Markets reversed on Friday, hurt by another stumble in attempts to rescue Greece. A coalition partner refused to support the proposed austerity measures required to win the next bailout package, the issue still being debated in Parliament as we write, accompanied by riots outside. Failure to secure funding would likely result in Greece defaulting on its next major debt repayment on 14 March. Additional negative news came from Standard & Poor's which downgraded 34 Italian banks, the two largest from A to BBB+, and Fed Chairman Bernanke's speech expressing dissatisfaction with the weak housing market. The Eurostoxx 50 closed down -1.7%, the S&P500 down 0.7%. Commodities closed weaker, the CRB index down 1.1%, oil -1.2%, copper -2.9% and gold -0.4%. US 10yr treasury yields closed 5bp lower at 1.99%, earlier as low as 1.95%. The Greek 10yr yield rose 29bp, Italy's +13bp, but Portugal's fell 87bp on a rumoured possible relaxation of its bailout conditions.
Risk aversion pushed the US dollar index around 0.5% higher. EUR fell from a London morning 1.3285 to 1.3156 but stabilised to close at 1.3197. The yen outperformed, USD/ JPY locked inside 77.55-77.80. AUD underperformed, extending its domestic session selloff to 1.0640 before stabilising to close at 1.0673 and opening in NZ this morning at 1.0670. NZD continued lower to 0.8250, closing at 0.8266 and opening this morning at 0.8265. AUD/NZD nudged slightly lower to 1.2880 but closed around 1.2900.
US trade deficit widens from $47.1bn to $48.8bn in Dec. Exports rose 0.7% with weakness in capital and consumer goods off set by a solid auto export bounce, but imports were up 1.3%, the gains being broad-based outside of apparel and food. This is broadly in line with Commerce Dept assumptions so is unlikely to require a significant revision to the net export component of Q4 GDP growth.
US Uni of Michigan consumer sentiment index slips 2.5 pts to 72.5 in preliminary Feb reading, its first fall in six months, but consistent with the fall reported for the
Conference Board confidence index in January. Most of the UoM index decline was in the current conditions component (down 4.6 pts); the outlook slipped 1.1 pts.
Canadian trade surplus widened from C$1.2bn in Nov to C$2.7bn in Dec. Broadbased exports gains across all sectors delivered a 4.5% rise, swamping imports up just 0.9% (weighed down by sharply lower energy imports).
UK producer prices decelerated at the core output stage, from 3.0% yr to 2.4% yr in Jan (their lowest since early last year), with higher input price pressures off set by base effects.
Greek debt deal concerns reignite. After Germany's finance minister last night pointed out that Greek debt would be at 136% of GDP in 2020 under the arrangements being finalised rather than the 120% that had been previously agreed (back in October), the Greek fin-min resisted pressure for further austerity cuts. Greek unions are on strike again and there are violent street protests. Yesterday's meeting in Brussels concluded with no bailout approval. Greece needs to legislate for the cuts and provide more detail. A further fin-min meeting is scheduled for next Wednesday 15/2.
AUD/USD and NZD/USD outlook next 24 hours: Markets will be watching for headlines from the Greek parliamentary debate on the proposed austerity measures. Local data is minor, Australian housing finance and NZ's housing market from the REINZ. The bearish technical signals fl ashing last week were confirmed with the weaker close on Friday, AUD targeting at least 1.0470 this week and any rebound today likely capped by 1.0740. Similarly, NZD targets 0.8050 at least during the week, capped by 0.8320 today
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