FX:The NZ dollar gave back some of its gains overnight
FX Market Overview
A lack of consensus among European Central Bank (ECB) officials over Greece has seen the Euro fall overnight. ECB President Jean Claude Trichet has backed Germany over their “soft restructuring” of Greek debt. This is the insistence that private bondholders of Greek debt take a voluntary “hair-cut” on the amount they lent the Greek government. In plain English this means an investor, who bought a Greek sovereign bond for say €100,000 and is promised by the Greek government to be paid back €105,000 in 1-years time, is likely to instead receive for example €75,000 if they agree to the ECB’s “voluntary” restructuring. If they don’t voluntarily agree to this, they are likely to receive nothing as the money will come from the ECB (since the Greek government is insolvent) and that is the new deal on the table.
The German Finance Minister Wolfgang Schaeuble is favouring an extension in Greek debt maturities of 7-years.
Rating agencies have however made it very clear that any restructuring of debt that is not voluntary will be considered default.
An article in the NY Times titled “In Greece, Some See a New Lehman” highlights the danger from rating agencies declaring Greece in default. They think this will likely trigger a round of panic selling in other peripheral Eurozone bond markets, and would spill over into stock markets. This is rather alarmist although I can certainly see how parallels can be drawn with the 2008 demise of Lehman Brothers.
The NZ dollar gave back some of its gains overnight as Christchurch was hit by two further temblors measuring magnitude 5.2 and 6.0. GBPNZD fell 5 cents on Friday, but has since rebounded 4 cents from a new all time low of NZ$1.96. Concern that reconstruction works may be delayed has put pressure on the Kiwi, as this could push out the timing of the next Reserve Bank of New Zealand interest rate hike.
Data releases are nonexistent today, but it will come thick and fast from tomorrow onward. Major economic releases to watch out for this week includes CPI inflation from China, UK and the US, US and UK retail sales and US housing data. There is also a growing probability the Chinese will raise interest rates again. This surprise would likely cause upset to the Aussie and Kiwi dollars. The rate hikes are designed to rein in inflation and the Chinese housing bubble, but also effect import demand for Australasian commodity exports.
We may be short on economic surveys today but an Italian pasta brand has released the findings of its poll of 2000 British consumers. It doesn’t make pleasant reading for those on the dinner party circuit. 15% admitted serving “floor pie”, which is food recycled after falling on the kitchen floor, while 10% knowingly serve guests food well past its sell-by date. This is standard behaviour in our house I can assure you. My feeling is a decent dose of germs and bacteria is necessary in building up a healthy immune system. I haven’t taken a sick day in 15-years so I am happy to be challenged on this. I am however unlikely to ever entertain any readers of this report again after this admission. Apparently most people could take or leave “floor pie”.
