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Kiron Sarkar
January 20, 2012
Hi there,
Further leaks emerge relating to the proposed deal between private sector bondholders and the Greek Government. Apparently the parties have agreed that the new bonds to be issued would have a maturity of 30 years and carry a coupon of +3.1% initially, rising to 4.75% as the bond nears maturity. A nominal 50% haircut is proposed, which rises to between 65% - 68% in NPV terms. Still not enough for Greece to avoid a default in due course. Interestingly, the Euro has not improved on the new leaks;
European banks have until the close of play today to inform the European Banking Authority as to how they intend to raise their Tier 1 capital ratios to 9.0% by the end of June. The EBA will then decide on the merits of the proposed plans in February. Whilst the ECB's 3 year LTRO has dealt with liquidity issues, a number of banks need to raise equity - going to be tough. The likely process will be to shed assets in the main and limit lending, not particularly positive for the European economy;
German PPI declined unexpectedly by -0.4% in December MoM, as opposed to the +0.1% forecast;
The FT reports that there is a row brewing between Spain and Luxembourg, Holland and Slovenia on the other side as to the replacement of Spain's Gonzales Paramo, whose 8 year term on the 6 man executive board ends in May. If Spain wins the argument and gets their appointee nominated, Southern Europe will have 3 out of the 6 man board, including the President and the Vice President. The ultimate decsion as to who gets appointed could well impact ECB policy.
UK retail sales rose by +0.6% in December (in line with forecasts) and much better than the -0.5% recorded in November. Sales were up +2.6% YoY, including fuel ans +1.7% excluding fuel. The annual price deflator fell to a 16 month low of +2.4%, suggesting widespread price discounting to attract sales. A BoE member Mr Broadbent reported that UK GDP in the 4th Q 2011 and 1st Q 2012 would be flat when the BoE publishes new projections in February. An increase in QE, above the current Sterling 275 is expected to be announced in February or March, though interestingly Broadbent stated that the BoE had never precommitted to additional QE in February;
Summary
More US companies seem either to have just made their numbers or missed them - positive surprises for the 4th Q are lower than the 3rd. Google's miss and lower revenues at GE will not help. Just confirms my suspicion that US earnings will have to be revised downwards this year - revenues look weaker, in particular.
The Euro rose to US$1.2986 and then beat a hasty retreat - currently US$1.2930.
Spot Brent is trading at US$110.50.
Whilst Asian markets closed higher, European markets are flat to slightly lower, though the financial continue to perform. US markets have opened flat, though are improving.
Off to a wedding in Coorg, where I come from. In India, Coorg weddings are legendary - certainly a party not to be missed. Basically a quick blessing by the bride and grooms elders, followed by much eating, drinking, dancing and generally having as much fun as humanly possible, over many days - not to be missed if ever you have the opportunity. As a result, I suspect that I will not be sending out my blogs next week - you lucky people.
Have a great weekend.
Best
Kiron
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