After the upheaval of Tuesday, a quieter day in the markets yesterday allowed for some profit taking ahead of the G20 meeting in Cannes, France today and the confidence vote in the Greek parliament on Friday.
The euro duly rebounded against the pound and the dollar but is under renewed pressure this morning.
At Cannes, German Chancellor Angela Merkel stated that Germany wants to implement the bailout plan agreed for Greece. Merkel believes that the meeting with the Greek government should help give the clarity needed to proceed. In a press conference with Turkish prime minister Tayyip Erdogan, Merkel said “we now must come to a point where we know what will follow…We agreed a plan for Greece last week. We want to put this plan into practice, but for this we need clarity and the meeting tonight should help with precisely this.”
In what seems like a stark warning to Greece, a report in French daily Le Monde stated that Europe is not willing to renegotiate the conditions of the second bailout for Greece and plans on blocking the €8 billion tranche that was liberated last week. The latter has since been confirmed.
French president Nicolas Sarkozy and German Chancellor Angela Merkel will demand that the Greek government must ratify its intention of satisfying the required adjustments under the agreed bail out. Greece urgently needs this tranche or it could run out of cash by December. Le Monde reports that the EU and the IMF consider the payment to be “unimaginable” after the referendum announcement.
The French daily reports that international authorities will ask for Papandreou to ask Greek citizens if they wish to exit the euro, not whether they agree or not with the austerity measures.
Meanwhile, the European Financial Stability Facility (EFSF) has decided to postpone the €3 billion debt issuance scheduled for today because of the market situation and China has refused to commit to the EFSF until the situation with Greece has been clarified.
Away from the European sovereign debt crisis, the US Federal Reserve has reiterated its plans to keep US interest rates close to zero for the time being. Whilst it gave a more optimistic forecast for the US economy, saying that growth had “strengthened somewhat”, there are still “significant downside risks” to the economic outlook.
Consequently, the Federal Open Market Committee (FOMC) announced after its two-day meeting that it will maintain its target range for the federal funds rate between 0% and 0.25%, saying it expects that economic conditions are unlikely to warrant exceptionally low levels for the federal funds rate between now and mid-2013.
“The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate,” the statement said.
The Fed also said that it would carry on with Operation Twist, its programme of purchasing longer-term securities in exchange for shorter-term holdings.
“To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September.”
“The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.”
Equity and commodity markets fell again yesterday as the markets once again become unnerved by the goings on in the euro zone and most analysts expect a swing back into risk aversion.
This could see the higher yielding currencies like the Australian and New Zealand dollars and South African Rand come under pressure.
