Greek's Start To Creak
Mon, May 23 2011, 07:35 GMT
by
Jeremy Cook
T
here was a typical Friday market sell-off in the FX markets last week with a ratings downgrade for Greece rattling already shredded nerves. Fitch slashed Greece’s rating to B+ with some analysts believing that the country has only two months of cash left at its current spending rate.
There we were also bearish comments from the Chair of the Bundesbank who noted that a re-profling of Greek government bond maturities would make them impossible to accept as collateral by the ECB and that as a result, large parts of the Greek financial system would be cut off from funding. It is clear that any restructuring cannot substitute for implementing a fiscal adjustment program. Both the euro and risky assets tumbled on Friday afternoon as the news was fed through; a decay that has continued in Asia overnight. These nerves have been exacerbated by a fall in Chinese manufacturing PMI to its lowest level in 10 months. This confirms that the growth profile of the world’s 2nd largest economy is starting to dip and that the recent monetary policy tightening is not having the desired effect just yet. The Nikkei finished 1.52% lower while the Hang Seng (1.90%) and the Australian ASX (1.88%) also tumbled.
Sterling has benefited over the weekend after some bullish comments from the Bank of England’s Chief Economist in the Sunday papers. Spencer Dale said that the rest of the MPC should vote for an interest rate rise as soon as possible to control inflation regardless of the state of the recovery in the UK. He has voted for rate rises since February so these words come as no surprise but alongside the euro weakness from the Greek fallout they have helped the fortunes of GBPEUR higher. UK data will be dominated by the second reading of 1st quarter GDP due on Wednesday.
The data calendar is quiet today but the focus will remain on Greece and talks of a possible bailout.
(fxstreet.com)