FOREX - Trends, Forecasts and Implications (Episode 16: June 2012) - page 155
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Spain will remain in the eurozone Spanish politician and Vice-President of the European Commission Joaquin Almunia is convinced that Spain will remain in the eurozone. "A return of Spain to the peseta is impossible," he told ABC Punto Radio. "No one in their right mind is planning it," added J. Almunia. He declined to give details of the 100 billion euro line of credit promised to Spanish banks. "The details of the financing, the compensation are yet to be determined. I can't state that the repayment will be scheduled for 2017 or 2018," he said. Or 2018," the politician said. However, he reiterated the Spanish government's independence in decision-making, but recalled Spain's obligations as a member of the European Union.
Commenting on the situation in Greece, he said that if that country does not sort out its problems, "everyone will pay". According to him, this has been the "number one problem" for two years now.
Italy is not as fragile The Italian economy is not as fragile as many people think, but it does have its weaknesses. That's how Italian Prime Minister Mario Monti commented in an interview with journalists, according to France 24. "We are not that fragile. However, there are some aspects, such as high foreign debt or the banking system, where we are not so strong," the head of government told reporters. "Italians have a peculiarity to go abruptly from sudden euphoria to unwarranted depression," he added, referring to the incorrect conclusions many of his fellow citizens and foreigners draw about the stability of the Italian economy.
Monti stressed that Italy's main competitive advantage is its strong network of small and medium-sized enterprises and the low debt burden of households. "We have no need to resort to desperate economic measures," he summed up his speech.
Note that in addition to internal economic factors, Italy as a member of the eurozone is highly susceptible to factors of an external nature. An example of this connection can be seen in the increasing yields of domestic bonds: The rate of annual bonds of the national bank placed on 13 June this year was 3.972% compared to 2.34% for comparable securities sold on 11 May.
The first country could exit the monetary union, triggering severe instability and a loss of confidence in the euro. The latter is having serious difficulties because of problems in the banking system.
The supportive speeches of Western politicians have one aim - to shore up markets, not even currency markets, but debt markets. Closing the window of opportunity for Spain or Italy to raise new loans would result in the collapse of the financial systems. And it will be much harder to get out of the current crisis in a rush. So far the situation is critical, but stable. If the current problems are compounded by stock and bond market turbulence, the euro will be in trouble. Quote.rbc.ru
The International Monetary Fund (IMF) has provided Ireland with a €1.4bn loan tranche. The funds will be allocated as part of a three-year IMF-EU programme to rebuild the country's economy hit by the economic crisis, Reuters reported.
"Despite the significant difficulties the country is facing, the policies pursued by the Irish government remain resilient and strong," the statement said.
However, the same statement noted that the turbulence created by the problems of other eurozone members has led to an increase in government bond rates and they are now higher than anticipated at the start of the bailout programme.
Recall that at the end of 2010, the Irish government agreed to a bailout of 85 billion euro. These funds were allocated to it by the EU and the IMF, in exchange for which Dublin launched a programme to cut public spending.
Ireland along with Greece, Italy, Spain and Portugal belong to the group of troubled countries known by the English acronym PIIGS. Ireland's problems, despite its margin of safety, are its external debt, which is comparable in size to the country's GDP for the year.
The ministers of the member states of the Organisation of the Petroleum Exporting Countries (OPEC) held a regular meeting in Vienna. During the meeting the ministers decided to keep the cartel's oil production cap at 30m b/d unchanged, a spokeswoman for the organisation said.
OPEC's total oil production quota is a formal guideline, but the cartel's actual production level often does not match the official one. OPEC production was much higher than the official quota in May 2012 - 31.6mbpd. The reason for that was extra oil production by Saudi Arabia, the key OPEC producer.
According to Riyadh's official stance, lower oil prices play to the advantage of both western economies and the world economy as a whole. According to the Saudi oil minister, the kingdom's actions to lower the price of "black gold" is a kind of "stimulus measure" for the global economy.
It is known that at the meeting some states called on Saudi Arabia to reduce oil production in order to support oil prices above $100/barrel. Algeria and Iran are among the supporters of production cuts. Algeria's energy minister said that exceeding production quotas of 30m barrels was unnecessary and could lead to an uncontrolled drop in prices.
World oil prices (expressed in European Brent) peaked in March 2012 at USD 128/bbl, but have now fallen to around USD 97/bbl, amid a deteriorating global economic outlook and increased market supply from Saudi Arabia. Recently, however, many OPEC members (notably Iraq and Iran) have become uncomfortable with oil prices falling below the $100/bbl level.
Ratings agency Moody's on Wednesday downgraded the ratings of Spain and Cyprus and placed them on the review list with the possibility of further downgrades, thus contributing to the worsening debt crisis in the Eurozone.The rating for Spanish government bonds was lowered by three notches to Baa3 from A3, one notch above undesirable levels. Moody's said that the government's decision to seek financial assistance from the EU would cause a further increase in the country's debt.The Spanish government has very limited access to the financial markets as evidenced by its reliance on the European Financial Stability Facility and the European Stability Mechanism for recapitalisation funds and its increasing reliance on its domestic banks as the main buyer of new bonds.In addition, the continued weakness of the Spanish economy is causing financial weakness and increased vulnerability to a sudden funding shutdown.The agency also downgraded Spain to Baa3 from A3 and placed the rating on review with the possibility of further downgrade as its debt is fully and unconditionally guaranteed by the Spanish government. At the same time it was reported that the ratings company Egan-Jones downgraded Spain to CCC+ from B this Wednesday. The downgrade of Spain to BBB was also announced by the rating agency on 7 June. At the same time, Cyprus's rating was cut by two notches to Ba3 from Ba1. Moody's said that this was due to the likelihood that Greece will leave the euro zone, and the resulting increase in funding through Cypriot banks.Following this statement, Moody's downgraded two Cypriot banks, citing an increased risk of a 'Greek exit' from the euro zone. Moody's said that the banks' large-scale operations in Greece were causing their capital vulnerabilities.
Cyprus has already said it will await assistance from the EU to prop up its banking sector, but the matter has not yet been resolved.
Greece
So much has been said about the June 17 elections in Greece over the past month that everyone who wanted to has basically prepared for the event. It can therefore be assumed that the reaction to this election may end up being much more muted than many might imagine. At the same time we can assume that if the leftists come to power in the country as a result, but the head of Syriza Alexis Tsipras manages to convince investors that Greece will remain in the Eurozone, it could be a reason for a speculative EUR/USD rise game in the moment. On Tsipras' comments on Wednesday and his pledge not to break off with the EU it seems likely that we saw the EUR exchange rate move towards 1.26.
The real downside that we could see in case of Greece after June 17 is that the country does not form a government after the elections and that will probably mean a new round of EUR depreciation.
Spain
Something will definitely be done next week by the regulators (central banks, G20, EU) in order to calm down the investors and not to let the crisis in Eurozone spread more quickly.
On the one hand, in this case we expect that the ECB might if not launch a new liquidity programme, then at least take a more active stance on Europe's sovereign bond market by aggressively buying Italian or Spanish securities.
On the other hand, another rescue package for Spain can be worked out within the framework of G20 in the context of the fact that the promised 100 bn EUR is clearly not enough for anything. As a matter of fact, the latest newsflow on Spain (Moody's has downgraded Spain to Baa3 from A3; Egan Jones has downgraded Spain by 2 notches already 5 times in the last two months; Fitch has raised Spanish banking system's figures; 10-year Spanish bond yield is around crucial 7%) clearly suggests that the country is the next week in which to receive a lot of attention.
And thirdly, we wouldn't rule out coordinated action by several central banks (Fed, ECB, Bank of England, Bank of Japan, etc.) to support the liquidity situation in Europe.
Actually, all actions of that type may lead to a further thaw in the financial markets (support the euro by increasing the rate above 1.26) and at the same time allow more time to "buy" in the context of the current debt crisis. Suffice in this case just to recall 1Q2012 when LTRO1 and LTRO2 operations created for a moment a semblance of stability in the markets.
We would like to add that from a technical analysis point of view, we would rather talk about a new phase of EUR/USD depreciation after a sure decline below the support at 1.2450, with the expectation of a move towards 1.20.
bullish optimism ?)))
1.2660-65 should kinda cheer...higher I don't know...short and winged yesterday and will do so today...light infusions will have a big impact...on m30 it looks like that...
bullish optimism ?)))
1.2660-65 should kinda cheer...higher I don't know...short and winged yesterday and will do so today...light infusions will have a big impact...on m30 it looks like that...
Personally I see the latest news as - a patient preparing to take a horse dose of morphine after amputation ... The Greeks will not vote to leave the eurozone, which is the driver right now . Remaining in the eurozone could give a reason for growth .