NEWS,01.07.2012

Investors' eyes on European Central Bank

The month of June finished on a high note, with investors opting to trust that the most recent agreement by European leaders on dealing with the 2 1/2-year-old sovereign debt crisis will finally stem the bleeding for both the region's and the global economy.The European Central Bank this week might help sustain the momentum of optimism by opting to ease interest rates, already at a record low. Most economists polled by Reuters expect the central bank to lower borrowing costs at its meeting on Thursday.Investors will closely watch for the latest indicators on the strength of the US economy including the Labor Department's report on nonfarm payrolls in June, due on Friday, though expectations are low.Economists forecast an increase of 90,000 jobs and the US unemployment rate holding steady at 8.2%. Estimates in a Bloomberg survey of 59 economists ranged between 35,000 and 165,000 more jobs.Other US data due in the coming days include the Institute for Supply Management's manufacturing index and construction spending on Monday, as well as weekly jobless claims and mortgage data, ADP's private-sector payrolls report and the ISM's services-sector index on Thursday."We really need to see job creation pick up, which is the only thing that's going to get households spending on a sustained basis," Paul Dales, a senior US economist at Capital Economics in London, told Bloomberg News. "The economy isn't going to get exceptionally weak from here, but neither is it going to get much stronger."Wall Street will be closed on Wednesday, the Fourth of July, in observance of Independence Day.In the past five days on Wall Street, the Dow Jones Industrial Average advanced 1.9%, the Standard & Poor's 500 Index gained 2%, while the Nasdaq Composite Index rose 1.5%.For the month of June, the Dow gained 3.9% while the S&P 500 climbed 4% and the Nasdaq added 3.8%. In Europe, the Stoxx 600 Index posted a gain of 1.9% for the week, as national benchmark indexes advanced in all 18 western European markets. London rose 1%, Paris increased 3.4% and Frankfurt moved 2.4% higher in the past five days.Some analysts warned that the optimism and the gains might be short-lived."Investors have to be cautious because the market may be getting ahead of itself. We really don't have any details. The big question is still what direction the ECB takes [this] week," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters. On Friday, euro-zone leaders agreed to allow their joint emergency funds to be tapped by the region's banks, aimed at reducing the pressure on sovereign debt. They also pledged to create a single banking supervisor for euro-zone banks based around the ECB in a move toward a European banking union."[The EU deal] is certainly not a silver bullet for the debt crisis, but the market is kind of acting like it is. It may set us up for another push down in the weeks ahead," Esiner said.Others agreed. "People had pretty low expectations of the summit and are a little bit more optimistic now," Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, told Bloomberg News. "The devil is in the details on most of this stuff."In the coming days, Spain and France will test investors' appetite for their debt again. Spain is set to auction three-year, four-year and 10-year bonds on Thursday, the same day as France who is planning to sell between 7 billion and 8 billion euros in long-term bonds.

ECB official: Greece must deliver '100 pct'

 

Greece must fulfill the targets of its austerity and reform program "100 percent" to stay in the euro, a top European Central Bank official said Sunday offering little hope of substantial wiggle room for Athens and questioning whether it can be given more time to comply.Greece's new government wants to lower some taxes, freeze public sector layoffs and extend by two years the mid-2014 deadline for austerity measures demanded by creditors in exchange for loans that are keeping the country afloat, conditions that are hugely unpopular in the country.But ECB executive board member Joerg Asmussen told Germany's ARD television that there can be no departure from the aims of consolidating Greece's budget and restoring its competitiveness."The so-called mix of measures in other words, how do I reach the target one can talk about that," he said. But that, he added, means that "if the government intends to lower a tax, it will have to increase another tax by the same amount."Asked whether Greece would get more time to comply, Asmussen replied: "I don't think so." He noted that any extension would lead to a need for more external financial help "that means that the other 16 eurozone states and the IMF would then have to provide more financing."The ECB is part of the so-called "troika" of debt inspectors overseeing the Greek program, along with the European Commission and the International Monetary Fund. On Monday, the inspectors are expected to start their review of the country's finances and meet with the new government. Their conclusions will be critical to whether Greece will be able to renegotiate parts of its international bailout conditions."My preference and the preference of the ECB is very clearly that Greece remain in the eurozone," Asmussen said. "For that, the country must implement 100 percent the program targets that were agreed."An exit, he said, would make things economically difficult not just for the country leaving the eurozone but also for all the others.Other eurozone countries in particular Germany, the bloc's biggest economy have appeared cool to giving Greece much of a break on its targets or timeline."From Germany's point of view, a substantial loosening of the program, of the reform agreements, does not come into consideration," Foreign Minister Guido Westerwelle said Sunday. He insisted that Greece must implement those agreements "step by step, solidly and reliably."At a European Union summit last week, German Chancellor Angela Merkel made concessions to Italy and Spain notably agreeing to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece.But officials insist that help to struggling countries and banks will still come with strings attached, and that Germany has no intention of agreeing to share government debt through jointly issued eurobonds in the foreseeable future. Berlin fears that would cut struggling countries' borrowing costs at its expense and also take pressure off them to get their finances and economies in order.Westerwelle, a member of the pro-market Free Democrats the junior partner in Merkel's coalition insisted Sunday that eurobonds should stay off the table permanently."Too little solidarity endangers Europe, but too much solidarity does not endanger Europe any less," he said."Even if we already lived in a European federal state, I would be strictly against us Germans taking on liability for all debts in all of Europe."