The Greeks go to an election again in a month’s time (17 Jun 2012) – declared (e.g. by German Foreign Minister Guido Westerwelle and Finance Minister Wolfgang Schäuble) as a referendum on whether Greece is prepared to accept the austerity measures necessary to remain in the eurozone and continue to receive bailout support, or a disastrous exit from the eurozone. The real contest will be between the New Democracy Party and Syriza. These parties won 58:52 seats in the last election and are equal in opinion polls conducted this weekend [More]. Any government will be a coalition led by one of these parties, with opposition to the terms of the IMF bailout package, but a demand for funding support and continued membership of the eurozone.
Greece is gambling that the EU fears of the repercussions of a Greek failure or departure from the eurozone would ensure its support whatever the outcome of the election. However EU Trade Commissioner Karel de Gucht (Belgium) has said that the EU stands ready to cope with the impacts of a Greek departure from the eurozone. Rainer Brüderle, leader of Germany’s co-ruling Free Democrats has said “It would cost a lot of money, if Greece were to leave the club, but it would be manageable.” [More].
The impact of a Greek exit should already have been priced into US equity markets – a Bloomberg Global Poll of 1,253 investors, analysts and traders found more than 50% expect a Greek exit during 2012 [More].
In the meantime, governments and banks continue to prepare plans to cope with an exit of Greece from the eurozone.
Flight of bank deposits
Deposits continue to flow from Greek banks, leading credit rating agencies Moody’s and Fitch to downgrade Greek banks [More]. A similar draw of bank deposits is occurring in Belgium, France, Italy and Spain [More]. Making matters worse is the quality of bank assets, with Spanish banks seeing a rise in bad loans (from 8.3% in Feb 2012 to 8.7% in Mar 2012) [More]. Moodys last week reduced its credit ratings for major Spanish banks.
G8 leaders (Canada [Harper], France [Hollande], Germany [Merkel], Italy [Monti], Japan [Noda], Russia [Medvedev], UK [Cameron], USA [Obama]) and Presidents of the European Council [Van Rompuy] and Commission [Barroso] met at Camp David in Maryland USA this weekend to discuss the European debt crisis – and other threats, such as Middle East instability [More]. Their draft communique expressed support for Greece remaining in the eurozone, with some support for growth, without being specific about who funds that support, and without letting Greece off the hook in relation to its IMF commitments: “We agree on the importance of a strong and cohesive euro zone for global stability and recovery, and we affirm our interest in Greece remaining in the euro zone while respecting its commitments” [More].
Spain has revised its fiscal deficit result for 2011 upwards from 8.5% of GDP to 8.9% of GDP, increasing the breach of its eurozone target (6% of GDP) [More].
- Public debt (17 May 2012): $15.713 trillion, up from $15.675 trillion (10 May 2012). The statutory borrowing limit is $16.4 trillion.
- Treasury yields:
- 30-year: 2.80%
- 10-year: 1.72%
- 5-year: 0.75%
- Gold Futures (Jun): $1,592/oz up $8 from $1,584/oz last Friday.
- Oil Futures (WTI LSC Jun): $91.48/barrel down $4.65 from $96.13/barrel last Friday. The pump price of gasoline (petrol) has fallen to $3.78/gallon, down 6.19 cents over the last 2 weeks, and down 12.41 cents over the last 12 months [More].
US market indices
- S+P 500: 1,295 – down 4.4% from 1,354. Down 5/5 days
- DJIA: 12,369 – down 3.5% from 12,821. Down 5/5 days
- NASDAQ: 2,779 – down 5.3% from 2,934. Down 5/5 days
Mark Zuckerberg’s week
- Mark started the week with his 28th birthday.
- Mark rang NASDAQ’s opening bell on the day Facebook commenced trading, with an IPO valuation of $104bn.
- Mark finished the week by marrying Pricilla Chan, his girlfriend from Harvard.
- Mark is now one of the top 30 richest people, worth $19bn.
- Friday close: $530.38, down 6.41% from $566.71.
- Market value: $495bn down 6.67% from $528bn
- P/E (historical): 12.93, down from 13.82
- P/E (1 year fwd): 11.26, down from 12.24
- Target (1 year): consensus $740, range $500 – $910.
- Friday close: $213.85, down 6.07% from $227.68.
- Market value: $97.3bn, down 6.08% from $103.6bn
- P/E (historical): 177, down from 188
- P/E (1 year fwd): 184, down from 189
- Target (1 year): consensus $250, range $210 – $285.
- Friday close: $600.40, down 0.8% from $605.23.
- Market value: $155bn, down 0.6% from $156bn
- P/E (historical): 18.22, down from 18.36
- P/E (1 year fwd): 16.73, up from 16.47
- Target (1 year): consensus $750, range $645 – $850.
- Friday close: $99.02 down 7.66% from $107.23.
- Market value: $6.17bn, down 7.78% from $6.69bn
- P/E (historical): 825 down from 894,
- P/E (1 year fwd): 525, down from 555
- Target (1 year): consensus $132.5, range $92 – $145.
- Friday close: $97.90, down 4.32% from $102.32.
- Market value: $12.5bn, down 4.58% from $13.1bn
- P/E (historical): 53.79, down from 56.22
- P/E (1 year fwd): 50.74, down from 51.89
- Target (1 year): consensus $123, range $95 – $135. Consensus increased from $122.
- The rate for valuation of the portfolio was AUD 1.00 = USD 0.9871, down from USD 1.0059 on 11 May 2012.
- Outlook: About 80% of Australian government bonds is owned by foreign investors [More]. As a consequence, RBA interest rates have the potential to influence AUD cross rates. Some expect the RBA to reduce interest rates by about 50 basis points in Jun 2012. This may compound the pressure of risk avoidance during the European crisis and Asian slowdown on the AUD.