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Tuesday update…. Greeks take it up ….to the wire

larry — Tue, 07 Feb 2012 08:55:40 +0000

Not surprisingly all eyes were on Greece yesterday and once again they failed to deliver. The troika seem intent on getting some concrete actions from the Greek politicians before signing off on the bail out. The Euro was sold off across the board yesterday down to EUR/USD 1.3030 but once again is back at our favourite spot 1.3150 this morning. It is at least offering some intra day trading opportunities to supplement the lack of any major directional move. Greece of course will be in the spotlight again and if anything the default chatter has gotten louder.That said expectations still remain solidly for a positive result although time wise the tank seems to be running on empty now. A 24 hour strike today might be the start of further unrest to follow.
Elsewhere the big surprise was the Reserve bank of Australia’s (RBA) decision to leave rates unchanged at 4.25% when a cut was almost unanimously expected. Net result Aus$ above AUS/USD 1.08 and another new high against the Euro. Difficult to know what dissuaded them from cutting but obviously they still feel the economy is still running as well as they would wish.

Headlines

Equities… Quiet session for stocks as they await Greek developments
Greece… Agreement to cut 15,000 public sector jobs this year. Probably as before that’s the number of retirees in 2012
Fitch… Ratings agency cuts Italian banks
UK…. Still some talk of the Bank of England announcing more QE this week. Would seem a bit premature to me but Sterling could be vulnerable
Australia… RBA keeps rates on hold at 4.25% surprising markets and sending the currency higher
Japan.. The Finance ministry confirms that there was some stealth intervention at the end of 2011. That’s no good chaps , no one or the currency noticed it
France… Just announced December trade deficit of € 5 billion (5.3 expected). Still big enough to show the Euro doesn’t work for them.

Weekly review ………Deal or no deal, Greeks saga continues

larry — Sun, 05 Feb 2012 11:24:25 +0000

Before we chew over events of last week this weekend is supposed once again to provide the final touches and agreement for Greece to get its next €130 billon ( although maybe €150 billion) bail out . According to press reports no such agreement has been made yet. The sticking point being the Greeks refusal to accept more budget cuts ( health and defence) but more importantly agreement on private sector wage cuts including a cut in the minimum wage. It seems the only agreement is that both sides feel they have done enough. The Greeks on austerity and the troika, but principally the Germans and other AAA countries who refuse to part with more taxpayers money unless the Greeks do more. I get the feeling that either way its not going to be a happy ending but that’s not to say markets still wont take a lift if and when an agreement is reached.
Generally risk markets ( bonds and equities) improved last week. Firstly in the euro zone bond markets in Italy and Spain have improved.Secondly the economic data has been either ok or as in the US on Friday,the January employment data much better. The US added 243,000 jobs ( expected 145,000) and headline unemployment was 8.3 % ( expected 8.5%). The upshot was equities edged up again adding between 1 and 2 % on Friday.
Things have not been so clear in forex markets although the Australian and Kiwi dollars were at the top of the pile. The US dollar was a smidge easier but the Euro did very little once again snuggling up to 1.3150. It seems that we need something extra or get us to EUR/USD 1.33 or 1.26, which brings us back to deal or no deal.
You would think that the likely conclusion will be a reluctant climb down from Greece but even that is not a certainty.
Purchasing Manager data now widely watched by markets was a little better in Europe although the gap between the still deteriorating Southern Med countries and the off the worst declining level Northern Europeans, still persists.In the US it was better still.
Latest information from the currency futures exchange still points to a hefty short in EUR/USD which bares consideration as it could yet point to a bigger squeeze on shorts. Fundamentally though little has changed and therefore still leaves the Euro vulnerable.The uncertainty persists and while equity markets are leading us to believe its all going to be ok, investors would be wise to keep an eye on the exit. Chinese data has thus far been in the ok camp but could yet rattle markets if it slides. The same could also be said of some geopolitical event.

Headlines

US…. unemployment falls to 8.3% ( expected 8.5%)
US ….adds 243,000 jobs in January ( expected 145,000)
US…. ISM non manufacturing PMI 56.8, highest since Feb 20011
Switzerland….. Central bank states 1.20 Euro peg is a minimum. EUR/CHF up 20 pips at 1.2070. Any ideas of raising the peg look fanciful.
QE… The debate on quantative easing continues. Its likelihood at some stage remains a slight negative still on US dollar sentiment
Central banks…. Talking of QE the ECBs balance sheet now (in US dollar terms) is 3.5 trillion against the Feds 2.9 trillion with lots more expansion likely at the next long term auction at the end of February.
Currencies.. Mixed, Australian $ hit all time high against the Euro while the Japanese Yen weakened against all on intervention fears.

It appears that talk of Mr Berlusconi disappearing from politics may be premature if his own opinion of his popularity is anything to go by. He says, I still have strong popular backing, almost twice as much as my colleagues Merkel and Sarkozy,” he said. “In opinion polls, I personally have 36 per cent support. If I walk out in the street I stop the traffic. I am a public danger and I cannot go out to do the shopping!”
That’s probably akin to Russian support for communism, some habits just will not die off.

Friday update.. Forex markets on hold for US NFP and Greek decision

larry — Fri, 03 Feb 2012 09:10:19 +0000

Its as if EUR/USD has found its comfort zone around EUR/USD 1.3150. So why not curl up there and await first the US Non Farm Employment data and then at the weekend , finally an announcement on Greek debt rescheduling.The consensus on the US data is for an increase of 150,000 in January with unchanged unemployment at 8.5 %. Greek talks are going to the wire and the evidence is that Germany has been insistent on new measures of austerity before any more cash is disbursed. Greece has been trying to avoid this knowing failure could push them into default and out of the Euro, something that Euro zone members fear because of the contagion threat. However, Germanys stance is clearly one of knuckle down or leave. They really would be prepared to see Greece go.
Day traders therefore will get their fix after the US numbers and presumably Monday could see a knee jerk move higher for EUR/USD on a Greek agreement at the weekend.I would suggest not much and a sell.
Elsewhere the US currency has looked softer rather than firmer. Equity markets while holding up seem unable to push on at the moment and could be the key to any general dollar move in the short term.
Quantative easing still seems to be the phrase to excite markets. More from the US and the UK at some point? and the ECB ,although markets have not really woken up to the fact that in its own roundabout way that’s exactly what the ECB is doing. The Euro zone banking sector remains a major head ache

Headlines

China.. Non manufacturing PMI falls to 52.9 ( from 56). For markets to really react we would need to see some purchasing indicators under 50 ( i.e. a declining trend)
Spain.. Announces bank reform plan. Banks will not get much in the way of tax payers money. Somehow though Spanish banks need an estimated € 50 billon in capital if they are to address their housing market problems full on. More mergers and takeovers.
Fitch…The ratings agency expect euro zone problems to last another 12 to 18 months. I would be a buyer there.
ECB buys Portuguese bonds. Adding to their wonderful portfolio.
Purchasing Managers Index…. The release of euro zone PMI data this morning shows marginal improvements. Germany and France remain above the 50 level Spain and Italy below despite the bounce. And there lies the problem

Snow on the Costa Brava again, second time in 3 years, do we have a new trend.

Wednesday update… Early dollar weakness evaporates as Euro zone problems weigh on currency

larry — Wed, 01 Feb 2012 08:13:19 +0000

Check out what are Greece´s problems in a nutshell

What started well for the Euro finished differently. EUR/USD did indeed make it up to 1.3215 yesterday morning but by late afternoon the Euro was on the skids. It fell down to EUR/USD 1.3062 yesterday and lower to 1.3025 overnight. On crosses to under EUR/GBP 83 some 1 % lower against sterling and back under 100 against the Yen. It may well be a trading range for a while so suggest more sells above 1.32 if we go there. Nothing wrong in adding 100 plus points or more on day trading.I am not sure what triggered all the selling, ,maybe all the talk of US dollar month end selling caught a few longs out.Or maybe someone looked at the fundamentals. Remember those well they are sound economic reasons for a currency move and what’s more here are some.

Unemployment data within the Euro zone continues to show the fundamental problems that lie within the union. German unemployment numbers showed an improvement to a record low of 6.7% from 6.8% while in Italy things went in the opposite direction to 8.9% from 8.7% . Overall eurozone unemployment was at 10.4% .
Whatever the photo shoot shows there remains deep divisions on opinions on what to do with Greece. Germany remains angered at the lack of Greek progress on labour reforms and is balking at the idea of increasing the bailout with Portugal in the queue behind and maybe even Ireland behind them.
Market participants exposure to EUR/USD positions remains the highest and are overwhelmingly short.The strength of the bounce from close to EUR/USD 1.26 reflects this although one assumes that most players are still on board. Fundamentals for the euro zone remain appalling but as we all know from the past it may not reflect in forex moves when we all think. The problem of Greece has now rumbled on for 2 years and the southern Mediterranean block of countries are continuing to diverge from Germany and the strong, as their economies suffer. We have not seen the worst.

Headlines

Germany. Unemployment falls to lowest level since unification 6.7% in stark contrast to many Euro zone countries. 23.8 million out of work in the euro zone tells you it aint working.
UK Financial Times … reported speculation that banks may double up at the next ECB 3 year LTRO (Long term refinancing operation) in February. Remember the € 490 billion banks hoovered up in December. This would indicate Euro zone banks on ECB life support as normal funding has dried up. Is his QE? Some say yes.
US budget office announced that the US deficit shrunk to US$ 1.1 trillion this year. Was that good or bad news, but they can still borrow 10 years under 2%
US Case Shiller home price index falls 3.7% YOY against 3.3% expected. Knocked equities more than the dollar. There are many hanging the hats on a bottom in the US property market this year. Sentiment would be lifted but nothing to suggest that here.
China pmi 50.5 from 50.3. Still expanding

Greece… Its problems in a nutshell
Thank you to Der Spiegel magazine for much of this data

In Athens the government is at least spending € 20 billion less than it was in 2009. Unfortunately its debt situation gets worse as it enters year 5 of its slump
Greek November retail sales were down 11.6% YOY (year on year) which was worse even than Octobers 10.8% YOY decline
When looking at how they might turn themselves around their biggest exports are olive oil , textiles and a few chemicals, hardly the stuff of an economic renaissance.
Add to the fact that Greece is dependant on food imports and you see why life outside the Euro would actually appear so frightening.
Tourism so long a lynch pin of Greece has become a summer industry only ( no one wants to visit their cities in current circumstances) and a recent study of its hotel & tourist industry wages in comparison to competitors shows just why they are in such a state
Per hour wages in tourist industry
Greece € 11.39, Portugal € 8.49, Turkey €4.00 and Bulgaria €1.55.
The problems have developed over years and will not be solved if at all for many years. As I have said before who dreamt up sharing a currency with one of the worlds most efficient and competitive industrial manufacturers, Germany. Plain nuts, but that’s politicians for you.

Tuesday update… EU summit fails to disappoint on expectation of zero

larry — Tue, 31 Jan 2012 09:03:00 +0000

It must be fair to say that EU summits are beginning to bore the market. While they may be banging the drum about the new fiscal contract (excluding the UK & Czech Republic) it is something for the future and does absolutely nothing for the problems of the here and now.
The upshot was no further sell off in the Euro and with the stock indexes recovering the US Dollar has given up much of the ground it made up. EUR/USD back at 1.3170 from lows around 1.3070. There has been next to nothing of a Euro pull back on the crosses so we can assume this is more of a US dollar move.
Notably the Japanese yen which had a memorable wobble last week is back in favour trading near USD/JPY 76.00 and EUR/JPY 100 ,with no real change as risk markets have come back. It would not be the surprise of your life too see some intervention soon as to in the Swiss franc where EUR/CHF seems to slip ever closer to the 1.20 peg.There is talk of month end selling of the US Dollar which I never care to speculate on so we will see if that develops or indeed if the currency recovers later in the week.
I remain defiant on the Euro and will sell again above 1.32 if only as a trading position.
Of course we have to mention Greece. As you might expect discussions continue although its seems Mrs Merkel sort to dismiss reports that Germany wanted a European commissioner ( in a strange uniform) to oversee the enforcement of the budget in Greece. It wasn’t very well received in Athens, not surprisingly,but it seems that Germany is using comments from less senior politicians to get its point across. More action from Greece on reform before you get more money.
What is becoming clear is that Portugal is waiting to take centre stage once Greece moves over. Contagion has certainly taken hold there and despite there best efforts Portugal will have to get more money to sustain itself. What might be done to help it gain some growth outlook remains a mystery as indeed it does for Greece.

Headlines

Equity markets reverse leaving US dollar on the back foot again
EU Summit.. Fiscal pact is agreed. Members will have to sign balanced budgets into their constitutions. I will be very much older by the time this situation is reached.Although hailed the first step to fiscal union I cannot believe markets will fall for this one.
Angela Merkel… Greek debt sustainability particularly bad. That’s short for , they are still going down the tubes
AUS$ Reports a senior analyst sees the Aus$ surging to 1.60 against the US dollar. Hot on the trail of another who sees it down to 0.80.
Japan. Better data with the exception of unemployment. Yen strength emerges again so watch out for BOJ intervention.
France… Consumer spending in December fall 0.7% against a +0.2 forecast
Germany..Even worse retail sales data for December. Down 1.4 month on month 0.9 YOY against forecast + 0.9 and +1.4. Markets do nothing despite weak numbers.

Another day another dollar as they say

Weekly review… US Dollar weakness outweighs Euro zone reality for now.

larry — Sun, 29 Jan 2012 11:38:25 +0000

Its not the being wrong that hurts its not understanding why.That is what it feels like seeing EUR/USD back at 1.3220 on Friday. The consolation is that I always felt it was a possibility and I have some ammunition left. The US dollar suffered because the Feds Bernanke chose to call interest rates at zero until 2014 and leave the door open for QE3. This sustained equity markets through the week and put pressure on the currency.and even a slightly disappointing GDP figure from the US ( 2.8% instead of hoped for 3% ) did not upset the trend. What is interesting is that the US Commodity and Futures Trading Commission data showed an increase of Euro shorts of 10% over the week to a record $28.1 billion. So there was no short covering from that crowd which means that a real shakeout is still possible. Or you can take it like me that if we go down we will all go down together, ha ha.
The Greek debt saga has carried on another week when it was supposed to be a whisker away from agreement even 2 weeks ago. Quite possibly an announcement of conclusion next week could give a knee jerk up move for the Euro but that will be a wonderful sell opportunity to my mind. By all accounts the Troika ( EU, ECB and IMF) are still insisting on more action from Greece on reforms and weekend press has speculated that the IMF in particular wish to take the reigns of management totally away from Greece, no autonomy what so ever. Well that will not work and with Portugal waiting in the wings to follow Greece in its downward economic spiral the problems are mounting. Spain’s unemployment data was appalling, up to nearly 23% at 5.3 million and likely to get worse.
In Davos, Switzerland at the world economic forum the Euro zone leaders were subjected to a tirade of negative comment but with little or nothing in the way of new ideas.The EU summit this week is expected to confirm the new fiscal pact and at least some kind of financial help for youth unemployment which is up near 50% in some areas. For sure if something is not done soon then social unrest will follow.
At this point I am not sure where I might panic on my negative EUR/USD view. We could go higher to 1.3400 even but I cannot see beyond that level. In any event I will add to shorts at these levels and more if we go higher.
I believe that Iran’s parliament is due to vote today ( Sunday ) on stopping EU oil exports immediately rather than the EU plan of June. This could definitely be an issue to unsettle risk markets if passed, pushing oil immediately higher and presumably equities lower and the US currency back up. One to watch anyway

Headlines

US.4th Qtr GDPup 2.8% just below 3% expectations
US..FOMC Bernanke signals low US interest rates until 2014 and leaves possibility of more QE
IMF Lagarde.. Says IMF would not risk its reputation by lending money without conditions ( aimed at Greece )
Spain. Unemployment surges more than 350,000 in 4th Qtr. Worse to come I am afraid
Germany.. A growing band of commentators and politicians consider Greek default and Euro zone exit likely. This apparently includes Angela Merkel
EUR/USD hits high of EUR/USD 1.3235. Technical resistance remains at 1.3245/55
UK… Prime minister and chancellor pull no punches in Euro zone criticism and are scathing of Financial transaction tax plans

I leave you with the comments of Nouriel Roubini. Dr Doom as he is known having predicted the financial meltdown of 2008 and a man who I assume is also short EUR/USD

“The eurozone is a slow-motion train wreck,” Mr Roubini said. “Countries – and not just Greece – are insolvent. I think Greece will leave the eurozone in the next 12 months, and Portugal after.”
The New York University professor of economics was speaking at one of the final sessions of the World Economic Forum annual meeting in Davos.

“There is a 50pc chance that the eurozone will break up in the next three to five years. This doesn’t look like a G20 world it looks like a G-Zero world because there is no agreement on global imbalances, how to change the international monetary system, international trade, banking regulation, on all the fundamental issues.”

Thursday update.. What does Bernanke know that we don’t and scary predictions

larry — Thu, 26 Jan 2012 09:01:16 +0000

Markets turned about face yesterday. With sagging equities and the US dollar edging back higher Fed Chairman Ben Bernanke announced that the Fed would keep rates near zero until the end of 2014 and kept the door open for more QE (Quantative easing). All very strange.Just what does Bernanke know about what in store that leads to that policy. Certainly not a booming economy, recovering housing market and lower unemployment I presume. Maybe he thinks a sinking Europe will take its toll on world growth. Anyway the upshot was that equities and commodities rose and The US Dollar was sold off again. EUR/USD which had been as low as EUR/USD 1.2930 has since traded up to 1.3135 in Asia and sits just below now. It has to be said that technical signs point to more upside. I did say that maybe shorts would be tested to their limits and it looks quite possible now. European sentiment seems a little better but listening to various attendees at Davos I hear only gloom for Europe and this from those with fingers on the pulse. Its back to Athens for the Greek debt saga today.The ECB supported by Germany made it clear that the ECB will not be following IMF guidance and participating in the bond haircut so its up to private investors. The rumoured badies of course are the hedge funds many of whom have CRDs (Credit Default Swaps) which would yield them more profit on a Greek default than the voluntary haircut proposed. It seems strange that German politicians including Merkel now openly talk of a default while these negtiotiations persist. The truth is that if a deal is cut it will prove inadequate within the year.
In the UK GDP fell 0.2% in the 4th quarter.Below the consensus 0.1% but close enough to be ok.

Headlines

Greece… Private investors resume talks in Athens today on Greek debt rescheduling
US..FOMC says that US interest rates to stay low through to 2014 and ready to take more action(QE) if needed.
Davos… Merkel in here opening speech dismisses talk of doubling rescue funds
UK 4th Quarter GDP -0.2% against expected-0.1%
Gold.. Up through $1700 on Fed comments
Australia. Ausie$ continues to be in demand. Russia announces intentions to buy in ( Better late than never….maybe)

Just to calm your enthusiasm I thought it would be good to see what some of the gloom and doomers are saying .These are a few of the headline stories from website Bearmarketcentral.com . Some of these people are bearish all the time and get their fame from getting it right once. However, its right to be aware of the doomsday scenarios. We are in the hands of politicians after all

Joe Granville: Dow Industrial May Drop Toward 8,000 in 2012

George Soros: Collapsing US Economy to Spark Street Violence

The Greatest Economic Storm: We are living in the Greatest Debt Bubble The World Has Ever Seen. By M Snyder (The Economic Collapse))

IMF chief urges action to avoid ‘1930s moment’

Nouriel Roubini: Still a 50-50 Chance for Global Economic Meltdown

Gerald Celente on Trend Forecasting and the Crisis of Western Civilization

James Dines: This Will be a Dangerous Collapse & Endgame

Wednesday update…Japanese Yen falls… is this reality at last

larry — Wed, 25 Jan 2012 09:05:01 +0000

There hasn’t been many days recently that the Yen has taken centre stage but it did overnight as it fell close to 78 against the dollar and 101.60 against a recovering Euro. This move was prompted by Japanese trade data that showed another deficit but more importantly its first yearly trade deficit since 1980.Over the years I have always found timing on the Yen very difficult but my year end predictions for 2012 was for US$/JPY over 90. It could be 100 plus.However another Euro wobble amidst an equity sell off might see it return as a safe haven but just maybe we have seen the beginning of a weaker Yen which by all measures is overvalued.
Elsewhere as I said the Euro recovered from its early sell off, now back at EUR/USD 1.3030. Jitters remain about Greece although recent PMI data from Europe is leading to some predictions that any recession will be over quickly. I don’t believe that. The IMF lowered world growth predictions to 3.25% from 4 % and all their warnings of worst case scenarios revolve around Europe.
Headlines

UK. Bank of England minutes and 4th Qtr GDP data could add some volatility to sterling. Negative growth expected but how much. Predictions range from +0.1 to a horrible -0.7%
Japan. A surprise December trade deficit left Japan in deficit for the first time since 1980. Early days but perhaps a sign of things for the future US$/JPY falls to 78
Australia. Aus$ picks up on risk appetite and inflation data that may stall a rate cut
Europe. Still no resolution on Greek debt. IMF calls for ECB to take haircut on its 40 billion Greek bond holding.That would be a nice $20 billion loss for Europe’s tax payers and a no argument transfer against EU rules.( The ECBs holding of bonds has always been excluded from any haircut plans and seems unlikely to happen)
Davos. As the great, good and some might say rubbish of the commercial, financial and political world gather in Davos, Switzerland expect plenty of profound statements from those who think they have the answers or know what’s going to happen. Legendary George Soros already predicting social unrest from the `have nots´ against the ´haves`. Where was my invite, Spanish post again.

Tuesday update… Euro pushes on despite Greek debt impasse

larry — Tue, 24 Jan 2012 08:57:09 +0000

Despite there being no agreement on the Greek debt rescheduling the Euro put in a pretty good shift yesterday hitting a high of EUR/USD 1.3052. The technical bias is if anything more positive on the pair and as I have said we could yet see an even bigger squeeze. Next major resistance remains around 1.3140/50 level.
Equities and euro zone bond markets remained in positive territory taking support away from the US Dollar and aiding the Euro. This morning sees us closer to 1.30 with equities opening a fraction down and most attention will remain on Greek talks. The private investors have the ball in their court as they consider having to accept a lower coupon ( interest rate) on the new Greek bonds they will receive.What seems a little strange in the course of the Euro revival is that against the Swiss franc it has made no headway at all trading at EUR/CHF 1.2070. This is hardly confirmation of Euro rally but we will have to see.
Talk of expanding the bailout funds has helped the Euro elsewhere with Germany apparently more open to this provided tighter budget rules are firmly in place.
In Italy taxi drivers have been striking and more groups will follow as new liberalisation measures are proposed. This will be a crucial test for the ability of the Monti government to succeed where so many have failed before in major labour reforms.

Headlines

India Central Bank. Economic growth falling more than anticipated. India has a balancing act as inflation remains very high
Euro zone Finance Ministers.. Greece off track. Must get on track before new programme. I didn’t know that they had ever been on track. There has been nothing substantial in the way of labour reform or asset sales
IMF Lagarde still banging the drum wants a bigger Euro bailout fund
Hints that European bank capital rules might be delayed as German and French banks struggle to meet the new rules

Europe agreed to impose sanctions on Iranian oil imports halting new orders after July. For their part an Iranian spokesman said they might halt European exports immediately which would cause a big spike in oil prices.It seems that with Iranian elections in the Spring we could see more tensions as anti western rhetoric continues.
Undoubtedly though some major incident with Iran has the potential to unsettle many markets not least the recent strength of share markets.

Weekly review….. Euro fight back but jury out on next move as Greek talks stall

larry — Sun, 22 Jan 2012 10:23:16 +0000

It seems the forex market is in a battle ground as far as EUR/USD goes. It is challenging the upper end of its recent channel but could not really manage a decisive break or close above the EUR/USD 1.2950 level. The price action since lasts weeks Standard & Poor’s downgrades has been Euro positive. Euro zone bond markets have been holding up well ( ECB money channelled through the banks mind you), equities have enjoyed a solid start to the New Year and US data at least continues to be supportive for risk.
As I said Friday EUR/USD bears may be tested further if we break higher, up near 1.3300 cannot be ruled out but I would be looking to sell there up to 100%, all in as you might say. There seems to have been good 2 way business from sovereigns but undoubtedly some profit taking from shorts,many of whom will have good profits.
One of the game changers last week was the new IMF initiative to raise more funds. It remains to be seen if the United States back it. There response so far has been pretty cool. Indeed the IMF is courting controversy. Ms Lagarde the French head of the IMF cannot in anyway be seen as a neutral in this. Having been a French minister she seems to be running a crusade to save the Euro, hardly what the IMF mandate is about. She has all the hallmarks of someone who will go on to stand in a French presidential election, presuming she does not self destruct like here predecessor. In any event its all a bit to Europe orientated. Their stance over Greece looks very strange, admitting things are ´dia´ with no real structural reforms and the downward spiral continuing but apparently happy to splash the cash still.
The Monti government in Italy will be unveiling its plans for structural reforms in the Labour market, which is finally to be applauded. The crucial points here are the response of unions. No Italian prime minister has been able to take them on but maybe this time it will be different baring in mind the economic situation. Of course the fruit from any changes will be years away, while the pain is immediate. Unions will want something on the growth side if they agree and its difficult to see what that might be.
Mr Sarkozy must be mighty relieved that the French downgrade has caused no wobble in bond markets and he too is talking of some major labour market reforms as he consults the unions. Brave man ahead of the election maybe, but perhaps it will be a master stroke. For sure the socialists might not look credible if they appose them much as in the UK where the Labour party have been forced to change tack on fiscal policy because of their policies lacked credibility.
So it may be that Euro bears will have to wait.The reality check for sure will be economic data from southern Mediterranean countries. As much as any individual can gauge anything the signs here in Spain point to some very poor economic figures. Starting from unemployment levels of 23% as they go into recession must be unheard of in this day and age

On to Greece where market participants will have been expecting an agreement on its debt swap deal this weekend.Latest reports suggest that representatives from private creditors have taken a time out and that the talks will not resume for a few days. While this may not be anything more sinister than last minute fine tuning of the interest paid and a deal will happen next week it could unsettle markets on Monday.

In currency markets one indicator seems still to be Euro bearish. The EUR/CHF has stayed unmoved under 1.2100 close to the 1.2000 peg and certainly no talk of raising it at the moment. It points to a continuing flow of funds away from European countries into the safety of Switzerland . Portugal which reached its 2012 targets not least by taking funds from its pension pot is thought to be next for a rescheduling quite possible followed by Ireland. And by the way just 2 weeks ago the Irish pm was on TV stating Ireland would not accept a financial transaction tax if the UK was not going too. Just another reason for them to clash with the French.

All this goes to show that despite completing austerity packages rubber stamped by everyone the upshot is failure.If more is prescribed how long before the stoic citizens cry enough. Ratings agency Fitch this week pronounced that a solution to Europe’s problems was technically and politically beyond reach, a conclusion it made after the December summit. That remains the key and as we have seen over the last 2 years the Euro zone problems may seem to come and go but in reality they are not being solved because it is 10 years too late. That the eurozone may be fixed in the next 10 years is going to be too long to wait.

Headlines

Greece.Latest (Sunday) news points to suspension of talks without agreement. May unsettle markets on Monday but will happen next week.
EUR/USD remains at crucial level 1.2945 at the top of its recent downtrend channel.
European banks continue to support their domestic bond markets. All smoke and mirrors but ECB money is finding its way to fund governments
Italian leader Monti to unveil the first real labour reforms. How will Italian unions react
US housing data improves ( inventories of unsold homes falls to lowest since 2005)
US Republican nomination just got interesting.Newt Gingrich wins South Carolina making it a 2 rather than 1 horse race

By the way how is your Iranian riyal position. Since October the US$/RIYAL has fallen to 18,000 from 10,500 . No change in the trend on that one either