities, but beyond that I don't see this situation adding much to the economic picture in the near future.
With the geopolitical backdrop now in focus, let's take a look at what economic releases are coming this week.
Monday, February 9.
12:00 EST 15:00 GMT - US Labor Market Conditions Index. I'm looking for a value in excess of 6.8 to indicate continued growth in the job market. The Participation Rate is hovering in the 62.7 range, and unemployment is in the 5.6% range, so I'm looking to this number (currently at 6.1) to paint a broader picture of the overall health of the labor market.
20:30 EST 01:30 GMT - China's Consumer Price Index and Producer Price Index. These two numbers are a good measure of inflation in the Chinese economy. The CPI is forecast to be 1.0 (down from1.5) and the PPI is forecast to be -3.8, down from -3.3. If that holds, they will confirm the continuing belief of an economic slowdown in China.
Tuesday, February 10.
01:45 EST 06:45 GMT - Swiss Unemployment.
03:15 EST 08:15 GMT - Swiss CPI. Normally we wouldn't pay much attention to the Swiss Unemployment or CPI numbers, however in light of recent action by the Swiss Bank and the resulting market volatility here in the States, we'll watch these numbers and pay attention to any reaction here as a result. Unemployment is forecast to hold steady at 3.2% and the CPI is expected to drop to -0.6%, down from -0.3%.
08:20 EST 13:20 GMT - Jeffery M. Lacker Speech. The President of the Richmond Fed is the featured speaker at the 30th Annual Emerging Issues Forum, Innovation Reconstructed in Raleigh, North Carolina. His speech is entitled "Education, Innovation, and Economic Growth." His comments are being watched as a signal for volatility in the strength of the US Dollar.
12:00 EST 15:00 GMT - US Wholesale Inventories. This number is expected to drop to 0.1% down from 0.8%. Wholesale Inventories are used as a means of predicting the GDP for the quarter and the year. In effect, a lower number signals a growing economy and a higher number signals a weakening economy. This one will move the markets if it does not come in at the consensus value.
Wednesday, February 11.
08:00 EST 13:00 GMT - Richard Fisher Speech. The President of the Dallas Fed is the featured speaker at a breakfast being held at the Economic Club of New York. He is expected to discuss how the Fed currently views the US economy and the value of the US Dollar. Fed watchers will be dissecting his comments to ascertain when the Fed will begin interest rate hikes.
Thursday, February 12.
02:00 EST 07:00 GMT - Eurozone Harmonized Consumer Price Index. Germany will release their CPI at the same time. The German number will show the rate of inflation in Germany, and the Harmonized number will show the rate of inflation using a methodology incorporated across the entire Eurozone. The German CPI is expected to drop to -0.3% and the Harmonized CPI is expected to drop to -0.5%. Both demonstrate a deflationary trend that further confirms the weakness in the European economy.
05:00 EST 10:00 GMT - European Industrial Production. This number shows the volume of production of industries such as factories and manufacturing. Increased production is indicative of a growing economy whereas decreased production is indicative of a slowing economy. Interestingly, the number is forecast to increase to .3%, up from -0.4% last month.
08:30 EST 13:30 GMT - US Jobless Claims. This is a weekly number and reflects the number of new unemployment claims. There's no consensus number published, however the previous week's number was 278K. In general, a larger number indicates weakness in the economy and a smaller number indicates strength.
08:30 EST 13:30 GMT - US Retail Sales. Here's the big release in the US for the week. This number is widely used as an indicator for consumer spending. The consensus is for the number to improve to -0.5%, up from -0.9%. Any deviation from the consensus will drive the markets accordingly.
Friday, February 13.
01:30 EST 06:30 GMT - France and Germany's GDP. Of the two, the German number is the one that's expected to move the market. The Quarter-over-Quarter number is forecast to grow to 0.3%, up from 0.1%.
05:00 EST 10:00 GMT - Eurozone GDP. The Year-over-Year GDP for the Eurozone is the number being closely watched, and is expected to hold steady at 0.8%. Weakness in this number will have an adverse effect on the US markets heading into the long weekend. The Quarter-over-Quarter number is also expected to hold steady at 0.2%. Something to watch will be divergence between the two numbers with the QoQ value being treated as an indicator for the year ahead.
09:55 EST 14:55 GMT - US Reuters/Michigan Consumer Sentiment. This is a measure of how likely consumers are to spend money, based on their feelings about the overall economy. The forecast is for the number to hold steady at 98.1.
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