Supportive news out of the US and weak news out of Europe.
The Greek financial minister just came out and announced the continuing receipt of aid from the IMF and ECB. And the European Financial Stability Facility (EFSF) seems to be well set up to deal with further problems. So what exactly is the EFSF? How will it help solve the current European crisis? Read the rest of this article
Speeches from G20 leaders overnight were positive but not definitive. There were also talks about the ECB Oct 6 meeting and possible loosening of official monetary stands. It would seem that markets are very worried about an European recession and is priced in to the stocks. There is also uncertainty as to the solution to correct the insolvent sovereign debt issues, Read the rest of this article
Market rallied then gave back its gain at close. The market today varies more according to traders than fundamental.
The US Economy
As the eurozone fiscal debt problems are yet to be solved, more negative news have appeared during the past two weeks. Greece is still struggle to receive bailouts. The May PMI for eurozone dropped sharply from previous 58 to 54.6, indicating a rather slow growth in that area.
Italy
The Italian new ECB president-to-be Mario Draghi warned his home country in the end of last month saying that Italy should return to growth. The speech was given 10 days after S&P put Italian credit on a negative watch.
Spain
Cajas or saving banks in Spain are continuing facing pressures. Protesting crowds conflicted with the police force in Barcelona last month that resulted in more than 100 injured. Then it was reported last week that the Spanish government may offer asset protection schemes that are similar to Maiden Lane to cajas, in order to keep them survive.
Portugal
The socialist has just lost the election to the opposition centre-right Social Democrats, which expresses the willingness to form a coalition government with the conservative CDS-PP party. And the country is still on the radar to watch out for any changes to the already deteriorated fiscal deficit.
Ireland
Ireland leaders came on the news last week saying that the country has enough cash to keep running until at least 2013. Many question the credibility since they had similar comments last year right before they sought for bailout.
Putting all together, it looks like the economic situation in eurozone is stable, although not showing much growth. And in the case that Greece defaults on its debt, things might change unexpectedly. As discussed in this article, “Greece default could make others junk”
“A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe,”
“This would result in more highly polarized credit worthiness and ratings among euro zone sovereigns, with the stronger countries retaining very high ratings and the weaker countries struggling to remain in investment grade,”
Our previous scenario analysis on Greece fiscal problems still stands.
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