Key news

  • Greece remains the key focus for financial markets. The German Economy minister and the EU commission both stressed that Greece has to do more to regain the markets’ confidence.
  • Growing risk aversion and disappointing company outlook sent US equity indices in the red.
  • US yields have moved lower and the curve has flattened.
  • EUR is roughly unchanged against USD while JPY has moved stronger.

Markets Overnight

US equity markets continued their poor form Friday with another day of red numbers. Risk appetite is waning as Greek bond yields sore, while the disappointing outlook from Qualcomm and Motorola pulled technology stocks lower and lower commodity prices weighed on commodity shares. S&P500 closed approximately 1% lower on Friday.

In Asia Nikkei is close to unchanged, but Chinese stocks are lower. There is increasing focus on the prospect of tightening of monetary policy in the region. Strong PMIs from China have increased the likelihood that Peoples Bank of China will tighten again soon.

The flight to safety flows have benefitted US treasuries – especially in the long end. The 2-year note is yielding 2bp lower at 0.84% at the moment, while the 10-year yield is 6bp lower at 3.60%.

On FX markets the US dollar is roughly unchanged against the euro at 1.388 – close to the strongest level in seven months. The yen is slightly stronger against the greenback and has moved from 90.7 on Friday afternoon to 90.2 this morning.

AUD and NZD have lost some ground against USD trading at 0.883 and 0.701 respectively. The move comes despite strong Q4 house prices in Australia and a prospect of a rate hike tomorrow. Australian house prices grew 5.2% in Q4 and 13.6% y/y.

The Scandinavian currencies this morning are not far from the levels seen when we left for weekend on Friday.

On Saturday the German Economy Minister Rainer Bruederle was quoted: “I don’t think that a bailout is the right way because German and French taxpayers can’t pay for Greece. Maybe they will give certain help, but first it’s for the Greeks to solve their problems.”

This clearly underlines the general impression at the moment: it will be a very hard sell to help Greece if Greece does not try to help itself first. The ball is in the Greek court and it is up to Greece to rebuild confidence. The proposals from Athens so far have certainly not been enough to ease fears.

The European Commission will release its recommendations for Greece on Wednesday. According to a draft version public sector wage cuts and improved tax collection are among the proposals to help Greece out of its public finance quagmire.