"Nothing is really working at the moment". None of the markets are functioning. Until Greece defaults it's hard to see any resolution," said one senior London-based credit analyst. Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis. In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender. Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago, meaning the annual cost to insure €10m (£8.59m) of the bonds is £900,000. "The money ran out in June and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said one senior London-based credit analyst. Dexia, along with other European lenders, has been hard hit by the closure of the interbank lending markets and the continuing unwillingness of investors to buy the bonds of eurozone banks. arbitraj@aol.com
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Monday, October 3, 2011
"Nothing is really working at the moment". None of the markets are functioning. Until Greece defaults it's hard to see any resolution," said one senior London-based credit analyst. Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis. In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender. Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago, meaning the annual cost to insure €10m (£8.59m) of the bonds is £900,000. "The money ran out in June and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said one senior London-based credit analyst. Dexia, along with other European lenders, has been hard hit by the closure of the interbank lending markets and the continuing unwillingness of investors to buy the bonds of eurozone banks. arbitraj@aol.com
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Greece is likely to miss the deficit targets agreed as part of July's bailout package, which would cast further doubt on its ability to steer safely through its current financial crisis and will send new tremors through global financial markets.
As the country's cabinet agreed a controversial plan to begin laying off 30,000 state workers, its latest budget plan indicated a deficit of 8.5% of GDP this year, missing the 7.6% target agreed with the European Union and the IMF. In 2012 the deficit is expected to fall to 6.8% of GDP – above the year's 6.5% target. A recession that has been worse than expected is behind much of the increase. According to Reuters, Greece expects its economy to contract by 5.5% this year and 2% next.
In a marathon cabinet meeting, the finance minister, Evangelos Venizelos, outlined new cuts for next year's budget, telling increasingly sceptical colleagues budget trimming was the only way of securing a further €8bn from the "troika" of lenders: the EU, European Central Bank and IMF.
The government hopes to deflect criticism of the public sector cuts by saying the 30,000 civil servants will be placed in a "labour reserve" on reduced pay from December. The measure will apply to employees aged 60 and over.
53.
It has been said a few times in recent weeks – but once again it’s Ground Hog day for the market. This time last week saw a sharply lower open for blue-chips in London following weekend developments – and today is following the same script so far. News that Greece is likely to miss targets to cut its deficit in 2011 and 2012 has understandably unnerved investors and pushed the FTSE 100 index back towards the 5000 mark.
It remains to be seen whether this ends up being something of an overreaction by markets like we saw last week, but as the European crisis continues to deliver ongoing bad news, and traders seeing no immediate end, it continues to look unlikely that any rallies will be sustainable
11.34am: Recession Alert. Fitch the ratings agency has warned that the "likelihood of a recession has increased". The agency now forecasts "near-zero quarterly growth until the first quarter of 2012".
Fitch does not project a 'double-dip' in its baseline global economic projections. However, the likelihood of a recession has increased, as intensified financial market volatility could further amplify risk aversion behaviour and lead to tighter credit conditions.
In the euro area, forecasts now incorporate near-zero quarterly growth until Q112 (the first quarter of 2012), partially reflecting the impact of the ongoing sovereign debt crisis as sentiment across Europe has weakened and uncertainty has increased markedly since June.
Maria Malas-Mroueh, director of Fitch's Sovereign team.
It revised down its 2011 growth forecast for the whole world from 3.1% to 2.6%. It predicts
just 2.7% growth in 2012, compared to 3.4%, and reduced its 2013 forecast from 3.4% to 3.1%.
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