- Greece and its creditors have reached an agreement on the country’s second bailout package.
- The IMF no longer wants to supply EUR 30bln to the bailout fund because of Greece’s failure to implement reforms, according to German press.
Heading into the North American open, equities are trading lower with the benchmark EU volatility index up 1.6%, with financials underperforming on concerns that the latest Greek bailout deal will need to be revised yet again. Officials said that the deal will require Greece’s private creditors to take a deeper write-down on the face value of their EUR 200bln in holdings than first agreed. The haircut on the face value of privately held Greek debt will now be over 53%. As a result of the measures adopted, the creditors now assume that Greece’s gross debt will fall to just over 120% of GDP by 2020, from around 164% currently, according to the officials. However as noted by analysts at the Troika in their latest debt sustainability report - “…there are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis”. Still, Bunds are down and a touch steeper in 2/10s under moderately light volume, while bond yield spreads around Europe are tighter. Looking elsewhere, after testing 1.3300 touted barrier level earlier in the session, EUR/USD has slipped into minor negative territory, while GBP/USD is also lower, with recent bout of selling attributed to touted LHS fix at 1100GMT. Looking forward, the second half of the session sees the release of the latest Chicago Fed National Activity Index, followed by the Fed Discount Minutes at 1900GMT. Also of note, the BoE, as well as the Fed are scheduled to conduct another round of asset purchases/sales.
The House of Representatives followed by the Senate voted in favour of extending the payroll tax cut to the end of
2012, and also extending long-term jobless benefits. President Obama was to sign the bill into law immediately. (RTRS)
On Friday, the White House said it forecasted 2mln new jobs to be created in 2012 vs. 1.8mln in 2011, stating the US economic recovery is on track although the Euro-zone crisis remains a key risk. (RTRS)
The Japanese Finance Minister Azumi has said the G20 is not yet at a stage where it can decide funding amounts for the IMF, reiterating that Japan and China share the view that Europe can make more efforts against the crisis. (Sources)
EU and UK Headlines
Greece and its creditors have reached a final deal on a second, enhanced rescue package for the country totalling EUR 130bln, officials close to the talks have said. (Sources) Officials said the deal will require Greece’s private creditors to take a deeper writedown on the face value of their EUR 200bln in holdings than first agreed. The haircut on the face value of privately held Greek debt will now be over 53%. As a result of the measures adopted, the creditors now assume that Greece’s gross debt will fall to just over 120% of GDP by 2020, from around 164% currently, according to the officials. The coupons on new bonds offered as part of the PSI programme will be 2% to 2014, 3% over 2020 and then 4.3%.
According to a Troika debt sustainability analysis report released last night, Greek debt could reach 160% of GDP in 2020 should the recession deepen and structural reforms are not carried out. The report said the baseline scenario for the debt/GDP ratio is 129% in 2020, but could be 120% should the ECB and other central banks take action. (RTRS) Furthermore, under the Greek debt swap, the PSI would get a 3% coupon on bonds maturing 2012-20, and a 3.75% coupon on bonds maturing after 2021, plus an additional GDP-linked payment capped at 1% of the outstanding amount of new bonds.
According to German press, the IMF have held internal discussions concerning withdrawing support from Greece. Their current contribution to the fund stands at EUR 30bln, however this may be reviewed due to Greece’s failure to commit to reforms. The article did not mention where it obtained the information. (Bild Zeitung)
European equity indices have experienced a volatile morning, showing early positive movements in reaction to the overnight news that Greece and its creditors have signed a second bailout deal. However, reports from the German press have suggested that the IMF are reconsidering their contributions as well as the leak of a Troika debt sustainability report for Greece, have cast shadow on the future feasibility of the country’s economic health. This has pulled equity markets downwards, with Financials falling from being one of the top performing sectors in the session, to one of the worst performing sectors.
In individual equities news, Tullow Oil are suffering losses today after hopes that it had struck a significant quantity of hydrocarbons were dashed following reports suggesting the find was not commercially viable. Company shares currently trade down 3.75%.
Against the current trend of the financials sector, Banca Monte dei Paschi is one of the top performing stocks following reports that the company’s biggest investor may be selling a stake, with investment firms Equinox and Clessidra said to have taken interest in the sale. Company shares currently trade up 5.5%.
Top European Banks, responding to new regulations and wary of lending, are stashing increasingly large sums of money at central banks around the world in a collective flight to safety at a rate 50% higher than one year ago. (WSJ)
Top performing sectors in the BE500: Health Care (+0.26%), Telecommunications (-0.10%), Basic Materials (-0.32%)
Worst performing sectors in the BE500: Oil & Gas (-0.91%), Industrials (-0.91%), Financials (-0.87%)
EUR/USD has experienced a volatile morning, opening strongly following the news that the Eurogroup has approved a second Greek rescue package, almost hitting the 1.3300 level. However EUR/USD then pared its gains following doubts from the market that the bailout may be further revised by the IMF.
GBP’s exposure to the Eurozone has weakened GBP/USD following a strong open, pulled downwards by reports of the IMF’s discontent.
Australia’s RBA have said there is scope to cut rates if demand weakens materially, adding that for the time being, overall demand growth is firm and GDP growth will remain close to trend for the next 2 years. The Central Bank have also said that inflation is consistent with the 2-3% target. The RBA further commented on the AUD, saying that it has appreciated despite a softening in commodity prices, adding that sovereign debt buying is key influence on the currency. (Sources)
WTI Crude futures are experiencing volatility ahead of the North American open, currently trading in strong positive territory amid positive market sentiment following the signing of a Greek bailout in Europe, and geopolitical concerns following fresh threats from Iran.
Oil & Gas News:
• Bad weather has again delayed the start of operations at Iraq's new Gulf crude outlet, further postponing a 300,000BPD boost to exports that is needed to keep up with increased output capacity in the country, according to industry sources. First loading is now expected at the end of February.
• Iraq will boost oil supplies by 250,000BPD in 2012, according to the IEA.
• Nigerian oil output is currently at around 2.5MBPD, according to the Nigerian Oil Minister, adding that output is soon to rise by 180,000BPD due to a new deep offshore oil project. The Minister expects oil refinery utilisation capacity to reach 90% in the next two years.
• Saudi Arabian crude output fell by 237,000 BPD per month to 9.81 MBPD in December.
• Saudi Arabia are able to boost output by 700,000BPD in 90 days, according to the IEA.
• JP Morgan has raised its Brent Oil price target to USD 118/BBL from USD 112/BBL, citing building economic momentum.
• Iran's deputy military chief has said Iran would take pre-emptive action against its enemies if it felt its national interests were endangered.
• Two Iranian warships sent by Tehran to the Mediterranean last week entered the Suez Canal on their way back to Iran, according to canal authorities.
• Iran is struggling to find new buyers for its crude oil as Western sanctions start to bite. Tehran is offering to sell an extra 500,000BPD to Chinese and Indian refiners.
• North Korea has threatened to shell islands close to its disputed sea border with South Korea if the South violates its territorial waters during a military drill.